Question 1

When a company issues common stock in exchange for cash,a cash inflow from a financing activity is reported.

Accepted Answer

Issuing common or preferred stock in exchange for cash results in a cash inflow from financing activities.

Question 2

The declaration of a common stock dividend by a corporation's board of directors creates a liability on the declaration date.

Accepted Answer

The declaration of a common stock dividend doesn't create a liability. The declaration affects stockholder equity accounts only.

Question 3

Which of the following statements is false?
A)Stockholders have a residual claim on assets in the event of liquidation.
B)Shares of stock held in the treasury are deducted from the number of issued shares in the determination of the number of outstanding shares.
C)Common stockholders have voting rights at annual stockholder meetings.
D)Corporations are governed by their stockholders.

Accepted Answer

Corporations are governed by their board of directors.

Question 4

Rye Company has provided the following information:
Number of issued common shares,225,000;
 Net income,$500,000;
 Number of authorized common shares,400,000;
 Number of treasury shares,25,000.
What is Rye's earnings per share?
A)$2.50
B)$1.25
C)$2.22
D)$1.33

Accepted Answer

Earnings per share ($2.50) = Net income ($500,000) / Outstanding shares (225,000 - 25,000)

Question 5

Which of the following represents the maximum number of shares of stock issuable to the public?
A)Authorized shares
B)Issued shares
C)Outstanding shares
D)Treasury shares

Accepted Answer

The maximum number of shares that can be issued equals the number of authorized shares.

Question 6

The declaration and distribution of a 2-for-1 stock split results in a reduction of retained earnings.

Accepted Answer

Stock splits do not affect retained earnings. Stock splits reduce the par value per share of the stock and increase the number of shares outstanding.

Question 7

Which of the following statements regarding earnings per share (EPS)is correct?
A)It equals net income divided by the number of authorized common shares.
B)It equals net income divided by the number of outstanding common shares.
C)It equals net income divided by the number of issued common shares.
D)It equals net income divided by the number of treasury shares.

Accepted Answer

EPS is calculated by dividing net income by the number of outstanding shares of common stock.

Question 8

A company's assets and liabilities decrease when they pay a previously declared cash dividend.

Accepted Answer

Assets (cash) decrease and liabilities (dividends payable) decrease when a previously declared cash dividend is paid.

Question 9

RKJ Company has provided the following:
 100,000 shares of $5 par value common stock are authorized;
 70,000 shares have been issued;
 65,000 shares are outstanding.
Which of the following statements is correct?
A)RKJ has 35,000 shares of treasury stock.
B)RKJ has 30,000 shares of treasury stock.
C)RKJ can reissue an additional 35,000 shares of common stock.
D)RKJ can issue an additional 30,000 shares of common stock.

Accepted Answer

RKJ can issue an additional 30,000 shares of common stock (100,000 shares authorized minus 70,000 shares already issued).

Question 10

A stock split results in the reduction of the par or stated value per share and a proportionate increase in the number of shares outstanding.

Accepted Answer

Stock splits reduce the par value per share of the stock and increase the number of shares outstanding.

Question 11

When a company pays its previously declared cash dividend,an investing cash outflow is reported.

Accepted Answer

Cash payments of dividends results in a cash outflow from financing activities.

Question 12

Kirova Company has provided the following information:
 Number of issued common shares,900,000;
Net income,$1,000,000;
Number of authorized common shares,1,000,000;
Number of outstanding common shares,800,000
Number of treasury shares,100,000.
What is Kirova's earnings per share?
A)$1.43
B)$1.25
C)$1.11
D)$1.00

Accepted Answer

Earnings per share ($1.25) = Net income ($1,000,000) / Outstanding shares (800,000)

Question 13

Which of the following statements regarding earnings per share (EPS)is false?
A)It increases when treasury stock is acquired.
B)It increases when net income increases.
C)It decreases when additional shares of common stock are issued.
D)It decreases when the number of shares of common stock authorized increases.

Accepted Answer

The EPS denominator is the number of outstanding shares, not the number of authorized shares.

Question 14

When a company reissues treasury stock,it creates a cash inflow from an investing activity because treasury stock is an investment asset on the balance sheet.

Accepted Answer

Treasury stock is reported on the balance sheet as a contra-equity account. Reissuing treasury stock creates a cash flow from financing activities.

Question 15

Which of the following represents the number of shares currently in the hands of investors?
A)Authorized shares
B)Issued shares
C)Outstanding shares
D)Treasury shares

Accepted Answer

The outstanding shares of stock represent stock currently held by investors.

Question 16

The declaration and distribution of a common stock dividend results in a reduction of the issuing corporation's total stockholders' equity.

Accepted Answer

Retained earnings decrease and common stock related accounts increase by equal amounts; therefore, total stockholders' equity doesn't change.

Question 17

Preferred stock often has a preference in the distribution of assets over common stock in the event of dissolution of the corporation.

Accepted Answer

Preferred stockholders have a preference with respect to payment when a company is being dissolved.

Question 18

RKJ Company has provided the following:
100,000 shares of $5 par value common stock are authorized;
70,000 shares were issued for $9 per share;
 65,000 shares are outstanding.
Which of the following statements is correct based only on the above facts?
A)Common stock is reported at $630,000 on the balance sheet.
B)Additional-paid in capital is reported at $260,000 on the balance sheet.
C)Common stock is reported at $350,000 on the balance sheet.
D)Treasury stock is reported at $45,000 on the balance sheet.

Accepted Answer

Common stock ($350,000) = Issued shares (70,000) * Par value ($5)

Question 19

Which of the following statements regarding earnings per share (EPS)is correct?
A)EPS can't be used to compare different size companies.
B)Investors expect a higher EPS for companies with higher stock prices.
C)It is calculated by dividing net income by the number of common shares issued.
D)It increases when the number of shares of common stock outstanding increases.

Accepted Answer

Generally speaking, a higher EPS is expected when the market price of a stock is relatively higher.

Question 20

Preferred stockholders don't have voting rights but do have a preference with respect to dividend payments.

Accepted Answer

Preferred stockholders have a preference with respect to dividend payments, but don't have voting rights.

Quiz 11: Reporting and Interpreting Owners Equity

When a company issues common stock in exchange for cash,a cash inflow from a financing activity is reported.

The declaration of a common stock dividend by a corporation's board of directors creates a liability on the declaration date.

Which of the following statements is false?

Rye Company has provided the following information: Number of issued common shares,225,000; Net income,$500,000; Number of authorized common shares,400,000; Number of treasury shares,25,000. What is Rye's earnings per share?

Which of the following represents the maximum number of shares of stock issuable to the public?

The declaration and distribution of a 2-for-1 stock split results in a reduction of retained earnings.

Which of the following statements regarding earnings per share (EPS) is correct?

A company's assets and liabilities decrease when they pay a previously declared cash dividend.

RKJ Company has provided the following: 100,000 shares of $5 par value common stock are authorized; 70,000 shares have been issued; 65,000 shares are outstanding. Which of the following statements is correct?

A stock split results in the reduction of the par or stated value per share and a proportionate increase in the number of shares outstanding.

When a company pays its previously declared cash dividend,an investing cash outflow is reported.

Kirova Company has provided the following information: Number of issued common shares,900,000; Net income,$1,000,000; Number of authorized common shares,1,000,000; Number of outstanding common shares,800,000 Number of treasury shares,100,000. What is Kirova's earnings per share?

Which of the following statements regarding earnings per share (EPS) is false?

When a company reissues treasury stock,it creates a cash inflow from an investing activity because treasury stock is an investment asset on the balance sheet.

Which of the following represents the number of shares currently in the hands of investors?

The declaration and distribution of a common stock dividend results in a reduction of the issuing corporation's total stockholders' equity.

Preferred stock often has a preference in the distribution of assets over common stock in the event of dissolution of the corporation.

RKJ Company has provided the following: 100,000 shares of $5 par value common stock are authorized; 70,000 shares were issued for $9 per share; 65,000 shares are outstanding. Which of the following statements is correct based only on the above facts?

Which of the following statements regarding earnings per share (EPS) is correct?

Preferred stockholders don't have voting rights but do have a preference with respect to dividend payments.