Question 1

A corporation had 50,000 shares of $20 par value common stock outstanding on July 1.Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27.The entry to record this dividend is:
A)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 135,000 & \
\hline \text { Common Stock Dividend Distributable } & & 135,000 \
\hline
\end{array}$
B)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 135,000 & \
\hline \text { Cash } & & 135,000 \
\hline
\end{array}$
C)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 135,000 & \
\hline \text { Common Stock Dividend Distributable } & & 100,000 \
\hline \begin{array}{l}
\text { Contributed Capital in Excess of Par Value, } \
\text { Common Stock }
\end{array} & & 35,000\
\hline
\end{array}$
D)
$$\begin{array} { | c | c | c | } 
\hline \text { Retained Earnings } & 100,000 & \
\hline \text { Common Stock Dividend Distributable } & & 100,000 \
\hline
\end{array}$$
E)No entry is made until the stock is issued

Accepted Answer

The entry to record a stock dividend is to debit retained earnings and credit common stock dividend distributable. The amount of the dividend is the market value of the shares issued. In this case, the market value of each share is $27, so the total market value of the 5,000 shares issued is $135,000.

Question 2

A corporation issued 300 shares of its $5 par value common stock in payment of a $1,800 charge from its accountant for assistance in filing its charter with the state.The entry to record this transaction will include:
A)A $1,800 credit to Common Stock
B)A $1,500 debit to Organization Expenses
C)A $300 credit to Contributed Capital in Excess of Par Value,Common Stock
D)A $1,800 debit to Legal Expenses
E)A $1,800 credit to Cash

Accepted Answer

When a corporation issues stock for a non-cash asset, the entry will include a credit to the stock account (in this case, Common Stock) for the par value of the stock issued (300 shares x $5 par value = $1,500 credit to Common Stock). Since the corporation received an asset worth more than the par value, the entry will also include a credit to Contributed Capital in Excess of Par Value, Common Stock for the difference between the value received and the par value of the stock issued (in this case, $1,800 - $1,500 = $300 credit to Contributed Capital in Excess of Par Value, Common Stock). There is no indication of legal expenses or cash involved in this transaction, and organization expenses are typically incurred before the corporation begins operations and are expensed rather than capitalized. Therefore, option C is the best choice.

Question 3

A premium on common stock:
A)Is the amount paid in excess of par by purchasers of newly issued stock
B)Is the difference between par value and issue price when the amount paid is below par
C)Represents profit from issuing stock
D)Represents capital gain on sale of stock
E)Is prohibited in most states

Accepted Answer

A premium on common stock is the amount paid by purchasers of newly issued stock that is in excess of its par value. Par value represents the minimum value assigned to each share of stock, while the premium reflects investor demand for the company's shares. The premium does not necessarily represent profit from issuing stock or capital gain on the sale of stock, and it is not prohibited in most states.

Question 4

On September 1,a corporation had 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings.On that date,when the market price of the stock is $15 per share,the corporation issues a 2-for-1 stock split.The general journal entry to record this transaction is:
A)
$\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 750,000 & \
\hline \text { Common Stock Split Distributable } & & 750,000 \
\hline
\end{array}$

B)
$\begin{array}{|c|c|c|}
\hline \text { Retained Earnings } & 750,000 & \
\hline \text { Common Stock } & & 750,000 \
\hline
\end{array}$

C)
$\begin{array}{|c|c|c|}
\hline \text { Retained Earnings } & 250,000 & \
\hline \text { Common Stock } & & 250,000 \
\hline
\end{array}$

D)
$\begin{array}{|c|c|c|}
\hline \text { Retained Earnings } & 250,000 & \
\hline \text { Stock split payable } & & 250,000 \
\hline
\end{array}$

E)No entry is made for this transaction

Accepted Answer

A stock split does not require a journal entry as it does not affect the total dollar amount of the stockholders' equity. It only increases the number of shares and decreases the par value per share.

Question 5

A corporation had 20,000 shares of $10 par value common stock outstanding on Jan 10.Later that day the board of directors declared a 30% stock dividend when the market value of each share was $40.The entry to record this dividend is:
A)
$\begin{array}{|c|r|r|}
\hline \text { Retained Earnings } & 60,000 & \
\hline \text { Common Stock Dividend Distributable } & & 60,000 \
\hline
\end{array}$
B)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 60,000 & \
\hline \text { Cash } & & 60,000 \
\hline
\end{array}$
C)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 240,000 & \
\hline \text { Common Stock Dividend Distributable } & & 60,000 \
\hline \begin{array}{l}
\text { Contributed Capital in Excess of Par Value, } \
\text { Common Stock }
\end{array} & &180,000 \
\hline
\end{array}$
D)
$$\begin{array} { | l| c | c | } 
\hline \text { Retained Earnings } & 240,000 & \
\hline \text { Common Stock Dividend Distributable } & & 240,000 \
\hline
\end{array}$$
E)No entry is made until the stock is issued

Accepted Answer

The answer of A corporation had 20,000 shares of $10...

Question 6

A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000.The entry to record this exchange is:
A)
$$\begin{array} { | l | c | c | } 
\hline \text { Land } & 60,000 & \
\hline \text { Common Stock } & & 50,000 \
\hline \begin{array} { l } 
\text { Contributed Capital in Excess of Par Value } \
\text { Common Stock }
\end{array} & & 10,000 \
\hline
\end{array}$$
B)
$$\begin{array} { | c | c | c | } 
\hline \text { Land } & 60,000 & \
\hline \text { Common Stock } & & 60,000 \
\hline
\end{array}$$
C)
$$\begin{array} { | c | c | c | } 
\hline \text { Land } & 50,000 & \
\hline \text { Common Stock } & & 50,000 \
\hline
\end{array}$$
D)
$$\begin{array} { | l | l | l | } 
\hline \text { Common Stock } & 50,000 & \
\hline \begin{array} { l } 
\text { Contributed Capital in Excess of Par Value } \
\text { Common Stock }
\end{array} & 10,000 & \
\hline \text { Land } & & 60,000 \
\hline
\end{array}$$
E)
$$\begin{array} { | c | c | c | } 
\hline \text { Common Stock } & 60,000 & \
\hline \text { Land } & & 60,000 \
\hline
\end{array}$$

Accepted Answer

The land is recorded at its market value of $60,000. The common stock is recorded at par value, which is 5,000 shares x $10 = $50,000. The excess of market value over par value, $10,000, is recorded as "Contributed Capital in Excess of Par Value."

Question 7

A company's board of directors' votes to declare a cash dividend of $0.75 per share.The company has 15,000 shares authorized,10,000 issued and 9,500 shares outstanding.The total amount of the cash dividend is:
A)$375
B)$4,125
C)$7,125
D)$7,500
E)$11,250

Accepted Answer

$0.75 x 9,500 shares = $7,125

Question 8

A liquidating dividend is:
A)Only declared when a corporation closes down
B)A return of a part of the original investment back to the stockholders
C)Not allowed under federal law
D)Only paid in assets other than cash
E)Only paid in shares of stock

Accepted Answer

A liquidating dividend is a distribution to stockholders of cash or other assets during the liquidation process. This distribution is made after all debts and obligations of the corporation have been paid off. The purpose of a liquidating dividend is to return a portion of the original investment back to the shareholders. It is not limited to a situation where a corporation is closing down, as it can also occur as part of a reorganization or restructuring plan. Federal law does not prohibit a company from paying a liquidating dividend, although the company must follow proper procedures and meet certain criteria. The dividend can be paid in cash, assets, or shares of stock. However, the most common type of liquidating dividend is a cash payment.

Question 9

A corporation had 40,000 shares of $10 par value common stock outstanding on August 1.Later that day,the board of directors declared a 9% stock dividend when the market value of each share was $72.The entry to record this dividend is:
A)
$$\begin{array} { | l | r | r | } 
\hline \text { Retained Earnings } & 259,200 & \
\hline \text { Common Stock Dividend Distributable } & & 259,200 \
\hline
\end{array}$$
B)
$$\begin{array} { |l| r | r | } 
\hline \text { Retained Earnings } & 259,200 & \
\hline \text { Common Stock Dividend Distributable } & & 259,200 \
\hline
\end{array}$$
C)
$$\begin{array} { |l | r | r | } 
\hline \text { Retaired Earning } & 259,200 & \
\hline \text { Common Stock Dividend Distributable } & & 3 6 , 0 0 0  \
\hline \begin{array} { l } 
\text { Contributed Capital in Excess of Par Value } \
\text { Common Stock }
\end{array} & & 223,200\
\hline
\end{array}$$
D)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 36,000 & \
\hline \text { Common Stock Dividend Distributable } & & 36,000 \
\hline
\end{array}$

E)No entry is made until the stock is issued

Accepted Answer

The stock dividend is calculated as 9% of 40,000 shares, which is 3,600 shares. The market value of the dividend is 3,600 shares x $72 = $259,200. The par value of the shares is 3,600 shares x $10 = $36,000. The excess over par value is $259,200 - $36,000 = $223,200.

Question 10

A corporation declared and issued a 15% stock dividend on November 1.The following up-to-date information was available immediately prior to the dividend:
$\begin{array}{|l|r|}
\hline \text { Retained earnings } & \$ 750,000 \
\hline \text { Shares issued and outstanding } & 60,000 \
\hline \text { Market value per share } & \$ 15 \
\hline \text { Par value per share } & \$ 5 \
\hline
\end{array}$
The amount that total stockholders' equity will increase (decrease)as a result of recording this stock dividend is:
A)$45,000
B)$135,000
C)$(90,000)
D)$(135,000)
E)$0

Accepted Answer

A stock dividend does not change the total stockholders' equity; it only transfers an amount from retained earnings to common stock and additional paid-in capital.

Question 11

A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:
A)Stock dividend
B)Stock subscription
C)Premium on stock
D)Discount on stock
E)Treasury stock

Accepted Answer

A stock dividend is when a corporation distributes additional shares of its own stock to its existing stockholders without receiving payment in return. This is different from a stock subscription, which is when investors agree to purchase new shares of stock at a particular price, and from premium or discount on stock, which refer to the price paid for a share of stock being above or below its face value. Treasury stock refers to a company buying back its own shares instead of distributing them to stockholders.

Question 12

A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that has a market value of $84,000.The entry to record this transaction would include:
A)A debit to Common Stock for $60,000
B)A debit to Land for $60,000
C)A credit to Land for $60,000
D)A credit to Contributed Capital in Excess of Par Value,Common Stock for $24,000
E)A credit to Common Stock for $84,000

Accepted Answer

The answer of A corporation issued 6,000 shares of its...

Question 13

The date the board of directors votes to pay a dividend is called the:
A)Date of stockholders' meeting
B)Date of declaration
C)Date of record
D)Date of payment
E)Liquidating date

Accepted Answer

The date the board of directors votes to pay a dividend is called the date of declaration, which is when they formally announce their decision to pay the dividend. The other options listed are different dates in the dividend payment process - the date of stockholders' meeting is when shareholders meet to discuss matters related to the company, the date of record is the specific day on which shareholders must be on record to receive the dividend, the date of payment is when the actual payment is made, and liquidating date refers to the date when a company or investment is liquidated or sold.

Question 14

A company declared a $0.50 per share cash dividend.The company has 20,000 shares authorized,9,000 shares issued and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:
A)
$\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 4,000 & \
\hline \text { Common Dividends Payable } & & 4,000 \
\hline
\end{array}$
B)
$$\begin{array} { | l | c | c | } 
\hline \text { Common Dividends Payable } & 4,000 & \
\hline \text { Cash } & & 4,000 \
\hline
\end{array}$$
C)
$$\begin{array} { | l | c | c | } 
\hline \text { Retained Earnings } & 4,500 & \
\hline \text { Common Dividends Payable } & & 4,500 \
\hline
\end{array}$$
D)
$$\begin{array} { | l | c | c | } 
\hline \text { Common Dividends Payable } & 4,500 & \
\hline \text { Cash } & & 4,500 \
\hline
\end{array}$$
E)
$\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 5,000 & \
\hline \text { Common Dividends Payable } & & 5,000 \
\hline
\end{array}$

Accepted Answer

The dividend declaration reduces retained earnings and creates a liability for the amount of the dividend. The journal entry to record the dividend declaration is:Retained Earnings 4,000Common Dividends Payable 4,000

Question 15

A stock dividend transfers:
A)Contributed capital to retained earnings
B)Retained earnings to contributed capital
C)Retained earnings to assets
D)Contributed capital to assets
E)Assets to contributed capital

Accepted Answer

A stock dividend transfers retained earnings to contributed capital. This is because a stock dividend involves distributing additional shares of stock to existing shareholders, which increases the number of outstanding shares and therefore dilutes the value of each individual share. To compensate for this dilution, companies will often declare a stock dividend, which is paid out in the form of additional shares of stock rather than cash. When this happens, the company is essentially transferring some of its retained earnings to its shareholders by increasing the number of shares they hold. This has the effect of reducing the company's retained earnings and increasing its contributed capital.

Question 16

Assume Garrison Guitar Company declared a $0.28 per share cash dividend and that the company has 25,000 shares authorized,19,000 shares issued and 12,000 shares of common stock outstanding.The general journal entry to record the dividend declaration is:
A)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 3,360 & \
\hline \text { Common Dividends Payable } & & 3,360 \
\hline
\end{array}$
B)
$\begin{array}{|l|r|l|}
\hline \text { Common Dividends Payable } & 5,320 & \
\hline \text { Cash } & & 5,320 \
\hline
\end{array}$
C)
$\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 5,320 & \
\hline \text { Common Dividends Payable } & & 5,320 \
\hline
\end{array}$
D)
$$\begin{array} { | c | c | c | } 
\hline \text { Common Dividends Payable } & 7,000 & \
\hline \text { Cash } & & 7,000 \
\hline
\end{array}$$
E)
$\begin{array}{|c|c|c|}
\hline \text { Retained Earnings } & 7,000 & \
\hline \text { Common Dividends Payable } & & 7,000 \
\hline
\end{array}$

Accepted Answer

The answer of Assume Garrison Guitar Company declared a $0.28...

Question 17

A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share.The entry to record this transaction would include:
A)A debit to Contributed Capital in Excess of Par Value,Common Stock for $42,000
B)A debit to Cash for $140,000
C)A credit to Common Stock for $182,000
D)A credit to Common Stock for $140,000
E)A credit to Contributed Capital in Excess of Par Value,Common Stock for $182,000

Accepted Answer

The answer of A corporation sold 14,000 shares of its...

Question 18

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of contributed capital in excess of par is:
A)$100
B)$600
C)$1,000
D)$6,000
E)$7,000

Accepted Answer

$7,000 - (60 shares x $100 par) = $1,000

Question 19

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of contributed capital is:
A)$100
B)$600
C)$1,000
D)$6,000
E)$7,000

Accepted Answer

The answer of A company issued 60 shares of $100...

Question 20

A corporation was formed on January 1.The corporate charter authorized 100,000 shares of $10 par value common stock.During the first month of operation,the corporation issued 300 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation.The entry to record this transaction would include:
A)A debit to Organization Expenses for $3,000
B)A debit to Organization Expenses for $5,000
C)A credit to Common Stock for $5,000
D)A credit to Contributed Capital in Excess of Par Value,Common Stock for $5,000
E)A debit to Contributed Capital in Excess of Par Value,Common Stock for $2,000

Accepted Answer

The issuance of 300 shares of $10 par value common stock in exchange for legal services with a value of $5,000 results in a debit to Organization Expenses for the full amount of $5,000. This cost cannot be capitalized as a part of the cost of creating the corporation, but should be expensed in the current period. Additionally, there is a credit to Common Stock for the par value of the shares issued, which is $3,000 (300 shares x $10 par value per share). There is no excess over par value in this transaction, so no entry is required for Contributed Capital in Excess of Par Value, Common Stock.

Quiz 11: Reporting and Analyzing Equity

A corporation had 50,000 shares of $20 par value common stock outstanding on July 1.Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27.The entry to record this dividend is:

A corporation issued 300 shares of its $5 par value common stock in payment of a $1,800 charge from its accountant for assistance in filing its charter with the state.The entry to record this transaction will include:

A premium on common stock:

On September 1,a corporation had 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings.On that date,when the market price of the stock is $15 per share,the corporation issues a 2-for-1 stock split.The general journal entry to record this transaction is:

A corporation had 20,000 shares of $10 par value common stock outstanding on Jan 10.Later that day the board of directors declared a 30% stock dividend when the market value of each share was $40.The entry to record this dividend is:

A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000.The entry to record this exchange is:

A company's board of directors' votes to declare a cash dividend of $0.75 per share.The company has 15,000 shares authorized,10,000 issued and 9,500 shares outstanding.The total amount of the cash dividend is:

A liquidating dividend is:

A corporation had 40,000 shares of $10 par value common stock outstanding on August 1.Later that day,the board of directors declared a 9% stock dividend when the market value of each share was $72.The entry to record this dividend is:

A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:

A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that has a market value of $84,000.The entry to record this transaction would include:

The date the board of directors votes to pay a dividend is called the:

A company declared a $0.50 per share cash dividend.The company has 20,000 shares authorized,9,000 shares issued and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:

A stock dividend transfers:

Assume Garrison Guitar Company declared a $0.28 per share cash dividend and that the company has 25,000 shares authorized,19,000 shares issued and 12,000 shares of common stock outstanding.The general journal entry to record the dividend declaration is:

A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share.The entry to record this transaction would include:

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of contributed capital in excess of par is:

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of contributed capital is: