Question 1

Slick Willie Inc.had the following shares outstanding during 20C: (1)Preferred shares,$3,cumulative,1,000 shares with dividends in arrears for 20A and 20B.
(2)Common shares,2,000 shares.
The total dividends declared for the current year were $21,000.What is the total amount of dividends to which the preferred shareholders are entitled?
A)$3,000
B)$6,000
C)$9,000
D)$12,000

Accepted Answer

Preferred shareholders are entitled to $3,000 per year for 3 years (20A, 20B, and 20C), totaling $9,000.

Question 2

Dunbar Inc.has 10,000 $2,noncumulative preferred shares and 150,000 common shares issued at December 31,2012.What is the annual total dividend on the preferred shares?
A)$10,000
B)$20,000
C)$150,000
D)$300,000

Accepted Answer

The annual total dividend on the preferred shares can be calculated as follows:
10,000 preferred shares x $2 dividend per share = $20,000. Therefore, the best choice is (B) $20,000.

Question 3

Fabulous Corporation plans to raise $500,000 cash on January 1,20A,by issuing either (not both)bonds payable (8% interest rate)or cumulative preferred shares (8% dividend rate).The accounting period ends December 31.How would the annual interest amount or annual dividend amount (if paid)affect the amount of profit for 20A?
A)Annual profit would be reduced by the annual interest and by the preferred share dividends.
B)Annual profit would be reduced by the interest but not by the preferred share dividends.
C)Annual profit would not be reduced by the annual interest or by the preferred share dividends.
D)Annual profit would be reduced by the preferred dividends but not by the interest.

Accepted Answer

The annual interest expense would be deducted from the company's income before taxes, thus reducing the profit. However, preferred dividends are not deducted from income before taxes, as they are paid out of after-tax profits. Therefore, annual profit would only be reduced by the interest expense if bonds payable were issued, not by the preferred share dividends.

Question 4

The date on which a cash dividend becomes a binding legal obligation is on the
A)declaration date.
B)date of record.
C)payment date.
D)last day of the fiscal year end.

Accepted Answer

The declaration date is when the board of directors announces a dividend, making it a binding legal obligation.

Question 5

Which of the following statements about stock option plans is false?
A)Offering stock options to a company's managers reduces the likelihood they will not always act in the best interest of the investors.
B)Stock option plans are often a major part of an executive's compensation plan.
C)Stock options usually have a grant price equal to the market price of the share when the options are first offered to the executives.
D)The holder of a stock option has an interest in a company's performance but not in the same manner as a shareholder.

Accepted Answer

Stock option holders have an interest in the company's performance similar to shareholders, as they benefit from the increase in stock price.

Question 6

Assume the following shares outstanding: (1)Preferred shares,$3,cumulative,1,000 shares with dividends in arrears 3 years,for 20A,20B,and 20C.
(2)Common shares,2,000 shares.
Total dividends declared in 20D were $30,000.What is the total amount of dividends to which common shareholders are entitled?
A)$18,000
B)$21,000
C)$27,000
D)$30,000

Accepted Answer

The preferred shareholders are entitled to dividends in arrears for 3 years plus the current year, totaling 4 years. This amounts to 1,000 shares x $3 x 4 years = $12,000. The remaining $18,000 ($30,000 - $12,000) is for the common shareholders.

Question 7

On which of the following dates should the dividends payable account be recorded in the company records for a stock dividend?
A)Date of payment.
B)Date of record.
C)Date of declaration.
D)No liability is associated with a share dividend.

Accepted Answer

The answer of On which of the following dates should...

Question 8

Which of the following statements about treasury share transactions is correct?
A)The total number of shares issued increases when treasury shares are purchased.
B)The total number of shares authorized changes when treasury shares are purchased.
C)Gains and losses on treasury share transactions are reported on the income statement.
D)A shareholders' equity account is debited when treasury shares are purchased.

Accepted Answer

When treasury shares are purchased, a shareholders' equity account is debited (usually called "Treasury Stock") to reduce the total shareholders' equity. The total number of shares issued stays the same, but the number of outstanding shares decreases, which may affect the calculation of earnings per share. Gains and losses on treasury share transactions are recorded in a separate account called "Gain (Loss) on Treasury Stock Transactions" and usually reported on the "Other Comprehensive Income" section of the statement of changes in shareholders' equity. The total number of shares authorized usually does not change when treasury shares are purchased, as the authorization represents the maximum number of shares the company is allowed to issue.

Question 9

Slow,Inc.,reported the following asset and liability balances at the ends of 20A and 20B: During 20B,cash dividends of $5,000 were declared and paid.Additional shares were issued for $15,000.What was the profit (or loss)for 20B?
A)$30,000
B)$35,000
C)$40,000
D)$45,000

Accepted Answer

The profit (or loss) for 20B is calculated as the change in net assets, which is the difference between the total assets and total liabilities. The total assets increased by $15,000 (from $100,000 to $115,000), and the total liabilities decreased by $5,000 (from $20,000 to $15,000). Therefore, the net assets increased by $20,000 (from $80,000 to $100,000). This means that the profit for 20B was $20,000.

Question 10

Which of the following statements is false?
A)An initial public offering (IPO)occurs when the company first offers their shares for sale to the public.
B)A seasoned new issue is the term used for any additional sales of new shares to the public after the IPO.
C)An underwriter,usually an investment banker,advises the corporation on matters concerning the sale of shares and helps to market those shares for a fee.
D)An IPO does not mean that a company is "going public."

Accepted Answer

An IPO is the process by which a company goes public by offering its shares for sale to the public for the first time. Therefore, statement D is false as an IPO indicates that a company is "going public."

Question 11

Cumulative dividends in arrears are reported as which of the following?
A)An expense.
B)A liability.
C)A contra-asset.
D)A footnote to the financial statements.

Accepted Answer

Cumulative dividends in arrears are disclosed in the footnotes to the financial statements, as they represent obligations that must be paid before dividends can be paid to common shareholders.

Question 12

Which of the following is a requirement that must be fulfilled in order to declare and pay a cash dividend?
A)Sufficient cash.
B)Sufficient prepaid expenses.
C)No dividends in arrears.
D)Relatively low trade payables.

Accepted Answer

The company must have sufficient cash to declare and pay a cash dividend. Dividends cannot be paid out of prepaid expenses, trade payables or any other non-cash accounts. Furthermore, there should be no dividends in arrears i.e. the company must fulfill its obligation to pay any previously declared dividends before announcing a new one.

Question 13

What is the difference between cumulative and noncumulative preferred shares?
A)They both receive dividends in arrears.
B)Cumulative preferred shares' undeclared dividends accumulate each year until paid,while noncumulative preferred shares' right to receive dividends is forfeited in any year that dividends are not declared.
C)Cumulative does not receive dividends but noncumulative does.
D)Cumulative preferred share's right to receive dividends is forfeited in any year that dividends are not declared.However,noncumulative preferred shares' undeclared dividends accumulate each year until paid.

Accepted Answer

Cumulative preferred shares have the right to accumulate undeclared dividends each year until paid, while noncumulative preferred shares' right to receive dividends is forfeited in any year that dividends are not declared. The other options are incorrect.

Question 14

Ishwar Inc.had 300,000 common shares before a stock split occurred and 600,000 shares after the stock split.The stock split was
A)2 for 4.
B)4 for 1.
C)1 for 4.
D)2 for 1.

Accepted Answer

A 2 for 1 stock split means that for every 1 share owned before the split, the shareholder will receive 2 shares after the split. So, in this case, the number of shares doubled from 300,000 to 600,000, which fits with a 2 for 1 stock split. Therefore, choice D is the best answer.

Question 15

At January 1,20D,Clare Corporation had outstanding capital shares as shown below.During December,20D,it declared and paid cash dividends of $48,000 to the preferred shareholders. (1)Common shares--100,000 shares outstanding
(2)Preferred shares--20,000 shares outstanding,$0.80 cumulative.The shares were issued at a price of $15 per share.
How many years were the preferred dividends in arrears?
A)One year.
B)Two years.
C)Three years.
D)Four years.

Accepted Answer

The preferred shares are cumulative, meaning that any unpaid dividends accumulate over time. Since the total amount of dividends paid to the preferred shareholders was $48,000 and the dividend rate is $0.80 per share per year, the dividends in arrears can be calculated as follows:

Dividends in arrears = (Dividend rate x Number of preferred shares) - Dividends paid 
Dividends in arrears = ($0.80 x 20,000) - $48,000 = $16,000

Therefore, the preferred shareholders were in arrears for 2 years, since $16,000 represents the unpaid dividends for 2 full years ($0.80 x 20,000 x 2 = $32,000).

Question 16

Which of the following is false about the dividend yield ratio?
A)Dividend yield ratio = Dividends per share/Market price per share
B)Measures the profit generated by each share for the shareholder based on the market price of the shares.
C)A low dividend yield is neither bad nor good by itself.
D)Dividend yield ratio = Market price per share/Dividends per share.

Accepted Answer

The correct formula for the dividend yield ratio is A, not D. D represents the inverse of the dividend yield ratio, which measures the number of times a firm's earnings cover its dividends.

Question 17

The statement of financial position of Warner Company showed the following data about its common shares: authorized shares,100,000; outstanding shares,55,000; and issued shares 60,000.What was the number of treasury shares?
A)5,000
B)30,000
C)40,000
D)45,000

Accepted Answer

The number of treasury shares is calculated as the difference between the issued shares and the outstanding shares. Therefore, 60,000 issued shares minus 55,000 outstanding shares equals 5,000 treasury shares.

Question 18

In the case of a cash dividend,a dividend liability comes into existence on which of the following dates?
A)Date of declaration.
B)Date of record.
C)Date of dividend payment.
D)Last day of the month in which the dividend is declared.

Accepted Answer

The dividend liability comes into existence on the Date of Declaration. This is the date on which the company's board of directors formally announces the dividend and sets the amount to be paid. The declaration of the dividend creates a legal obligation for the company to pay the dividend to its shareholders. The other dates, such as the Date of Record and Date of Payment, are important for determining which shareholders are entitled to receive the dividend and when the dividend will be paid, but they do not create a liability for the company.

Question 19

Which of the following is eligible for dividends?
A)The number of shares of authorized.
B)The number of shares issued.
C)The number of shares outstanding.
D)The number of treasury shares.

Accepted Answer

Dividends are paid on outstanding shares, which are shares that have been issued and are currently in the hands of the public. Authorized shares are the maximum number of shares a company is allowed to issue, while issued shares include those held by the public as well as by the company for various reasons (such as stock buybacks). Treasury shares are shares that have been repurchased by the company and are held in its treasury; they are not eligible for dividends. Therefore, the number of shares outstanding is the only option that has been issued and is in the hands of the public, making it eligible for dividends.

Question 20

A stock dividend results in
A)the same ownership interest.
B)greater ownership interest.
C)less ownership interest.
D)increased total assets.

Accepted Answer

A stock dividend does not change the total number of shares outstanding, it simply distributes a portion of earnings in the form of additional shares. Therefore, the ownership interest remains the same for each shareholder.

Quiz 12: Statement of Cash Flows

Dunbar Inc.has 10,000 $2,noncumulative preferred shares and 150,000 common shares issued at December 31,2012.What is the annual total dividend on the preferred shares?

The date on which a cash dividend becomes a binding legal obligation is on the

Which of the following statements about stock option plans is false?

On which of the following dates should the dividends payable account be recorded in the company records for a stock dividend?

Which of the following statements about treasury share transactions is correct?

Slow,Inc.,reported the following asset and liability balances at the ends of 20A and 20B: During 20B,cash dividends of $5,000 were declared and paid.Additional shares were issued for $15,000.What was the profit (or loss) for 20B?

Which of the following statements is false?

Cumulative dividends in arrears are reported as which of the following?

Which of the following is a requirement that must be fulfilled in order to declare and pay a cash dividend?

What is the difference between cumulative and noncumulative preferred shares?

Ishwar Inc.had 300,000 common shares before a stock split occurred and 600,000 shares after the stock split.The stock split was

Which of the following is false about the dividend yield ratio?

The statement of financial position of Warner Company showed the following data about its common shares: authorized shares,100,000; outstanding shares,55,000; and issued shares 60,000.What was the number of treasury shares?

In the case of a cash dividend,a dividend liability comes into existence on which of the following dates?

Which of the following is eligible for dividends?

A stock dividend results in