Question 1

A corporation's charter establishes the number of shares of stock to be issued.

Accepted Answer

A) True 
 B)False

Question 2

A company has outstanding 9 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock.The preferred stock has an 8% dividend rate.The company declares $600,000 in total dividends for the year.Which of the following is true if dividends in arrears are $30,000?

Accepted Answer

A)  Preferred stockholders will receive $350,000.Common stockholders will receive $250,000.
B)  Preferred stockholders will receive $60,000.Common stockholders will receive $540,000.
C)  Preferred stockholders will receive $320,000.Common stockholders will receive $280,000.
D)  Preferred stockholders will receive $90,000.Common stockholders will receive $510,000.E) All of the above
F) A) and B)

Question 3

A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.The number of authorized shares after these transactions are accounted for is:

Accepted Answer

A)  12 million shares.
B)  20 million shares.
C)  9 million shares.
D)  17 million shares.E) B) and C)
F) A) and C)

Question 4

Dividends in arrears are reported as liabilities on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 5

All other things being equal,the higher the return on equity ratio,the better the financial performance of the company.

Accepted Answer

A) True 
 B)False

Question 6

A company has 110,000 shares authorized,50,000 shares issued,and 5,000 shares of treasury stock.How many shares are outstanding?

Accepted Answer

A)  45,000
B)  155,000
C)  55,000
D)  145,000E) A) and D)
F) All of the above

Question 7

When a company sells stock to the public for the first time,the sale is called a(n) :

Accepted Answer

A)  initial public offering (IPO) .
B)  first time issue (FTI) .
C)  seasoned new issue (SNI) .
D)  initial stock offering (ISO) .E) A) and C)
F) A) and B)

Question 8

Which number is potentially the largest?

Accepted Answer

A)  The number of shares authorized.
B)  The number of shares issued.
C)  The number of shares outstanding.
D)  The number of shares certified.E) All of the above
F) B) and C)

Question 9

Which of the following statements regarding treasury stock is true?

Accepted Answer

A)  When a company reissues treasury stock for more than it originally paid for the stock,it does not report a gain.
B)  When a company purchases treasury stock or pays a dividend,it increases total stockholders' equity.
C)  Treasury stock is reported as an asset on the balance sheet.
D)  Treasury stock is reported as issued and outstanding stock.E) A) and B)
F) All of the above

Question 10

The patent on a major drug produced by a pharmaceutical company will soon expire.Sales of the drug contribute 10% to the company's net income.Which of the following statements is most likely to be true in these circumstances?

Accepted Answer

A)  The P/E ratio will probably fall because the stock price will fall and earnings will rise.
B)  The P/E ratio will probably rise because the stock price will rise and the earnings will fall.
C)  The P/E ratio will probably fall as investors factor in the future drop in net income.
D)  The P/E ratio will probably rise because the stock price will fall and the earnings fall.E) A) and B)
F) A) and C)

Question 11

A company issued 600 shares of $50 par value stock for $45,000.The total amount of contributed capital is:

Accepted Answer

A)  $30,000.
B)  $15,000.
C)  $45,000.
D)  $50.E) B) and D)
F) B) and C)

Question 12

Which of the following statements is not true about when cash dividends can be paid?

Accepted Answer

A)  The retained earnings account must have an accumulated balance sufficient to cover the amount of the dividends to be paid.
B)  The cash account must have a balance sufficient to pay the dividends.
C)  The board of directors must have declared the dividend before it can be paid.
D)  Loan covenants do not restrict the payment of dividends.E) C) and D)
F) B) and D)

Question 13

Which of the following is an advantage of debt financing?

Accepted Answer

A)  It does not have to be repaid.
B)  Interest is discretionary.
C)  Interest is tax deductible.
D)  It reduces stockholder control.E) A) and D)
F) B) and C)

Question 14

A debit balance in retained earnings is called a(n)

Accepted Answer

A)  discount.
B)  accumulated deficit.
C)  net loss.
D)  It is impossible to have a debit balance in retained earnings.E) A) and B)
F) A) and C)

Question 15

If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan,your ownership percentage:

Accepted Answer

A)  remains the same because the company now has more assets.
B)  falls from 2.5% to 2%.
C)  remains the same because the company now has fewer liabilities.
D)  increases because the company now has more stock outstanding.E) A) and B)
F) B) and C)

Question 16

Stock splits and stock dividends have the following effects on retained earnings:

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) A) and B)
F) C) and D)

Question 17

The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:

Accepted Answer

A)  increase total liabilities and decrease stockholders' equity.
B)  increase total expenses and decrease assets.
C)  increase total assets and increase stockholders' equity.
D)  decrease total assets and decrease stockholders' equity.E) None of the above
F) A) and B)

Question 18

A company issues 100,000 shares of preferred stock for $40 a share.The stock has a fixed dividend rate of 5% and a par value of $3 per share.The company records the issuance with a:

Accepted Answer

A)  debit of $4 million to Cash and a credit of $4 million to Preferred Stock.
B)  debit of $300,000 to Cash and a credit of $300,000 to Preferred Stock.
C)  debit of $4 million to Cash,a credit of $300,000 to Preferred Stock,and a credit of $3.7 million to Additional Paid-in Capital.
D)  debit of $300,000 to Cash,a debit of $3.7 million to Long-term Investments,a credit of $300,000 to Preferred Stock,and a credit of $3.7 million to Additional Paid-in Capital.E) B) and D)
F) A) and C)

Question 19

A corporation had 50,000 shares of $20 par value common stock outstanding.The board of directors declared and issued a 50% stock dividend.The market value of the stock was $27 per share.What is the journal entry to record this stock dividend?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) A) and C)
F) None of the above

Question 20

A stock dividend transfers:

Accepted Answer

A)  contributed capital to retained earnings.
B)  retained earnings to assets.
C)  contributed capital to assets.
D)  retained earnings to contributed capital.E) None of the above
F) A) and D)

Exam 11: Stockholders Equity

A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.The number of authorized shares after these transactions are accounted for is:

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When a company sells stock to the public for the first time,the sale is called a(n) :

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A corporation had 50,000 shares of $20 par value common stock outstanding.The board of directors declared and issued a 50% stock dividend.The market value of the stock was $27 per share.What is the journal entry to record this stock dividend?

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A company has outstanding 9 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock.The preferred stock has an 8% dividend rate.The company declares $600,000 in total dividends for the year.Which of the following is true if dividends in arrears are $30,000?

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All other things being equal,the higher the return on equity ratio,the better the financial performance of the company.

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A company issued 600 shares of $50 par value stock for $45,000.The total amount of contributed capital is:

Correct AnswerverifiedShow Answer

The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:

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Dividends in arrears are reported as liabilities on the balance sheet.

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Stock splits and stock dividends have the following effects on retained earnings:

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Which number is potentially the largest?

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A company issues 100,000 shares of preferred stock for $40 a share.The stock has a fixed dividend rate of 5% and a par value of $3 per share.The company records the issuance with a:

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A company has 110,000 shares authorized,50,000 shares issued,and 5,000 shares of treasury stock.How many shares are outstanding?

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Which of the following statements regarding treasury stock is true?

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A stock dividend transfers:

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The patent on a major drug produced by a pharmaceutical company will soon expire.Sales of the drug contribute 10% to the company's net income.Which of the following statements is most likely to be true in these circumstances?

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A debit balance in retained earnings is called a(n)

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Which of the following statements is not true about when cash dividends can be paid?

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If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan,your ownership percentage:

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Which of the following is an advantage of debt financing?

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A corporation's charter establishes the number of shares of stock to be issued.

Correct AnswerverifiedShow Answer

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