acc 304 week 10 quiz

8/19/2019 ACC 304 Week 10 Quiz

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Week 10 Quiz * Cha)ter 1

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'8S 9ue"tion" are a:aila,le at the en% o; thi" cha)ter-

T6E.8ALSE<Conce)tual

1. A corporation is incorporated in only one state regardless of the number of states in whichit operates.

2. The preemptive right allows stockholders the right to vote for directors of the company.

3. Common stock is the residual corporate interest that bears the ultimate risks of loss.

4. arned capital consists of additional paid!in capital and retained earnings.

". True no!par stock should be carried in the accounts at issue price without any additional paid!in capital reported.

#. Companies allocate the proceeds received from a lump!sum sale of securities based on thesecurities$ par values.

%. Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received.

&. Treasury stock is a company$s own stock that has been reac'uired and retired.

(. The cost method records all transactions in treasury shares at their cost and reports thetreasury stock as a deduction from capital stock.

1). *hen a corporation sells treasury stock below its cost+ it usually debits the difference between cost and selling price to ,aid!in Capital from Treasury -tock.

11. ,articipating preferred stock re'uires that if a company fails to pay a dividend in any year+it must make it up in a later year before paying any common dividends.

12. Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at stipulated prices.

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8/19/2019 ACC 304 Week 10 Quiz


Stockholders’ Equity

13. The laws of some states re'uire that corporations restrict their legal capital fromdistribution to stockholders.

14. The -C re'uires companies to disclose their dividend policy in their annual report.

1". All dividends+ ecept for li'uidating dividends+ reduce the total stockholders$ e'uity of acorporation.

1#. /ividends payable in assets of the corporation other than cash are called propertydividends or dividends in kind.

1%. *hen a stock dividend is less than 2)!2" percent of the common stock outstanding+ acompany is re'uired to transfer the fair value of the stock issued from retained earnings.

1&. -tock splits and large stock dividends have the same effect on a company$s retained

earnings and total stockholders$ e'uity.1(. The rate of return on common stock e'uity is computed by dividing net income by the

average common stockholders$ e'uity.

2). The payout ratio is determined by dividing cash dividends paid to common stockholders bynet income available to common stockholders.

True.8al"e An"er"<Conce)tual

&6LT'!LE CO'CE<Conce)tual

21. The residual interest in a corporation belongs to thea. management. b. creditors.c. common stockholders.d. preferred stockholders.

22. The pre!emptive right of a common stockholder is the right toa. share proportionately in corporate assets upon li'uidation.

b. share proportionately in any new issues of stock of the same class.c. receive cash dividends before they are distributed to preferred stockholders.d. eclude preferred stockholders from voting rights.

23. The pre!emptive right enables a stockholder toa. share proportionately in any new issues of stock of the same class. b. receive cash dividends before other classes of stock without the pre!emptive right.c. sell capital stock back to the corporation at the option of the stockholder.

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d. receive the same amount of dividends on a percentage basis as the preferredstockholders.

-24. 0n a corporate form of business organiation+ legal capital is best defined asa. the amount of capital the state of incorporation allows the company to accumulate over

its eistence. b. the par value of all capital stock issued.c. the amount of capital the federal government allows a corporation to generate.d. the total capital raised by a corporation within the limits set by the -ecurities and

change Commission.

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-2". -tockholders of a business enterprise are said to be the residual owners. The term residualowner means that shareholdersa. are entitled to a dividend every year in which the business earns a profit. b. have the rights to specific assets of the business.c. bear the ultimate risks and uncertainties and receive the benefits of enterprise

ownership.d. can negotiate individual contracts on behalf of the enterprise.

2#. Total stockholders e'uity representsa. a claim to specific assets contributed by the owners. b. the maimum amount that can be borrowed by the enterprise.c. a claim against a portion of the total assets of an enterprise.d. only the amount of earnings that have been retained in the business.

2%. A primary source of stockholders e'uity isa. income retained by the corporation.

b. appropriated retained earnings.c. contributions by stockholders.d. both income retained by the corporation and contributions by stockholders.

2&. -tockholders e'uity is generally classified into two maor categoriesa. contributed capital and appropriated capital. b. appropriated capital and retained earnings.c. retained earnings and unappropriated capital.d. earned capital and contributed capital.

2(. The accounting problem in a lump sum issuance is the allocation of proceeds between the

classes of securities. An acceptable method of allocation is thea. pro forma method. b. proportional method.c. incremental method.d. either the proportional method or the incremental method.

3). *hen a corporation issues its capital stock in payment for services+ the least appropriate basis for recording the transaction is thea. market value of the services received. b. par value of the shares issued.c. market value of the shares issued.

d. Any of these provides an appropriate basis for recording the transaction.

31. /irect costs incurred to sell stock such as underwriting costs should be accounted for as

1. a reduction of additional paid!in capital.2. an epense of the period in which the stock is issued.3. an intangible asset.

a. 1 b. 2c. 3

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d. 1 or 3

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32. A 5secret reserve5 will be created if a. inade'uate depreciation is charged to income. b. a capital ependiture is charged to epense.c. liabilities are understated.d. stockholders e'uity is overstated.

,33. *hich of the following represents the total number of shares that a corporation may issueunder the terms of its charter6a. authoried shares b. issued sharesc. unissued sharesd. outstanding shares

-34. -tock that has a fied per!share amount printed on each stock certificate is calleda. stated value stock. b. fied value stock.

c. uniform value stock.d. par value stock.

-3". *hich of the following is not a legal restriction related to profit distributions by acorporation6a. The amount distributed to owners must be in compliance with the state laws governing

corporations. b. The amount distributed in any one year can never eceed the net income reported for

that year.c. ,rofit distributions must be formally approved by the board of directors.d. /ividends must be in full agreement with the capital stock contracts as to preferences

and participation.

-3#. 0n 7anuary 2)12+ 8inley Corporation+ a newly formed company+ issued 1)+))) shares of its91) par common stock for 91" per share. :n 7uly 1+ 2)12+ 8inley Corporation reac'uired1+))) shares of its outstanding stock for 912 per share. The ac'uisition of these treasurysharesa. decreased total stockholders e'uity. b. increased total stockholders e'uity.c. did not change total stockholders e'uity.d. decreased the number of issued shares.

,

3%. Treasury shares area. shares held as an investment by the treasurer of the corporation. b. shares held as an investment of the corporation.c. issued and outstanding shares.d. issued but not outstanding shares.

3&. *hen treasury stock is purchased for more than the par value of the stock and the costmethod is used to account for treasury stock+ what account;s< should be debited6

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a. Treasury stock for the par value and paid!in capital in ecess of par for the ecess of the purchase price over the par value.

b. ,aid!in capital in ecess of par for the purchase price.c. Treasury stock for the purchase price.d. Treasury stock for the par value and retained earnings for the ecess of the purchase

price over the par value.3(. =>ains5 on sales of treasury stock ;using the cost method< should be credited to

a. paid!in capital from treasury stock. b. capital stock.c. retained earnings.d. other income.

4). ,orter Corp. purchased its own par value stock on 7anuary 1+ 2)12 for 92)+))) and debitedthe treasury stock account for the purchase price. The stock was subse'uently sold for 912+))). The 9&+))) difference between the cost and sales price should be recorded as adeduction from

a. additional paid!in capital to the etent that previous net 5gains5 from sales of the sameclass of stock are included therein? otherwise+ from retained earnings.

b. additional paid!in capital without regard as to whether or not there have been previousnet 5gains5 from sales of the same class of stock included therein.

c. retained earnings.d. net income.

41. @ow should a 5gain5 from the sale of treasury stock be reflected when using the costmethod of recording treasury stock transactions6a. As ordinary earnings shown on the income statement. b. As paid!in capital from treasury stock transactions.

c. As an increase in the amount shown for common stock.d. As an etraordinary item shown on the income statement.

42. *hich of the following best describes a possible result of treasury stock transactions by acorporation6a. ay increase but not decrease retained earnings. b. ay increase net income if the cost method is used.c. ay decrease but not increase retained earnings.d. ay decrease but not increase net income.

43. *hich of the following features of preferred stock makes the security more like debt than

an e'uity instrument6a. ,articipating b. Botingc. edeemabled. Doncumulative

44. The cumulative feature of preferred stock a. limits the amount of cumulative dividends to the par value of the preferred stock.

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b. re'uires that dividends not paid in any year must be made up in a later year beforedividends are distributed to common shareholders.

c. means that the shareholder can accumulate preferred stock until it is e'ual to the par value of common stock at which time it can be converted into common stock.

d. enables a preferred stockholder to accumulate dividends until they e'ual the par value

of the stock and receive the stock in place of the cash dividends.

,4". According to the 8A-E+ redeemable preferred stock should bea. included with common stock. b. included as a liability.c. ecluded from the stockholders$ e'uity heading.d. included as a contra item in stockholders e'uity.

-4#. Cumulative preferred dividends in arrears should be shown in a corporations balance sheetasa. an increase in current liabilities. b. an increase in stockholders e'uity.

c. a footnote.d. an increase in current liabilities for the current portion and long!term liabilities for the

long!term portion.

4%. At the date of the financial statements+ common stock shares issued would eceed commonstock shares outstanding as a result of thea. declaration of a stock split. b. declaration of a stock dividend.c. purchase of treasury stock.d. payment in full of subscribed stock.

4&. An entry is not made on thea. date of declaration. b. date of record.c. date of payment.d. An entry is made on all of these dates.

4(. Cash dividends are paid on the basis of the number of sharesa. authoried. b. issued.c. outstanding.d. outstanding less the number of treasury shares.

"). *hich of the following statements about property dividends is not true6a. A property dividend is usually in the form of securities of other companies. b. A property dividend is also called a dividend in kind.c. The accounting for a property dividend should be based on the carrying value ;book

value< of the nonmonetary assets transferred.d. All of these statements are true.

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"1. @ouser Corporation owns 4+)))+))) shares of stock in Eaha Corporation. :n /ecember31+ 2)12+ @ouser distributed these shares of stock as a dividend to its stockholders. This isan eample of aa. property dividend. b. stock dividend.

c. li'uidating dividend.d. cash dividend.

"2. A dividend which is a return to stockholders of a portion of their original investments is aa. li'uidating dividend. b. property dividend.c. liability dividend.d. participating dividend.

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"3. A mining company declared a li'uidating dividend. The ournal entry to record thedeclaration must include a debit toa. etained arnings. b. a paid!in capital account.c. Accumulated /epletion.

d. Accumulated /epreciation.

"4. 0f management wishes to 5capitalie5 part of the earnings+ it may issue aa. cash dividend. b. stock dividend.c. property dividend.d. li'uidating dividend.

"". *hich dividends do not reduce stockholders e'uity6a. Cash dividends b. -tock dividends

c. ,roperty dividendsd. Fi'uidating dividends

"#. The declaration and issuance of a stock dividend larger than 2"G of the shares previouslyoutstandinga. increases common stock outstanding and increases total stockholders e'uity. b. decreases retained earnings but does not change total stockholders e'uity.c. may increase or decrease paid!in capital in ecess of par but does not change total

stockholders e'uity.d. increases retained earnings and increases total stockholders e'uity.

"%. Huirk Corporation issued a 1))G stock dividend of its common stock which had a par value of 91) before and after the dividend. At what amount should retained earnings becapitalied for the additional shares issued6a. There should be no capitaliation of retained earnings. b. ,ar valuec. 8air value on the declaration dated. 8air value on the payment date

"&. The issuer of a "G common stock dividend to common stockholders preferably shouldtransfer from retained earnings to contributed capital an amount e'ual to thea. fair value of the shares issued.

b. book value of the shares issued.c. minimum legal re'uirements.d. par or stated value of the shares issued.

"(. At the date of declaration of a small common stock dividend+ the entry should not includea. a credit to Common -tock /ividend ,ayable. b. a credit to ,aid!in Capital in cess of ,ar.c. a debit to etained arnings.d. All of these are acceptable.

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Stockholders’ Equity 15 - 11

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#). The balance in Common -tock /ividend /istributable should be reported as a;n<a. deduction from common stock issued. b. addition to capital stock.c. current liability.d. contra current asset.

#1. A feature common to both stock splits and stock dividends isa. a transfer to earned capital of a corporation. b. that there is no effect on total stockholders e'uity.c. an increase in total liabilities of a corporation.d. a reduction in the contributed capital of a corporation.

#2. *hat effect does the issuance of a 2!for!1 stock split have on each of the following6

,ar Balue per -hare etained arningsa. Do effect Do effect b. 0ncrease Do effect

c. /ecrease Do effectd. /ecrease /ecrease

#3. *hich one of the following disclosures should be made in the e'uity section of the balancesheet+ rather than in the notes to the financial statements6a. /ividend preferences b. Fi'uidation preferencesc. Call pricesd. Conversion or eercise prices

#4. The rate of return on common stock e'uity is calculated by dividing

a. net income less preferred dividends by average common stockholders$ e'uity. b. net income by average common stockholders$ e'uity.c. net income less preferred dividends by ending common stockholders$ e'uity.d. net income by ending common stockholders$ e'uity.

#". The payout ratio can be calculated by dividinga. dividends per share by earnings per share. b. cash dividends by net income less preferred dividends.c. cash dividends by market price per share.d. dividends per share by earnings per share and dividing cash dividends by net income

less preferred dividends.

##. Iounger Company has outstanding both common stock and nonparticipating+ non!cumulative preferred stock. The li'uidation value of the preferred is e'ual to its par value.The book value per share of the common stock is unaffected bya. the declaration of a stock dividend on preferred payable in preferred stock when the

market price of the preferred is e'ual to its par value. b. the declaration of a stock dividend on common stock payable in common stock when

the market price of the common is e'ual to its par value.c. the payment of a previously declared cash dividend on the common stock.

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d. a 2!for!1 split of the common stock.

,#%. Assume common stock is the only class of stock outstanding in the anley Corporation.Total stockholders e'uity divided by the number of common stock shares outstanding iscalled

a. book value per share. b. par value per share.c. stated value per share.d. fair value per share.

J#&. /ividends are not paid ona. noncumulative preferred stock. b. nonparticipating preferred stock.c. treasury common stock.d. /ividends are paid on all of these.

J#(. Doncumulative preferred dividends in arrearsa. are not paid or disclosed. b. must be paid before any other cash dividends can be distributed.c. are disclosed as a liability until paid.d. are paid to preferred stockholders if sufficient funds remain after payment of the

current preferred dividend.

J%). @ow should cumulative preferred dividends in arrears be shown in a corporationsstatement of financial position6a. Dote disclosure b. 0ncrease in stockholders e'uity

c. 0ncrease in current liabilitiesd. 0ncrease in current liabilities for the amount epected to be declared within the year or

operating cycle+ and increase in long!term liabilities for the balance

&ulti)le Choice An"er"<Conce)tual

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&6LT'!LE CO'CE<Co/)utational

Kse the following information for 'uestions %1 and %2.

,resented below is information related to @ale Corporation

Common -tock+ 91 par 94+&))+))),aid!in Capital in cess of ,arLCommon -tock "")+))),referred & 1M2G -tock+ 9") par 2+)))+))),aid!in Capital in cess of ,arL,referred -tock 4))+)))etained arnings 1+"))+)))Treasury Common -tock ;at cost< 1")+)))

%1. The total stockholders e'uity of @ale Corporation isa. 9(+1))+))). b. 9(+2")+))).c. 9%+#))+))).

d. 9%+%")+))).

%2. The total paid!in capital ;cash collected< related to the common stock isa. 94+&))+))). b. 9"+3")+))).c. 9"+%")+))).d. 9"+2))+))).

%3. anning Company issued 1)+))) shares of its 9" par value common stock having a fair value of 92" per share and 1"+))) shares of its 91" par value preferred stock having a fair value of 92) per share for a lump sum of 9"2)+))). @ow much of the proceeds would be

allocated to the common stock6a. 9"4+1#% b. 923#+3#4c. 92%)+&33d. 92%#+2")

%4. Dorton Company issues 4+))) shares of its 9" par value common stock having a fair valueof 92" per share and #+))) shares of its 91" par value preferred stock having a fair value of 92) per share for a lump sum of 92)4+))). *hat amount of the proceeds should beallocated to the preferred stock6a. 91&2+%")

b. 912%+"))c. 9111+2%3d. 9("+#2"

%". Eerry Corporation has ")+))) shares of 91) par common stock authoried. The followingtransactions took place during 2)12+ the first year of the corporation$s eistence

-old 1)+))) shares of common stock for 91& per share.0ssued 1)+))) shares of common stock in echange for a patent valued at 92))+))).

At the end of the Eerry$s first year+ total paid!in capital amounted to

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a. 9&)+))). b. 91&)+))).c. 92))+))).d. 93&)+))).

%#. >lavine Company issues #+))) shares of its 9" par value common stock having a fair value

of 92" per share and (+))) shares of its 91" par value preferred stock having a fair value of 92) per share for a lump sum of 9312+))). The proceeds allocated to the common stock isa. 932+")) b. 9141+&1&c. 91#2+"))d. 91%)+1&2

%%. *heeler Company issued "+))) shares of its 9" par value common stock having a fair value of 92" per share and %+")) shares of its 91" par value preferred stock having a fair value of 92) per share for a lump sum of 92#)+))). The proceeds allocated to the preferredstock is

a. 9232+(1% b. 91#2+"))c. 9141+&1&d. 911&+1&2

%&. ,ember Corporation started business in 2))% by issuing 2))+))) shares of 92) par common stock for 93# each. 0n 2)12+ 3)+))) of these shares were purchased for 9"2 per share by ,ember Corporation and held as treasury stock. :n 7une 1"+ 2)13+ these 3)+)))shares were echanged for a piece of property that had an assessed value of 9&1)+))).,erber$s stock is actively traded and had a market price of 9#) on 7une 1"+ 2)13. The costmethod is used to account for treasury stock. The amount of paid!in capital from treasury

stock transactions resulting from the above events would bea. 91+2))+))). b. 9%2)+))).c. 9"&"+))).d. 924)+))).

%(. :n -eptember 1+ 2)12+ Balde Company reac'uired 1#+))) shares of its 91) par valuecommon stock for 91" per share. Balde uses the cost method to account for treasury stock.The ournal entry to record the reac'uisition of the stock should debita. Treasury -tock for 91#)+))). b. Common -tock for 91#)+))).

c. Common -tock for 91#)+))) and ,aid!in Capital in cess of ,ar for 9#)+))).d. Treasury -tock for 924)+))).

&). >annon Company ac'uired &+))) shares of its own common stock at 92) per share on8ebruary "+ 2)12+ and sold 4+))) of these shares at 92% per share on August (+ 2)13. Thefair value of >annons common stock was 924 per share at /ecember 31+ 2)12+ and 92" per share at /ecember 31+ 2)13. The cost method is used to record treasury stock transactions. *hat account;s< should >annon credit in 2)13 to record the sale of 4+)))shares6

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a. Treasury -tock for 91)&+))). b. Treasury -tock for 9&)+))) and ,aid!in Capital from Treasury -tock for 92&+))).c. Treasury -tock for 9&)+))) and etained arnings for 92&+))).d. Treasury -tock for 9(#+))) and etained arnings for 912+))).

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&1. Fong Co. issued 1))+))) shares of 91) par common stock for 91+2))+))). Fong ac'uired1)+))) shares of its own common stock at 91" per share. Three months later Fong sold"+))) of these shares at 91( per share. 0f the cost method is used to record treasury stock transactions+ to record the sale of the "+))) treasury shares+ Fong should credita. Treasury -tock for 9("+))).

b. Treasury -tock for 9")+))) and ,aid!in Capital from Treasury -tock for 94"+))).c. Treasury -tock for 9%"+))) and ,aid!in Capital from Treasury -tock for 92)+))).d. Treasury -tock for 9%"+))) and ,aid!in Capital in cess of ,ar for 92)+))).

&2. An analysis of stockholders e'uity of @ahn Corporation as of 7anuary 1+ 2)12+ is asfollows

Common stock+ par value 92)? authoried 1))+))) shares?issued and outstanding ()+))) shares 91+&))+)))

,aid!in capital in ecess of par %))+)))etained earnings %#)+)))Total 93+2#)+)))

@ahn uses the cost method of accounting for treasury stock and during 2)12 entered intothe following transactions

Ac'uired 2+")) shares of its stock for 9%"+))).-old 2+))) treasury shares at 93" per share.-old the remaining treasury shares at 92) per share.

Assuming no other e'uity transactions occurred during 2)12+ what should @ahn report at/ecember 31+ 2)12+ as total additional paid!in capital6a. 9#("+))) b. 9%))+)))c. 9%)"+)))

d. 9%1"+)))

&3. ,ercy Corporation was organied on 7anuary 1+ 2)12+ with an authoriation of 1+2))+)))shares of common stock with a par value of 9# per share. /uring 2)12+ the corporation hadthe following capital transactions

7anuary " issued ())+))) shares N 91) per share7uly 2& purchased 12)+))) shares N 911 per share/ecember 31 sold the 12)+))) shares held in treasury N 91& per share

,ercy used the cost method to record the purchase and reissuance of the treasury shares.*hat is the total amount of additional paid!in capital as of /ecember 31+ 2)126

a. 9!)!. b. 92+%#)+))).c. 93+#))+))).d. 94+44)+))).

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&4. -osa Co.s stockholders e'uity at 7anuary 1+ 2)12 is as follows

Common stock+ 91) par value? authoried 3))+))) shares?:utstanding 22"+))) shares 92+2")+)))

,aid!in capital in ecess of par %))+)))etained earnings 2+1()+)))

Total 9"+14)+)))

/uring 2)12+ -osa had the following stock transactions

Ac'uired #+))) shares of its stock for 92%)+))).-old 3+#)) treasury shares at 9") a share.-old the remaining treasury shares at 941 per share.

Do other stock transactions occurred during 2)12. Assuming -osa uses the cost method torecord treasury stock transactions+ the total amount of all additional paid!in capitalaccounts at /ecember 31+ 2)12 isa. 9#(1+#)). b. 9#%)+))).

c. 9%)&+4)).d. 9%2%+#)).

&". ,resented below is the stockholders e'uity section of :aks Corporation at /ecember 31+2)12

Common stock+ par value 92)? authoried %"+))) shares?issued and outstanding 4"+))) shares 9 ())+)))

,aid!in capital in ecess of par value 2")+)))etained earnings 3))+)))

91+4")+)))

/uring 2)13+ the following transactions occurred relating to stockholders e'uity

3+))) shares were reac'uired at 92& per share.3+))) shares were reac'uired at 93" per share.1+&)) shares of treasury stock were sold at 93) per share.

8or the year ended /ecember 31+ 2)13+ :aks reported net income of 94")+))). Assuming:aks accounts for treasury stock under the cost method+ what should it report as totalstockholders e'uity on its /ecember 31+ 2)13+ balance sheet6a. 91+%#"+))). b. 91+%#1+4)).c. 91+%"%+&)).d. 91+31"+))).

&#. :n /ecember 1+ 2)12+ Abel Corporation echanged 3)+))) shares of its 91) par valuecommon stock held in treasury for a used machine. The treasury shares were ac'uired byAbel at a cost of 94) per share+ and are accounted for under the cost method. :n the dateof the echange+ the common stock had a fair value of 9"" per share ;the shares wereoriginally issued at 93) per share<. As a result of this echange+ Abels total stockholderse'uity will increase bya. 93))+))). b. 91+2))+))).

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c. 91+#")+))).d. 91+3")+))).

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&%. Futher 0nc.+ has 3+))) shares of #G+ 9") par value+ cumulative preferred stock and 1))+)))shares of 91 par value common stock outstanding at /ecember 31+ 2)13+ and /ecember 31+ 2)12. The board of directors declared and paid a 9%+")) dividend in 2)12. 0n 2)13+93#+))) of dividends are declared and paid. *hat are the dividends received by the preferred stockholders in 2)136

a. 92"+")) b. 91&+)))c. 9 1)+"))d. 9 (+)))

&&. Anders+ 0nc.+ has 1)+))) shares of "G+ 91)) par value+ cumulative preferred stock and4)+))) shares of 91 par value common stock outstanding at /ecember 31+ 2)13. Therewere no dividends declared in 2)11. The board of directors declares and pays a 9()+)))dividend in 2)12 and in 2)13. *hat is the amount of dividends received by the commonstockholders in 2)136a. 93)+)))

b. 9")+)))c. 9()+)))d. 9)

&(. Colson 0nc. declared a 924)+))) cash dividend. 0t currently has (+))) shares of %G+ 91)) par value cumulative preferred stock outstanding. 0t is one year in arrears on its preferredstock. @ow much cash will Colson distribute to the common stockholders6a. 9114+))). b. 912#+))).c. 91%%+))).d. Done.

(). ,ierson Corporation owned 1)+))) shares of @unter Corporation. These shares were purchased in 2))( for 9()+))). :n Dovember 1"+ 2)13+ ,ierson declared a propertydividend of one share of @unter for every ten shares of ,ierson held by a stockholder. :nthat date+ when the market price of @unter was 921 per share+ there were ()+))) shares of,ierson outstanding. *hat gain and net reduction in retained earnings would result fromthis property dividend6

>ain Det eduction inetained arnings

a. 9) 91&(+))) b. 9) 9 &1+)))

c. 91)&+))) 9 &1+)))d. 91)&+))) 9 2%+)))

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(1. -tinson Corporation owned 3)+))) shares of atile Corporation. These shares were purchased in 2))( for 92%)+))). :n Dovember 1"+ 2)13+ -tinson declared a propertydividend of one share of atile for every ten shares of -tinson held by a stockholder. :nthat date+ when the market price of atile was 921 per share+ there were 2%)+))) shares of-tinson outstanding. *hat gain and net reduction in retained earnings would result from

this property dividend6>ain Det eduction in

etained arningsa. 9) 9243+))) b. 9) 9"#%+)))c. 9324+))) 9&1+)))d. 9324+))) 9243+)))

(2. *inger Corporation owned 3))+))) shares of 8egan Corporation stock. :n /ecember 31+2)12+ when *ingers account 5'uity 0nvestment ;8egan Corporation5< had a carrying

value of 9" per share+ *inger distributed these shares to its stockholders as a dividend.*inger originally paid 9& for each share. 8egan has 1+)))+))) shares issued andoutstanding+ which are traded on a national stock echange. The 'uoted market price for a8egan share was 9% on the declaration date and 9( on the distribution date.

*hat would be the reduction in *ingers stockholders e'uity as a result of the abovetransactions6a. 91+2))+))). b. 91+"))+))).c. 92+4))+))).d. 92+%))+))).

(3. >ibbs Corporation owned 2)+))) shares of :liver Corporation$s 9" par value commonstock. These shares were purchased in 2))( for 91&)+))). :n -eptember 1"+ 2)13+ >ibbsdeclared a property dividend of one share of :liver for every ten shares of >ibbs held by astockholder. :n that date+ when the market price of :liver was 921 per share+ there were1&)+))) shares of >ibbs outstanding. *hat DT reduction in retained earnings wouldresult from this property dividend6a. 91#2+))) b. 93%&+)))c. 91)&+)))d. 921#+)))

(4. elvern$s Corporation has an investment in 1)+))) shares of *allace Company commonstock with a cost of 943#+))). These shares are used in a property dividend to stockholdersof elvern$s. The property dividend is declared on ay 2" and scheduled to be distributedon 7uly 31 to stockholders of record on 7une 1". The fair value per share of *allace stock is 9#3 on ay 2"+ 9## on 7une 1"+ and 9#& on 7uly 31. The net effect of this propertydividend on retained earnings is a reduction of a. 9#&)+))). b. 9##)+))).c. 9#3)+))).

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8/19/2019 ACC 304 Week 10 Quiz



d. 943#+))).

(". @ernande Company has 4()+))) shares of 91) par value common stock outstanding./uring the year+ @ernande declared a 1)G stock dividend when the market price of thestock was 93) per share. 8our months later @ernande declared a 9.") per share cash

dividend. As a result of the dividends declared during the year+ retained earnings decreased bya. 91+%3(+")). b. 9%3"+))).c. 92#(+")).d. 924"+))).

(#. :n 7une 3)+ 2)12+ when rmler Co.s stock was selling at 9#" per share+ its capitalaccounts were as follows

Capital stock ;par value 9")? &)+))) shares issued< 94+)))+))),remium on capital stock #))+)))

etained earnings 4+2))+)))

0f a 1))G stock dividend were declared and distributed+ capital stock would bea. 94+)))+))). b. 94+#))+))).c. 9&+)))+))).d. 9&+&))+))).

(%. The stockholders e'uity section of >unkel Corporation as of /ecember 31+ 2)12+ was asfollows

Common stock+ par value 92? authoried 2)+))) shares?

issued and outstanding 1)+))) shares 9 2)+))),aid!in capital in ecess of par 3)+)))etained earnings ("+)))

914"+)))

:n arch 1+ 2)13+ the board of directors declared a 1"G stock dividend+ and accordingly1+")) additional shares were issued. :n arch 1+ 2)11+ the fair value of the stock was 9# per share. 8or the two months ended 8ebruary 2&+ 2)13+ >unkel sustained a net loss of 91)+))).

*hat amount should >unkel report as retained earnings as of arch 1+ 2)136a. 9%#+))). b. 9&2+))).c. 9&#+))).d. 9(2+))).

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8/19/2019 ACC 304 Week 10 Quiz



(&. The stockholders e'uity of @owell Company at 7uly 31+ 2)12 is presented below

Common stock+ par value 92)+ authoried 4))+))) shares?issued and outstanding 1#)+))) shares 93+2))+)))

,aid!in capital in ecess of par 1#)+)))etained earnings #")+)))

94+)1)+)))

:n August 1+ 2)12+ the board of directors of @owell declared a 1)G stock dividend oncommon stock+ to be distributed on -eptember 1"th. The market price of @owells commonstock was 93" on August 1+ 2)12+ and 93& on -eptember 1"+ 2)12. *hat is the amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend6a. 932)+))). b. 9"#)+))).c. 9#)&+))).d. 94))+))).

((. :n 7anuary 1+ 2)12+ /odd+ 0nc.+ declared a 1"G stock dividend on its common stock whenthe fair value of the common stock was 92) per share. -tockholders e'uity before thestock dividend was declared consisted of

Common stock+ 91) par value+ authoried 2))+))) shares?issued and outstanding 12)+))) shares 91+2))+)))

Additional paid!in capital on common stock 1")+)))etained earnings %))+)))Total stockholders e'uity 92+)")+)))

*hat was the effect on /odd$s retained earnings as a result of the above transaction6

a. 91&)+))) decrease b. 93#)+))) decreasec. 9#))+))) decreased. 93))+))) decrease

1)). :n 7anuary 1+ 2)12+ Culver Corporation had 11)+))) shares of its 9" par value commonstock outstanding. :n 7une 1+ the corporation ac'uired 1)+))) shares of stock to be held inthe treasury. :n /ecember 1+ when the market price of the stock was 9&+ the corporationdeclared a 1"G stock dividend to be issued to stockholders of record on /ecember 1#+2)12. *hat was the impact of the 1"G stock dividend on the balance of the retainedearnings account6a. 9%")+))) decrease b. 912)+))) decreasec. 9132+))) decreased. Do effect

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8/19/2019 ACC 304 Week 10 Quiz



1)1. At the beginning of 2)13+ 8laherty Company had retained earnings of 92")+))). /uringthe year 8laherty reported net income of 91))+)))+ sold treasury stock at a =gainO of93#+)))+ declared a cash dividend of 9#)+)))+ and declared and issued a small stockdividend of 3+))) shares ;91) par value< when the fair value of the stock was 92) pershare. The amount of retained earnings available for dividends at the end of 2)13 was

a. 923)+))). b. 92#)+))).c. 92##+))).d. 92(#+))).

1)2. asterson Company has 42)+))) shares of 91) par value common stock outstanding./uring the year asterson declared a 1)G stock dividend when the market price of thestock was 93# per share. Three months later asterson declared a 9.#) per share cashdividend. As a result of the dividends declared during the year+ retained earnings decreased bya. 91+%&(+2))

b. 91+"12+)))c. 92%%+2))d. 92#4+)))

Huestions 1)3 and 1)4 are based on the following information.

Fayne Corporation had the following information in its financial statements for the years ended2)12 and 2)13

Cash dividends for the year 2)13 9 &+))) Det income for the year ended 2)13 &3+)))arket price of stock+ 12M31M12 1)

arket price of stock+ 12M31M13 12Common stockholders$ e'uity+ 12M31M12 1+#))+)))Common stockholders$ e'uity+ 12M31M13 1+&))+))):utstanding shares+ 12M31M13 1&)+))),referred dividends for the year ended 2)13 1"+)))

1)3. *hat is the payout ratio for Fayne Corporation for the year ended 2)136a. 2%.%G b. 1&.1Gc. 11.&G

d. (.#G

1)4. *hat is the book value per share for Fayne Corporation for the year ended 2)136a. 91).)) b. 9(.(2c. 9(.44d. 9&.&(

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1)". At the beginning of 2)13+ @amilton Company had retained earnings of 91&)+))). /uringthe year @amilton reported net income of 9%"+)))+ sold treasury stock at a =gainO of92%+)))+ declared a cash dividend of 94"+)))+ and declared and issued a small stockdividend of 1+")) shares ;91) par value< when the fair value of the stock was 93) pershare. The amount of retained earnings available for dividends at the end of 2)13 was

a. 9214+")). b. 91(2+))).c. 91&%+")).d. 91#"+))).

1)#. ingenback Company has "#)+))) shares of 91) par value common stock outstanding./uring the year ingenback declared a 1)G stock dividend when the market price of thestock was 94& per share. Two months later ingenback declared a 9.#) per share cashdividend. As a result of the dividends declared during the year+ retained earnings decreased bya. 93"2+))).

b. 93#(+#)).c. 92+#&&+))).d. 93+)"%+#)).

Huestions 1)% and 1)& are based on the following information.

-ealy Corporation had the following information in its financial statements for the years ended2)12 and 2)13

Cash dividends for the year 2)13 9 "+))) Det income for the year ended 2)13 %&+)))arket price of stock+ 12M31M12 1)

arket price of stock+ 12M31M13 12Common stockholders$ e'uity+ 12M31M12 1+)))+)))Common stockholders$ e'uity+ 12M31M13 1+2))+))):utstanding shares+ 12M31M13 1))+))),referred dividends for the year ended 2)13 1)+)))

1)%. *hat is the rate of return on common stock e'uity for -ealy Corporation for the year ended2)136a. %.1G b. #."Gc. #.2G

d. ".%G

1)&. *hat is the price!earnings ratio for -ealy Corporation for the year ended 2)136a. 14.% b. 1".4c. 1%.#d. 1(.)

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1)(. ays+ 0nc. had net income for 2)12 of 93+1&)+))) and earnings per share on commonstock of 9". 0ncluded in the net income was 94")+))) of bond interest epense related to itslong!term debt. The income ta rate for 2)12 was 3)G. /ividends on preferred stock were9#))+))). The payout ratio on common stock was 2"G. *hat were the dividends oncommon stock in 2)126

a. 9#4"+))). b. 9%("+))).c. 9%23+%").d. 9(#%+")).

11). ,resented below is information related to :render+ 0nc. /ecember 31+

2)13 2)12Common stock 9 %"+))) 9 #)+)))4G ,referred stock 3")+))) 3")+)))etained earnings ;includes net income for current year< ()+))) %"+)))

Det income for year 4)+))) 32+)))*hat is :render$s rate of return on common stock e'uity for 2)136a. 2#.%G b. 1%.3Gc. 1".&Gd. 24.2G

Kse the following information for 'uestions 111 and 112.

The following data are provided /ecember 31+

2)13 2)121)G Cumulative preferred stock+ 9") par 91))+))) 91))+)))Common stock+ 91) par 1#)+))) ()+)))Additional paid!in capital &)+))) #"+)))etained earnings ;includes current year net income< 24)+))) 21"+))) Det income %)+)))

Additional information:n ay 1+ 2)13+ %+))) shares of common stock were issued. The preferred dividends were not declared during 2)13. The market price of the common stock was 9") at /ecember 31+ 2)13.

111. The rate of return on common stock e'uity for 2)13 isa. %) P 42). b. %) P 4&).c. #) P 42).d. #) P 4&).

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8/19/2019 ACC 304 Week 10 Quiz



112. The book value per share of common stock at 12M31M13 isa. 4%) P 1#. b. 24) P 1#.c. 3%) P 1#.d. 4&) P 1".

Kse the following information for 'uestions 113 and 114.

Turner Corporation had the following information in its financial statements for the year ended2)12 and 2)13

Cash dividends for the year 2)13 9 1"+))) Det income for the year ended 2)13 1""+)))arket price of stock+ 12M31M13 24Common stockholders$ e'uity+ 12M31M12 2+2))+)))Common stockholders$ e'uity+ 12M31M13 2+4))+))):utstanding shares+ 12M31M13 1#)+)))

,referred dividends for the year ended 2)13 3)+)))

113. *hat is the payout ratio for Turner Corporation for the year ended 2)136a. (.%G b. 12.)Gc. 1(.4Gd. 2(.)G

114. *hat is the book value per share for Turner Corporation for the year ended 2)136a. 914.&1 b. 91".))

c. 913.%"d. 914.3&

Kse the following information for 'uestions 11" through 11%.

*ritten+ 0nc. has outstanding "))+))) shares of 92 par common stock and 1))+))) shares of no! par &G preferred stock with a stated value of 9". The preferred stock is cumulative andnonparticipating. /ividends have been paid in every year ecept the past two years and the currentyear.

J11". Assuming that 92")+))) will be distributed as a dividend in the current year+ how much

will the common stockholders receive6a. Qero. b. 913)+))).c. 91%)+))).d. 921)+))).

J11#. Assuming that 91)"+))) will be distributed as a dividend in the current year+ how muchwill the preferred stockholders receive6a. 93"+))).

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8/19/2019 ACC 304 Week 10 Quiz



b. 94)+))).c. 9&)+))).d. 91)"+))).

J11%. Assuming that 93)"+))) will be distributed+ and the preferred stock is also participating+

how much will the common stockholders receive6a. 91&"+))). b. 91")+))).c. 91""+))).d. 9&)+))).

J11&. Ioder+ 0nc. has 1))+))) shares of 91) par value common stock and ")+))) shares of 91) par value+ #G+ cumulative+ participating preferred stock outstanding. /ividends on the preferred stock are one year in arrears. Assuming that Ioder wishes to distribute 92%)+)))as dividends+ the common stockholders will receivea. 9#)+))).

b. 911)+))).c. 91#)+))).d. 921)+))).

J11(. ann Co. has outstanding #)+))) shares of &G preferred stock with a 91) par value and1")+))) shares of 93 par value common stock. /ividends have been paid every year eceptlast year and the current year. 0f the preferred stock is cumulative and nonparticipating and93))+))) is distributed+ the common stockholders will receivea. 9). b. 92)4+))).c. 92"2+))).

d. 93))+))).

&ulti)le Choice An"er"<Co/)utational

&6LT'!LE CO'CE<C!A A%a)te%

12). A corporation was organied in 7anuary 2))( with authoried capital of 91) par valuecommon stock. :n 8ebruary 1+ 2)12+ shares were issued at par for cash. :n arch 1+2)12+ the corporations attorney accepted %+))) shares of common stock in settlement for

legal services with a fair value of 9()+))). Additional paid!in capital would increase on8ebruary 1+ 2)12 arch 1+ 2)12

a. Ies Do b. Ies Iesc. Do Dod. Do Ies

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8/19/2019 ACC 304 Week 10 Quiz



121. :n 7uly 1+ 2)12+ Dall Co. issued 2+")) shares of its 91) par common stock and "+)))shares of its 91) par convertible preferred stock for a lump sum of 914)+))). At this date Dalls common stock was selling for 924 per share and the convertible preferred stock for 91& per share. The amount of the proceeds allocated to Dalls preferred stock should bea. 9%)+))).

b. 9&4+))).c. 9()+))).d. 9%%+))).

122. @orton Co. was organied on 7anuary 2+ 2)12+ with "))+))) authoried shares of 91) par value common stock. /uring 2)12+ @orton had the following capital transactions

7anuary "Lissued 3%"+))) shares at 914 per share.7uly 2%Lpurchased 2"+))) shares at 911 per share. Dovember 2"Lsold 2)+))) shares of treasury stock at 913 per share.

@orton used the cost method to record the purchase of the treasury shares. *hat would be

the balance in the ,aid!in Capital from Treasury -tock account at /ecember 31+ 2)126a. 9). b. 92)+))).c. 94)+))).d. 9#)+))).

123. 0n 2)12+ @obbs Corp. ac'uired (+))) shares of its own 91 par value common stock at 91& per share. 0n 2)13+ @obbs issued #+))) of these shares at 92" per share. @obbs uses thecost method to account for its treasury stock transactions. *hat accounts and whatamounts should @obbs credit in 2)13 to record the issuance of the #+))) shares6

Treasury Additional etained Common

-tock ,aid!in Capital arnings -tocka. 91)&+))) 91)"+))) b. 91)&+))) 942+)))c. 9144+))) 9#+)))d. 91)2+))) 942+))) 9#+)))

124. At its date of incorporation+ -auder+ 0nc. issued 1))+))) shares of its 91) par commonstock at 911 per share. /uring the current year+ -auder ac'uired 2)+))) shares of itscommon stock at a price of 91# per share and accounted for them by the cost method.-ubse'uently+ these shares were reissued at a price of 912 per share. There have been noother issuances or ac'uisitions of its own common stock. *hat effect does the reissuance

of the stock have on the following accounts6

etained arnings Additional ,aid!in Capitala. /ecrease /ecrease b. Do effect /ecreasec. /ecrease Do effectd. Do effect Do effect

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12". 8armer Corp. owned 2)+))) shares of aton Corp. purchased in 2))( for 93))+))). :n/ecember 1"+ 2)12+ 8armer declared a property dividend of all of its aton Corp. shareson the basis of one share of aton for every 1) shares of 8armer common stock held by itsstockholders. The property dividend was distributed on 7anuary 1"+ 2)13. :n thedeclaration date+ the aggregate market price of the aton shares held by 8armer was

9"))+))). The entry to record the declaration of the dividend would include a debit toetained arnings of a. 9). b. 92))+))).c. 93))+))).d. 9"))+))).

12#. A corporation declared a dividend+ a portion of which was li'uidating. @ow would thisdistribution affect each of the following6

Additional,aid!in Capital etained arnings

a. /ecrease Do effect b. /ecrease /ecreasec. Do effect /ecreased. Do effect Do effect

12%. :n ay 1+ 2)12+ Qiek Corp. declared and issued a 1)G common stock dividend. ,rior tothis dividend+ Qiek had 1))+))) shares of 91 par value common stock issued andoutstanding. The fair value of Qiek s common stock was 92) per share on ay 1+ 2)12. Asa result of this stock dividend+ Qieks total stockholders e'uitya. increased by 92))+))). b. decreased by 92))+))).

c. decreased by 91)+))).d. did not change.

12&. @ow would the declaration and subse'uent issuance of a 1)G stock dividend by the issuer affect each of the following when the fair value of the shares eceeds the par value of thestock6

AdditionalCommon -tock ,aid!in Capital

a. Do effect Do effect b. Do effect 0ncreasec. 0ncrease Do effect

d. 0ncrease 0ncrease

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12(. :n /ecember 31+ 2)12+ the stockholders e'uity section of Arndt+ 0nc.+ was as follows

Common stock+ par value 91)? authoried 3)+))) shares?issued and outstanding (+))) shares 9 ()+)))

Additional paid!in capital 11#+)))etained earnings 1"4+)))Total stockholders e'uity 93#)+)))

:n arch 31+ 2)13+ Arndt declared a 1)G stock dividend+ and accordingly ()) additionalshares were issued+ when the fair value of the stock was 91& per share. 8or the threemonths ended arch 31+ 2)13+ Arndt sustained a net loss of 932+))). The balance of Arndt$s retained earnings as of arch 31+ 2)13+ should bea. 91)"+&)). b. 9113+))).c. 9114+&)).d. 9122+))).

J13). At /ecember 31+ 2)12 and 2)13+ ,lank Corp. had outstanding 3+))) shares of 91)) par value &G cumulative preferred stock and 1"+))) shares of 91) par value common stock. At/ecember 31+ 2)12+ dividends in arrears on the preferred stock were 912+))). Cashdividends declared in 2)13 totaled 94"+))). *hat amounts were payable on each class of stock6

,referred -tock Common -tock a. 924+))) 921+))) b. 933+))) 912+)))c. 93#+))) 9(+)))d. 94"+))) 9)

&ulti)le Choice An"er"<C!A A%a)te%

'8S Q6EST'ONS

True+8al"e

1. 0n the Knited -tates+ like many other countries+ banks are maor creditors as well as the largestinvestors.

2. The 08- statement of recognied income and epenses is identical to the K.-. >AA,statement of retained earnings R beginning balance retained earnings+ plus net income+ less

dividends+ e'uals ending balance retained earnings.

3. *hen the statement of recognied income and epenses is utilied the re'uirement foradditional note disclosure is reduced.

4. Knder 08- compliance re'uirements the K.-. >AA, formatted income statement need not bereplaced with the i>AA, statement of recognied income and epenses.

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8/19/2019 ACC 304 Week 10 Quiz



". Knder 08- compliance re'uirements the revaluation surplus is not considered contributedcapital.

An"er" to True+8al"e*

&ulti)le Choice

1. The accounting for treasury stock retirements under 08-a. is to charge the entire amount to paid!in capital. b. may have the ecess charged to paid!in capital+ depending on the original transaction

related to the issuance of the stock.c. is to charge the ecess of the cost of treasury stock over par value to retained earnings.d. is to allocate the difference between paid!in capital and retained earnings.

2. The evaluation -urplus of 08- is

a. similar to K.-. >AA, in that it allows both increases and decreases in valuation. b. similar to K.-. >AA, in that it only allows for the decrease in valuation.c. similar to K.-. >AA, in that it only allows for the increase in valuation.d. different than K.-. >AA, in that it allows the increase in valuation.

3. The 08- statement of recognied income and epensesa. does not recognie charges to e'uity such as revaluation surplus values. b. is a re'uired report under 08- reporting re'uirements.c. reports the items that were charged directly to e'uity such as revaluation surplus.d. is similar to the K.-. >AA, income statement in that it only reports revenues and epenses

of the period.

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4. Knder 08- compliance re'uirements the evaluation -urplus isa. only utilied to record the changes in depreciable items R plant and e'uipment. b. considered as revenue when utiliing the K.-. >AA, formatted income statement.c. utilied to record the changes in property+ plant+ and e'uipment.d. reported as contributed capital.

". The current proect of the 0A-E and the 8A-E related to financial statement presentationindicatesa. that the 08- statement of recognied income and epenses will most likely be adopted by

the 8A-E as a K.-. re'uirement in the near future. b. that the 08- statement of recognied income and epenses will probably be eliminated.c. that the K.-. >AA, standard for reporting comprehensive income will most likely be

adopted by the 0A-E for 08-.d. that hybrid financial instruments are unacceptable.

An"er" to &ulti)le Choice*

Short An"er

1. Eriefly describe some of the similarities and differences between K.-. >AA, and 08- withrespect to the accounting for stockholders$ e'uity.

2. Eriefly discuss the implications of the financial statement presentation proect for the reportingof stockholders$ e'uity.

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acc 304 week 10 quiz

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