Question 1

Advantages of the corporate form include all of the following except:

Accepted Answer

A)  Easy to raise capital.
B)  Shares can be purchased in small amounts.
C)  Ownership interests are transferrable.
D)  Unlimited legal liability.E) A) and D)
F) B) and D)

Question 2

A stock dividend:

Accepted Answer

A)  is accounted for like a stock split.
B)  will reduce stockholders' equity like a cash dividend does.
C)  will not change any of the accounts within stockholders' equity.
D)  will reduce retained earnings like a cash dividend does.E) None of the above
F) B) and D)

Question 3

Which of the following statements about retained earnings is true?

Accepted Answer

A)  Retained earnings is the amount of cash that the company has retained since its inception.
B)  Retained earnings is the amount of creditors' claims on assets.
C)  Retained earnings is increased when treasury stock is reissued at a price greater than its cost.
D)  Retained earnings is decreased by cash dividends and stock dividends.E) B) and D)
F) A) and B)

Question 4

An additional paid-in capital account could be used with all of the following transactions except:

Accepted Answer

A)  The issuance of par value stock at a price greater than the par value.
B)  The reissuance of treasury stock at a price less than the price paid when the stock was reacquired.
C)  The reissuance of treasury stock at a price greater than the price paid when the stock was reacquired.
D)  The issuance of no par stock.E) A) and B)
F) B) and C)

Question 5

Treasury stock:

Accepted Answer

A)  does not appear on the balance sheet.
B)  is a contra-equity account.
C)  is an asset account.
D)  is recorded as additional paid-in capital.E) B) and D)
F) None of the above

Question 6

Which of the following is true?

Accepted Answer

A)  Equity financing is always better than debt financing.
B)  Equity financing requires dividends to be paid.
C)  Dividends are tax-deductible.
D)  If a corporation has only one class of stock,it is common stock.E) All of the above
F) A) and C)

Question 7

A company had 300,000 shares of $10 par value common stock outstanding.The amount of additional paid-in capital is $1,500,000,and retained earnings is $450,000.The company issues a 2-for-1 stock split.The market price of the stock is $13.What is the balance in the common stock account after this issuance?

Accepted Answer

A)  $6,000,000
B)  $6,900,000
C)  $3,000,000
D)  $4,500,000E) B) and C)
F) B) and D)

Question 8

A company has net income of $5.6 million.Stockholders' equity at the beginning of the year is $32.55 million and,at the end of the year,it is $38.15 million.The only change to stockholders' equity came from net income.The Return on Equity ratio is approximately:

Accepted Answer

A)  0.15.
B)  0.16.
C)  0.87.
D)  6.64.E) C) and D)
F) None of the above

Question 9

Issuing stock to obtain financing is called equity financing.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is not true?

Accepted Answer

A)  The legal capital of a corporation represents an amount that cannot be returned to the owners while the corporation still exists.
B)  Investors in a corporation are called stockholders.
C)  The right to receive a dividend is one of the basic rights of preferred stockholders.
D)  Compared with preferred stock,common stock usually has a favorable preference in terms of dividends.E) A) and D)
F) A) and C)

Question 11

On September 1,a corporation with 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings issues a 2-for-1 stock split.The market price of the stock on that date is $12 per share.Which of the following statements is true concerning this stock split?

Accepted Answer

A)  Contributed capital will increase by $250,000.
B)  Retained earnings will decrease by $600,000.
C)  Dividends payable will increase by 250,000.
D)  No entry will be made for this transaction.E) All of the above
F) A) and C)

Question 12

Which of the following statements would not explain why a company may want to repurchase its stock?

Accepted Answer

A)  To demonstrate to investors that it believes its own stock is worth purchasing.
B)  To obtain shares to reissue to employees as part of an employee stock plan.
C)  To obtain shares that can be reissued as payment for purchase of another company.
D)  To increase the number of shares of outstanding stock.E) A) and C)
F) C) and D)

Question 13

A stock dividend decreases the market price of the company's stock.

Accepted Answer

A) True 
 B)False

Question 14

When a company uses excess cash to buy back some of its outstanding common stock,which of the following ratios will be affected directly in the manner described below?

Accepted Answer

A)  Return on equity (RO
E)  will decrease.
B)  Earnings per share (EPS) will increase.
C)  The Price Earnings (P
E)  ratio will increase.
D)  The receivables turnover ratio will increase.E) All of the above
F) A) and B)

Question 15

Which of the following statements regarding dividends is true?

Accepted Answer

A)  Some companies do not pay dividends even when the company is profitable.
B)  Stock dividends immediately increase the total value of the stockholders' investment.
C)  Cash dividends and stock dividends both decrease total stockholders' equity.
D)  A corporation has a legal obligation to pay dividends each year.E) A) and B)
F) A) and C)

Question 16

A current dividend preference means that:

Accepted Answer

A)  preferred stockholders are paid current dividends before common stockholders are paid dividends.
B)  unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends.
C)  preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation.
D)  unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period.E) C) and D)
F) A) and B)

Question 17

A corporation declared and issued a 15% stock dividend on November 1.Prior to the dividend,the balance in retained earnings was $850,000,the number of shares of $5 par value stock issued and outstanding was 60,000,and the market value of the stock was $12.The amount of the change in total stockholders' equity as a result of recording this stock dividend is:

Accepted Answer

A)  $0.
B)  $45,000 increase.
C)  $108,000 decrease.
D)  $63,000 decrease.E) B) and C)
F) C) and D)

Question 18

On the date of record for a dividend,the company:

Accepted Answer

A)  debits Dividends Declared and credits Dividends Payable for the amount of the dividend.
B)  debits Dividend Expense and credits Cash for the dividend amount.
C)  debits Dividends Payable and credits Cash for the dividend amount.
D)  establishes who will receive the dividend payment.E) C) and D)
F) All of the above

Question 19

Stockholders' equity is:

Accepted Answer

A)  the amount the company received for all stock when issued plus the amount of retained earnings minus treasury stock.
B)  the amount the company received for all stock authorized plus the amount of retained earnings and treasury stock.
C)  the par value the company received for all stock issued plus the amount of retained earnings minus treasury stock.
D)  the amount the company received for all stock when issued minus the amount of retained earnings and treasury stock.E) A) and D)
F) B) and D)

Question 20

The Return on Equity ratio measures:

Accepted Answer

A)  the return stockholders receive in dividends for each dollar of their investment.
B)  the return stockholders receive in dividends and stock price growth for each dollar of their investment.
C)  the amount earned by the company on each dollar contributed by stockholders and earnings reinvested in the company.
D)  the amount earned by the company on each dollar obtained from equity and debt financing.E) None of the above
F) All of the above

Exam 11: Stockholders Equity

Which of the following statements is not true?

Correct Answer
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An additional paid-in capital account could be used with all of the following transactions except:

Correct Answer
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Which of the following statements would not explain why a company may want to repurchase its stock?

Correct Answer
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A stock dividend:

Correct Answer
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Treasury stock:

Correct Answer
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A company has net income of $5.6 million.Stockholders' equity at the beginning of the year is $32.55 million and,at the end of the year,it is $38.15 million.The only change to stockholders' equity came from net income.The Return on Equity ratio is approximately:

Correct Answer
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Which of the following is true?

Correct Answer
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Which of the following statements regarding dividends is true?

Correct Answer
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Stockholders' equity is:

Correct Answer
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Advantages of the corporate form include all of the following except:

Correct Answer
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Which of the following statements about retained earnings is true?

Correct Answer
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Issuing stock to obtain financing is called equity financing.

Correct Answer
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On September 1,a corporation with 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings issues a 2-for-1 stock split.The market price of the stock on that date is $12 per share.Which of the following statements is true concerning this stock split?

Correct Answer
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A current dividend preference means that:

Correct Answer
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Correct Answer
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When a company uses excess cash to buy back some of its outstanding common stock,which of the following ratios will be affected directly in the manner described below?

Correct Answer
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Correct Answer
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A stock dividend decreases the market price of the company's stock.

Correct Answer
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On the date of record for a dividend,the company:

Correct Answer
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The Return on Equity ratio measures:

Correct Answer
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Exam 11: Stockholders Equity

Which of the following statements is not true?

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An additional paid-in capital account could be used with all of the following transactions except:

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Which of the following statements would not explain why a company may want to repurchase its stock?

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A stock dividend:

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Treasury stock:

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A company has net income of $5.6 million.Stockholders' equity at the beginning of the year is $32.55 million and,at the end of the year,it is $38.15 million.The only change to stockholders' equity came from net income.The Return on Equity ratio is approximately:

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Which of the following is true?

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Which of the following statements regarding dividends is true?

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Stockholders' equity is:

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Advantages of the corporate form include all of the following except:

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Which of the following statements about retained earnings is true?

Correct AnswerverifiedShow Answer

Issuing stock to obtain financing is called equity financing.

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On September 1,a corporation with 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings issues a 2-for-1 stock split.The market price of the stock on that date is $12 per share.Which of the following statements is true concerning this stock split?

Correct AnswerverifiedShow Answer

A current dividend preference means that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a company uses excess cash to buy back some of its outstanding common stock,which of the following ratios will be affected directly in the manner described below?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A stock dividend decreases the market price of the company's stock.

Correct AnswerverifiedShow Answer

On the date of record for a dividend,the company:

Correct AnswerverifiedShow Answer

The Return on Equity ratio measures:

Correct AnswerverifiedShow Answer

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