Question 1

A corporation's legal capital (legal value)  is often defined as:

Accepted Answer

A)   The par value of the issued shares.
B)   The par value of the outstanding shares.
C)   The par value of the authorized shares.
D)   The par value of the shares in the treasury.E) A) and B)
F) A) and C)

Question 2

The authorized number of shares of stock is the total number of shares of stock issued and outstanding.

Accepted Answer

A) True 
 B)False

Question 3

McBean Company has outstanding 10 million shares of $2 par value common stock and 1 million shares of
$4 par value preferred stock. The preferred stock has a 7% dividend rate. The company declares $600,000 in
total dividends for the year. Dividends in arrears are $30,000. Compute the amount of dividends to be distributed to:
a. preferred shareholders b. common shareholders

Accepted Answer

a. Current preferred dividend = 1,000,00...

Question 4

AMD buys back 300,000 shares of its stock from investors at $6.50 a share. Two years later, it reissues this stock for $6.00 a share. The stock reissue would be recorded as:

Accepted Answer

A)   a debit to Cash of $1.8 million, a debit to Additional Paid-in Capital of $150,000, and a credit to Treasury Stock of $1.95 million.
B)   a debit to Cash of $1.95 million, a credit to Treasury Stock of $1.8 million, and a credit to Additional Paid-in Capital of $150,000.
C)   a debit to Cash of $1.95 million and a credit to Treasury Stock of $1.95 million.
D)   a debit to Cash of $1.8 million and a credit to Treasury Stock of $1.8 million.E) A) and C)
F) C) and D)

Question 5

The right of current stockholders to purchase additional shares of newly issued stock in order to maintain the same percentage ownership is called:

Accepted Answer

A)   liquidation.
B)   preemptive rights.
C)   cumulative preference.
D)   voting rights.E) C) and D)
F) B) and D)

Question 6

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) All of the above
F) None of the above

Question 7

Limited Liability Companies (LLCs)  are like general partnerships in that:

Accepted Answer

A)   income tax is not paid by the company itself.
B)   the business has a separate legal identity.
C)   liability is limited.
D)   amounts paid to the owners are recorded as salaries expense.E) None of the above
F) All of the above

Question 8

All else equal, when the current stock price for a company's stock falls and net income falls:

Accepted Answer

A)   EPS decreases and ROE increases.
B)   EPS and ROE both decrease.
C)   EPS increases and ROE decreases.
D)   EPS and ROE both increase.E) C) and D)
F) B) and D)

Question 9

When a company reissues shares of its treasury stock, it must report a gain or a loss on the sale.

Accepted Answer

A) True 
 B)False

Question 10

If the company pays the fixed dividend on the preferred stock, the transaction will:

Accepted Answer

A)   decrease Preferred stock by $20,000.
B)   decrease Retained earnings by $600,000.
C)   decrease Cash by $20,000.
D)   increase Liabilities by $20,000.E) B) and D)
F) B) and C)

Question 11

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 toE) All of the above
F) A) and C)

Question 12

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) A) and B)
F) A) and C)

Question 13

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 when the patent ends.
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) All of the above
F) A) and D)

Question 14

Mulberry Street Inc. began business on January 1, 2011 by issuing all of its 1000 authorized shares of its
$3 par value common stock for $10 per share. On June 30, they declared a cash dividend of $1 per share to
stockholders of record on July 31. They paid the cash dividend on August 30. On November 1, Mulberry Street reacquired 100 of its own shares of stock for $12 per share.
a. Prepare all of the necessary journal entries to record the events described above.
b. Prepare the Stockholders' Equity section of the Balance sheet as of 12/31/2011 assuming that the Net Income
for the year was $30,000.

Accepted Answer

b.

Ending Bal. RE ...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A corporation does not have a legal obligation to pay dividends.

Accepted Answer

A) True 
 B)False  True

Question 17

A company reported net income of $5.6 million. At the beginning of the year, 3.4 million shares of common stock were outstanding while during the year the average number of common shares outstanding was 3.5 million. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared. The EPS is approximately:

Accepted Answer

A)   $1.60.
B)   $1.51.
C)   $1.65.
D)   $1.75.E) A) and B)
F) A) and C)

Question 18

The declaration date for a dividend is the date on which 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) B) and D)

Question 19

Par value of a stock refers to the

Accepted Answer

A)   issue price of the stock
B)   value assigned to a share of stock in the corporate charter.
C)   market value of the stock.
D)   maximum selling price of the stock.E) B) and D)
F) B) and C) B

Question 20

As of November 29, it appears that Notel will report earnings per share (EPS)  of $1.15 for the quarter ended November 30. Which of the following events would cause this EPS number to decrease, assuming t he event occurs the morning of November 30?

Accepted Answer

A)   The company pays a supplier for inventory bought on account.
B)   The company declares, but does not pay, a cash dividend.
C)   The company purchases 10 shares of common stock in another company.
D)   The company reissues the treasury stock it holds.E) B) and C)
F) A) and D) D

Exam 11: Reporting and Interpreting Stockholders Equity

A corporation's legal capital (legal value) is often defined as:

Correct Answer
verified

The authorized number of shares of stock is the total number of shares of stock issued and outstanding.

Correct Answer
verified

Correct Answer
verified
a. Current preferred dividend = 1,000,00...
View Answer

AMD buys back 300,000 shares of its stock from investors at $6.50 a share. Two years later, it reissues this stock for $6.00 a share. The stock reissue would be recorded as:

Correct Answer
verified

The right of current stockholders to purchase additional shares of newly issued stock in order to maintain the same percentage ownership is called:

Correct Answer
verified

Which of the following statements regarding dividends is true?

Correct Answer
verified

Limited Liability Companies (LLCs) are like general partnerships in that:

Correct Answer
verified

All else equal, when the current stock price for a company's stock falls and net income falls:

Correct Answer
verified

When a company reissues shares of its treasury stock, it must report a gain or a loss on the sale.

Correct Answer
verified

If the company pays the fixed dividend on the preferred stock, the transaction will:

Correct Answer
verified

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:

Correct Answer
verified

A current dividend preference means that:

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
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b. Ending Bal. RE ...
View Answer

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

Correct Answer
verified

A corporation does not have a legal obligation to pay dividends.

Correct Answer
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True

Correct Answer
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The declaration date for a dividend is the date on which the company:

Correct Answer
verified

Par value of a stock refers to the

Correct Answer
verified
B

As of November 29, it appears that Notel will report earnings per share (EPS) of $1.15 for the quarter ended November 30. Which of the following events would cause this EPS number to decrease, assuming t he event occurs the morning of November 30?

Correct Answer
verified
D

Exam 11: Reporting and Interpreting Stockholders Equity

A corporation's legal capital (legal value) is often defined as:

Correct AnswerverifiedShow Answer

The authorized number of shares of stock is the total number of shares of stock issued and outstanding.

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Current preferred dividend = 1,000,00...View AnswerShow Answer

AMD buys back 300,000 shares of its stock from investors at $6.50 a share. Two years later, it reissues this stock for $6.00 a share. The stock reissue would be recorded as:

Correct AnswerverifiedShow Answer

The right of current stockholders to purchase additional shares of newly issued stock in order to maintain the same percentage ownership is called:

Correct AnswerverifiedShow Answer

Which of the following statements regarding dividends is true?

Correct AnswerverifiedShow Answer

Limited Liability Companies (LLCs) are like general partnerships in that:

Correct AnswerverifiedShow Answer

All else equal, when the current stock price for a company's stock falls and net income falls:

Correct AnswerverifiedShow Answer

When a company reissues shares of its treasury stock, it must report a gain or a loss on the sale.

Correct AnswerverifiedShow Answer

If the company pays the fixed dividend on the preferred stock, the transaction will:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

A current dividend preference means that:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct Answerverified b. Ending Bal. RE ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A corporation does not have a legal obligation to pay dividends.

Correct AnswerverifiedTrue

Correct AnswerverifiedShow Answer

The declaration date for a dividend is the date on which the company:

Correct AnswerverifiedShow Answer

Par value of a stock refers to the

Correct AnswerverifiedB

As of November 29, it appears that Notel will report earnings per share (EPS) of $1.15 for the quarter ended November 30. Which of the following events would cause this EPS number to decrease, assuming t he event occurs the morning of November 30?

Correct AnswerverifiedD

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. Current preferred dividend = 1,000,00...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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b. Ending Bal. RE ...
View Answer

Correct Answer
verified

Correct Answer
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True

Correct Answer
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Correct Answer
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Correct Answer
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B

Correct Answer
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D