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Exam 11: Proprietorships, Partnerships, and Corporations

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Question 71

True/False

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Indicate whether each of the following statements about treasury stock is true or false. _____ a)One reason for a corporation to buy its own stock is to boost its net income when treasury stock is reissued for a higher price. _____ b)Corporations may buy back their own stock (treasury stock)to avoid hostile takeovers. _____ c)Purchasing treasury stock reduces the number of issued shares. _____ d)The treasury stock account is classified as a contra equity account. _____ e)If treasury stock is reissued for an amount lower than its purchase price, retained earnings is increased.

A) True
B) False

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Question 72

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On January 12, Year 1, Gilliam Corporation issued 550 shares of $12 par-value common stock for $15 per share. The number of shares authorized is 5,000, and the number of shares outstanding prior to this transaction was 1,200. Which of the following describes the effect of the January 12 transaction on the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

E) C) and D)
F) A) and C)

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Question 73

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Which of the following is not considered an advantage of the corporate form of business organization?

Which of the following statements best describes the term "par value"?

Which of the following describes, in part, how the declaration of a stock dividend affects the financial statements?

Napoli Industries had net income for Year 2 of $650,000. Napoli had an average number of shares outstanding at the end of the year of 500,000 shares. On January 1, Year 2, the market price of Napoli's stock was $20 per share. On December 31, Year 2, the market price was $22 per share. What is the price-earnings ratio for Napoli at the end of Year 2?

Which of the following entities would report income tax expense on its income statement?

On March 1, Year 1, Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value, 6% preferred stock. The dividend will be paid on May 1, Year 1 to the stockholders of record as of April 1, Year 1.How will the entry to record the declaration of the dividend on March 1 affect the financial statements?

Indicate how each event affects thefinancial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA.You do not need to enter dollar amounts Wheaton Company reissued 100 shares of treasury stock, which had been purchased by Wheaton at $18 per share. The treasury shares were reissued at a price of $20 per share.

Indicate whether each of the following statements about stockholders' equity is true or false. _____ a)The balance in the treasury stock account increases total stockholders' equity. _____ b)A company may acquire treasury stock in an effort to increase the market price of its stock. _____ c)The declaration and distribution of a stock dividend reduces retained earnings. _____ d)A 2-for-1 stock split probably will double the monetary value of each investor's holdings on the date the split takes effect. _____ e)If treasury stock that had been acquired by a company for $50 per share is resold for $60 per share, total assets and stockholders' equity will increase.

Indicate how each event affects thefinancial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA.You do not need to enter dollar amounts Grover Co. declared a 2-for-1 stock split. Before that announcement, Grover had 40,000 shares of outstanding common stock.

What is the process of dividing up assets and allocating them to resource providers (creditors and investors) ?

Which of the following is not normally a preference given to the holders of preferred stock?

What is a reason that a corporation might choose to "split" its stock?

How does the issuance of a common stock dividend normally impact the calculation of a company's price-earnings (P/E) ratio?

The corporate charter of Pinkston Corporation authorizes the issuance of 25,000 shares of 5% cumulative, preferred stock, $20 par, and 200,000 shares of $10 par common stock. At the end of the current year, the titles and balances of stockholders' equity accounts are as follows: Pinkston declared dividends of $120,000 for the current year. Required: a)What is the amount of the annual dividend per share for preferred stock? b)If there are two years of preferred dividends in arrears at the beginning of the current year, what total amount of dividends will be paid to the preferred shareholders? c)What total amount will be paid to the common shareholders if there are two years of preferred dividends in arrears at the beginning of the year?

The Mason-Dixon partnership was formed on January 1, Year 1, when Rebecca Mason and Steve Dixon contributed cash of $40,000 and $60,000, respectively. During Year 1, the partnership earned $160,000 in cash revenues and paid $108,000 in cash expenses. Mason withdrew $12,000 cash and Dixon withdrew $8,000 cash from the business. Net income was allocated to the partners' capital accounts in proportion to their initial investment in the business.Required: Prepare an income statement, capital statement, and balance sheet.

Indicate whether each of the following statements about stockholders' equity is true or false. _____ a)Preferred stockholders generally have no preference to assets when the company is liquidated. _____ b)Preferred stockholders generally have a preference to dividends. _____ c)Preferred stock carries voting rights that gives the preferred stockholders greater power in the corporation's decision-making process than common stockholders have. _____ d)Preferred stockholders generally receive a set or fixed amount of dividends. _____ e)If a corporation has issued non-cumulative preferred stock, common stockholders may receive greater dividends than if the corporation has issued cumulative preferred stock.

Show the effect of a stock dividend on the accounting equation.(Use "+" for increase and "−" for decrease. If there is no effect, leave that cell blank.)Total Paid in Capital includes Common Stock and Paid-in Capital in Excess of Par.

Jalisco, Inc., had 300,000 shares issued and 250,000 shares outstanding of its $8 par value common stock and its Retained Earnings account balance was $750,000 on December 31, Year 1. On January 1, Year 2, the board of directors declared a 12% stock dividend to its common shareholders when the market value of the stock was $17 per share. Required: a)Determine the decrease in retained earnings as a result of the stock dividend.b)How many shares are outstanding after the stock dividend?