CHAPTER 11 CORPORATIONS: ORGANIZATION, STOCK TRANSACTIONS, DIVIDENDS, AND RETAINED EARNINGS: Test Bank for Accounting Principles, Eleventh Edition. This document/TEST BANK Contains 313 Questions With Answers, Worked Solutions and Essay Explanations

Document Content and Description Below

CHAPTER 11 CORPORATIONS: ORGANIZATION, STOCK TRANSACTIONS, DIVIDENDS, AND RETAINED EARNINGS SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY sg This question also appears in t... he Study Guide. st This question also appears in a self-test at the student companion website. SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Note: TF = True-False BE = Brief Exercise C = Completion MC = Multiple Choice Ex = Exercise The chapter also contains one set of eighteen Matching questions and eleven Short-Answer Essay questions. CHAPTER LEARNING OBJECTIVES 1. Identify the major characteristics of a corporation. 2. Record the issuance of common stock. 3. Explain the accounting for treasury stock. 4. Differentiate preferred stock from common stock. 5. Prepare the entries for cash dividends and stock dividends. 6. Identify the items reported in a retained earnings statement. 7. Prepare and analyze a comprehensive stockholders’ equity section. a8. Describe the use and content of the stockholders’ equity statement. a9. Compute book value per share.. TRUE-FALSE STATEMENTS 1. A corporation is not an entity which is separate and distinct from its owners. 2. A corporation can be organized for the purpose of making a profit or it may be not-for-profit. 3. A corporation acts under its own name rather than in the name of its stockholders. 4. If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation. , 5. A corporation must be incorporated in each state in which it does business. , Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 6. A stockholder has the right to vote in the election of the board of directors. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Interaction, IMA: FSA 7. A proxy is a legal document that instructs a stockholder’s agent how to vote shares of stock for the stockholder. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Interaction, IMA: FSA 8. As soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Corporate Finance 9. The par value of common stock must always be equal to its market value on the date the stock is issued. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 10. When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock becomes legal capital. , Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting 11. A corporation can issue more shares than it is authorized in its charter, if the board of directors approves of an increase in the number of authorized shares. , Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 12. The market value of a corporation’s stock is determined by the number of shares that the corporation has been authorized to issue. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 13. Stock can be issued only in exchange for cash. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 14. The par value of stock issued for noncash assets is never a factor in determining the cost of the assets received. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 15. The acquisition of treasury stock by a corporation increases total assets and total stockholders’ equity. Problem Solving, IMA: Reporting 16. Treasury stock should not be classified as a current asset. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 17. Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a Loss on Sale of Treasury Stock being recognized on the income statement. , LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 18. Treasury stock is a contra stockholders’ equity account. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 19. The number of common shares outstanding can never be greater than the number of shares issued. Problem Solving, IMA: Reporting 20. Preferred stock has contractual preference over common stock in certain areas. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 21. Preferred stockholders generally do not have the right to vote for the board of directors. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: None, AICPA PC: None, IMA: Investment Decisions 22. Dividends in arrears on cumulative preferred stock are considered a liability. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 23. Dividends may be declared and paid in cash or stock. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Business Economics 24. Cash dividends are not a liability of the corporation until they are declared by the board of directors. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Business Economics 25. The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 26. A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 27. A 3-for-1 common stock split will increase total stockholders’ equity but reduce the par or stated value per share of common stock. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 28. Retained earnings represents the amount of cash available for dividends. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics 29. Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 30. A debit balance in the Retained Earnings account is identified as a deficit. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 31. A correction in income of a prior period involves either a debit or credit to the Retained Earnings account. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 32. Prior period adjustments to income are reported in the current year’s income statement. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 33. Retained earnings that are restricted are unavailable for dividends. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 34. Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA 35. A retained earnings statement shows the same information as a corporation income statement. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 36. A detailed stockholders’ equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 37. Common Stock Dividends Distributable is shown within the Paid-in Capital subdivision of the stockholders’ equity section of the balance sheet. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 38. Return on common stockholders’ equity is computed by dividing net income by ending stockholders’ equity. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 39. Many companies prepare a stockholders’ equity statement instead of presenting a detailed stockholders’ equity section in the balance sheet. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting a40. The stockholders’ equity statement shows the changes in each stockholders’ equity account and in total stockholders’ equity during the year. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting a41. Book value per share of common stock is the same amount as the market value per share. , LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 42. A successful corporation can have a continuous and perpetual life. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 43. Organizational costs are capitalized by debiting an intangible asset entitled Organization Costs. , Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 44. The cash proceeds from issuing par value stock may be equal to or greater than, but not less than par value. , LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 45. The cost of a noncash asset acquired in exchange for common stock should be either the fair value of the consideration given up or the consideration received, whichever is more clearly determinable. , LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 46. Under the cost method, Treasury Stock is debited at the price paid to reacquire the shares, and the same amount is credited to Treasury Stock when the shares are sold. 47. A dividend based on paid-in capital is termed a liquidating dividend. 48. Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders’ equity section. 49. A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings. 50. In the stockholders’ equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified. , Answers to True-False Statements MULTIPLE CHOICE QUESTIONS 51. Which one of the following is a privately held corporation? a. Intel b. General Electric c. Caterpillar Inc. d. Cargill Inc. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 52. The dominant form of business organization in the United States in terms of dollar sales volume, earnings, and employees is a. the sole proprietorship. b. the partnership. c. the corporation. d. not known. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 53. Under the corporate form of business organization a. a stockholder is personally liable for the debts of the corporation. b. stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation. c. the corporation’s life is stipulated in its charter. d. stockholders wishing to sell their corporation shares must get the approval of other stockholders. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 54. Stockholders of a corporation directly elect a. the president of the corporation. b. the board of directors. c. the treasurer of the corporation. d. all of the employees of the corporation. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 55. The person responsible for maintaining the company’s cash position is the a. controller. b. treasurer. c. vice-president. d. president. , : Industry/Sector, AICPA FN: Reporting, AICPA PC: Leadership, IMA: None 56. A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a a. corporation is organized for the purpose of making a profit. b. corporation is subject to more federal and state government regulations. c. corporation is an accounting economic entity. d. corporation’s temporary accounts are closed at the end of the accounting period. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: FSA 57. Which one of the following would not be considered an advantage of the corporate form of organization? a. Limited liability of owners b. Separate legal existence c. Continuous life d. Government regulation , Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 58. The concept of an “artificial being” refers to which form of business organization? a. Partnership b. Sole proprietorship c. Corporation d. Limited partnership , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 59. The two ways that a corporation can be classified by purpose are a. general and limited. b. profit and not-for-profit. c. state and federal. d. publicly held and privately held. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 60. The two ways that a corporation can be classified by ownership are a. publicly held and privately held. b. stock and non-stock. c. inside and outside. d. majority and minority. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 61. Which of the following would not be true of a privately held corporation? a. It is sometimes called a closely held corporation. b. Its shares are regularly traded on the New York Stock Exchange. c. It does not offer its shares for sale to the general public. d. It is usually smaller than a publicly held company. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 62. Which of the following is not true of a corporation? a. It may buy, own, and sell property. b. It may sue and be sued. c. The acts of its owners bind the corporation. d. It may enter into binding legal contracts in its own name. , : Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Business Economics 63. Jason Thomas has invested $200,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Thomas stand to lose? a. Up to his total investment of $200,000. b. Zero. c. The $200,000 plus any personal assets the creditors demand. d. $100,000. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Investment Decisions 64. Which of the following statements reflects the transferability of ownership rights in a corporation? a. If a stockholder decides to transfer ownership, he must transfer all of his shares. b. A stockholder may dispose of part or all of his shares. c. A stockholder must obtain permission from the board of directors before selling shares. d. A stockholder must obtain permission from at least three other stockholders before selling shares. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Corporate Finance 65. A corporate board of directors does not generally a. select officers. b. formulate operating policies. c. declare dividends. d. execute policy. , : Resource Management, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Internal Controls 66. A typical organization chart showing delegation of authority would show a. stockholders delegating to the board of directors. b. the board of directors delegating to stockholders. c. the chief executive officer delegating to the board of directors. d. the controller delegating to the chief executive officer. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Internal Controls 67. The officer who is generally responsible for maintaining the cash position of the corporation is the a. controller. b. treasurer. c. cashier. d. internal auditor. , : Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Corporate Finance 68. The chief accounting officer in a corporation is the a. treasurer. b. president. c. controller. d. vice-president of finance. , : Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Corporate Finance 69. The ability of a corporation to obtain capital is a. enhanced because of limited liability and ease of share transferability. b. less than a partnership. c. restricted because of the limited life of the corporation. d. about the same as a partnership. , : Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Corporate Finance 70. Which of the following statements concerning taxation is accurate? a. Partnerships pay state income taxes but not federal income taxes. b. Corporations pay federal income taxes but not state income taxes. c. Corporations pay federal and state income taxes. d. Only the owners must pay taxes on corporate income. , : Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 71. Which of the following statements is not considered a disadvantage of the corporate form of organization? a. Additional taxes b. Government regulations c. Limited liability of stockholders d. Separation of ownership and management , : Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: None, IMA: None 72. What is ordinarily the first step in the formation of a corporation? a. Development of by-laws for the corporation b. Issuance of the corporate charter c. Application for incorporation to the appropriate Secretary of State d. Registration with the SEC , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 73. Which one of the following is not an ownership right of a stockholder in a corporation? a. To vote in the election of directors b. To declare dividends on the common stock c. To share in assets upon liquidation d. To share in corporate earnings , : Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics 74. If no-par stock is issued without a stated value, then a. the par value is automatically $1 per share. b. the entire proceeds are considered to be legal capital. c. there is no legal capital. d. the corporation is automatically in violation of its state charter. , Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 75. If a stockholder cannot attend a stockholder’s meeting, he may delegate his voting rights by means of a. an absentee ballot. b. a proxy. c. a certified letter. d. a telegram. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Internal Controls 76. If a corporation has only one class of stock, it is referred to as a. classless stock. b. preferred stock. c. solitary stock. d. common stock. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 77. The term residual claim refers to a stockholders’ right to a. receive dividends. b. share in assets upon liquidation. c. acquire additional shares when offered. d. exercise a proxy vote. , : Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting 78. Which of the following factors does not affect the initial market price of a stock? a. The company’s anticipated future earnings b. The par value of the stock c. The current state of the economy d. The expected dividend rate per share , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 79. If an investment firm underwrites a stock issue, the a. risk of being unable to sell the shares stays with the issuing corporation. b. corporation obtains cash immediately from the investment firm. c. investment firm has guaranteed profits on the sale of the stock. d. issuance of stock is likely to be directly to creditors. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 80. The par value of a stock a. is legally significant. b. reflects the most recent market price. c. is selected by the SEC. d. is indicative of the worth of the stock. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 81. A corporation has the following account balances: Common stock, $1 par value, $60,000; Paid-in Capital in Excess of Par, $1,300,000. Based on this information, the a. legal capital is $1,360,000. b. number of shares issued are 60,000. c. number of shares outstanding are 1,360,000. d. average price per share issued is $22.50. , LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 82. The authorized stock of a corporation a. only reflects the initial capital needs of the company. b. is indicated in its by-laws. c. is indicated in its charter. d. must be recorded in a formal accounting entry. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 83. When stock is issued for legal services, the transaction is recorded by debiting Organization Expense for the a. stated value of the stock. b. par value of the stock. c. market value of the stock. d. book value of the stock. , LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 84. If Vickers Company issues 5,000 shares of $5 par value common stock for $175,000, a. Common Stock will be credited for $175,000. b. Paid-In Capital in Excess of Par will be credited for $25,000. c. Paid-In Capital in Excess of Par will be credited for $150,000. d. Cash will be debited for $150,000. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 85. If common stock is issued for an amount greater than par value, the excess should be credited to a. Cash. b. Retained Earnings. c. Paid-in Capital in Excess of Par. d. Legal Capital. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: FSA 86. If stock is issued for a noncash asset, the asset should be recorded on the books of the corporation at a. fair value. b. cost. c. zero. d. a nominal amount. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 87. If stock is issued for less than par value, the account a. Paid-In Capital in Excess of Par is credited. b. Paid-In Capital in Excess of Par is debited if a debit balance exists in the account. c. Paid-In Capital in Excess of Par is debited if a credit balance exists in the account. d. Retained Earnings is credited. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 88. The sale of common stock below par a. is a common occurrence in most states. b. is not permitted in most states. c. is a practice that most stockholders encourage. d. requires that a liability be recorded for the difference between the sales price and the par value of the shares. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 89. Paid-In Capital in Excess of Stated Value a. is credited when no-par stock does not have a stated value. b. is reported as part of paid-in capital on the balance sheet. c. represents the amount of legal capital. d. normally has a debit balance. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 90. A separate paid-in capital account is used to record each of the following except the issuance of a. no-par stock. b. par value stock. c. stated value stock. d. treasury stock above cost. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 91. Barton Company is a publicly held corporation whose $1 par value stock is actively traded at $31 per share. The company issued 3,000 shares of stock to acquire land recently advertised at $100,000. When recording this transaction, Barton Company will a. debit Land for $100,000. b. credit Common Stock for $93,000. c. debit Land for $93,000. d. credit Paid-In Capital in Excess of Par for $93,000. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 3,000  $31  $93,000 92. Crain Company issued 2,000 shares of its $5 par value common stock in payment of its attorney’s bill of $30,000. The bill was for services performed in helping the company incorporate. Crain should record this transaction by debiting a. Legal Expense for $10,000. b. Legal Expense for $30,000. c. Organization Expense for $10,000. d. Organization Expense for $30,000. , LO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 93. In the financial statements, organization costs appears a. immediately below Retained Earnings in the stockholders’ equity section. b. in the income statement. c. as part of paid-in capital in the stockholders’ equity section. d. as an intangible asset. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 94. Which of the following represents the largest number of common shares? a. Treasury shares b. Issued shares c. Outstanding shares d. Authorized shares , LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 95. New Corp. issues 2,000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, credits are made to a. Common Stock $20,000 and Paid-in Capital in Excess of Stated Value $12,000. b. Common Stock $32,000. c. Common Stock $20,000 and Paid-in Capital in Excess of Par $12,000. d. Common Stock $20,000 and Retained Earnings $12,000. , LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 2,000  $10  $20,000; ($16  $10)  2,000  $12,000 96. If Keene Company issues 9,000 shares of $5 par value common stock for $160,000, the account a. Common Stock will be credited for $45,000. b. Paid-in Capital in Excess of Par will be credited for $45,000. c. Paid-in Capital in Excess of Par will be credited for $160,000. d. Cash will be debited for $115,000. , LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 9,000  $5  $45,000 97. Carson Packaging Corporation began business in 2015 by issuing 30,000 shares of $3 par common stock for $8 per share and 12,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $12. On its December 31, 2015 balance sheet, Carson Packaging would report a. Common Stock of $360,000. b. Common Stock of $90,000. c. Common Stock of $240,000. d. Paid-In Capital of $90,000. , LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 30,000  $3  $90,000 98. Hsu, Inc. issued 10,000 shares of stock at a stated value of $8/share. The total issue of stock sold for $15 per share. The journal entry to record this transaction would include a a. debit to Cash for $80,000. b. credit to Common Stock for $80,000. c. credit to Paid-in Capital in Excess of Par for $150,000. d. credit to Common Stock for $150,000. , LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 10,000  $8  $80,000 99. S. Lamar performed legal services for E. Garr. Due to a cash shortage, an agreement was reached whereby E. Garr. would pay S. Lamar a legal fee of approximately $12,000 by issuing 3,000 shares of its common stock (par $1). The stock trades on a daily basis and the market price of the stock on the day the debt was settled is $4.50 per share. Given this information, the journal entry for E. Garr. to record this transaction is: a. Legal Expense 12,000 Common Stock 12,000 b. Legal Expense 12,000 Common Stock 12,000 c. Legal Expense 12,000 Common Stock 3,000 Paid-in Capital in Excess of Par – Common 9,000 d. Legal Expense 13,500 Common Stock 3,000 Paid-in Capital in Excess of Par – Common 10,500 , LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 3,000  $4.50  $13,500; $13,500  $3,000  $10,500 100. Jarrett Company issued 900 shares of no-par common stock for $13,200. Which of the following journal entries would be made if the stock has no stated value? a. Cash 13,200 Common Stock 13,200 b. Cash 13,200 Common Stock 900 Paid-in Capital in Excess of Par 8,200 c. Cash 13,200 Common Stock 900 Paid-in Capital in Excess of Stated Value 12,300 d. Common Stock 13,200 Cash 13,200 , LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 101. Darman Company issued 700 shares of no-par common stock for $7,700. Which of the following journal entries would be made if the stock has a stated value of $2 per share? a. Cash 7,700 Common Stock 7,700 b. Cash 7,700 Common Stock 1,400 Paid-in Capital in Excess of Par 6,300 c. Cash 7,700 Common Stock 1,400 Paid-in Capital in Excess of Stated Value 6,300 d. Common Stock 7,700 Cash 7,700 , LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 700  $2  $1,400; $7,700  $1,400  $6,300 102. Ralston Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ralston issues 9,000 shares of common stock to pay its recent attorney’s bill of $37,500 for legal services on a land access dispute, which of the following would be the journal entry for Ralston to record? a. Legal Expense 9,000 Common Stock 9,000 b. Legal Expense 37,500 Common Stock 37,500 c. Legal Expense 37,500 Common Stock 9,000 Paid-in Capital in Excess of Stated Value – Common 28,500 MC. 102 (Cont.) d. Legal Expense 37,500 Common Stock 9,000 Paid-in Capital in Excess of Par – Preferred 28,500 , LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 9,000  $1  $9,000; $37,500  $9,000  $28,500 103. The following data is available for Blaine Corporation at December 31, 2015: Common stock, par $10 (authorized 30,000 shares) $250,000 Treasury Stock (at cost $15 per share) 900 Based on the data, how many shares of common stock are outstanding? a. 30,000 b. 25,000 c. 29,940 d. 24,940 , LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: ($250,000/$10)  ($900/$15)  24,940 104. The following data is available for Blaine Corporation at December 31, 2015: Common stock, par $10 (authorized 30,000 shares) $250,000 Treasury Stock (at cost $15 per share) $ 900 Based on the data, how many shares of common stock have been issued? a. 30,000 b. 25,000 c. 29,940 d. 24,940 , LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: $250,000/$10  25,000 105. Aaron, Inc. paid $120,000 to buy back 10,000 shares of its $1 par value common stock. This stock was sold later at a selling price of $8 per share. The entry to record the sale includes a a. debit to Retained Earnings for $40,000. b. credit to Retained Earnings for $10,000. c. debit to Paid-in Capital from Treasury Stock for $120,000. d. credit to Paid-in Capital from Treasury Stock for $10,000. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: [($120,000/10,000)  $8]  10,000  $40,000 106. Karl Corporation was organized on January 2, 2015. During 2015, Karl issued 40,000 shares at $24 per share, purchased 6,000 shares of treasury stock at $26 per share, and had net income of $600,000. What is the total amount of stockholders’ equity at December 31, 2015? a. $1,280,000 b. $1,404,000 c. $1,416,000 d. $1,440,000 , LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: (40,000  $24)  (6,000  $26)  $600,000  $1,404,000 107. Evergreen Manufacturing Corporation purchased 5,000 shares of its own previously issued $10 par common stock for $115,000. As a result of this event, a. Evergreen’s Common Stock account decreased $50,000. b. Evergreen’s total stockholders’ equity decreased $115,000. c. Evergreen’s Paid-in Capital in Excess of Par account decreased $65,000. d. All of these answers are correct. , LO: 3, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 108. A corporation purchases 40,000 shares of its own $30 par common stock for $45 per share, recording it at cost. What will be the effect on total stockholders’ equity? a. Increase by $1,800,000 b. Decrease by $1,200,000 c. Decrease by $1,800,000 d. Increase by $1,200,000 , LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 40,000  $45  $1,800,000 109. A corporation purchases 30,000 shares of its own $15 par common stock for $30 per share, recording it at cost. What will be the effect on total stockholders’ equity? a. Increase by $450,000 b. Decrease by $900,000 c. Increase by $900,000 d. Decrease by $450,000 , LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 110. Ramos Corporation sold 400 shares of treasury stock for $45 per share. The cost for the shares was $35. The entry to record the sale will include a a. credit to Gain on Sale of Treasury Stock for $14,000. b. credit to Paid-in Capital from Treasury Stock for $4,000. c. debit to Paid-in Capital in Excess of Par for $4,000. d. credit to Treasury Stock for $18,000. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: ($45  $35)  400  $4,000 111. Each of the following is correct regarding treasury stock except that it has been a. issued. b. fully paid for. c. reacquired. d. retired. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 112. Treasury stock is a. stock issued by the U.S. Treasury Department. b. stock purchased by a corporation and held as an investment in its treasury. c. corporate stock issued by the treasurer of a company. d. a corporation’s own stock which has been reacquired but not retired. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 113. The acquisition of treasury stock by a corporation a. increases its total assets and total stockholders’ equity. b. decreases its total assets and total stockholders’ equity. c. has no effect on total assets and total stockholders’ equity. d. requires that a gain or loss be recognized on the income statement. None, IMA: Reporting 114. Treasury stock should be reported in the financial statements of a corporation as a(n) a. investment. b. liability. c. deduction from total paid-in capital. d. deduction from total paid-in capital and retained earnings. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 115. A company would not acquire treasury stock a. in order to reissue shares to officers. b. as an asset investment. c. in order to increase trading of the company’s stock. d. to have additional shares available to use in acquisitions of other companies. None, IMA: Reporting 116. Accounting for treasury stock is done by the a. FIFO method. b. LIFO method. c. cost method. d. lower of cost or market method. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 117. Treasury stock is generally accounted for by the a. cost method. b. market value method. c. par value method. d. stated value method. None, IMA: Reporting 118. Treasury Stock is a(n) a. contra asset account. b. retained earnings account. c. asset account. d. contra stockholders’ equity account. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 119. Seven thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per share, are sold at $20 per share. The entry to record this transaction will include a a. credit to Treasury Stock for $140,000. b. debit to Paid-In Capital from Treasury Stock for $42,000. c. debit to Treasury Stock for $98,000. d. credit to Paid-In Capital from Treasury Stock for $42,000. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: ($20  $14)  7,000  $42,000 120. Salon Company originally issued 4,000 shares of $10 par value common stock for $120,000 ($30 per share). Salon subsequently purchases 400 shares of treasury stock for $27 per share and resells the 400 shares of treasury stock for $29 per share. In the entry to record the sale of the treasury stock, there will be a a. credit to Common Stock for $10,800. b. credit to Treasury Stock for $4,000. c. debit to Paid-In Capital in Excess of Par of $12,000. d. credit to Paid-In Capital from Treasury Stock for $800. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: ($29  $27)  400  $800 121. Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock outstanding at December 31, 2015. No dividends have been paid on this stock for 2014 or 2015. Dividends in arrears at December 31, 2015 total a. $0. b. $500. c. $5,000. d. $10,000. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics Solution: (1,000  $100  .05)  2  $10,000 122. Era Company has 3,000 shares of 6%, $100 par non-cumulative preferred stock outstanding at December 31, 2015. No dividends have been paid on this stock for 2014 or 2015. Dividends in arrears at December 31, 2015 total a. $0. b. $1,800. c. $18,000. d. $36,000. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics Solution: $0, non-cumulative stock 123. Ranier Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ranier issues 5,000 shares of preferred stock for land with an asking price of $575,000 and a market value of $550,000, which of the following would be the journal entry for Ranier to record? a. Land 500,000 Preferred Stock 500,000 b. Land 550,000 Preferred Stock 550,000 c. Land 575,000 Preferred Stock 500,000 Paid-in Capital in Excess of Par-Preferred 75,000 d. Land 550,000 Preferred Stock 500,000 Paid-in Capital Excess of Par-Preferred 50,000 , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 5,000  $100  $500,000; $550,000  $500,000  $50,000 124. Lakeland, Inc. has 25,000 shares of 6%, $100 par value, noncumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2014. The board of directors declares and pays a $250,000 dividend in 2015. What is the amount of dividends received by the common stockholders in 2015? a. $0 b. $150,000 c. $250,000 d. $100,000 , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: $250,000  (25,000  $100  .06)  $100,000 125. When preferred stock is cumulative, preferred dividends not declared in a period are a. considered a liability. b. called dividends in arrears. c. distributions of earnings. d. never paid. , LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 126. Which of the following is not a right or preference associated with preferred stock? a. The right to vote b. First claim to dividends c. Preference to corporate assets in case of liquidation d. To receive dividends in arrears before common stockholders receive dividends , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: 127. Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $80 per share. The entry to record the transaction will consist of a debit to Cash for $800,000 and a credit or credits to a. Preferred Stock for $800,000. b. Preferred Stock for $500,000 and Paid-in Capital in Excess of Par—Preferred Stock for $300,000. MC. 127 (Cont.) c. Preferred Stock for $300,000 and Paid-in Capital from Preferred Stock for $500,000. d. Paid-in Capital from Preferred Stock for $800,000. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 128. Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 per share. In the stockholders’ equity section, the effects of the transaction above will be reported a. entirely within the capital stock section. b. entirely within the additional paid-in capital section. c. under both the capital stock and additional paid-in capital sections. d. entirely under the retained earnings section. , LO: 4, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 129. Dividends in arrears on cumulative preferred stock a. are shown in stockholders’ equity of the balance sheet. b. must be paid before common stockholders can receive a dividend. c. should be recorded as a current liability until they are paid. d. enable the preferred stockholders to share equally in corporate earnings with the common stockholders. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 130. Dividends in arrears on cumulative preferred stock a. are considered to be a non-current liability. b. are considered to be a current liability. c. only occur when preferred dividends have been declared. d. should be disclosed in the notes to the financial statements. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 131. If preferred stock is cumulative, the a. preferred dividends not declared in a given year are called dividends in arrears. b. preferred stockholders and the common stockholders receive equal dividends. c. preferred stockholders and the common stockholders receive the same total dollar amount of dividends. d. common stockholders will share in the preferred dividends. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 132. The Northern Corporation issues 7,000 shares of $100 par value preferred stock for cash at $120 per share. The entry to record the transaction will consist of a debit to Cash for $840,000 and a credit or credits to a. Preferred Stock for $840,000. b. Paid-in Capital from Preferred Stock for $840,000. c. Preferred Stock for $700,000 and Retained Earnings for $140,000. d. Preferred Stock for $700,000 and Paid-in Capital in Excess of Par—Preferred Stock for $140,000. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 7,000  $100  $700,000; ($120  $100)  7,000  $140,000 133. Vega Corporation’s December 31, 2015 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 10,000 shares authorized; 7,500 shares issued $ 150,000 Common stock, $10 par value, 1,000,000 shares authorized; 975,000 shares issued, 960,000 shares outstanding 9,750,000 Paid-in capital in excess of par—preferred stock 30,000 Paid-in capital in excess of par—common stock 13,500,000 Retained earnings 3,750,000 Treasury stock (15,000 shares) 315,000 Vega declared and paid a $58,000 cash dividend on December 15, 2015. If the company’s dividends in arrears prior to that date were $10,000, Vega’s common stockholders received a. $48,000. b. $22,000. c. $36,000. d. no dividend. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: $58,000  (7,500  $20  .08)  $10,000  $36,000 134. Each of the following decreases retained earnings except a a. cash dividend. b. liquidating dividend. c. stock dividend. d. All of these decrease retained earnings. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 135. Each of the following decreases total stockholders’ equity except a a. cash dividend. b. liquidating dividend. c. stock dividend. d. All of these decrease total stockholders’ equity. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 136. Which one of the following is not necessary in order for a corporation to pay a cash dividend? a. Adequate cash b. Approval of stockholders c. Declaration of dividends by the board of directors d. Retained earnings , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 137. If a corporation declares a dividend based upon paid-in capital, it is known as a a. scrip dividend. b. property dividend. c. paid dividend. d. liquidating dividend. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 138. The date on which a cash dividend becomes a binding legal obligation is on the a. declaration date. b. date of record. c. payment date. d. last day of the fiscal year-end. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 139. The effect of the declaration of a cash dividend by the board of directors is to Increase Decrease a. Stockholders’ equity Assets b. Assets Liabilities c. Liabilities Stockholders’ equity d. Liabilities Assets , LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 140. The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to a. decrease total liabilities and stockholders’ equity. b. increase total expenses and total liabilities. c. increase total assets and stockholders’ equity. d. decrease total assets and stockholders’ equity. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 141. Common Stock Dividends Distributable is classified as a(n) a. asset account. b. stockholders’ equity account. c. expense account. d. liability account. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 142. The effect of a stock dividend is to a. decrease total assets and stockholders’ equity. b. change the composition of stockholders’ equity. c. decrease total assets and total liabilities. d. increase the book value per share of common stock. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 143. If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is a. Common Stock Dividends Distributable. b. Common Stock. c. Paid-in Capital in Excess of Par. d. Retained Earnings. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 144. Which one of the following events would not require a formal journal entry on a corporation’s books? a. 2 for 1 stock split b. 100% stock dividend c. 2% stock dividend d. $1 per share cash dividend , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 145. Stock dividends and stock splits have the following effects on retained earnings: Stock Splits Stock Dividends a. Increase No change b. No change Decrease c. Decrease Decrease d. No change No change , LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 146. Dividends are predominantly paid in a. earnings. b. property. c. cash. d. stock. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 147. If a stockholder receives a dividend that reduces retained earnings by the fair value of the stock, the stockholder has received a a. large stock dividend. b. cash dividend. c. contingent dividend. d. small stock dividend. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 148. Of the various dividends types, the two most common types in practice are a. cash and large stock. b. cash and property. c. cash and small stock. d. property and small stock. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 149. Regular dividends are declared out of a. Paid-in Capital in Excess of Par. b. Treasury Stock. c. Common Stock. d. Retained Earnings. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 150. A corporation is not committed to a legal obligation when it declares a. a cash dividend. b. either a cash dividend or a stock dividend. c. a stock dividend. d. a distribution date. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 151. Which of the following is not a significant date with respect to dividends? a. The declaration date b. The incorporation date c. The record date d. The payment date , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 152. On the dividend record date, a. a dividend becomes a current obligation. b. no entry is required. c. an entry may be required if it is a stock dividend. d. Dividends Payable is debited. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 153. Which of the following statements regarding the date of a cash dividend declaration is not accurate? a. The dividend can be rescinded once it has been declared. b. The corporation is committed to a legal, binding obligation. c. The board of directors formally authorizes the cash dividend. d. A liability account must be increased. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 154. Dividends Payable is classified as a a. long-term liability. b. contra stockholders’ equity account to Retained Earnings. c. current liability. d. stockholders’ equity account. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 155. Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections: Total Assets Total Liabilities Total Stockholders’ Equity a. Increase Decrease No change b. No change Increase Decrease c. Decrease Increase Decrease d. Decrease No change Increase , LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 156. Which of the following statements about dividends is not accurate? a. Many companies declare and pay cash quarterly dividends. b. Low dividends may mean high stock returns. c. The board of directors is obligated to declare dividends. d. A legal dividend may not be a feasible one. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 157. The cumulative effect of the declaration and payment of a cash dividend on a company’s balance sheet is to a. decrease current liabilities and stockholders’ equity. b. increase total assets and stockholders’ equity. c. increase current liabilities and stockholders’ equity. d. decrease stockholders’ equity and total assets. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 158. The declaration and distribution of a stock dividend will a. increase total stockholders’ equity. b. increase total assets. c. decrease total assets. d. have no effect on total assets. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 159. Xeris, Inc. has 1,000 shares of 6%, $10 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2015. What is the annual dividend on the preferred stock? a. $6 per share b. $600 in total c. $6,000 in total d. $.06 per share , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 160. Win, Inc. has 10,000 shares of 7%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2015. If the board of directors declares a $70,000 dividend, the a. preferred shareholders will receive 1/10th of what the common shareholders will receive. b. preferred shareholders will receive the entire $70,000. c. $70,000 will be held as restricted retained earnings and paid out at some future date. d. preferred shareholders will receive $35,000 and the common shareholders will receive $35,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 161. Marion, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2014. The board of directors declares and pays a $65,000 dividend in 2015. What is the amount of dividends received by the common stockholders in 2015? a. $0 b. $25,000 c. $65,000 d. $40,000 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 5,000  $100  .05  $25,000; $65,000  $25,000  $40,000 162. Library, Inc. has 2,500 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2015. The board of directors declared and paid a $3,000 dividend in 2014. In 2015, $18,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2015? Preferred Common a. $11,000 $7,000 b. $9,000 $9,000 c. $7,000 $11,000 d. $5,000 $13,000 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 2,500  $50  .04  $5,000; ($5,000  $3,000)  $5,000  $7,000; $18,000  $7,000  $11,000 163. Township, Inc. has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2015. The board of directors declared and paid a $50,000 dividend in 2014. In 2015, $110,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2015? Preferred Common a. $0 $110,000 b. $50,000 $60,000 c. $55,000 $55,000 d. $70,000 $40,000 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 10,000  $100  .05  $50,000; $110,000  $50,000  $60,000 164. The board of directors must assign a per share value to a stock dividend declared that is a. greater than the par or stated value. b. less than the par or stated value. c. equal to the par or stated value. d. at least equal to the par or stated value. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 165. Corporations generally issue stock dividends in order to a. increase the market price per share. b. exceed stockholders’ dividend expectations. c. increase the marketability of the stock. d. decrease the amount of capital in the corporation. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 166. A stockholder who receives a stock dividend would a. expect the market price per share to increase. b. own more shares of stock. c. expect retained earnings to increase. d. expect the par value of the stock to change. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics 167. When stock dividends are distributed, a. Common Stock Dividends Distributable is decreased. b. Retained Earnings is decreased. c. Paid-in Capital in Excess of Par is debited if it is a small stock dividend. d. no entry is necessary if it is a large stock dividend. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 168. A small stock dividend is defined as a. less than 30% but greater than 25% of the corporation’s issued stock. b. between 50% and 100% of the corporation’s issued stock. c. more than 30% of the corporation’s issued stock. d. less than 20–25% of the corporation’s issued stock. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 169. The per share amount normally assigned by the board of directors to a large stock dividend is a. the market value of the stock on the date of declaration. b. the average price paid by stockholders on outstanding shares. c. the par or stated value of the stock. d. zero. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics 170. The per share amount normally assigned by the board of directors to a small stock dividend is a. the market value of the stock on the date of declaration. b. the average price paid by stockholders on outstanding shares. c. the par or stated value of the stock. d. zero. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics 171. Identify the effect the declaration and distribution of a stock dividend has on the par value per share. Par Value per Share a. Increase b. Decrease c. Increase or decrease d. No effect , LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: Reporting 172. The declaration of a stock dividend will a. increase paid-in capital. b. change the total of stockholders’ equity. c. increase total liabilities. d. increase total assets. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 173. Which of the following show the proper effect of a stock split and a stock dividend? Item Stock Split Stock Dividend a. Total paid-in capital Increase Increase b. Total retained earnings Decrease Decrease c. Total par value (common) Decrease Increase d. Par value per share Decrease No change , LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 174. A stock split a. may occur in the absence of retained earnings. b. will increase total paid-in capital. c. will increase the total par value of the stock. d. will have no effect on the par value per share of stock. , LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 175. Outstanding stock of the Zone Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par noncumulative preferred stock. In 2014, Zone declared and paid dividends of $2,000. In 2015, Zone declared and paid dividends of $6,000. How much of the 2015 dividend was distributed to preferred shareholders? a. $2,000 b. $4,000 c. $3,000 d. None of these answers are correct , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 5,000  $10  .06  $3,000 176. Outstanding stock of the Core Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par noncumulative preferred stock. In 2014, Core declared and paid dividends of $4,000. In 2015, Core declared and paid dividends of $12,000. How much of the 2015 dividend was distributed to preferred shareholders? a. $8,000 b. $4,000 c. $6,000 d. None of these answers are correct , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 10,000  $10  .06  $6,000 177. On January 1, Collins Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 10% stock dividend. Market value of the stock was $15/share. As a result of this event, a. Collins’ Paid-in Capital in Excess of Par account increased $400,000. b. Collins’ total stockholders’ equity was unaffected. c. Collins’ Stock Dividends account increased $1,200,000. d. All of these answers are correct. , LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 800,000  $10  .10  $1,200,000 178. On January 1, Edison Corporation had 1,000,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 20% stock dividend. Market value of the stock was $18/share. As a result of this event, a. Edison’s Paid-in Capital in Excess of Par account increased $1,600,000. b. Edison’s total stockholders’ equity was unaffected. c. Edison’s Stock Dividends account increased $3,600,000. d All of these answers are correct. , LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 1,000,000  .20  $18  $3,600,000 179. Start Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2015. What is the annual dividend on the preferred stock? a. $50 per share b. $25,000 in total c. $50,000 in total d. $0.50 per share , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 5,000  $100  .05  $25,000 180. Arm, Inc., has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2015. If the board of directors declares a $200,000 dividend, the a. preferred stockholders will receive 1/10th of what the common stockholders will receive. b. preferred stockholders will receive the entire $200,000. c. $50,000 will be held as restricted retained earnings and paid out at some future date. d. preferred stockholders will receive $50,000 and the common stockholders will receive $150,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 10,000  $100  .05  $50,000; $200,000  $50,000  $150,000 181. Aim, Inc., has 10,000 shares of 4%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2014. The board of directors declares and pays a $120,000 dividend in 2015. What is the amount of dividends received by the common stockholders in 2015? a. $0 b. $40,000 c. $60,000 d. $80,000 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 10,000  $100  .04  $40,000; $120,000  $40,000  $80,000 182. Last Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2015, and December 31, 2014. The board of directors declared and paid a $4,000 dividend in 2014. In 2015, $24,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2015? a. $16,000 b. $12,000 c. $8,000 d. $6,000 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 2,000  $50  .06  $6,000; ($6,000  $4,000)  $6,000  $8,000 183. Art, Inc., has 5,000 shares of 4%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2013. The board of directors declares and pays a $45,000 dividend in 2014 and in 2015. What is the amount of dividends received by the common stockholders in 2015? a. $30,000 b. $20,000 c. $45,000 d. $0 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 5,000  $100  .04  $20,000; ($45,000  2)  ($20,000  3)  $30,000 184. Crawl Inc., has 1,000 shares of 6%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2015. The board of directors declared and paid a $2,000 dividend in 2014. In 2015, $10,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2015? a. $6,000 b. $5,000 c. $4,000 d. $3,000 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 1,000  $50  .06  $3,000; $10,000  $3,000  ($3,000  $2,000)  $6,000 185. On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a a. credit to Stock Dividends for $18,000. b. credit to Cash for $78,000. c. credit to Common Stock Dividends Distributable for $60,000. d. debit to Common Stock Dividends Distributable for $60,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 60,000  $10  .10  $60,000 186. On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 15% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a a. credit to Cash for $90,000. b. debit to Common Stock Dividends Distributable for $90,000. c. credit to Paid-in Capital in Excess of Par for $27,000. d. debit to Stock Dividends for $27,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 60,000  $10  .15  $90,000 187. On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The entry to record the transaction of June 17 would include a a. debit to Stock Dividends for $120,000. b. credit to Cash for $120,000. c. credit to Common Stock Dividends Distributable for $120,000. d. credit to Common Stock Dividends Distributable for $40,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 80,000  $15  .10  $120,000 188. On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a a. credit to Common Stock for $80,000. b. debit to Common Stock Dividends Distributable for $120,000. c. credit to Paid-in Capital in Excess of Par for $40,000. d. debit to Stock Dividends for $40,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 80,000  $10  .10  $80,000 189. Cork Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 6%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Cork distribute to the common stockholders? a. $88,000. b. $72,000. c. $124,000. d. None of these answers are correct. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: $160,000  [(6,000  $100  .06)  2]  $88,000 190. Land Inc. has retained earnings of $800,000 and total stockholders’ equity of $2,000,000. It has 300,000 shares of $5 par value common stock outstanding, which is currently selling for $30 per share. If Land declares a 10% stock dividend on its common stock: a. net income will decrease by $150,000. b. retained earnings will decrease by $150,000 and total stockholders’ equity will increase by $150,000. c. retained earnings will decrease by $900,000 and total stockholders’ equity will increase by $900,000. d. retained earnings will decrease by $900,000 and total paid-in capital will increase by $900,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 300,000  $30  .10  $900,000 191. On December 31, 2015, Stock, Inc. has 4,000 shares of 6% $100 par value cumulative preferred stock and 60,000 shares of $10 par value common stock outstanding. On December 31, 2015, the directors declare a $20,000 cash dividend. The entry to record the declaration of the dividend would include: a. a credit of $4,000 to Cash Dividends. b. a note in the financial statements that dividends of $4 per share are in arrears on preferred stock for 2015. c. a debit of $20,000 to Common Stock. d. a credit of $20,000 to Dividends Payable. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 192. Saint, Inc. declares a 15% common stock dividend when it has 30,000 shares of $10 par value common stock outstanding. If the market value of $24 per share is used, the amounts debited to Stock Dividends and credited to Paid-in Capital in Excess of Par are: Paid-in Capital in Stock Dividends Excess of Par a. $45,000 $0 b. $108,000 $63,000 c. $108,000 $45,000 d. $45,000 $63,000 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 300,000  $24  .15  $108,000; $108,000  (4,500  $10)  $63,000 193. Cloud Manufacturing declared a 10% stock dividend when it had 700,000 shares of $3 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to a. Stock Dividends for $210,000. b. Paid-in Capital in Excess of Par for $630,000. c. Common Stock for $210,000. d. Common Stock Dividends Distributable for $840,000. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA Solution: 700,000  .10  ($12  $3)  $630,000 194. The following selected amounts are available for Clark Company. Retained earnings (beginning) $900 Net loss 150 Cash dividends declared 100 Stock dividends declared 100 What is its ending retained earnings balance? a. $750 b. $800 c. $550 d. $700 , LO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: $900  $150  $100  $100  $550 195. Car and Auto Sisters had retained earnings of $18,000 on the balance sheet but disclosed in the footnotes that $3,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends? a. $14,000 b. $15,000 c. $18,000 d. $12,000 , LO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: $18,000  $3,000  $1,000  $14,000 196. Moore, Inc. had 250,000 shares of common stock outstanding before a stock split occurred, and 1,000,000 shares outstanding after the stock split. The stock split was a. 2-for-4. b. 5-for-1. c. 1-for-4. d. 4-for-1. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: 1,000,000/250,000  4:1 197. Restricting retained earnings for the cost of treasury stock purchased is a a. contractual restriction. b. legal restriction. c. stock restriction. d. voluntary restriction. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 198. A prior period adjustment that corrects income of a prior period requires that an entry be made to a. an income statement account. b. a current year revenue or expense account. c. the retained earnings account. d. an asset account. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 199. If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to a. decrease total assets and total stockholders’ equity. b. increase stockholders’ equity and decrease total liabilities. c. decrease total retained earnings and increase total liabilities. d. reduce the amount of retained earnings available for dividend declarations. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 200. A credit balance in retained earnings represents a. the amount of cash retained in the business. b. a claim on specific assets of the corporation. c. a claim on the aggregate assets of the corporation. d. the amount of stockholders’ equity exempted from the stockholders’ claim on total assets. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 201. A net loss a. occurs if operating expenses exceed cost of goods sold. b. is not closed to Retained Earnings if it would result in a debit balance. c. is closed to Retained Earnings even if it would result in a debit balance. d. is closed to the paid-in capital account of the stockholders’ equity section of the balance sheet. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 202. Prior period adjustments are reported a. in the footnotes of the current year’s financial statements. b. on the current year’s balance sheet. c. on the current year’s income statement. d. on the current year’s retained earnings statement. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 203. Retained earnings are occasionally restricted a. to set aside cash for dividends. b. to keep the legal capital associated with paid-in capital intact. c. due to contractual loan restrictions. d. if preferred dividends are in arrears. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 204. Retained earnings is increased by each of the following except a. net income. b. some prior period adjustments. c. some disposals of treasury stock. d. All of these increase retained earnings. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 205. A prior period adjustment for understatement of net income will a. be credited to the Retained Earnings account. b. be debited to the Retained Earnings account. c. show as a gain on the current year’s Income Statement. d. show as an asset on the current year’s Balance Sheet. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 206. The retained earnings statement a. is the owners’ equity statement for a corporation. b. will show an addition to the beginning retained earnings balance for an understatement of net income in a prior year. c. will not reflect net losses. d. will, in some cases, fail to reconcile the beginning and ending retained earnings balances. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 207. In the stockholders’ equity section of the balance sheet, a. Common Stock Dividends Distributable will be classified as part of additional paid-in capital. b. Common Stock Dividends Distributable will appear in its own subsection of the stock- holders’ equity. c. Additional Paid-in Capital appears under the subsection Paid-in Capital. d. Dividends in arrears will appear as a restriction of Retained Earnings. , LO: 7, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 208. The return on common stockholders’ equity is computed by dividing net income available to common stockholders by a. ending total stockholders’ equity. b. ending common stockholders’ equity. c. average total stockholders’ equity. d. average common stockholders’ equity. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 209. The return on common stockholders’ equity is computed by dividing a. net income by ending common stockholders’ equity. b. net income by average common stockholders’ equity. c. net income less preferred dividends by ending common stockholders’ equity. d. net income less preferred dividends by average common stockholders’ equity. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 210. Kong Inc. reported net income of $298,000 during 2015 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. Common stockholders’ equity was $1,200,000 on January 1, 2015, and $1,600,000 on December 31, 2015. The company’s return on common stockholders’ equity for 2015 is: a. 17.4% b. 17.0% c. 15.1% d. 21.3% , LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: ($298,000  $60,000)/[($1,200,000  $1,600,000)/2]  17% 211. King Corporation had net income of $260,000 and paid dividends of $40,000 to common stockholders and $10,000 to preferred stockholders in 2015. King Corporation’s common stockholders’ equity at the beginning and end of 2015 was $870,000 and $1,130,000, respectively. There are 100,000 weighted-average shares of common stock outstanding. King Corporation’s return on common stockholders’ equity was a. 18.6%. b. 25%. c. 21%. d. 22.1%. , LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: ($260,000  $10,000)/[($870,000  $1,130,000)/2]  25% 212. Assume that all balance sheet amounts for Marley Company represent average balance figures. Stockholders’ equity—common $150,000 Total stockholders’ equity 200,000 Sales 100,000 Net income 29,000 Number of shares of common stock 10,000 Common stock dividends 10,000 Preferred stock dividends 4,000 MC. 212 (Cont.) What is the return on common stockholders’ equity ratio for Marley? a. 19.3% b. 16.7% c. 12.5% d. 10.0% , LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: ($29,000  $4,000)/$150,000  16.7% 213. Vega Corporation’s December 31, 2015 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 15,000 shares authorized; 10,000 shares issued $ 200,000 Common stock, $10 par value, 1,000,000 shares authorized; 975,000 shares issued, 960,000 shares outstanding 9,750,000 Paid-in capital in excess of par—preferred stock 30,000 Paid-in capital in excess of par—common stock 11,500,000 Retained earnings 3,750,000 Treasury stock (15,000 shares) 315,000 Vega’s total paid-in capital was a. $21,480,000. b. $21,795,000. c. $21,165,000. d. $11,530,000. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: $200,000  $9,750,000  $30,000  $11,500,000  $21,480,000 214. Vega Corporation’s December 31, 2015 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 10,000 shares authorized; 8,500 shares issued $ 170,000 Common stock, $10 par value, 1,000,000 shares authorized; 950,000 shares issued, 940,000 shares outstanding 9,500,000 Paid-in capital in excess of par—preferred stock 34,000 Paid-in capital in excess of par—common stock 11,500,000 Retained earnings 3,750,000 Treasury stock (15,000 shares) 315,000 Vega’s total stockholders’ equity was a. $24,669,000. b. $24,690,000. c. $25,269,000. d. $24,639,000. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: $170,000  $9,500,000  $34,000  $11,500,000  $3,750,000  $315,000  $24,639,000 215. Bacon Corporation began business by issuing 180,000 shares of $5 par value common stock for $25 per share. During its first year, the corporation sustained a net loss of $30,000. The year-end balance sheet would show a. Common stock of $900,000. b. Common stock of $4,500,000. c. Total paid-in capital of $4,470,000. d. Total paid-in capital of $930,000. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 180,000  $5  $900,000 216. Realistic Corporation’s December 31, 2015 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 20,000 shares authorized; 10,000 shares issued $ 200,000 Common stock, $10 par value, 2,000,000 shares authorized; 1,950,000 shares issued, 1,930,000 shares outstanding 19,500,000 Paid-in capital in excess of par—preferred stock 60,000 Paid-in capital in excess of par—common stock 24,000,000 Retained earnings 7,650,000 Treasury stock (20,000 shares) 630,000 Realistic’s total paid-in capital was a. $43,760,000. b. $44,390,000. c. $43,130,000. d. $24,060,000. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: $200,000  $19,500,000  $60,000  $24,000,000  $43,760,000 217. Rouse Corporation’s December 31, 2015 balance sheet showed the following: 8% preferred stock, $10 par value, cumulative, 20,000 shares authorized; 15,000 shares issued $ 150,000 Common stock, $10 par value, 2,000,000 shares authorized; 1,950,000 shares issued, 1,930,000 shares outstanding 19,500,000 Paid-in capital in excess of par—preferred stock 60,000 Paid-in capital in excess of par—common stock 24,000,000 Retained earnings 7,650,000 Treasury stock (20,000 shares) 630,000 Rouse’s total stockholders’ equity was a. $51,990,000. b. $43,710,000. c. $51,360,000. d. $50,730,000. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: $150,000  $19,500,000  $60,000  $24,000,000  $7,650,000  $630,000  $50,730,000 218. Adams Corporation began business by issuing 400,000 shares of $5 par value common stock for $24 per share. During its first year, the corporation sustained a net loss of $40,000. The year-end balance sheet would show a. Common stock of $2,000,000. b. Common stock of $9,600,000. c. Total paid-in capital of $9,560,000. d. Total paid-in capital of $7,600,000. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: 400,000  $5  $2,000,000 219. The trial balance of Houston Inc. includes the following balances: Common Stock, $40,000; Paid-in Capital in Excess of Par, $64,000; Treasury Stock, $6,000; Preferred Stock, $30,000. Capital stock totals a. $70,000. b. $104,000. c. $134,000. d. $140,000. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: $40,000  $30,000  $70,000 220. Each of the following is reported for common stock except the a. par value. b. shares issued. c. shares outstanding. d. liquidation value. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 221. Paid-in capital from treasury stock would appear on a balance sheet under the category a. capital stock. b. treasury stock. c. additional paid-in capital. d. contra to stockholders’ equity. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 222. Two classifications appearing in the paid-in capital section of the balance sheet are a. preferred stock and common stock. b. paid-in capital and retained earnings. c. capital stock and additional paid-in capital. d. capital stock and treasury stock. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 223. Information that is not generally reported for each class of stock on the balance sheet is a. the market value. b. the par value. c. shares authorized. d. shares issued. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 224. In published annual reports a. subdivisions within the stockholders’ equity section are routinely reported in detail. b. capital surplus is used in place of retained earnings. c. the individual sources of additional paid-in capital are often combined. d. retained earnings is often not shown separately. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 225. Additional paid-in capital includes all of the following except a. paid-in capital from treasury stock. b. paid-in capital in excess of par. c. paid-in capital in excess of stated value. d. paid-in capital in excess of book value. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 226. A stockholders’ equity statement shows a. the names of each stockholder. b. how profits are distributed to the various classes of stockholders. c. the number of shares owned by each of the stockholders. d. the changes in each stockholders’ equity account and in total stockholders’ equity during the period. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 227. A statement of stockholders’ equity discloses all of the following except: a. The cost of treasury stock owned at the end of the year. b. Net income for the current year. c. The amount of cash dividends declared during the current year. d. The market value of the stockholders’ equity at the end of the year. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 228. Book value per share is computed by dividing total a. paid-in capital by the number of common shares outstanding. b. paid-in capital by the number of common shares issued. c. stockholders’ equity by the number of common shares outstanding. d. stockholders’ equity by the number of common shares issued. , LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a229. Barr, Inc. reports $4,000,000 of common stock, and $6,000,000 of additional paid-in capital on its balance sheet. The number of common shares issued and outstanding is 500,000 shares. The book value per share is a. $20. b. $12. c. $8. d. not determinable. , LO: 9, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 230. Book value per share is a. the equity a common stockholder has in the net assets of the corporation from owning one share of stock. b. the equity a common stockholder has in the total assets of the corporation from owning one share of stock. c. always equal to the market value of the stock. d. computed only for preferred stockholders. , LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 231. Which of the following is an incorrect statement about a corporation? a. A corporation is an entity separate and distinct from its owners. b. Creditors ordinarily have recourse only to corporate assets in satisfaction of their claims. c. A corporation may be formed in writing, orally, or implied. d. A corporation is subject to numerous state and federal regulations. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 232. Legal capital per share cannot be equal to the a. par value per share of par value stock. b. total proceeds from the sale of par value stock above par value. c. stated value per share of no-par value stock. d. total proceeds from the sale of no-par value stock. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 233. When common stock is issued for services or non-cash assets, cost should be a. only the fair value of the consideration given up. b. only the fair value of the consideration received. c. the book value of the common stock issued. d. either the fair value of the consideration given up or the consideration received, whichever is more clearly evident. , LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 234. When the selling price of treasury stock is greater than its cost, the company credits the difference to a. Gain on Sale of Treasury Stock. b. Paid-in Capital from Treasury Stock. c. Paid-in Capital in Excess of Par. d. Treasury Stock. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 235. Sandoz Corporation was organized on January 1, 2015, with authorized capital of 500,000 shares of $10 par value common stock. During 2015, Sandoz issued 30,000 shares at $12 per share, purchased 3,000 shares of treasury stock at $13 per share, and sold 3,000 shares of treasury stock at $14 per share. What is the amount of additional paid-in capital at December 31, 2015? a. $0 b. $3,000 c. $60,000 d. $63,000 , LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: [($12  $10)  30,000]  [($14  $13)  3,000]  $63,000 236. The purchase of treasury stock a. decreases common stock authorized. b. decreases common stock issued. c. decreases common stock outstanding. d. has no effect on common stock outstanding. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 237. Preferred stockholders have a priority over common stockholders as to a. dividends only. b. assets in the event of liquidation only. c. voting rights. d. both dividends and assets in the event of liquidation. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 238. On January 2, 2012, Porter Corporation issued 30,000 shares of 5% cumulative preferred stock at $100 par value. On December 31, 2015, Porter Corporation declared and paid its first dividend. What dividends are the preferred stockholders entitled to receive in the current year before any distribution is made to common stockholders? a. $0 b. $150,000 c. $450,000 d. $600,000 , LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution: (30,000  $100  .05)  4  $600,000 239. Which of the following statements about a cash dividend is incorrect? a. The legality of a cash dividend depends on state corporation laws. b. The legality of a dividend does not indicate a company’s ability to pay a dividend. c. Dividends are not a liability until declared. d. Shareholders usually vote to determine the amount of income to be distributed in the form of a dividend. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 240. The date a cash dividend becomes a binding legal obligation to a corporation is the a. declaration date. b. earnings date. c. payment date. d. record date. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 241. Dillon Corporation splits its common stock 2 for 1, when the market value is $40 per share. Prior to the split, Dillon had 50,000 shares of $10 par value common stock issued and outstanding. After the split, the par value of the stock a. remains the same. b. is reduced to $2 per share. c. is reduced to $5 per share. d. is reduced to $20 per share. , LO: 5, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: $10/2  $5 242. Which of the following statements about retained earnings restrictions is incorrect? a. Many states require a corporation to restrict retained earnings for the cost of treasury stock purchased. b. Long-term debt contracts may impose a restriction on retained earnings as a condition for the loan. c. The board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposes. d. Retained earnings restrictions are generally disclosed through a journal entry on the books of a company. , LO: 6, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 243. Prior period adjustments a. may only increase retained earnings. b. may only decrease retained earnings. c. may either increase or decrease retained earnings. d. do not affect retained earnings. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting 244. Farmer Company reports the following amounts for 2015: Net income $135,000 Average stockholders’ equity 500,000 Preferred dividends 15,000 Par value preferred stock 100,000 The 2015 rate of return on common stockholders’ equity is a. 30.0%. b. 24.0%. c. 27.0%. d. 33.8%. , LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: ($135,000  $15,000)/($500,000  $100,000)  30% 245. The return on common stockholders’ equity is computed by dividing a. net income by ending common stockholders’ equity. b. net income by average common stockholders’ equity. c. net income minus preferred dividends by ending common stockholders’ equity. d. net income minus preferred dividends by average common stockholders’ equity. , LO: 7, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 246. Additional paid-in capital includes all of the following except the amounts paid in a. over par value. b. over stated value. c. from treasury stock. d. for the par value of common stock. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 247. In the stockholders’ equity section of the balance sheet, the classification of capital stock consists of a. additional paid-in capital and common stock. b. common stock and treasury stock. c. common stock, preferred stock, and treasury stock. d. common stock and preferred stock. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a248. At December 31, the stockholders’ equity of Smith Company was as follow: Common stock, $5 par value: 1,100,000 shares issued and 1,000,000 shares outstanding $5,500,000 Additional paid-in capital 1,400,000 Retained earnings 1,500,000 Treasury stock, (100,000 shares) (700,000) Total stockholders’ equity $7,700,000 The book value per share of common stock is a. $7.00 b. $7.20 c. $8.40 d. $7.70 , LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution: $7,700,000/1,000,000  $7.70 249. Under IFRS, the term reserves relates to each of the following except a. asset revaluations. b. contributed (paid-in) capital. c. fair value differences. d. retained earnings. , LO: 10,Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 250. IFRS uses each of the following terms to describe retained earnings except a. accumulated profit or loss. b. retained earnings. c. retained profits. d. share earnings. , LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 251. A major difference between IFRS and GAAP relates to the a. Retained Earnings account. b. Revaluation Surplus account. c. Share Capital account. d. Share Premium account. , LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 252. IFRS treats the purchase of treasury stock as any of the following except a. an increase to a contra equity account. b. a decrease to retained earnings. c. a decrease to share capital. d. a decrease to share premium. , LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 253. Under IFRS, Revaluation Surplus is part of a. share premium. b. retained earnings. c. general reserves. d. contributed capital. , LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 254. Under IFRS, equity is described as each of the following except a. retained equity. b. shareholders’ funds. c. owners’ equity. d. capital and reserves. , LO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 255. Reserves include each of the following except a. other comprehensive income items. b. revaluation surplus. c. share premium. d. unrealized gains on available-for-sale securities. , LO: 10, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 256. Previously issued financial statements with errors are required to be restated under a. GAAP only. b. IFRS only. c. Both GAAP and IFRS. d. Neither GAAP or IFRS. , LO: 10, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 257. The accounting is essentially the same under IFRS and GAAP for a. prior period adjustments. b. revaluation surplus. c. treasury stock. d. All of these answers are correct. , LO: 10, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 258. A statement of comprehensive income is presented in a. a single-statement format only. b. a two-statement format only. c. an operating format. d. either a one- or two-statement format. , LO: 10, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Answers to Multiple Choice Questions BRIEF EXERCISES BE 259 Identify (by letter) each of the following characteristics as being an advantage, a disadvantage, or not applicable to the corporate form of business organization. A = Advantage D = Disadvantage N = Not Applicable Characteristics 1. Separate legal entity 2. Taxable entity resulting in additional taxes 3. Continuous life 4. Unlimited liability of owners 5. Government regulation 6. Separation of ownership and management 7. Ability to acquire capital 8. Ease of transfer of ownership , LO: 1, Bloom: K, Difficulty: Medium, Min: 4, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting BE 260 On July 6, Clayton Corporation issued 3,000 shares of its $1.50 par common stock. The market price of the stock on that date was $18 per share. Journalize the issuance of the stock. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 261 Domaine Corporation is authorized to issue 1,000,000 shares of $1 par value common stock. During 2015, the company has the following stock transactions. Jan. 15 Issued 500,000 shares of stock at $7 per share. Sept. 5 Purchased 30,000 shares of common stock for the treasury at $9 per share. Instructions Journalize the transactions for Domaine Corporation. , LO: 2, 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 262 An inexperienced accountant for Douglas Corporation made the following entries. July 1 Cash 180,000 Common Stock 180,000 (Issued 20,000 shares of common stock, par value $6 per share) Sept. 1 Common Stock 24,000 Retained Earnings 16,000 Cash 40,000 (Purchased 4,000 shares issued on July 1 for the treasury at $10 per share) Instructions On the basis of the explanation for each entry, prepare the entry that should have been made for the transactions. , LO: 2, 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 263 On September 5, Borton Corporation acquired 2,500 shares of its own $1 par common stock for $22 per share. On October 15, 1,000 shares of the treasury stock is sold for $25 per share. Instructions Journalize the purchase and sale of the treasury stock assuming that the company uses the cost method. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 264 Wise Company had the following transactions. 1. Issued 7,000 shares of common stock with a stated value of $10 for $130,000. 2. Issued 2,000 shares of $100 par preferred stock at $108 for cash. Instructions Prepare the journal entries to record the above stock transactions. , LO: 2, 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 265 On February 1, Barton Corporation issued 5,000 shares of its $20 par value preferred stock for $28 per share. Instructions Journalize the transaction. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 266 On November 27, the board of directors of Armstrong Company declared a $.50 per share dividend. The dividend is payable to shareholders of record on December 7 on December 24. Armstrong has 25,500 shares of $1 par common stock outstanding at November 27. Journalize the entries needed on the declaration and payment dates. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 267 On October 10, the board of directors of Pattern Corporation declared a 15% stock dividend. On October 10, the company had 10,000 shares of $1 par common stock issued and outstanding with a market price of $16 per share. The stock dividend will be distributed on October 31 to shareholders of record on October 25. Journalize the entries needed for the declaration and distribution of the stock dividend. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 268 Parker Company has 24,000 shares of $1 par common stock issued and outstanding. The company also has 2,000 shares of $100 par 5% cumulative preferred stock outstanding. The company did not pay the preferred dividends in 2014 or 2015. What amount of dividends must the company pay the preferred shareholders in 2016 if they wish to pay the common stockholders a dividend? , LO: 5, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 269 On November 1, 2015, Nate Corporation’s stockholders’ equity section is as follows: Common stock, $10 par value $600,000 Paid-in capital in excess of par 180,000 Retained earnings 200,000 Total stockholders’ equity $980,000 On November 1, Nate declares and distributes a 15% stock dividend when the market value of the stock is $14 per share. Instructions Indicate the balances in the stockholders’ equity accounts after the stock dividend has been distributed. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting BE 270 Match each item/event pair below with the indicated change in the item. An individual classification may be used more than once, or not at all. For each dividend, assume that both declaration and payment or distribution has occurred. Classifications A. Item increases B. Item decreases C. Item is unchanged D. Direction of change cannot be determined Item Event ____ 1. Par value per share Stock split ____ 2. Total retained earnings Stock dividend ____ 3. Total stockholders’ equity Prior period adjustment increases last year’s net income ____ 4. Earnings per common share Restriction of Retained Earnings ____ 5. Total retained earnings Cash dividend ____ 6. Total paid-in capital Stock dividend (small) , LO: 5, Bloom: C, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 271 Identify which of the following items would be reported as additions (A) or deductions (D) in a Retained Earnings Statement. 1. Net Income 2. Net Loss 3. Cash Dividends 4. Stock Dividends 5. Prior period adjustments to correct for overstatement of prior years’ net income 6. Prior period adjustments to correct for understatement of prior years’ net income , LO: 6, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA BE 272 The balance in retained earnings on January 1, 2015, for Booker Inc., was $575,000. During the year, the corporation paid cash dividends of $70,000 and distributed a stock dividend of $25,000. In addition, the company determined that it had overstated its depreciation expense in prior years by $50,000. Net income for 2015 was $120,000. Instructions Prepare the retained earnings statement for 2015. , LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting BE 273 The following information is available for Evans Corporation: 2015 2014 Average common stockholders’ equity $1,500,000 $1,000,000 Average total stockholders’ equity 2,000,000 1,500,000 Common dividends declared and paid 72,000 50,000 Preferred dividends declared and paid 30,000 30,000 Net income 360,000 300,000 Instructions Compute the return on common stockholders’ equity ratio for both years. Briefly comment on your findings. , LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting BE 274 James Corporation has the following accounts at December 31: Common Stock, $10 par 7,000 shares issued, $70,000; Paid-in Capital in Excess of Par $10,000; Retained Earnings $55,000; and Treasury Stock, 500 shares, $10,000. Prepare the stockholders’ equity section of the balance sheet. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting aBE 275 Bellingham Corporation has the following stockholders’ equity balances at December 31, 2015. Common Stock, $1 par $ 3,500 Paid in Capital in Excess of par 28,500 Retained Earnings 62,500 Total Stockholders’ Equity $94,500 Calculate book value per share. , LO: 9, Bloom: AP, Difficulty: Easy, Min: 4, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting EXERCISES Ex. 276 The following selected transactions pertain to Sinclair Corporation: Jan. 3 Issued 100,000 shares, $5 par value, common stock for $25 per share. Feb. 10 Issued 6,000 shares, $5 par value, common stock in exchange for special purpose equipment. Sinclair Corporation’s common stock has been actively traded on the stock exchange at $30 per share. Instructions Journalize the transactions. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 277 The corporate charter of Martin Corporation allows the issuance of a maximum of 4,000,000 shares of $1 par value common stock. During its first three years of operation, Martin issued 3,200,000 shares at $15 per share. It later acquired 30,000 of these shares as treasury stock for $25 per share. Instructions Based on the above information, answer the following questions: (a) How many shares were authorized? (b) How many shares were issued? (c) How many shares are outstanding? (d) What is the balance of the Common Stock account? (e) What is the balance of the Treasury Stock account? , LO: 2, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 278 Halpern Corporation is authorized to issue 1,000,000 shares of $3 par value common stock. During 2015, its first year of operation, the company has the following stock transactions. Jan. 1 Paid the state $5,000 for incorporation fees. Jan. 15 Issued 500,000 shares of stock at $6 per share. Jan. 30 Attorneys for the company accepted 500 shares of common stock as payment for legal services rendered in helping the company incorporate. The legal services are estimated to have a value of $7,000. July 2 Issued 100,000 shares of stock for land. The land had an asking price of $900,000. The stock is currently selling on a national exchange at $8 per share. Sept. 5 Purchased 15,000 shares of common stock for the treasury at $8 per share. Dec. 6 Sold 11,000 shares of the treasury stock at $11 per share. Ex. 278 (Cont.) Instructions Journalize the transactions for Halpern Corporation. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 279 Prepare the necessary journal entry for each of the following transactions for Zenia Corporation. (a) Issued 2,000 shares of its $5 par value common stock for $20 per share. (b) Issued 5,000 shares of its stock for land advertised for sale at $90,000. Zenia’s stock is actively traded at a market price of $16 per share. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 280 Lange Corporation issued 5,000 shares of stock. Instructions Prepare the entry for the issuance under the following assumptions. (a) The stock had a par value of $10 per share and was issued for a total of $65,000. (b) The stock had a stated value of $10 per share and was issued for a total of $65,000. Ex. 280 (Cont.) (c) The stock had a par value of $10 per share and was issued to attorneys for services during in-corporation valued at $65,000. (d) The stock had a par value of $10 per share and was issued for land worth $65,000. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 281 1. Name at least three factors that influence the market value of stock. 2. Corporations acquire treasury stock for a variety of purposes. Name three reasons why treasury stock may be acquired by a corporation. , LO: 1, 3, Bloom: C, Difficulty: Easy, Min: 9, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 2. Reasons why a company may acquire treasury stock: (a) To reissue the shares to officers and employees under bonus and stock compensation plans. (b) To signal to the stock market that management believes the stock is underpriced, in the hope of enhancing its market value (c) To have additional shares available for use in the acquisition of other companies. (d) To reduce the number of shares outstanding and thereby increase earnings per share. (e) To rid the company of disgruntled investors, perhaps to avoid a takeover. Ex. 282 The following items were shown on the balance sheet of Easton Corporation on December 31, 2015: Stockholders’ equity Paid-in capital Capital stock Common stock, $10 par value, 400,000 shares authorized; ______ shares issued and ______ outstanding $1,850,000 Additional paid-in capital In excess of par 165,000 Total paid-in capital 2,015,000 Retained earnings 750,000 Total paid-in capital and retained earnings 2,765,000 Less: Treasury stock (18,000 shares) (270,000) Total stockholders’ equity $2,495,000 Instructions Complete the following statements and show your computations. (a) The number of shares of common stock issued was _______________. (b) The number of shares of common stock outstanding was ____________. (c) The sales price of the common stock when issued was $____________. (d) The cost per share of the treasury stock was $_______________. (e) The average issue price of the common stock was $______________. (f) Assuming that 25% of the treasury stock is sold at $20 per share, the balance in the Treasury Stock account would be $_______________. , LO: 2, 3, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 283 The stockholders’ equity section of Morton Corporation at December 31 is as follows. MORTON CORPORATION Balance Sheet (partial) Paid-in capital Preferred stock, cumulative, 10,000 shares authorized, 5,000 shares issued and outstanding $ 300,000 Common Stock, no par, 750,000 shares authorized, 150,000 shares issued 1,500,000 Total paid-in capital 1,800,000 Retained earnings 2,050,000 Total paid-in capital and retained earnings 3,850,000 Less: Treasury stock (5,000 common shares) (64,000) Total stockholders’ equity $3,786,000 Instructions From a review of the stockholders’ equity section, answer the following questions. (a) How many shares of common stock are outstanding? (b) Assuming there is a stated value, what is the stated value of the common stock? (c) What is the par value of the preferred stock? (d) If the annual dividend on preferred stock is $15,000, what is the dividend rate on preferred stock? (e) If dividends of $30,000 were in arrears on preferred stock, what would be the balance in Retained Earnings? , LO: 2, 3, 4, 7, Bloom: AN, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 284 On January 1, 2015, the stockholders’ equity section of Nance Corporation shows: Common stock ($5 par value) $1,500,000; paid-in capital in excess of par value $1,000,000; and retained earnings $1,200,000. During the year, the following treasury stock transactions occurred. Mar. 1 Purchased 30,000 shares for cash at $22 per share. July 1 Sold 6,000 treasury shares for cash at $27 per share. Sept. 1 Sold 5,000 treasury shares for cash at $19 per share. Instructions (a) Journalize the treasury stock transactions. (b) Restate the entry for September 1, assuming the treasury shares were sold at $12 per share. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 285 On May 1, Howard Corporation purchased 2,000 shares of its $10 par value common stock at a cash price of $15/share. On July 15, 900 shares of the treasury stock were sold for cash at $17/share. Instructions Journalize the two transactions. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 286 Yates Corporation has the following stockholders’ equity accounts on January 1, 2015: Common Stock, $10 par value $1,500,000 Paid-in Capital in Excess of Par 200,000 Retained Earnings 500,000 Total Stockholders’ Equity $2,200,000 The company uses the cost method to account for treasury stock transactions. During 2015, the following treasury stock transactions occurred: April 1 Purchased 10,000 shares at $19 per share. August 1 Sold 4,000 shares at $22 per share. October 1 Sold 2,000 shares at $15 per share. Instructions (a) Journalize the treasury stock transactions for 2015. (b) Prepare the Stockholders’ Equity section of the balance sheet for Yates Corporation at December 31, 2015. Assume net income was $110,000 for 2015. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 287 Arens Corporation purchased 4,000 shares of its $5 par value common stock for a cash price of $10 per share. Two months later, Arens sold the treasury stock for a cash price of $8 per share. Instructions Prepare the journal entry to record the sale of the treasury stock assuming (a) No balance in Paid-in Capital from Treasury Stock. (b) A $3,000 balance in Paid-in Capital from Treasury Stock. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 7, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 288 An inexperienced accountant for Olsen Corporation made the following entries. July 1 Cash 240,000 Common Stock 240,000 (Issued 16,000 shares of no-par common stock, stated value $10 per share) Sept. 1 Common Stock 30,000 Retained Earnings 6,000 Cash 36,000 (Purchased 2,000 shares issued on July 1 for the treasury at $18 per share) Dec. 1 Cash 20,000 Common Stock 15,000 Gain on Sale of Stock 5,000 (Sold 1,000 shares of the treasury stock at $20 per share) Instructions (a) On the basis of the explanation for each entry, prepare the entry that should have been made for the transactions. (Omit explanations.) (b) Prepare the correcting entries that should be made to correct the accounts of Olsen Corporation. (Do not reverse the original entry.) , LO: 4, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 289 On January 1, 2015, Dreamy Company issued 30,000 shares of $2 par value common stock for $150,000. On March 1, 2015, the company purchased 6,000 shares of its common stock for $7 per share for the treasury. On June 1, 2015, 1,500 of the treasury shares are sold for $10 per share. On September 1, 2015, 3,000 treasury shares are sold at $5 per share. Instructions Journalize the stock transactions of Dreamy Company in 2015. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 290 Wave Company originally issued 30,000 shares of $5 par common stock for $210,000 on January 3, 2015. Wave purchased 1,500 shares of treasury stock for $12,000 on November 2, 2015. On December 6, 2015, 600 shares of the treasury stock are sold for $7,200. Ex. 290 (Cont.) Instructions Prepare journal entries to record these stock transactions. , LO: 3, Bloom: AP, Difficulty: Medium, Min: 9, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 291 The stockholders’ equity section of Barrel Corporation’s balance sheet at December 31, 2014, appears below: Stockholders’ equity Paid-in capital Common stock, $10 par value, 400,000 shares authorized; 250,000 issued and outstanding $2,500,000 Paid-in capital in excess of par 1,200,000 Total paid-in capital 3,700,000 Retained earnings 600,000 Total stockholders’ equity $4,300,000 During 2015, the following stock transactions occurred: Jan. 18 Issued 50,000 shares of common stock at $32 per share. Aug. 20 Purchased 25,000 shares of Barrel Corporation’s common stock at $24 per share to be held in the treasury. Nov. 5 Reissued 9,000 shares of treasury stock for $28 per share. Instructions (a) Prepare the journal entries to record the above stock transactions. (b) Prepare the stockholders’ equity section of the balance sheet for Barrel Corporation at December 31, 2015. Assume that net income for the year was $150,000 and that no dividends were declared. , LO: 3, 4, 7, Bloom: AP, Difficulty: Medium, Min: 16, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Capital stock Common stock, $10 par value, 400,000 shares authorized, 300,000 shares issued, and 284,000 shares outstanding $3,000,000 Additional paid-in capital In excess of par $2,300,000 From treasury stock 36,000 2,336,000 Total paid-in capital 5,336,000 Retained earnings 750,000 Total paid-in capital and retained earnings 6,086,000 Less: Treasury stock (16,000 shares) (384,000) Total stockholders’ equity $5,702,000 Ex. 292 Sloman Corporation has 100,000 shares of $50 par value preferred stock authorized. During the year, it had the following transactions related to its preferred stock. (a) Issued 20,000 shares at $55 per share. (b) Issued 10,000 shares for equipment having a $700,000 asking price. The stock had a market value of $75 per share Instructions Journalize the transactions. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 293 Desert Corporation has the following capital stock outstanding at December 31, 2015: 7% Preferred stock, $100 par value, cumulative 15,000 shares issued and outstanding $1,500,000 Common stock, no par, $10 stated value, 500,000 shares authorized, 350,000 shares issued and outstanding 3,500,000 The preferred stock was issued at $130 per share. The common stock was issued at an average per share price of $14. Instructions Prepare the paid-in capital section of the balance sheet at December 31, 2015. , LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 294 In its first year of operations, Arid Corporation had the following transactions pertaining to its $20 par value preferred stock. Feb. 1 Issued 6,000 shares for cash at $43 per share. Nov. 1 Issued 3,000 shares for cash at $45 per share. Instructions (a) Journalize the transactions. (b) Indicate the amount to be reported for (1) preferred stock, and (2) paid-in capital in excess of par — preferred stock at the end of the year. Ex. 295 Trane Corporation has the following stockholders’ equity accounts: Preferred Stock Paid-in Capital in Excess of Par—Preferred Stock Common Stock Paid-in Capital in Excess of Stated Value—Common Stock Paid-in Capital from Treasury Stock—Common Retained Earnings Treasury Stock—Common Instructions Classify each account using the following tabular alignment. Paid-in Capital Retained Account Capital Stock Additional Earnings Other , LO: 4, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 296 Darling Corporation issued 200,000 shares of $20 par value, cumulative, 5% preferred stock on January 1, 2013, for $4,500,000. In December 2015, Darling declared its first dividend of $800,000. Instructions (a) Prepare Darling’s journal entry to record the issuance of the preferred stock. (b) If the preferred stock is not cumulative, how much of the $800,000 would be paid to common stockholders? (c) If the preferred stock is cumulative, how much of the $800,000 would be paid to common stockholders? , LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 297 The stockholders’ equity section of Maria Corporation at December 31, 2014, included the following: 6% preferred stock, $100 par value, cumulative, 10,000 shares authorized, 8,000 shares issued and outstanding $ 800,000 Common stock, $10 par value, 250,000 shares authorized, 200,000 shares issued and outstanding $2,000,000 Dividends were not declared on the preferred stock in 2014 and are in arrears. On September 15, 2015, the board of directors of Maria Corporation declared dividends on the preferred stock for 2014 and 2015, to stockholders of record on October 1, 2015, payable on October 15, 2015. On November 1, 2015, the board of directors declared a $.50 per share dividend on the common stock, payable November 30, 2015, to stockholders of record on November 15, 2015. Ex. 297 (Cont.) Instructions Prepare the journal entries that should be made by Maria Corporation on the dates indicated below: September 15, 2015 November 1, 2015 October 1, 2015 November 15, 2015 October 15, 2015 November 30, 2015 , LO: 5, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 298 Stockton Corporation has 160,000 shares of $5 par value common stock outstanding. It declared a 15% stock dividend on June 1 when the market price per share was $13. The shares were issued on June 30. Instructions Prepare the necessary entries for the declaration and payment of the stock dividend. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ex. 299 Jungle Corporation’s stockholders’ equity section at December 31, 2014 appears below: Stockholders’ equity Paid-in capital Common stock, $10 par, 60,000 outstanding $600,000 Paid-in capital in excess of par 150,000 Total paid-in capital $750,000 Retained earnings 150,000 Total stockholders’ equity $900,000 On June 30, 2015, the board of directors of Kenner Corporation declared a 15% stock dividend, payable on July 31, 2015, to stockholders of record on July 15, 2015. The fair value of Kenner Corporation’s stock on June 30, 2015, was $15. On December 1, 2015, the board of directors declared a 2 for 1 stock split effective December 15, 2015. Jungle Corporation’s stock was selling for $20 on December 1, 2015, before the stock split was declared. Par value of the stock was adjusted. Net income for 2015 was $190,000 and there were no cash dividends declared. Instructions (a) Prepare the journal entries on the appropriate dates to record the stock dividend and the stock split. (b) Fill in the amount that would appear in the stockholders’ equity section for Jungle Corporation at December 31, 2015, for the following items: 1. Common stock $____________ 2. Number of shares outstanding _____________ 3. Par value per share $____________ 4. Paid-in capital in excess of par $____________ 5. Retained earnings $____________ 6. Total stockholders’ equity $____________ , LO: 5, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 300 Sleep Corporation was organized on January 1, 2014. During its first year, the corporation issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends: 2014 $ 6,000 2015 $30,000 2016 $60,000 Instructions (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 4% and not cumulative. (b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and cumulative. (c) Journalize the declaration of the cash dividend at December 31, 2016 using the assumption of part (b). , LO: 5, Bloom: AP, Difficulty: Hard, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 301 On November 1, 2015, Tech Corporation’s stockholders’ equity section is as follows: Common stock, $10 par value $ 600,000 Paid-in capital in excess of par 205,000 Retained earnings 240,000 Total stockholders’ equity $1,045,000 On November 1, Tech declares and distributes a 15% stock dividend when the market value of the stock is $16 per share. Ex. 301 (Cont.) Instructions Indicate the balances in the stockholders’ equity accounts after the stock dividend has been distributed. , LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 302 During 2015, Pink Corporation had the following transactions and events: 1. Issued par value preferred stock for cash at par value. 2. Issued par value common stock for cash at an amount greater than par value. 3. Completed a 2 for 1 stock split in which the $10 par value common stock was changed to $5 par value stock. 4. Declared a small stock dividend when the market value was higher than the par value. 5. Declared a cash dividend. 6. Made a prior period adjustment for understatement of net income. 7. Issued par value common stock for cash at par value. 8. Paid the cash dividend. 9. Issued the shares of common stock required by the stock dividend declaration in 4. above. Instructions Indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders’ equity. Present your answers in tabular form with the following columns. Use (I) for increase, (D) for decrease, and (NE) for no effect. Paid-in Capital Capital Additional Retained Item Stock Paid-in Capital Earnings , LO: 5, 6, 7, Bloom: C, Difficulty: Medium, Min: 9, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 303 The following information is available for Pencil Corporation: Common Stock ($5 par) $1,600,000 Retained Earnings 1,300,000 A 20% stock dividend is declared and paid when the market value was $16 per share. Instructions Compute each of the following after the stock dividend. (a) Total stockholders’ equity. (b) Number of shares outstanding. , LO: 5, Bloom: AP, Difficulty: Hard, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 304 On January 1, 2015, Ralph Corporation had $2,000,000 of $10 par value common stock outstanding that was issued at par and retained earnings of $1,000,000. The company issued 200,000 shares of common stock at $12 per share on July 1. On December 15, the board of directors declared a 15% stock dividend to stockholders of record on December 31, 2015, payable on January 15, 2016. The market value of Ralph Corporation stock was $14 per share on December 15 and $16 per share on December 31. Net income for 2015 was $500,000. Instructions (1) Journalize the issuance of stock on July 1 and the declaration of the stock dividend on December 15. (2) Prepare the stockholders’ equity section of the balance sheet for Ralph Corporation at December 31, 2015. , LO: 5, 7, Bloom: AP, Difficulty: Hard, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 305 On January 1, 2015, Magnus Corporation had 60,000 shares of $1 par value common stock issued and outstanding. During the year, the following transactions occurred: Mar. 1 Issued 35,000 shares of common stock for $550,000. June 1 Declared a cash dividend of $2.00 per share to stockholders of record on June 15. June 30 Paid the $2.00 cash dividend. Dec. 1 Purchased 5,000 shares of common stock for the treasury for $22 per share. Dec. 15 Declared a cash dividend on outstanding shares of $2.20 per share to stockholders of record on December 31. Instructions Prepare journal entries to record the above transactions. Ex. 306 Record the following transactions for Quik Corporation on the dates indicated. 1. On March 31, 2015, Quik Corporation discovered that Depreciation Expense on equipment for the year ended December 31, 2014, had been recorded twice, for a total amount of $84,000 instead of the correct amount of $42,000. 2. On June 30, 2015, the company’s internal auditors discovered that the April 2015 telephone bill for $2,400 had erroneously been charged to the Interest Expense account. 3. On August 14, 2015, cash dividends on preferred stock of $150,000 declared on July 1, 2015, were paid. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 307 The following information is available for Zip Corporation: Retained Earnings, December 31, 2014 $1,500,000 Net Income for the year ended December 31, 2015 $ 200,000 The company accountant, in preparing financial statements for the year ending December 31, 2015, has discovered the following information: The company’s previous bookkeeper, who has been fired, had recorded depreciation expense on equipment in 2013 and 2014 using the double-declining-balance method of depreciation. The bookkeeper neglected to use the straight-line method of depreciation which is the company’s policy. The cumulative effects of the error on prior years was $35,000, ignoring income taxes. Depreciation was computed by the straight-line method in 2015. Instructions (a) Prepare the entry for the prior period adjustment. (b) Prepare the retained earnings statement for 2015. , LO: 6, Bloom: AP, Difficulty: Hard, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 308 The following information is available for Matlin Inc.: Beginning retained earnings $600,000 Cash dividends declared 60,000 Net income for 2015 120,000 Stock dividend declared 35,000 Understatement of last year’s depreciation expense 30,000 Ex. 309 Rex Company reported retained earnings at December 31, 2014, of $410,000. Reese had 180,000 shares of common stock outstanding throughout 2015. The following transactions occurred during 2015. 1. An error was discovered in 2013, depreciation expense was recorded at $60,000, but the correct amount was $50,000. 2. A cash dividend of $0.50 per share was declared and paid. 3. A 5% stock dividend was declared and distributed when the market price per share was $15 per share. 4. Net income was $295,000. Instructions Prepare a retained earnings statement for 2015. , LO: 6, Bloom: AP, Difficulty: Hard, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 310 Morgan Company reported the following balances at December 31, 2014: common stock $500,000; paid-in capital in excess of par value $100,000; retained earnings $350,000. During 2015, the following transactions affected stockholders’ equity. 1. Issued preferred stock with a par value of $150,000 for $200,000. 2. Purchased treasury stock (common) for $50,000. 3. Earned net income of $140,000. 4. Declared and paid cash dividends of $75,000. Instructions Prepare the stockholders’ equity section of Morgan Company’s December 31, 2015, balance sheet. , LO: 7, Bloom: AP, Difficulty: Hard, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 311 On January 1, 2015, Catlin Corporation had Retained Earnings of $400,000. During the year, Catlin had the following selected transactions: 1. Declared stock dividends of $50,000. 2. Declared cash dividends of $80,000. 3. A 2 for 1 stock split involving the issuance of 200,000 shares of $5 par value common stock for 100,000 shares of $10 par value common stock. 4. Suffered a net loss of $60,000. 5. Corrected understatement of 2014 net income because of an inventory error of $48,000. Instructions Prepare a retained earnings statement for the year. , LO: 7, Bloom: AP, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 312 The following accounts appear in the ledger of Fall Inc. after the books are closed at December 31, 2015. Common Stock, $1 par value, 500,000 shares authorized, 400,000 shares issued $400,000 Common Stock Dividends Distributable 60,000 Paid-in Capital in Excess of Par—Common Stock 550,000 Preferred Stock, $100 par value, 6%, 10,000 shares authorized; 2,000 shares issued 200,000 Retained Earnings 920,000 Treasury Stock (10,000 common shares) 75,000 Paid-in Capital in Excess of Par—Preferred Stock 310,000 Instructions Prepare the stockholders’ equity section at December 31, 2015, assuming that retained earnings is restricted for plant expansion in the amount of $200,000. , LO: 7, Bloom: APP, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 313 The following information is available for Gaynor Corporation: Beginning common stockholders’ equity $700,000 Dividends paid to common stockholders 50,000 Dividends paid to preferred stockholders 30,000 Ending common stockholders’ equity 1,000,000 Net income 217,000 Instructions Based on the preceding information, calculate return on common stockholders’ equity. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 314 The following stockholders’ equity accounts, arranged alphabetically, are in the ledger of Star Corporation at December 31, 2015. Common Stock ($5 stated value) $2,200,000 Paid-in Capital in Excess of Par—Preferred Stock 280,000 Paid-in Capital in Excess of Stated Value—Common Stock 800,000 Preferred Stock (8%, $100 par, noncumulative) 500,000 Retained Earnings 1,434,000 Treasury Stock—Common (10,000 shares) 130,000 Instructions Prepare the stockholders’ equity section of the balance sheet at December 31, 2015. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 315 The following information is available for Macon Corporation: Common Stock ($10 par) $1,700,000 Paid-in Capital in Excess of Par—Preferred 200,000 Paid-in Capital in Excess of Stated Value—Common 750,000 Preferred Stock 450,000 Retained Earnings 800,000 Treasury Stock—Common 50,000 Instructions Based on the preceding information, calculate each of the following: (a) Total paid-in capital. (b) Total stockholders’ equity. , LO: 7, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Ex. 316 Place each of the items listed below in the appropriate subdivision of the stockholders’ equity section of a balance sheet. Common stock, $10 stated value Retained earnings 8% Preferred stock, $100 par value Paid-in capital in excess of par Paid-in capital in excess of stated value Treasury stock—Common Paid-in capital from treasury stock Stockholders’ equity Paid-in capital Capital stock Additional paid-in capital Total additional paid-in capital Total paid-in capital Retained earnings Total paid-in capital and retained earnings Total stockholders’ equity LO: 7, Bloom: C, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting aEx. 317 The following information is available for Gordon Corporation: Common stock ($5 par) $600,000 Paid-in capital in excess of par–common 200,000 Retained earnings 180,000 Treasury stock 80,000 Common shares issued 100,000 shares Common shares outstanding 90,000 Instructions Based on the preceding information, calculate the book value per share. , LO: 9, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting aEx. 318 On December 31, 2015, Colaw Company reports the following amounts in its stockholder’ equity section: Common stock ($10 par) $2,400,000 Paid-in capital in excess of stated value–common 900,000 Retained earnings 1,980,000 Treasury stock–common 180,000 The common stock has a stated value of $10 per share. One million shares of common stock are authorized and 40,000 shares are held in the treasury. Instructions Compute the book value per share of common stock , LO: 9, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting COMPLETION STATEMENTS 319. A corporation has a separate __________________________ apart from its owners. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 320. The major advantages of the corporate form of organization include (1) limited _________________ of owners, (2) continuous ____________________ and (3) ease of transferring ___________________. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 321. Stockholders elect the _______________, who in turn hire the ______________ of the company who have day to day responsibility for running the corporation. , : 322. If a corporation’s stock is traded on the major stock exchanges, the corporation must generally report periodically to a federal agency known as the ____________________. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 323. Stockholders generally have the right to share in corporate _______________ and in ______________ upon liquidation. , : Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics 324. Par value of stock represents the __________________ per share that must be retained in the business for the protection of corporate ___________________. , : Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 325. If stock is issued in exchange for noncash assets, the assets should be valued at the ____________________ of the consideration ___________________ or the assets ____________________, whichever is more clearly evident. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 326. A corporation’s own stock that has been reacquired by the corporation but not canceled is called ___________________ and is deducted from total _______________________ on the balance sheet. , LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 327. The _______________ feature of preferred stock gives the preferred stockholders the right to receive current-year dividends and unpaid prior-year dividends before common stockholders receive any dividends. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics 328. Preferred stock has contractual provisions that give it a preference over common stock as to ___________________ and to ___________________ in the event of liquidation. , LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics 329. Three important dates associated with dividends are the: (1)__________________, (2)__________________, and (3)__________________. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 330. The entry to record the declaration of a stock dividend increases _______________, and decreases ________________. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 331. Both a stock split and a stock dividend will _________________ the number of shares outstanding and have _________________ on total stockholders’ equity. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 332. Corporations sometimes segregate retained earnings into two categories: (1)__________ retained earnings and (2)________________ retained earnings. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 333. The correction of an error in previously issued financial statements is known as a _________________. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 334. The return on ________________ shows how many dollars of net income were earned for each dollar invested by owners. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 335. The return on common stockholders’ equity is computed by dividing _____________ minus _______________ dividends by average common stockholders’ equity. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 336. The paid-in capital section of the balance sheet consists of two classifications: ______________________ and ______________________. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting MATCHING 337. Match the items below by entering the appropriate code letter in the space provided. A. Limited liability J. Cumulative feature B. Capital stock K. Deficit C. Board of directors L. Liquidating dividend D. Paid-in capital M. Earnings per share E. Retained earnings N. Return on common stockholders’ equity F. Preemptive right O. Cash dividend G. Par value P. Declaration date H. Legal capital Q. Stock dividend I. Treasury stock R. Stock split ____ 1. Net income retained in the corporation. ____ 2. The amount that must be retained in the business for the protection of creditors. ____ 3. Preferred stockholders have a right to receive current and unpaid prior-year dividends before common stockholders receive any dividends. ____ 4. Creditors only have corporate assets to satisfy their claims. ____ 5. Responsible to stockholders for corporate activity. ____ 6. The amount assigned to each share of stock in the corporate charter. ____ 7. Unit of ownership in a corporation. ____ 8. Enables stockholders to maintain their same percentage ownership when new shares are issued. ____ 9. Corporation’s own stock that has been reacquired by the corporation but not retired. ____ 10. Total amount paid-in on capital stock. ____ 11. A dividend declared out of paid-in capital. ____ 12. A pro rata distribution of cash to stockholders. ____ 13. A debit balance in retained earnings. ____ 14. A pro rata distribution of the corporation’s own stock to stockholders. ____ 15. Shows how many dollars of net income were earned for each dollar invested by the owners. ____ 16. The date the board of directors formally declares the dividend and announces it to stockholders. ____ 17. The issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share. ____ 18. Widely used by stockholders and potential investors in evaluating the profitability of a company. SHORT-ANSWER ESSAY QUESTIONS S-A E 338 Identify at least six characteristics of the corporate form of business organization. Contrast each one with the partnership form of organization. , LO: 1, Bloom: K, Difficulty: Medium, Min: 5, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Research, AICPA PC: Communication, IMA: FSA S-A E 339 Companies frequently issue both preferred stock and common stock. What are the major differences in the rights of stockholders between these two classes of stock? S-A E 340 Define par value, and discuss its significance in accounting. , LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting S-A E 341 Lang, Inc. purchases 1,000 shares of its own previously issued $5 par common stock for $15,000. The treasury stock is resold by Lang, Inc. for $20,000. What effect does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total stockholders’ equity? , LO: 3, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting S-A E 342 Why must a corporation have sufficient retained earnings before it may declare cash dividends? , LO: 5, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting S-A E 343 Three dates are important in connection with cash dividends. Identify these dates, and explain their significance to the corporation and its stockholders. , LO: 5, Bloom: K, Difficulty: Easy, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting S-A E 344 A prior period adjustment is occasionally reported in company financial statements. What is a prior period adjustment, and how is it reported in the financial statements? , LO: 6, Bloom: K, Difficulty: Easy, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting S-A E 345 The ultimate effect of incurring an expense is to reduce stockholders’ equity. The declaration of a cash dividend also reduces stockholders’ equity. Explain the difference between an expense and a cash dividend and explain why they have the same effect on stockholders’ equity. , LO: 7, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting An expense and a cash dividend, however, both result in a decrease in stockholders’ equity, or more specifically, retained earnings. Expenses and cash dividends both decrease the amount of earned capital that is retained in the corporation. S-A E 346 A large stock dividend and stock split can frequently have the same effect on the market price of a corporation’s stock. Explain how stock dividends and stock splits affect the market price of a corporation’s stock. , LO: 7, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting S-A E 347 (Ethics) Mike Stephenson, the president and CEO of Earth Systems, Inc., a waste management firm, was recently hospitalized, suffering from exhaustion and a heart ailment. Immediately prior to his hospitalization, Earth Systems had experienced a sharp decline in its stock price, and trading activity became almost nonexistent. The primary reason for this was concern expressed in the media over a new untested waste management system implemented by the company. Mr. Stephenson had been unwilling to submit the procedure to testing before implementation, but he reluctantly agreed to limited tests after the system was operational. No problems have been identified by the tests to date. The other members of management called a meeting to determine what they should do. Roger Carlson, the marketing manager, suggested that the company purchase a large number of shares of treasury stock. In that way, investors might notice that activity had picked up, and might decide to buy some more shares. This plan would use up most of the company’s available cash, so that there will be no money available for a cash dividend. Earth Systems has paid cash dividends every quarter for over ten years. Required: 1. Is Mr. Carlson’s suggestion ethical? Explain. 2. Is it ethical to discontinue the cash dividend? Explain. , LO: 5, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting S-A E 348 (Communication) As part of a Careers in Accounting program sponsored by accounting organizations and supported by your company, you will be taking a group of high-school students through the accounting department in your company. You will also provide them with various materials to explain the work of an accountant. One of the materials you will provide is the Stockholders’ Equity section of a recent balance sheet. Required: Prepare a sentence or two explaining each major section: Common Stock, Additional Paid-in Capital, and Retained Earnings. You should try to be brief but clear. , LO: 7, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting CHALLENGE EXERCISES CE 1 On January 1, 2015, the stockholders’ equity section of Kingman Corporation shows: common stock ($5 par value) $2,000,000; paid-in capital in excess of par value $1,200,000; and retained earnings $1,500,000. During the year, the following treasury stock transactions occurred. Mar. 1 Purchased 60,000 shares for cash at $13 per share. July 1 Sold 15,000 treasury shares for cash at $15 per share. Sept. 1 Sold 10,000 treasury shares for cash at $11 per share. Instructions (a) Journalize the treasury stock transactions. (b) Prepare the stockholders’ equity section after the entries in (a) are recorded. (c) Prepare the entry for September 1, assuming the treasury shares were sold at $8 per share. CE 2 On January 1, Staley Corporation had 90,000 shares of no-par common stock issued. 5,000 shares are held as treasury stock. The stock has a stated value of $5 per share. During the year, the following transactions occurred. Apr. 1 Issued 12,000 additional shares of common stock for $18 per share. June 15 Declared a cash dividend of $1 per share to stockholders of record on June 30. July 10 Paid the $1 cash dividend. Dec. 1 Purchased 7,000 additional shares of common stock for $17 per share. 15 Declared a cash dividend on outstanding shares of $1.20 per share to stockholder of record on December 31. Instructions (a) Prepare the entries, if any, on each of the three dividend dates. (b) How are dividends and dividends payable reported in the financial statements prepared at December 31? CE 3 Kennedy Company reported the following balances at December 31, 2014: common stock $500,000; paid-in capital in excess of par value $200,000; retained earnings $450,000. During 2015, the following transactions affected stockholders’ equity. 1. Issued preferred stock with a par value of $250,000 for $290,000. 2. Purchased treasury stock (common) for $80,000. 3. Earned net income of $220,000. 4. Declared and paid cash dividends of $86,000 ($16,000 preferred). Instructions (a) Prepare the stockholders’ equity section of Kennedy Company’s December 31, 2015, balance sheet. (b) Compute Kennedy’s 2015 return on common stockholders’ equity. [Show More]

Last updated: 1 year ago

Preview 1 out of 97 pages