Deck 12: Statement of Cash Flows

Question 1

From an investor's viewpoint,in today's litigious environment,what would be considered the most advantageous characteristic of the corporate form of organization?

A)Taxation.
B)Ease of capital assembly.
C)Continuity of life for the corporation.
D)Limited liability for shareholders.

Answer 1

D

Question 2

Which of the following statements is false?

A)Most small shareholders do not attend the corporation's annual meeting,so they cast their vote by proxy card.
B)Some corporations are created by application to a specific provincial government.
C)Some corporations are created by application to the federal government.
D)Corporations do not limit the liability of its owners.

Answer 2

D

Question 3

With respect to a corporation,select the statement that is false:

A)Its organization requires an approved charter which is governed by state law.
B)Ownership rights to the corporation are transferable.
C)A corporation is a separate legal entity from its owners.
D)A corporation cannot sue others or be sued.

Answer 3

D

Question 4

Which one of the following is not a basic right of an owner of common share?

A)Participation in the corporation by voting in shareholder meetings.
B)Participation in the profits of the corporation through dividends declared by the board of directors.
C)Sharing in the responsibility of setting next year's budget.
D)Sharing in the distribution of assets of the corporation at liquidation.

Question 5

Which one of the following would not be considered an advantage of the corporate form of organization?

A)Limited liability of shareholders
B)Separate legal existence
C)Continuous life
D)Government regulation

Question 6

The authorized shares 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.

Question 7

The conversion feature on convertible preferred shares enables the shareholder to convert them to which of the following?

A)Common shares.
B)Cash.
C)Convertible bonds.
D)Products of the company.

Question 8

Which of the following statements about shares issued in exchange for assets is true?

A)they impact cash flow
B)they are disclosed in a note to the statement of cash flows
C)they are classified as operating activities
D)they are classified as investment activities

Question 9

Which of the following statements is true?

A)Common shares have a dividend rate fixed by the share contract.
B)Preferred shares have a volatile market value,therefore,they are a more risky investment than common shares.
C)Corporations are not always considered to be a separate legal entity.
D)Transfer of ownership is easy with a corporation.

Question 10

Common shareholders have the right to all of the following rights except?

A)Sell their shares.
B)Share in any dividends distributed to common shareholders.
C)Have the first opportunity to purchase any additional shares of common share issued by the corporation.
D)Make day-to-day decisions on behalf of the corporation.

Question 11

Which of the following statements is false?

A)A share dividend has no impact on cash.
B)Repurchase of shares (treasury shares)and payment of cash dividends reduce cash flow from financing activities.
C)Issuance of preferred shares would increase cash from financing activities.
D)Repurchases of shares at prices lower than the average issue price result in profit for the issuing company because they are capital transactions,not operating transactions

Question 12

Vaughan Company has one class of capital shares issued.It is which of the following?

A)Common shares.
B)Preferred shares,voting.
C)Preferred shares,non cumulative.
D)Common shares,nonvoting.

Question 13

Which of the following statements is false?

A)Most provinces do not require shares to have a par value.
B)Many provinces permit issuance of no-par value shares.
C)Legal capital represents the permanent amount of capital that owners cannot withdraw as long as the corporation exists.
D)Par value shares are increasingly issued by corporations in Canada.

Question 14

Which of the following statements is true?

A)Preferred shares are usually a more risky investment than common shares.
B)Convertible preferred shares are exchangeable for a set number of common shares at the option of the investor at some specified date after the shares have been issued.
C)Callable preferred shares can be exchanged for a designated cash value at the option of the investor.
D)Preferred shares typically increase significantly in value over time.

Question 15

Which of the following represents the maximum shares issuable to the public?

A)Authorized shares
B)Issued shares
C)Outstanding shares
D)Unissued shares

Question 16

With respect to preferred shares,select the statement that is correct.

A)They must have a par value.
B)They are never issued without voting privileges.
C)They cannot exist unless there also are common shares.
D)They always provide for a fixed payment to be made to the shareholders even for years when no dividends have been declared.

Question 17

Which of the following represents the shares currently in the hands of investors?

A)Authorized shares
B)Issued shares
C)Outstanding shares
D)Unissued shares

Question 18

Which of the following are the typical rights afforded the preferred shareholders?

A)A preference to receive dividends when declared by the board of directors before common shareholders can receive their dividends.
B)A preference to receive the liquidation value of the assets as stated in the share contract before common shareholders can receive their share.
C)The right to vote on major corporate issues including electing the board of directors.
D)Two of the responses are preferred shareholder rights.

Question 19

Which is not true about preferred shares?

A)Preferred shares have a higher priority status relative to common shares.
B)They usually do not carry voting rights.
C)The same capital accounts are used to record the issuance of preferred shares and common shares.
D)Preferred shareholders receive dividends in arrears only if the shares are cumulative.

Question 20

Which of the following represents the shares sold in either an initial public offering or subsequent seasoned new issuances?

A)Authorized shares
B)Issued shares
C)Outstanding shares
D)Unissued shares

Question 21

Slick Willie Inc.had the following shares outstanding during 20C: (1)Preferred shares,$3,cumulative,1,000 shares with dividends in arrears for 20A and 20B.
(2)Common shares,2,000 shares.
The total dividends declared for the current year were $21,000.What is the total amount of dividends to which the preferred shareholders are entitled?

A)$3,000
B)$6,000
C)$9,000
D)$12,000

Question 22

Dunbar Inc.has 10,000 $2,noncumulative preferred shares and 150,000 common shares issued at December 31,2012.What is the annual total dividend on the preferred shares?

A)$10,000
B)$20,000
C)$150,000
D)$300,000

Question 23

Fabulous Corporation plans to raise $500,000 cash on January 1,20A,by issuing either (not both)bonds payable (8% interest rate)or cumulative preferred shares (8% dividend rate).The accounting period ends December 31.How would the annual interest amount or annual dividend amount (if paid)affect the amount of profit for 20A?

A)Annual profit would be reduced by the annual interest and by the preferred share dividends.
B)Annual profit would be reduced by the interest but not by the preferred share dividends.
C)Annual profit would not be reduced by the annual interest or by the preferred share dividends.
D)Annual profit would be reduced by the preferred dividends but not by the interest.

Question 24

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.

Question 25

Which of the following statements about stock option plans is false?

A)Offering stock options to a company's managers reduces the likelihood they will not always act in the best interest of the investors.
B)Stock option plans are often a major part of an executive's compensation plan.
C)Stock options usually have a grant price equal to the market price of the share when the options are first offered to the executives.
D)The holder of a stock option has an interest in a company's performance but not in the same manner as a shareholder.

Question 26

Assume the following shares outstanding: (1)Preferred shares,$3,cumulative,1,000 shares with dividends in arrears 3 years,for 20A,20B,and 20C.
(2)Common shares,2,000 shares.
Total dividends declared in 20D were $30,000.What is the total amount of dividends to which common shareholders are entitled?

A)$18,000
B)$21,000
C)$27,000
D)$30,000

Question 27

On which of the following dates should the dividends payable account be recorded in the company records for a stock dividend?

A)Date of payment.
B)Date of record.
C)Date of declaration.
D)No liability is associated with a share dividend.

Question 28

Which of the following statements about treasury share transactions is correct?

A)The total number of shares issued increases when treasury shares are purchased.
B)The total number of shares authorized changes when treasury shares are purchased.
C)Gains and losses on treasury share transactions are reported on the income statement.
D)A shareholders' equity account is debited when treasury shares are purchased.

Question 29

Slow,Inc.,reported the following asset and liability balances at the ends of 20A and 20B: During 20B,cash dividends of $5,000 were declared and paid.Additional shares were issued for $15,000.What was the profit (or loss)for 20B?

A)$30,000
B)$35,000
C)$40,000
D)$45,000

Question 30

Which of the following statements is false?

A)An initial public offering (IPO)occurs when the company first offers their shares for sale to the public.
B)A seasoned new issue is the term used for any additional sales of new shares to the public after the IPO.
C)An underwriter,usually an investment banker,advises the corporation on matters concerning the sale of shares and helps to market those shares for a fee.
D)An IPO does not mean that a company is "going public."

Question 31

Cumulative dividends in arrears are reported as which of the following?

A)An expense.
B)A liability.
C)A contra-asset.
D)A footnote to the financial statements.

Question 32

Which of the following is a requirement that must be fulfilled in order to declare and pay a cash dividend?

A)Sufficient cash.
B)Sufficient prepaid expenses.
C)No dividends in arrears.
D)Relatively low trade payables.

Question 33

What is the difference between cumulative and noncumulative preferred shares?

A)They both receive dividends in arrears.
B)Cumulative preferred shares' undeclared dividends accumulate each year until paid,while noncumulative preferred shares' right to receive dividends is forfeited in any year that dividends are not declared.
C)Cumulative does not receive dividends but noncumulative does.
D)Cumulative preferred share's right to receive dividends is forfeited in any year that dividends are not declared.However,noncumulative preferred shares' undeclared dividends accumulate each year until paid.

Question 34

Ishwar Inc.had 300,000 common shares before a stock split occurred and 600,000 shares after the stock split.The stock split was

A)2 for 4.
B)4 for 1.
C)1 for 4.
D)2 for 1.

Question 35

At January 1,20D,Clare Corporation had outstanding capital shares as shown below.During December,20D,it declared and paid cash dividends of $48,000 to the preferred shareholders. (1)Common shares--100,000 shares outstanding
(2)Preferred shares--20,000 shares outstanding,$0.80 cumulative.The shares were issued at a price of $15 per share.
How many years were the preferred dividends in arrears?

A)One year.
B)Two years.
C)Three years.
D)Four years.

Question 36

Which of the following is false about the dividend yield ratio?

A)Dividend yield ratio = Dividends per share/Market price per share
B)Measures the profit generated by each share for the shareholder based on the market price of the shares.
C)A low dividend yield is neither bad nor good by itself.
D)Dividend yield ratio = Market price per share/Dividends per share.

Question 37

The statement of financial position of Warner Company showed the following data about its common shares: authorized shares,100,000; outstanding shares,55,000; and issued shares 60,000.What was the number of treasury shares?

A)5,000
B)30,000
C)40,000
D)45,000

Question 38

In the case of a cash dividend,a dividend liability comes into existence on which of the following dates?

A)Date of declaration.
B)Date of record.
C)Date of dividend payment.
D)Last day of the month in which the dividend is declared.

Question 39

Which of the following is eligible for dividends?

A)The number of shares of authorized.
B)The number of shares issued.
C)The number of shares outstanding.
D)The number of treasury shares.

Question 40

A stock dividend results in

A)the same ownership interest.
B)greater ownership interest.
C)less ownership interest.
D)increased total assets.

Question 41

Dividends in arrears on cumulative preferred shares

A)never have to be paid,even if common dividends are paid.
B)must be paid before common shareholders can receive a dividend.
C)should be recorded as a current liability until they are paid.
D)enable the preferred shareholders to share equally in corporate profit with the common shareholders.

Question 42

Which of the following statements is true?

A)Retained earnings is an asset.
B)Retained earnings has a debit balance for a successful corporation.
C)Retained earnings represents the future dividend liability of the company.
D)Retained earnings represents the profit that has been earned by the company,less any dividends declared since the first day of operations.

Question 43

Albert Company reported the following statement of financial position amounts at December 31,20B: What was the total amount of retained earnings on December 31,20B?

A)$20,000
B)$30,000
C)$40,000
D)$50,000

Question 44

Spot Corporation declared a cash dividend on December 30,20A,payable on January 10,20B.A journal entry for the dividend was not made in December 20A.What were the effects on the 20A financial statements?

A)Retained earnings and liabilities were understated.
B)Retained earnings and liabilities were overstated.
C)Retained earnings was overstated and liabilities understated.
D)Retained earnings was overstated and cash understated.

Question 45

The Basket Corporation has the following classes of shares: Preferred shares,$40,1,000 shares issued and outstanding,noncumulative.
Common shares,100,000 shares issued,50,000 shares outstanding.
In 20A,Basket Corporation was incorporated.It paid no dividends in its first year of existence.In 20B,the board of directors of Basket declared a total dividend of $180,000 to be paid to the holders of preferred and common shares.What was the amount of the dividend paid in 20B on each common share?

A)$1.80
B)$2.00
C)$2.80
D)$3.60

Question 46

In 2012,W Co had a dividend yield ratio of 0.3% and J.C.Co.reported a yield of 6.9%. What is the most likely reason for W Co's relatively low dividend yield in comparison to J.C.Co's ratio?

A)W Co is paying little in dividends because it continues to grow through expansion of store locations financed by operations.
B)W Co does not generate sufficient cash from operations to be able to pay a dividend.
C)W Co does not generate sufficient operating profit to support declaring a dividend.
D)W Co does not have sufficient retained earnings to support declaring a dividend.

Question 47

The effect of a stock dividend is to

A)change the composition of shareholders' equity.
B)decrease total assets and shareholders' equity.
C)decrease total assets and total liabilities.
D)increase the book value per share of common shares.

Question 48

At the end of 20E,the total assets of Dole Corporation were $90,000 and total liabilities were $50,000.The company has been in business five years and has earned an average profit of $4,000 per year during the five years.Total cash dividends of $8,000 were declared and paid.What was the total amount received for the shares issued by the company?

A)$28,000
B)$30,000
C)$40,000
D)$46,000

Question 49

Bateman Company reported total shareholders' equity of $58,000 on its statement of financial position dated December 31,20B.During 20B,it reported a profit of $4,000,declared and paid a cash dividend of $2,000,and issued additional shares of $20,000.What was total shareholders' equity at January 1,20B?

A)$16,000
B)$34,000
C)$36,000
D)$38,000

Question 50

Accounting entries associated with a cash dividend usually are made on which of the following dates?

A)Record date and payment date.
B)Payment date only.
C)Declaration date and record date.
D)Declaration date and payment date.

Question 51

Which one of the following events would not require a journal entry on a corporation's books?

A)100% stock dividend
B)2 for 1 stock split
C)2% stock dividend
D)$1 per share cash dividend

Question 52

Retained earnings are occasionally restricted

A)to set aside cash for dividends.
B)to keep the legal capital associated with share capital intact.
C)due to contractual loan restrictions.
D)if preferred dividends are in arrears.

Question 53

Which of the following is false?

A)A low dividend yield is usually indicative of a growing company.
B)The lower the dividend yield,the less a company has distributed to investors as an immediate return.
C)Almost all investors want an immediate return on their investment through dividend distributions.
D)The dividend yield ratio is a measure of the immediate return investors are receiving from dividends stated as a percentage of market price.

Question 54

Wide World Corporation issued a 3-for-2 stock split (i.e.,three new shares in exchange for each two old shares turned in)of its common shares which had a market value of $100 before the split.What dollar amount of retained earnings should be transferred to the common share account?

A)Market value before the split.
B)Market value after the split.
C)Half of the previous total amount in the common share account(s).
D)None should be transferred.

Question 55

On December 15,20B,the board of directors of Home Corporation declared a cash dividend,payable on January 8,20C,of $2 per share on the 100,000 common shares outstanding.The accounting period ends December 31.Because of this action,on December 15,20B,Home Corporation should do which of the following?

A)Make no journal entry because the event had no effect on the corporation's financial position until 20C.
B)Decrease retained earnings $200,000 and increase liabilities $200,000.
C)Decrease retained earnings $200,000 and increase contributed capital $200,000.
D)Decrease cash $200,000 and decrease retained earnings $200,000.

Question 56

Which of the following is true with regard to a stock dividend?

A)It results in a transfer of retained earnings to contributed capital.
B)It increases the number of shares outstanding and involves a pro rata reduction in the par value per share.
C)It is accounted for in exactly the same manner as a stock split.
D)It does not require a journal entry.

Question 57

A stock split will

A)have no effect on retained earnings.
B)increase total share capital.
C)increase the total assets.
D)decrease the number of shares.

Question 58

In 2012,P Co declared dividends totalling $.52 per common share when earnings per share were $1.31 and its market price was 40 7/16.In 2011,its dividends totalled $.46 per share,its earnings per share were $1.36 and its market price was 34 11/16.What was the computed dividend yield ratio for 2012 and 2011 respectively?

A)1.8% and 1.9%
B)1.3% and 1.3%
C)1.7% and 1.3%
D)2.1% and 2.3%

Question 59

The declaration and payment of a cash dividend does which of the following?

A)Reduces retained earnings and increases liabilities by the amount of the dividend.
B)Reduces retained earnings and increases contributed capital by the same amount.
C)Reduces assets and increases liabilities each by the amount of the dividend.
D)Reduces assets and retained earnings each by the amount of the dividend.

Question 60

Dividends in arrears on cumulative preferred shares

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.

Question 61

Shareholders have limited liability,which means that they are usually held liable for the corporation's debts.

Question 62

Preferred shares often are called the residual equity because they usually do not have voting rights.

Question 63

An initial public offering (IPO)involves the first sale of a company's shares to the public.It is often referred to as a company "going public."

Question 64

Convertible preferred shares may be exchanged for common shares at the discretion of the shareholder.

Question 65

Preferred shares often have a preference in the distribution of assets over common shares in the event of dissolution of the corporation.

Question 66

A primary advantage of a general partnership,compared with a corporation,does not include which of the following?

A)Ease of formation.
B)Limited liability for the owners.
C)No income tax on the business itself.
D)Complete control by the partners.

Question 67

Amounts received for the issuance of preferred shares should not be included in contributed capital,but should be shown on the statement of financial position as a separate classification of liabilities.

Question 68

Legal capital serves as a "cushion" for investors.

Question 69

One of the preferences given to preferred share owners over common share owners is the right to vote on major corporate issues.

Question 70

Legal capital is the permanent amount of capital,defined by law,that must remain invested in the corporation.

Question 71

Outstanding shares are those shares which a corporation has the ability to issue as documented in its charter where it is incorporated.

Question 72

If a corporation issues 1,000 of its shares for $15 per share,contributed capital increases by $15,000.

Question 73

Which of the following accounts would appear in the general ledger of a partnership?

A)Retained earnings account.
B)Dividends paid account.
C)Common share accounts.
D)Drawings accounts.

Question 74

Before the journal entry to record income tax and before the closing entries were recorded at the end of the accounting period (December 31,20D),the following data were taken from the accounts of Buynow Corporation: What is the total amount of shareholders' equity that should be reported on the statement of financial position dated December 31,20D?

A)$96,000
B)$128,000
C)$300,000
D)$304,000

Question 75

Which of the following is a major point of difference between accounting for a corporation versus accounting for a partnership?

A)Recording sales revenue.
B)Recording office supplies used.
C)Recording withdrawals of the owners.
D)Recording rent expense.

Question 76

Both inflows (e.g.,issuance of share capital)and outflows (e.g.,repurchase of shares)are reported in the Financing Activities section of the statement of cash flows.

Question 77

Shares provide a number of benefits,including the receipt dividends.

Question 78

A major advantage that a corporation has over a proprietorship or partnership is that it allows individuals to participate in ownership by purchasing small amounts of shares.

Question 79

Since most small shareholders do not attend the annual corporate meeting,they will usually cast their vote by proxy card.

Question 80

The shares issued can be less than those outstanding when the corporation has repurchased some of their shares which are called treasury shares.