Deck 10: Stockholders Equity

Question 1

A corporation has limited liability and attracting outside investment is easier relative to sole-proprietorships and partnerships.

Answer 1

True

Question 2

All publicly held corporations in the United States are regulated by the Securities and Exchange Commission.

Answer 2

True

Question 3

A company credits Additional Paid-in Capital for the portion of the cash proceeds above par value received for the issuance of stock.

Answer 3

True

Question 4

Assets plus liabilities equal stockholders' equity.

Question 5

Owners in a sole proprietorship or a partnership can be held personally liable for debts the company has incurred,over and beyond the investment they have made.

Question 6

Paid-in Capital is the amount stockholders have invested in the company.

Question 7

In the event a corporation is dissolved,common stockholders receive preference over preferred stockholders in the distribution of assets.

Question 8

Par value has a direct relationship to the market value of the common stock.

Question 9

Authorized stock is the number of shares that have been sold to investors.

Question 10

A corporation has lower taxes and less paperwork relative to sole-proprietorships and partnerships.

Question 11

We usually record preferred stock as equity and report it in the stockholders' equity section of the balance sheet just above common stock.

Question 12

An S Corporation allows a company to enjoy limited liability as a corporation,but tax treatment as a partnership.

Question 13

Par value is the legal capital per share of stock that's assigned when the corporation is first established.

Question 14

Limited liability means that even in the event of bankruptcy,stockholders in a corporation can lose no more than the amount they invested in the company.

Question 15

Retained Earnings is the amount stockholders have invested in the company.

Question 16

Convertible preferred stock allows the stockholder to exchange shares of preferred stock for common stock at a specified conversion ratio.

Question 17

Cumulative preferred stock means that dividends accumulate interest during the year.

Question 18

Treasury stock is the repurchase of a company's own issued stock.

Question 19

Outstanding stock is the number of shares held by investors.

Question 20

Angel investors are investors that focus on companies at or near bankruptcy.

Question 21

The stockholders' equity section of the balance sheet shows how each equity account changed during the year.

Question 22

If a company purchases shares of another company,it records this transaction as treasury stock.

Question 23

When we reissue treasury stock,we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital.

Question 24

The statement of stockholders' equity shows how each equity account changed during the year.

Question 25

We can estimate the average purchase cost of treasury stock per share by dividing the treasury stock balance by the number of shares repurchased.

Question 26

No journal entry is made to record a stock split.

Question 27

Common stock is listed before preferred stock in the balance sheet.

Question 28

A stock split has no effect on the total of any account in stockholders' equity.

Question 29

If a company has expenses that are more than revenues,the net loss decreases retained earnings.

Question 30

Stock repurchases reduce the number of shares outstanding,thereby increasing earnings per share.

Question 31

The number of shares outstanding is equal to the number of shares issued minus the number of shares bought back.

Question 32

Total assets,total liabilities,and total stockholders' equity do not change as a result of a stock dividend.

Question 33

We compute the return on equity ratio by dividing net income by ending stockholders' equity.

Question 34

Small stock dividends are recorded by debiting Retained Earnings for the par value per share.

Question 35

Retained earnings represent the earnings retained in the corporation - earnings not paid out as dividends to stockholders.

Question 36

Treasury stock is a contra-equity account since treasury stock increases total stockholders' equity.

Question 37

The return on equity measures the ability of company management to generate earnings from the resources that owners provide.

Question 38

The amount of retained earnings equals net income minus dividends for the current year.

Question 39

Dividends are paid on all shares issued by the company including treasury stock.

Question 40

We record treasury stock at the cost of the shares reacquired.

Question 41

Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?

A)Treasury Stock.
B)Common Stock.
C)Sales Revenue.
D)Retained Earnings.

Question 42

Issued stock refers to the number of shares:

A)Outstanding plus treasury shares.
B)Authorized.
C)In the hand of stockholders.
D)That may be issued under state law.

Question 43

We calculate earnings per share as net income divided by the average shares outstanding during the period.

Question 44

Which of the following statements regarding the corporate form of business is correct?

Question 45

Outstanding common stock specifically refers to:

A)Stock that is performing well.
B)Stock that has been authorized for issuance.
C)Stock issued plus treasury stock.
D)Stock in the hands of stockholders.

Question 46

Common stockholders usually have all of the following rights except:

A)To receive dividends when declared.
B)To share in the distribution of assets.
C)To elect board of directors.
D)To participate in the day-to-day operations.

Question 47

Authorized common stock refers to the total number of shares:

A)Outstanding.
B)Issued.
C)Issued and outstanding.
D)That can be issued.

Question 48

The par value of shares issued is normally recorded in the:

A)Additional Paid-in Capital account.
B)Common Stock account.
C)Retained Earnings account.
D)Treasury Stock account.

Question 49

In terms of total sales,assets,and earnings,the dominant form of business organization is the:

A)Sole proprietorship.
B)Partnership.
C)Corporation.
D)Limited liability company (LLC).

Question 50

Earnings per share (EPS)measures the net income earned per share of common stock outstanding.

Question 51

Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following except:

A)Ability to raise capital.
B)Low government regulation.
C)Limited liability.
D)Ability to transfer ownership.

Question 52

We calculate the PE ratio as the stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis.

Question 53

The correct order from the smallest number of shares to the largest number of shares is:

A)Authorized,issued,and outstanding.
B)Outstanding,issued,and authorized.
C)Issued,outstanding,and authorized.
D)Issued,authorized,and outstanding.

Question 54

The par value of common stock represents:

A)The amount received when the stock was issued.
B)The liquidation value of a share.
C)The market value of a share of stock.
D)The legal capital per share of stock assigned when the corporation was first established.

Question 55

Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?

Question 56

Outstanding common stock refers to the total number of shares:

A)Issued.
B)Issued plus treasury stock.
C)Issued less treasury stock.
D)Authorized.

Question 57

Advantages of the corporate form of business include which of the following?

Question 58

The disadvantages of the corporate form of business include:

A)Ability to transfer ownership.
B)Additional taxes.
C)Limited liability.
D)Ability to raise capital.

Question 59

Which of the following stages of equity financing comes last in the traditional order of progression?

A)Investment by friends and family of the founders.
B)Investment by the founders of the business.
C)Initial public offering (IPO).
D)Outside investment by "angel" investors and venture capital firms.

Question 60

Earnings per share is useful in comparing earnings performance across companies.

Question 61

Which of the following is not a potential feature of preferred stock?

A)Convertible.
B)Redeemable.
C)Cumulative.
D)They all are potential features of preferred stock.

Question 62

When treasury stock is resold at a price above cost:

A)A gain account is credited.
B)A loss is reported.
C)A revenue account is credited.
D)Additional Paid-in Capital is increased.

Question 63

The Surf's Up issues 1,000 shares of 6%,$100 par value preferred stock at the beginning of 2014.All remaining shares are common stock.The company was not able to pay dividends in 2014,but plans to pay dividends of $18,000 in 2015.Assuming the preferred stock is noncumulative,how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?

Question 64

South Beach Apparel issued 10,000 shares of $1 par value stock for $5 per share.What is true about the journal entry to record the issuance?

Question 65

When a company issues 25,000 shares of $1 par value common stock for $10 per share,the journal entry for this issuance would include:

Question 66

If a company issues 1,000 shares of $1 par value common stock for $20 per share,what would be the effect on the accounting equation?

Question 67

Treasury Stock is normally reported as:

A)A reduction of total stockholders' equity.
B)An asset account.
C)A liability account.
D)An expense account.

Question 68

Preferred stock:

A)Is always recorded as a liability.
B)Is always recorded as part of stockholders' equity.
C)Can have features of both liabilities and stockholders' equity.
D)Is not included in either liabilities or stockholders' equity.

Question 69

California Adventures issues 5,000 shares of 8%,$100 par value preferred stock at the beginning of 2014.All remaining shares are common stock.The company was not able to pay dividends in 2014,but plans to pay dividends of $100,000 in 2015.Assuming the preferred stock is cumulative,how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?

Question 70

The Surf's Up issues 1,000 shares of 6%,$100 par value preferred stock at the beginning of 2014.All remaining shares are common stock.The company was not able to pay dividends in 2014,but plans to pay dividends of $18,000 in 2015.Assuming the preferred stock is cumulative,how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?

Question 71

Which of the following has the highest expected return to the investor?

A)Common Stock.
B)Preferred Stock.
C)Bonds.
D)They all have similar expected returns.

Question 72

When treasury stock is purchased,what is the effect on total stockholders' equity?

A)Decrease.
B)Increase.
C)No effect.
D)Cannot tell from the given information.

Question 73

When shares of another corporation are purchased,what is the effect on total stockholders' equity?

A)Decrease.
B)Increase.
C)No effect.
D)Cannot tell from the given information.

Question 74

Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share.What is true about the journal entry to record the issuance?

Question 75

A company issued 1,000 shares of $1 par value preferred stock for $5 per share.What is true about the journal entry to record the issuance?

Question 76

Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share.The entry to record the issuance will not include a:

Question 77

Which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets?

A)Common Stock.
B)Preferred Stock.
C)Bonds.
D)They have equal preference.

Question 78

Which of the following is the most likely to have voting rights?

A)Common Stock.
B)Preferred Stock.
C)Bonds.
D)They all have similar voting rights.

Question 79

Preferred stock is called preferred because it usually has two preferences over common stock.These preferences relate to:

A)Dividends and voting rights.
B)Par value and dividends.
C)The preemptive right and voting rights.
D)Dividends and distribution of assets if the corporation is dissolved.

Question 80

California Adventures issues 5,000 shares of 8%,$100 par value preferred stock at the beginning of 2014.All remaining shares are common stock.The company was not able to pay dividends in 2014,but plans to pay dividends of $100,000 in 2015.Assuming the preferred stock is noncumulative,how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?