Question 1

Book value per common share is computed by:

Accepted Answer

Book value per common share is calculated by dividing stockholders' equity applicable to common shares by the number of common shares outstanding. This provides an indication of the amount of equity that each common share represents.

Question 2

Comfort Mattresses,Inc.sold 26,000 shares of its $1 par value common stock at a cash price of $12 per share.The entry to record this transaction would be:

Accepted Answer

The journal entry to record the sale of common stock at a cash price includes a debit to cash for the total cash received ($312,000) and a credit to common stock for the par value of the shares issued ($26,000). The difference between the cash received and the par value of the shares issued represents the excess of the selling price over the par value, known as paid-in capital in excess of par value. Therefore, a credit is made to paid-in capital in excess of par value, common stock for the remaining amount ($286,000). Hence, the correct journal entry would be to debit cash for $312,000, credit common stock for $26,000, and credit paid-in capital in excess of par value, common stock for $286,000. Choice A is the only one that correctly reflects this entry.

Question 3

A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $70,000.The entry to record this exchange is:

Accepted Answer

The transaction involves the issuance of 5,000 shares of $10 par value common stock (totaling $50,000) in exchange for land with a market value of $70,000. Therefore, the debit is to Land for $70,000, credit to Common Stock for $50,000 (for the par value), and credit to Paid-In Capital in Excess of Par Value, Common Stock for the remaining $20,000 ($70,000 - $50,000).

Question 4

Djarleen Company has 10,000 shares of $10 par preferred stock.It also has 250,000 shares of common stock outstanding,and its total stockholders' equity equals $4,000,000.The book value per common share is:

Accepted Answer

The answer of Djarleen Company has 10,000 shares of $10...

Question 5

A company issued 70 shares of $30 par value preferred stock for $4,000 cash.The journal entry to record the issuance is:

Accepted Answer

The company received $4,000 cash for 70 shares of $30 par value stock, which totals $2,100 (70 shares x $30). The excess amount over par value is $1,900 ($4,000 - $2,100), which is credited to Paid-in Capital in Excess of Par Value, Preferred Stock.

Question 6

A liquidating dividend is:

Accepted Answer

A liquidating dividend is a distribution of assets to the shareholders of a corporation when it is being liquidated or dissolved. It is a return of a portion of the original investment back to the stockholders. It is not only declared when a corporation closes down. It is allowed under federal law and can be paid in assets other than cash or in shares of stock.

Question 7

A company issued 60 shares of $100 par value common stock for $7,000 cash.The total amount of paid-in capital in excess of par is:

Accepted Answer

The paid-in capital in excess of par is calculated as the difference between the cash received ($7,000) and the par value of the shares issued (60 shares x $100 = $6,000), which is $1,000.

Question 8

A company issued 60 shares of $100 par value common stock for $7,000 cash.The total amount of paid-in capital is:

Accepted Answer

The total amount of paid-in capital is the amount of cash received from issuing the shares, which is $7,000.

Question 9

A corporation issued 6,000 shares of its $2 par value common stock in exchange for land that has a market value of $84,000.The entry to record this transaction would include:

Accepted Answer

The entry would include a credit to Common Stock for the par value ($12,000) and a credit to Paid-in Capital in Excess of Par Value, Common Stock for the excess over par value ($72,000).

Question 10

A corporation issued 100 shares of its $5 par value common stock in payment of a $1,800 charge from its accountant for assistance in filing its charter with the state.The entry to record this transaction will include:

Accepted Answer

The corporation issued 100 shares of its $5 par value common stock, which means the total amount of par value is $500. However, the corporation received services worth $1,800, which is more than the par value received. Therefore, $500 will be credited to Common Stock, and the remaining $1,300 will be credited to Paid-in Capital in Excess of Par Value, Common Stock. This transaction has nothing to do with legal expenses or organization expenses, so options B and D are incorrect. Lastly, while cash was involved, it is not the account that needs to be credited to reflect the issuance of stock, so option E is also incorrect.

Question 11

Book value per share:

Accepted Answer

Book value per share represents the value of a company's equity on a per-share basis, calculated as total equity divided by the number of outstanding shares, reflecting the value per share if the company is liquidated at balance sheet amounts.

Question 12

A company issued 60 shares of $100 par value common stock for $7,000 cash.The journal entry to record the issuance is:

Accepted Answer

This journal entry follows the basic accounting equation of assets = liabilities + equity. When a company issues stock, cash increases (asset) and stockholders' equity increases. In this case, the company issued 60 shares of common stock with a par value of $100 per share for $7,000 cash. The par value of the stock is $100 x 60 shares = $6,000. This means that the total amount of money received ($7,000) is more than the par value of the stock ($6,000). The excess amount is considered as paid-in capital in excess of par value, which is represented by the remaining $1,000.

Therefore, the journal entry to record the issuance of common stock for $7,000 cash is:

Debit Cash $7,000 (increase in asset)
Credit Common Stock $6,000 (increase in equity - par value of stock)
Credit Paid-in Capital in Excess of Par Value, Common Stock $1,000 (increase in equity - excess amount paid)

Question 13

A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share.The entry to record this transaction would include:

Accepted Answer

The entry would include a credit to Common Stock for the par value of the shares issued, which is 14,000 shares x $1 par value = $14,000.

Question 14

A company has 500 shares of $50 par value preferred stock outstanding,and the call price of its preferred stock is $60 per share.It also has 20,000 shares of common stock outstanding,and the total value of its stockholders' equity is $680,000.The company's book value per common share equals:

Accepted Answer

The total value of the preferred stock outstanding is $50 x 500 = $25,000. If the company were to call the preferred stock, they would need to pay $60 x 500 = $30,000. Therefore, the company would need to pay an additional $5,000 to retire the preferred stock. This would reduce the total value of stockholders' equity to $680,000 - $5,000 = $675,000. The book value per common share would then be ($675,000 / 20,000) = $33.75. However, since the call price of preferred stock is higher than its par value, the preferred stock must include a cumulative dividend provision. Therefore, the $5,000 difference between the call price and par value can be assumed to be the amount of dividends in arrears. Since preferred dividends must be paid before common dividends, the $5,000 should be subtracted from total stockholders' equity before calculating the book value per common share. This gives a book value per common share of ($670,000 / 20,000) = $33.50. Rounded to the nearest cent, this is $32.50.

Question 15

A premium on common stock:

Accepted Answer

A premium on common stock occurs when a corporation sells its stock for more than par or stated value.

Question 16

Wiggins Company has 1,000 shares of $10 par preferred stock.It also has 25,000 shares of common stock outstanding,and its total stockholders' equity equals $500,000.The book value per common share is:

Accepted Answer

To find the book value per common share, first calculate the total value of preferred stock: 1,000 shares * $10 par = $10,000. Subtract this from total stockholders' equity: $500,000 - $10,000 = $490,000. Divide this by the number of common shares: $490,000 / 25,000 shares = $19.60.

Question 17

The date the directors vote to declare and pay a dividend is called the:

Accepted Answer

The date on which the directors vote to declare and pay a dividend is called the date of declaration. This is when the board of directors officially approves the dividend and announces the amount and payment date. The other choices are not accurate descriptions of this specific date.

Question 18

A company has 50,000 shares of common stock outstanding.The stockholders' equity applicable to common shares is $1,470,000,and the par value per common share is $5.The book value per share is:

Accepted Answer

The answer of A company has 50,000 shares of common...

Question 19

Percy Corporation was formed on January 1.The corporate charter authorized 100,000 shares of $10 par value common stock.During the first month of operation,the corporation issued 400 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation.The entry to record this transaction would include:

Accepted Answer

The entry to record the issuance of 400 shares at $10 par value for a total of $5,000 would include a debit to Organization Expenses for the cost of legal services rendered, $5,000. The credit entry would be divided between Common Stock ($4,000) and Paid-in Capital in Excess of Par Value, Common Stock ($1,000).

Question 20

The Discount on Common Stock account reflects:

Accepted Answer

The Discount on Common Stock account reflects the difference between the par value of stock and its issue price when it is issued at a price below par value. This occurs when a company offers its shares at less than the nominal or face value due to market conditions or other reasons. The difference between the issue price and the par value is recorded as a discount on common stock in the company's balance sheet.

Quiz 13: Accounting for Corporations