Question 1

A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

Accepted Answer

The answer of A corporation sold 14,000 shares of its...

Question 2

A company has net income of $3,000,000. It has 600,000 weighted-average common shares outstanding and a price-earnings ratio of 17. What is the market value per share of this company's stock?

Accepted Answer

The answer of A company has net income of $3,000,000....

Question 3

A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that has a market value of $84,000. The entry to record this transaction would include:

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The answer of A corporation issued 6,000 shares of its...

Question 4

A company has net income of $850,000. It also has 125,000 weighted-average common shares outstanding and a market value per share of $115. The company's price-earnings ratio is equal to:

Accepted Answer

The answer of A company has net income of $850,000....

Question 5

A company has 1,000 shares of $100 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

The total value of the preferred stock is $100 x 1,000 = $100,000.
The total value of the common stock is $500,000 - $100,000 = $400,000.
The book value per common share is therefore ($400,000 / 25,000) = $16.

Question 6

Dividend yield is the percent of cash dividends paid to common shareholders relative to the:

Accepted Answer

Dividend yield is calculated by dividing the annual cash dividend per share by the stock's market price per share. Therefore, the correct answer is A, the common stock's market value.

Question 7

The price-earnings ratio is calculated by dividing:

Accepted Answer

The price-earnings ratio is calculated by dividing the market value per share by earnings per share. This ratio gives investors an idea of how much they are willing to pay for each dollar of earnings. A higher P/E ratio may indicate that the market expects the company to grow at a faster rate or have higher earnings in the future.

Question 8

A corporation issued 300 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 issuance of stock in payment of services received is known as a noncash transaction. The amount of the expense is recorded as a debit to Organization Expenses, and the par value of the stock issued is credited to Common Stock. Any amount received in excess of the par value is credited to Contributed Capital in Excess of Par Value, Common Stock. In this case, the total par value of the stock issued is $1,500 (300 shares x $5 per share), so the entry would be a $1,500 debit to Organization Expenses, a $1,500 credit to Common Stock, and a $300 credit to Contributed Capital in Excess of Par Value, Common Stock (calculated as $1,800 total received - $1,500 par value issued). Therefore, the best choice is C.

Question 9

A company has a market value per share of $73.00. Its net income is $1,750,000 and the weighted-average number of shares outstanding is 350,000. The company's price-earnings ratio is equal to:

Accepted Answer

The answer of A company has a market value per...

Question 10

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 the issue price is below par value.

Question 11

A company has 40,000 shares of common stock outstanding. The stockholders' equity applicable to common shares is $470,000 and the par value per common share is $10. The book value per share is:

Accepted Answer

Book Value per Share = Stockholders' Equity Applicable to Common/Common Shares Outstanding
Book Value per Share = $470,000/40,000 = $11.75 per share

Question 12

A company has net income of $2,800,000. It also has 400,000 weighted-average common shares outstanding and a price-earnings ratio of 20. What is the market value per share of this company's stock?

Accepted Answer

Market value per share = Price-Earnings Ratio / Earnings Per Share
Earnings per share = Net Income / Weighted-average common shares outstanding
Earnings per share = $2,800,000 / 400,000 = $7
Market value per share = 20 / 7 = $2.85
Therefore, the market value per share is $140.

Question 13

A company paid $0.48 in cash dividends per share. It has earnings per share of $4.20 and a market price per share of $30.00. Its dividend yield equals:

Accepted Answer

The answer of A company paid $0.48 in cash dividends...

Question 14

A company paid $0.75 in cash dividends per share. It has earnings per share of $3.50 and a market price per share of $37.50. Its dividend yield equals:

Accepted Answer

The answer of A company paid $0.75 in cash dividends...

Question 15

A company had net income of $250,000. On January 1, there were 12,000 shares of common stock outstanding. On May 1, the company issued an additional 9,000 shares of common stock. The company declared a $7,900 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company had earnings per share of:

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The answer of A company had net income of $250,000....

Question 16

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

First, we need to calculate the value of the preferred stock:
500 shares x $50 par value = $25,000
To call the preferred stock, the company would need to pay:
500 shares x $60 call price = $30,000
Therefore, the value of the preferred stock to the company is:
$25,000 - $30,000 = -$5,000
Since the value is negative, this means that the company would actually save money by calling the preferred stock and therefore, it is assumed that they would do so. 
With the preferred stock called, we are left with only common stock outstanding:
20,000 shares of common stock x current market value = $680,000 - $25,000 (value of preferred stock) = $655,000
So, the current market value of the common stock is $655,000 / 20,000 shares = $32.75 per share. 
Therefore, the book value per common share is $32.75.

Question 17

Book value per share:

Accepted Answer

The answer of Book value per share:
...

Question 18

Stocks that pay relatively large cash dividends on a regular basis are referred to as:

Accepted Answer

Stocks that pay relatively large cash dividends on a regular basis are referred to as income stocks, as they provide investors with a dependable source of income. The other choices are not necessarily correlated with large cash dividends.

Question 19

A 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 300 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 issuance of stock in exchange for services or other non-cash assets is recorded at the fair value of the consideration received or the fair value of the stock issued, whichever is more objectively determinable. In this case, the attorneys provided services worth $5,000, so the entry would be a debit to Organization Expenses (an intangible asset account that is expensed over time) for $5,000 and a credit to Common Stock for 300 shares at $10 par value each, or $3,000. No entry would be made to Additional Paid-in Capital because the stock was issued at par value.

Question 20

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

Accepted Answer

The answer of A company issued 60 shares of $100...

Quiz 11: Accounting for Equity