Question 1

The amount of annual cash dividends distributed to common shareholders relative to the common stock's market value is the:

Accepted Answer

Dividend yield measures the annual cash dividends per share relative to the current market price per share. The dividend payout ratio is the percentage of earnings paid out as dividends, while the price-earnings ratio measures the price of a stock relative to its earnings per share. Current yield is a bond yield calculation, not applicable to common stock. Earnings per share is a measure of a company's profitability, but not directly related to dividends.

Question 2

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

Accepted Answer

The date the directors vote to declare and pay a dividend is called the date of declaration. This is when the company announces the amount of the dividend and the date of payment. The date of record is the date the company determines which shareholders are eligible to receive the dividend. The date of payment is when the dividend is actually paid out to shareholders. The other options listed do not accurately describe the date of declaration.

Question 3

A liquidating dividend is:

Accepted Answer

A liquidating dividend is a distribution of a portion of a company's net assets to shareholders when the company is being liquidated or closed down. It represents a return of a portion of the original investment made by the shareholders. Hence, option B is the correct answer. Option A is incorrect as a liquidating dividend can be declared even if the corporation is not completely shut down. Option C is incorrect as it is not prohibited by federal law. Options D and E are incorrect as a liquidating dividend is typically paid in cash rather than assets or shares of stock.

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

Book value per common share is calculated by subtracting the total preferred stock value from the total stockholders' equity and dividing the result by the number of common shares outstanding.

Total preferred stock value = 10,000 shares x $10 par value = $100,000
Total stockholders' equity - Total preferred stock value = $4,000,000 - $100,000 = $3,900,000
Book value per common share = $3,900,000 / 250,000 shares = $15.60 per share. Therefore, the best choice is D.

Question 5

Book value per common share is computed by:

Accepted Answer

Book value per common share is calculated by dividing the stockholders' equity applicable to common shares by the number of common shares outstanding. The book value per share represents the amount that would be distributed to holders of each common share if all assets were sold at their balance sheet carrying amounts and if all liabilities were paid at their balance sheet carrying amounts. Therefore, C is the correct answer as it represents the calculation of the book value per common share.

Question 6

A company made an error in calculating and reporting amortization expense in 2015. The error was discovered in 2016. The item should be reported as a prior period adjustment:

Accepted Answer

The error was made in 2015, but it was discovered in 2016, so it should be reported as a prior period adjustment on the 2016 statement of retained earnings to correct the 2015 financial statements. Option A is incorrect because it would result in an amended statement of retained earnings for 2015, which is not necessary. Option B is incorrect because the income statement has already been reported, and the error should be corrected in the statement of retained earnings. Option D is incorrect because it would not reflect the fact that the error was made in 2015. Option E is incorrect because it suggests adjusting the amortization expense in 2016, which would not accurately reflect the correction of the error in the prior period.

Question 7

A company's board of directors votes to declare a cash dividend of $0.75 per share of common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is:

Accepted Answer

The answer of A company's board of directors votes to...

Question 8

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

Question 9

Changes in retained earnings are commonly reported in the:

Accepted Answer

Changes in retained earnings are commonly reported in the Statement of Stockholders' Equity, which shows a summary of changes in capital stock, additional paid-in capital, retained earnings, and other comprehensive income for a period.

Question 10

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

The answer of Wiggins Company has 1,000 shares of $10...

Question 11

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

Question 12

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

Question 13

Stocks that pay relatively large cash dividends on a regular basis are called:

Accepted Answer

Stocks that pay relatively large cash dividends on a regular basis are called income stocks. This is because their primary purpose is to provide a steady stream of income for investors, rather than capital appreciation.

Question 14

The statement of changes in stockholders' equity:

Accepted Answer

The answer of The statement of changes in stockholders' equity:
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Question 15

The amount of income earned per share of a company's outstanding common stock is known as:

Accepted Answer

The amount of income earned per share of a company's outstanding common stock is known as earnings per share (EPS). It is calculated by dividing the company's net income by the number of outstanding shares of common stock. It is an important metric used by investors to evaluate a company's profitability and potential for growth.

Question 16

The dividend yield is computed by dividing:

Accepted Answer

The dividend yield is computed by dividing the annual cash dividends per share by the market value per share. This ratio tells investors how much return they are receiving in the form of dividends each year relative to the current market value of the stock.

Question 17

A liability for dividends exists:

Accepted Answer

The answer of A liability for dividends exists:
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Question 18

A company paid $0.85 in cash dividends per share. Its earnings per share is $3.50, and its market price per share is $35.50. Its dividend yield equals:

Accepted Answer

To calculate the dividend yield, we divide the annual cash dividend per share by the market price per share and multiply by 100%:

Dividend Yield = (Cash Dividends / Market Price) x 100%

We are given the cash dividend per share, which is $0.85. To annualize this, we can multiply it by 4 (since there are 4 quarters in a year):

Annual Cash Dividend per Share = $0.85 x 4 = $3.40

We are also given the earnings per share, which is $3.50. This means that the company is paying out approximately 24.3% of its earnings as dividends ($0.85 / $3.50).

Finally, we are given the market price per share, which is $35.50. Putting all this together:

Dividend Yield = ($3.40 / $35.50) x 100% = 9.58%

Therefore, the closest answer choice is B) 2.4%.

Question 19

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 issuance of stock in payment for services rendered is considered a non-cash transaction. The journal entry would be to debit Organization Expenses (the amount of the charge) and credit Common Stock (the par value of the stock issued). Any amount received above par value is credited to Paid-in Capital in Excess of Par Value, Common Stock. Therefore, the correct choice is C.

Question 20

A company has earnings per share net income of $90,000; its weighted-average common shares outstanding are 18,000. Its dividend per share is $0.45, its market price per share is $88, and its book value per share is $76. Its price-earnings ratio equals:

Accepted Answer

To calculate price-earnings ratio, we need to divide market price per share by earnings per share (EPS). 
EPS = Net income / Weighted-average common shares outstanding 
EPS = $90,000 / 18,000 
EPS = $5

Price-earnings ratio = Market price per share / EPS 
Price-earnings ratio = $88 / $5 
Price-earnings ratio = 17.6

Therefore, the best choice for the price-earnings ratio is option (B) 17.6.

Quiz 11: Corporate Reporting and Analysis