Question 1

Cash dividends are not paid on shares of treasury stock.

Accepted Answer

Cash dividends are only paid on outstanding shares of stock, not on shares of treasury stock which have been repurchased by the company.

Question 2

If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $13,500.

Accepted Answer

Cash dividends are paid only on the issued shares that are not held as treasury stock, so the calculation is (14,000 issued - 500 treasury) * $1 = 13,500.

Question 3

If 50,000 shares are authorized, 35,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 33,000.

Accepted Answer

Outstanding shares are calculated by subtracting the reacquired shares from the issued shares, so 35,000 issued - 2,000 reacquired = 33,000 outstanding shares.

Question 4

A corporation has 10,000 shares of $100 par value stock outstanding.If the corporation issues a 5-for-1 stock split, the number of shares outstanding after the split will be 2,000.

Accepted Answer

A 5-for-1 stock split means that each share is split into 5 new shares. Therefore, the total number of shares outstanding will increase by a factor of 5, not decrease. After the stock split, there will be 50,000 shares outstanding, not 2,000.

Question 5

The declaration of a cash dividend decreases a corporation's stockholders' equity and decreases its assets.

Accepted Answer

The answer of The declaration of a cash dividend decreases...

Question 6

Treasury stock is a contra-equity account.

Accepted Answer

Treasury stock is a contra-equity account because it is a reduction in shareholders' equity, resulting from a company buying back its own shares.

Question 7

A 10% stock dividend will increase the book value per share.

Accepted Answer

A stock dividend does not change the total value of a company or the book value per share, it simply increases the number of shares outstanding. Therefore, the book value per share would remain the same after a 10% stock dividend.

Question 8

Before a stock dividend can be declared or paid, there must be sufficient cash.

Accepted Answer

Stock dividends are typically paid through the distribution of additional shares of stock, rather than cash. Therefore, cash is not required for a stock dividend to be declared or paid.

Question 9

A corporation has 10,000 shares of $100 par value stock outstanding.If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be 40,000.

Accepted Answer

After a 4-for-1 stock split, each shareholder will receive 4 shares for every 1 share they previously held. Therefore, the number of outstanding shares will increase by a factor of 4, making the new total 40,000.

Question 10

One of the conditions for paying a cash dividend is sufficient retained earnings.

Accepted Answer

Retained earnings are profits that a company has kept and not distributed as dividends. Therefore, in order to pay a cash dividend, a company must have sufficient retained earnings to cover the distribution. If the company does not have enough retained earnings, it may need to borrow money or raise capital in order to pay the dividend.

Question 11

A corporation has 10,000 shares of $100 par value stock outstanding that has a current market value of $160.If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $32.

Accepted Answer

If the corporation issues a 4-for-1 stock split, the number of outstanding shares will increase to 40,000 (10,000 x 4), but the market value per share will decrease proportionally to $40 (not $32), as the overall value of the company remains the same.

Question 12

The declaration of a stock dividend decreases a corporation's stockholders' equity and decreases its liabilities.

Accepted Answer

The declaration of a stock dividend increases the corporation's stockholders' equity but does not affect its liabilities.

Question 13

If 50,000 shares are authorized, 35,000 shares are issued, and 1,000 shares are reacquired, the number of outstanding shares is 36,000.

Accepted Answer

The number of outstanding shares is calculated by subtracting the number of treasury shares (shares reacquired) from the issued shares. Therefore, the number of outstanding shares would be 34,000 (35,000 issued - 1,000 reacquired).

Question 14

The reduction in the par or stated value of common stock, accompanied by the issuance of a proportionate number of additional shares, is called a stock split.

Accepted Answer

This is a correct definition of a stock split.

Question 15

A corporation has 10,000 shares outstanding of $25 par value and a current market value of $100 per share.If the corporation issues a 5-for-1 stock split, the market value of the stock will fall to approximately $20.

Accepted Answer

After the 5-for-1 stock split, there will be a total of 50,000 shares outstanding (5 times the current amount). The par value of each share will be reduced to $5 (1/5th of the original value). The market value of the stock will adjust accordingly to reflect the increased number of shares, and is likely to fall to approximately $20 per share.

Question 16

The declaration of a cash dividend decreases a corporation's stockholders' equity and increases its liabilities.

Accepted Answer

When a corporation declares a cash dividend, it decreases its retained earnings, which is a component of stockholders' equity. This decreases the total stockholders' equity and increases the liability of the corporation to pay out the cash dividend to its shareholders.

Question 17

The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets, liabilities, or stockholders' equity.

Accepted Answer

When a corporation declares and issues a stock dividend, it simply increases the number of shares outstanding while decreasing the value per share. Therefore, the total amount of assets, liabilities, and stockholders' equity remains the same.

Question 18

The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.

Accepted Answer

The primary purpose of a stock split is to reduce the market price per share, making the shares more affordable for investors and potentially increasing liquidity. It does not affect the number of shares outstanding.

Question 19

One of the conditions for paying a cash dividend is formal action by the board of directors.

Accepted Answer

According to the corporate bylaws, formal action by the board of directors is required to declare and pay cash dividends to shareholders.

Question 20

If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are reacquired, the number of outstanding shares is 19,500.

Accepted Answer

Outstanding shares = issued shares - reacquired shares 
Outstanding shares = 15,000 - 500 
Outstanding shares = 14,500

Quiz 8: Liabilities and Stockholders Equity