Question 1

Exchanging 5 shares of stock that a stockholder has for 1 share of stock is called a:

Accepted Answer

A reverse stock split reduces the number of shares a shareholder owns, increasing the value of each share without changing the total value of the shares owned. This is done by exchanging multiple shares for a smaller number of shares, such as 5 for 1 in this case.

Question 2

Apira has 7,500 shares of common stock outstanding. A stockholder has 250 shares. If Apira distributes a 20% stock dividend, how many shares of Apira will the stockholder have after the dividend?

Accepted Answer

A 20% stock dividend means the stockholder will receive 20% more shares based on the number they currently own. Therefore, 250 shares * 20% = 50 additional shares. Adding these to the original 250 shares, the stockholder will have 300 shares in total.

Question 3

Dividends given by a corporation are generally:

Accepted Answer

Cash dividends are the most common form of dividends distributed by corporations to their shareholders.

Question 4

Stock splits differ from stock dividends in the fact that:

Accepted Answer

The answer of Stock splits differ from stock dividends in...

Question 5

A corporation must recognize a gain on the sale of treasury stock for an amount greater than its purchase price.

Accepted Answer

Treasury stock is a company's own stock that it has bought back from the market. When treasury stock is sold, the company recognizes a gain or loss on the sale. The gain or loss is the difference between the sale price and the purchase price of the treasury stock. If the sale price is greater than the purchase price, the company recognizes a gain on the sale.

Question 6

Which of the following statements is true?

Accepted Answer

Treasury stock refers to shares that were issued and then repurchased by the company. These shares are considered issued but are not outstanding because they are held by the company itself, not by external investors. Therefore, when a company holds treasury stock, the total number of issued shares remains the same, but the number of outstanding shares decreases. This means that issued shares exceed outstanding shares when treasury stock is present.

Question 7

How is treasury stock reported on the balance sheet?

Accepted Answer

Treasury stock is reported as a contra stockholders' equity account on the balance sheet. This means it is subtracted from total stockholders' equity because it represents the amount paid to buy back shares from the market.

Question 8

Ross Corporation reported the following equity section on its current balance sheet.
$$\begin{array} { | l | r | } 
\hline \begin{array} { l } 
\text { Common stock, \$5 par, 140,000 shares } \
\text { authorized, 50,000 shares issued }
\end{array} & \$ 250,000 \
\hline \text { Paid in capital in excess of par - common } & 200,000 \
\hline \text { Retained earnings } & \underline { 207,000 } \
\hline \text { Total stockholders' equity } & \$ \underline { 657,000 } \
\hline
\end{array}$$ The corporation has acquired treasury stock for $10 per share. Which of the following would be included in the entry to record the corporation's reissue of 8,000 shares of its common stock for $13 per share?

Accepted Answer

When reissuing treasury stock above its cost, the excess is credited to Paid-in Capital from Treasury Stock Transactions. Here, the shares are reissued at $13 per share, which is $3 above the cost of $10 per share. The calculation for the credit to Paid-in Capital from Treasury Stock Transactions is 8,000 shares * $3 = $24,000.

Question 9

Ross Corporation reported the following equity section on its current balance sheet.
$$\begin{array} { | l | r | } 
\hline \begin{array} { l } 
\text { Common stock, \$5 par, 140,000 shares } \
\text { authorized, 50,000 shares issued }
\end{array} & \$ 250,000 \
\hline \text { Paid in capital in excess of par - common } & 200,000 \
\hline \text { Retained earnings } & \underline { 207,000 } \
\hline \text { Total stockholders' equity } & \$ \underline { 657,000 } \
\hline
\end{array}$$ The corporation has acquired treasury stock for $9.50 per share. No treasury stock has been reissued by the corporation. Which of the following would be included in the entry to record the reissue of 8,000 shares of the treasury stock for $8 per share?

Accepted Answer

The answer of Ross Corporation reported the following equity section...

Question 10

A corporation has 40,000 shares of $5 par common stock outstanding. The corporation has acquired treasury stock for $8.00 per share. Which of the following would be included in the entry to record the reissue of 8,000 shares of the treasury stock for $10 per share?

Accepted Answer

DWhen treasury stock is reissued above its cost, the excess is credited to Paid-in Capital from Treasury Stock Transactions (choice C). The cost of the treasury stock, which is $8.00 per share for 8,000 shares, totals $64,000 (not $80,000 as stated in choice D), but the concept of debiting Treasury Stock for the cost of the shares being reissued is correct. The error in my initial response was in the interpretation of choice D's dollar amount, which should have been understood as referring to the correct action (debiting Treasury Stock) but with an incorrect dollar figure provided in the choice. The correct dollar figure for the debit to Treasury Stock should be based on the cost of acquiring those shares, not the reissue price.

Question 11

The treasury stock account is:

Accepted Answer

Treasury stock represents shares that were issued and subsequently reacquired by the company. When a company buys back its own shares, it debits the treasury stock account to reflect the reduction in outstanding shares, indicating an outflow of resources to repurchase the stock.

Question 12

Which of the following occurs as the result of a retirement of common stock?

Accepted Answer

The answer of Which of the following occurs as the...

Question 13

The retirement of stock is recorded as a debit to Common stock account and a credit to Cash.

Accepted Answer

The answer of The retirement of stock is recorded as...

Question 14

Which of the following would be included in the entry to record appropriated retained earnings for plant expansion?

Accepted Answer

The answer of Which of the following would be included...

Question 15

Which of the following is TRUE of a restriction or appropriation of retained earnings?

Accepted Answer

A restriction or appropriation of retained earnings is an accounting practice that earmarks a portion of retained earnings for specific purposes but does not change the total amount of retained earnings. It is essentially a reclassification within equity, not affecting the total retained earnings figure.

Question 16

A corporation has $250,000 in retained earnings. The board of directors appropriates $50,000 for the purchase of a new building. Which of the following would be included in the entry to record this appropriation?

Accepted Answer

Appropriating retained earnings for a specific purpose, such as purchasing a new building, involves debiting retained earnings for the amount appropriated ($50,000 in this case) and crediting an appropriated retained earnings account, reflecting the earmarked funds within equity but not affecting cash or other asset accounts directly.

Question 17

Debits to Retained earnings do not result from:

Accepted Answer

Debits to Retained Earnings result from net losses and purchases of treasury stock, but not from net income. Net income actually increases Retained Earnings and would be credited, not debited.

Question 18

Retained earnings represent:

Accepted Answer

Retained earnings represent the portion of net income that a company retains or keeps within the business instead of distributing it to shareholders as dividends. This accumulated income is used for reinvesting in the business, paying off debt, or saving for future use.

Question 19

Prior-period adjustments are corrections to:

Accepted Answer

Prior-period adjustments are specifically made to correct errors in financial statements that occurred in periods before the beginning of the current year. These adjustments are directly applied to retained earnings to correct the errors, rather than affecting the current year's net income.

Question 20

Capital resulting from net income should be placed in what account?

Accepted Answer

Retained earnings is the account where capital resulting from net income is placed, reflecting the accumulated earnings of a company after dividends have been paid out to shareholders.

Quiz 12: Corporations: Effects on Retained Earnings and the Income Statement