Question 1

Stated value of no-par stock is:

Accepted Answer

The stated value of no-par stock is an amount assigned by the corporation's board of directors, which serves a similar purpose to par value in accounting terms.

Question 2

When all of the authorized shares have the same rights and characteristics,the stock is referred to as:

Accepted Answer

The answer of When all of the authorized shares have...

Question 3

The total amount of cash and other assets received by a corporation from its stockholders in exchange for common stock is:

Accepted Answer

The total amount of cash and other assets received by a corporation from its stockholders in exchange for common stock is referred to as contributed capital. It may be equal to, above, or below the stated or par value of the stock depending on the terms of the sale. Therefore, options A, B, D, and E are incorrect.

Question 4

Changes in accounting estimates are:

Accepted Answer

Changes in accounting estimates are not considered errors or prior period adjustments. They are also not classified as extraordinary items. Instead, they are accounted for in the current and future periods by adjusting the accounting estimates and recognizing the effect of the change in the financial statements of those periods. This is a normal part of the accounting process and does not require a cumulative catch-up adjustment.

Question 5

A company has 5,000 shares of $1 par value common stock and 6,000 shares of 2%,$98 par,noncumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $750,000.Net income for the current year was $400,000.If the company paid a dividend of $3 per share on its common stock,what is the balance in Retained Earnings at the end of the year?

Accepted Answer

The correct answer is A.The company paid $3 per share on its common stock, which means it paid a total of $3 * 5,000 = $15,000 in dividends on common stock. The company also paid $98 * 2% * 6,000 = $11,760 in dividends on preferred stock. Therefore, the total dividends paid were $15,000 + $11,760 = $26,760. The balance in Retained Earnings at the end of the year is $750,000 + $400,000 - $26,760 = $1,123,240.

Question 6

Prior period adjustments to financial statements can result from:

Accepted Answer

Prior period adjustments result from errors or omissions in previously issued financial statements. These errors can result from using unacceptable accounting principles, misapplication of accounting principles, math errors, or fraud. Changes in estimates, discontinued operations, changes in tax law, and extraordinary items are not examples of prior period adjustments.

Question 7

A company issued 7% preferred stock with a $100 par value.This means that:

Accepted Answer

The stated 7% preferred stock means that shareholders will receive a dividend of $7 per year per preferred share, as a percentage of the par value ($100). This is the fixed dividend that preferred shareholders are entitled to, and is not dependent upon the company's income or profits.

Question 8

Owners of preferred stock often do not have:

Accepted Answer

Owners of preferred stock typically do not have voting rights, unlike owners of common stock. They may have preference to dividends and assets at liquidation, but this is not always guaranteed. Preferred stock owners also typically have ownership rights to assets of the corporation and the right to sell their stock on the open market.

Question 9

A company has 3,000 shares of $2 par value common stock and 1,500 shares of 8%,$150 par,noncumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $400,000.The net loss for the current year was $30,000.If the company paid a dividend of $1 per share on its common stock,what is the balance in Retained Earnings at the end of the year?

Accepted Answer

The correct answer is A.The company has a net loss of $30,000. This means that the Retained Earnings will decrease by $30,000. The company also paid a dividend of $1 per share on its common stock. This means that the Retained Earnings will decrease by $3,000 (3,000 shares x $1 per share). Therefore, the balance in Retained Earnings at the end of the year will be $400,000 - $30,000 - $3,000 = $367,000.

Question 10

A dividend preference for preferred stock means that:

Accepted Answer

A dividend preference for preferred stock means that preferred stockholders receive their dividends before common shareholders. This gives them priority in receiving dividends over other shareholders.

Question 11

A company has 2,000 shares of $1 par value common stock and 200 shares of 5%,$110 par,noncumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $500,000.Net income for the current year was $300,000.If the company paid a dividend of $2 per share on its common stock,what is the balance in Retained Earnings at the end of the year?

Accepted Answer

First, we need to calculate the amount of dividends paid on the common stock:
Dividends = Number of shares x Dividend per share
Dividends = 2,000 shares x $2 per share
Dividends = $4,000

Next, we need to calculate the amount of dividends paid on the preferred stock:
Dividends = Number of shares x Dividend rate x Par value
Dividends = 200 shares x 5% x $110 par value
Dividends = $1,100

Since the preferred stock is noncumulative, we only need to pay the current year's dividend on it.

Now, we can calculate the amount of retained earnings left at the end of the year:
Retained Earnings = Beginning balance + Net income - Dividends
Retained Earnings = $500,000 + $300,000 - $4,000 - $1,100
Retained Earnings = $794,900

Therefore, the correct answer is C.

Question 12

Shamrock Company had net income of $30,000.On January 1,there were 8,000 shares of common stock outstanding.On April 1,the company issued an additional 2,000 shares of common stock.There were no other stock transactions.The company has earnings per share of:

Accepted Answer

The answer of Shamrock Company had net income of $30,000.On...

Question 13

Prior period adjustments are reported in the:

Accepted Answer

Prior period adjustments are adjustments made to correct errors in prior period financial statements. The correction of these errors affects the balance of retained earnings. Therefore, prior period adjustments are reported in the statement of retained earnings.

Question 14

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

Accepted Answer

Earnings per share (EPS) is the amount of income earned by a company per share of common stock outstanding. It is calculated by dividing the net income of the company by the total number of shares outstanding.

Question 15

Stockholders' equity consists of:

Accepted Answer

Stockholders' equity represents the residual interest in the assets of a company, and it consists of two main components: contributed capital and retained earnings. Contributed capital refers to the amount of capital that shareholders have invested in the company through the issuance of stock, while retained earnings represent the accumulated profits of the company that have not been distributed as dividends. Therefore, choice B, which includes both contributed capital and retained earnings, is the correct answer.

Question 16

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

Accepted Answer

Noncumulative preferred stock means that the right to receive dividends is forfeited for any year that the dividends are not declared. Therefore, the answer is E. The other options have different features such as participating in the profits of the company (participating preferred stock), being callable by the issuer (callable preferred stock), having the right to receive dividends in future years if they are not declared in the current year (cumulative preferred stock), or having the option to convert to common stock (convertible preferred stock).

Question 17

The statement of changes in stockholders' equity:

Accepted Answer

The statement of changes in stockholders' equity describes changes in contributed capital and retained earnings subcategories. It does not show only the ending balances in stockholders' equity and it includes changes in treasury stock. It is a required financial statement for all public companies and is also commonly used by private companies. It is separate from the statement of retained earnings, although the two statements may have overlapping information.

Question 18

A company had a beginning balance in retained earnings of $43,000.It had net income of $6,000 and paid out cash dividends of $5,625 in the current period.The ending balance in retained earnings account is equal to:

Accepted Answer

The ending balance in retained earnings is calculated as: Beginning balance ($43,000) + Net income ($6,000) - Dividends paid ($5,625) = $43,375.

Question 19

Shamrock Company had net income of $30,000.On January 1,there were 8,000 shares of common stock outstanding.On April 1,the company issued an additional 2,000 shares of common stock.The company declared a $2,700 dividend on its noncumulative,nonparticipating preferred stock.There were no other stock transactions.The company has an earnings per share of:

Accepted Answer

Earnings per share = Net income / Weighted average number of shares outstandingWeighted average number of shares outstanding = (8,000 shares x 3/4 year) + (2,000 shares x 1/4 year) = 8,500 sharesEarnings per share = $30,000 / 8,500 shares = $2.87

Question 20

A corporation's minimum legal capital is often defined to be the total par value of the shares:

Accepted Answer

The minimum legal capital of a corporation is typically defined as the total par value of the shares that have been issued. This is the amount that must be maintained to protect creditors and is not related to authorized, subscribed, outstanding, or treasury shares.

Quiz 11: Reporting and Analyzing Equity