Question 1

A corporation declared and issued a 15% stock dividend on October 1.The following information was available immediately prior to the dividend:
$\begin{array}{llr}
  \text {  Retained earnings} &\$750,000\
 \text { Shares issued and outstanding } &60,000\
 \text {  Market value per share} &\$15\
 \text { Par value per share } &\$5\
\end{array}$

The amount that contributed capital will increase (decrease)as a result of recording this stock dividend is:

Accepted Answer

A 15% stock dividend on 60,000 shares results in 9,000 additional shares (60,000 * 0.15). The increase in contributed capital is calculated using the market value per share: 9,000 shares * $15 = $135,000.

Question 2

Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1.Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27.The entry to record the dividend declaration is:

Accepted Answer

Retained earnings: 50,000 shares * 10% × $27 = $135,000
Common Stock Dividend Distributable: 50,000 shares * 10% × $20 = $100,000
Paid-in Capital in Excess of Par Value, Common Stock: 50,000 shares * 10% * $7 = $35,000

Question 3

Preferred stock that allows preferred stockholders to share with common stockholders any dividends paid in excess of the percent or dollar amount stated on the preferred stock is called:

Accepted Answer

Participating preferred stock allows preferred stockholders to also receive additional dividends beyond their stated percentage or dollar amount if the company has excess profits. This means they can share in the same dividends as common stockholders.

Question 4

A dividend preference for preferred stock means that:

Accepted Answer

A dividend preference for preferred stock means that preferred stockholders have priority over common shareholders when it comes to receiving dividends. They are allocated their dividends before dividends are allocated to common shareholders.

Question 5

Eastline Corporation had 10,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 3,000 shares.At the time of the stock dividend,the market value per share was $12.The entry to record this dividend is:

Accepted Answer

3,000/10,000 shares = large stock dividend of 30%
Large stock dividends are recorded at par value (3,000 shares * $10)

Question 6

Stock that was reacquired and is still held by the issuing corporation is called:

Accepted Answer

Stock that is reacquired by the issuing corporation and still held by the company is called treasury stock. This stock is not considered outstanding and does not have voting rights or dividend payments.

Question 7

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

Accepted Answer

The statement "7% preferred stock" means that the annual dividend payment per share is 7% of the $100 par value, or $7 per year per preferred share.

Question 8

Gracey's Department Stores has $200,000 of 6% noncumulative,nonparticipating,preferred stock outstanding.Gracey's also has $600,000 of common stock outstanding.During its first year,the company paid cash dividends of $30,000.This dividend should be distributed as follows:

Accepted Answer

Preferred stock dividend: $200,000 * 6% = $12,000
Common stock dividend: $30,000 - $12,000 = $18,000

Question 9

The following data has been collected about Keller Company's stockholders' equity accounts:
$\begin{array}{ll}
\text {Common stock $ \$ 10 $ par value 20,000 shares }&\$100,000\
\text {authorized and 10,000 shares issued, 9,000 shares outstanding}\
\text { Paid-in capital in excess of par value, common stock } & 50,000 \
\text { Retained earnings } & 25,000 \
\text { Treasury stock } & 11,500
\end{array}$

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Assuming the treasury shares were all purchased at the same price,the cost per share of the treasury stock is:

Accepted Answer

The cost per share of the treasury stock is calculated by dividing the total cost of the treasury stock by the number of treasury shares. Since there are 1,000 treasury shares (10,000 issued - 9,000 outstanding), the cost per share is $11,500 / 1,000 = $11.50.

Question 10

Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:

Accepted Answer

Financial leverage occurs when a company uses borrowed funds or preferred stock to increase its potential return on common stock. When dividends on preferred stock are paid at a rate lower than the return earned on the assets invested from the preferred stock issuance, it allows the company to earn more on the borrowed funds than it pays out, effectively leveraging its returns.

Question 11

Preferred stock which confers rights to prior periods' unpaid dividends even if they were not declared is called:

Accepted Answer

Cumulative preferred stock confers the rights to prior periods' unpaid dividends even if they were not declared.

Question 12

Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:

Accepted Answer

Participating preferred stock allows the preferred stockholders to participate in any dividends that are in excess of the stated percentage or dollar amount on the stock, sharing that dividend distribution with common shareholders.

Question 13

Ultimate Sportswear has $100,000 of 8% noncumulative,nonparticipating,preferred stock outstanding.Ultimate Sportswear also has $500,000 of common stock outstanding.In the company's first year of operation,no dividends were paid.During the second year,the company paid cash dividends of $30,000.This dividend should be distributed as follows:

Accepted Answer

Preferred stock dividend: $100,000 * 8% = $8,000
Common stock dividend: $30,000 - $8,000 = $22,000

Question 14

The following data has been collected about Keller Company's stockholders' equity accounts:
$\begin{array}{ll}
\text {Common stock $ \$ 10 $ par value 20,000 shares }&\$100,000\
\text {authorized and 10,000 shares issued, 9,000 shares outstanding}&0\
\text { Paid-in capital in excess of par value, common stock } & 50,000 \
\text { Retained earnings } & 25,000 \
\text { Treasury stock } & 11,500
\end{array}$

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Assuming the treasury shares were all purchased at the same price,the number of shares of treasury stock is:

Accepted Answer

The treasury stock is valued at $11,500. Since 10,000 shares were issued and 9,000 are outstanding, 1,000 shares must be in treasury. The price per share or how it relates to the par value or paid-in capital is not relevant for determining the number of treasury shares.

Question 15

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 is a type of preferred stock where the right to receive dividends is not guaranteed or accumulated. This means that if the company does not declare dividends in a given year, the shareholders of noncumulative preferred stock do not have the right to receive them, and the dividends are forfeited.

Question 16

Torino Company has 10,000 shares of $5 par value,4% cumulative and nonparticipating preferred stock and 100,000 shares of $10 par value common stock outstanding.The company paid total cash dividends of $1,000 in its first year of operation.The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:

Accepted Answer

Preferred stock dividend: 10,000 shares * $5/share * 4% = $2,000
Prior year: Dividend Paid = $1,000; $1,000 in arrears
Current year: $1,000 in arrears + $2,000 current dividend = $3,000

Question 17

The following data were reported by a corporation:
$$\begin{array} { l c } 
\text { Authorized shares } & 20,000 \
\text { Issued shares } & 15,000 \
\text { Treasury shares } & 3,000
\end{array}$$
The number of outstanding shares is:

Accepted Answer

Outstanding shares are calculated by subtracting treasury shares from issued shares. Therefore, 15,000 issued shares - 3,000 treasury shares = 12,000 outstanding shares.

Question 18

Corporations may buy back their own stock for any of the following reasons except to:

Accepted Answer

All of the other options (A-D) are legitimate reasons for a corporation to buy back their own stock, but allowing management to assume voting rights is not a valid reason.

Question 19

Treasury stock is classified as:

Accepted Answer

Treasury stock represents shares that were issued and subsequently reacquired by the company. It is classified as a contra equity account because it reduces the total equity of the company.

Question 20

A stock dividend is recorded with a transfer from:

Accepted Answer

A stock dividend involves transferring a portion of retained earnings to paid-in capital, as it represents a distribution of earnings to shareholders in the form of additional shares. Therefore, choice B is the correct answer.

Quiz 11: Corporate Reporting and Analysis