Question 1

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 known as income stocks. These stocks are typically issued by companies that are mature and have stable earnings. They are popular among investors who seek a steady income stream from their investments rather than capital appreciation.

Question 2

A company has 500 shares of $50 par value preferred stock outstanding, and the call price of its preferred stock is $60 per share. It also has 20,000 shares of common stock outstanding, and the total value of its stockholders' equity is $680,000. The company's book value per common share equals:

Accepted Answer

First, we need to calculate the total value of the preferred stock outstanding: 
500 shares x $50 par value = $25,000 
To call in the preferred stock, the company would need to pay: 
500 shares x $60 call price = $30,000

Subtracting this call value from the total value of stockholders' equity gives us the value of the common stock: 
$680,000 - $30,000 = $650,000

To calculate the book value per common share, we divide the value of the common stock by the number of common shares outstanding: 
$650,000 / 20,000 = $32.50 per share

Therefore, the best choice is C.

Question 3

A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

Accepted Answer

The answer of A corporation sold 14,000 shares of its...

Question 4

Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a cash price of $12 per share. The entry to record this transaction would be:

Accepted Answer

This entry correctly reflects the issuance of common stock at a cash price per share above its $1 par value. The cash received is recorded in the debit to Cash for $312,000, the par value is recorded in the credit to Common Stock for $26,000, and the excess of the cash over the par value is recorded in the credit to Paid-in Capital in Excess of Par Value, Common Stock for $286,000. Choice A incorrectly records a Stock Liability, which is not necessary in this situation. Choice B only records the Common Stock without accounting for the cash and the excess paid. Choice D incorrectly debits the Common Stock and the Paid-in Capital in Excess of Par Value, Common Stock together, which results in an incorrect total amount. Choice E only records the Cash without accounting for the Common Stock and the excess paid.

Question 5

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

Accepted Answer

The dividend yield is the annual cash dividend distributed to common shareholders divided by the common stock's market value. It is expressed as a percentage and represents the return on investment from dividend income.

Question 6

Djarleen Company has 10,000 shares of $10 par preferred stock, which were issued at par. 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

The answer of Djarleen Company has 10,000 shares of $10...

Question 7

Dividend yield is the percent of cash dividends paid to common shareholders relative to the:

Accepted Answer

Dividend yield is calculated as the annual dividends per share divided by the market price per share, reflecting the return on investment from dividends alone.

Question 8

A company has 50,000 shares of common stock outstanding. The stockholders' equity applicable to common shares is $1,470,000, and the par value per common share is $5. The book value per share is:

Accepted Answer

The book value per share is calculated by dividing the stockholders' equity applicable to common shares by the number of shares outstanding. In this case, the book value per share is $1,470,000 / 50,000 = $29.40.

Question 9

The Discount on Common Stock account reflects:

Accepted Answer

The Discount on Common Stock account reflects the difference between the par value of stock and its issue price when it is issued at a price below par value. This is a common occurrence when a company issues stock at a discount to entice investors to invest in the company. The amount of the discount is recorded in this account.

Question 10

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 answer of A corporation issued 100 shares of its...

Question 11

Percy Corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 400 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include:

Accepted Answer

The issuance of common stock for non-cash considerations such as services received in organizing the corporation should be recorded by debiting Organization Expenses for the fair value of the services received, which is the $5,000 charge for drawing up the articles of incorporation. Therefore, choice A is the best answer. Choice B is incorrect because this account represents the difference between the proceeds received from the issuance of the stock and the par value of the stock. However, no proceeds were received in this transaction. Choice C is incorrect because this account represents the amount paid in excess of par value when the stock is issued for cash at a price above par. Choice D is incorrect because it underestimates the value of the services received. Choice E is incorrect because it only records the par value of the stock issued, which is not the appropriate amount to be recorded in this transaction.

Question 12

A company has earnings per share of $9.60. Its dividend per share is $0.50, its market price per share is $110, and its book value per share is $96. Its price-earnings ratio equals:

Accepted Answer

The company's price-earnings ratio can be calculated as:
P/E Ratio = Market Price per share / Earnings per share
P/E Ratio = $110 / $9.60
P/E Ratio = 11.46
Therefore, the answer is D) 11.46.

Question 13

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

Dividend yield is the ratio of the annual cash dividend per share to the current market price per share, expressed as a percentage. Dividend yield = ($0.85/$35.50) x 100% = 2.4%. Option B is the correct answer.

Question 14

Book value per share:

Accepted Answer

Book value per share reflects the value per share if a company is liquidated at balance sheet amounts, as it represents the net asset value available to common shareholders.

Question 15

Wiggins Company has 1,000 shares of $10 par preferred stock, which were issued at par. 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 book value per common share is calculated by subtracting the preferred stock value from total stockholders' equity and then dividing by the number of common shares. Preferred stock value is 1,000 shares * $10 = $10,000. So, ($500,000 - $10,000) / 25,000 = $19.60.

Question 16

A company has 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 the price-earnings ratio (P/E), we need to divide the market price per share by the earnings per share (EPS). We can first find the EPS by dividing the net income by the weighted-average common shares outstanding:

EPS = Net income / Weighted-average common shares outstanding
EPS = $90,000 / 18,000
EPS = $5

Next, we can calculate the P/E ratio:

P/E ratio = Market price per share / EPS
P/E ratio = $88 / $5
P/E ratio = 17.6

Therefore, the answer is choice (B).

Question 17

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 corporation issued 6,000 shares with a par value of $2 each, totaling $12,000 (6,000 shares x $2). The land is valued at $84,000, so the excess over par value is $72,000 ($84,000 - $12,000), which is credited to Paid-in Capital in Excess of Par Value, Common Stock.

Question 18

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. This calculation gives investors an idea of how much each share would be worth if the company liquidated all of its assets and paid off all its liabilities.

Question 19

A company paid $0.48 in cash dividends per share. Its earnings per share is $3.20 and its market price per share is $20.00. Its dividend yield equals:

Accepted Answer

Dividend yield is calculated as the annual dividend per share divided by the market price per share. Here, it is ($0.48 / $20.00) * 100% = 2.4%.

Question 20

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 is because the dividend yield is a measure of the return on investment in terms of dividend income, and dividing the annual cash dividends per share by the market value per share provides this measure.

Quiz 13: Accounting for Corporations