Question 1

Xtreme Sports has $100,000 par,8% noncumulative,nonparticipating,preferred stock outstanding.Xtreme Sports also has $500,000 par common stock outstanding.In the company's first year of operation,no dividends were paid.During the second year,Xtreme Sports paid cash dividends of $30,000.This dividend should be distributed as follows:
A) $8,000 preferred; $22,000 common.
B) $16,000 preferred; $14,000 common.
C) $7,500 preferred; $22,500 common.
D) $15,000 preferred; $15,000 common.
E) $0 preferred; $30,000 common.

Accepted Answer

Preferred stock dividend: $100,000 x 8% = $8,000
Remainder to common: $30,000 - $8,000 = $22,000

Question 2

A corporation had 20,000 shares of $10 par value common stock outstanding on January 10.Later that day the board of directors declared a 30% stock dividend when the market value of each share was $40.The entry to record this dividend is:
A) $\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 60,000 & \
\hline \text { Common Stock Dividend Distributable } & & 60,000 \
\hline
\end{array}$
B) $\begin{array}{|c|r|r|}
\hline \text { Retained Earnings } & 60,000 & \
\hline \text { Cash } & & 60,000 \
\hline
\end{array}$

C) $$\begin{array} { | l | c | r | } 
\hline \text { Retaired Earnining } & 240,000 & \
\hline \text { Common Stock Dividend Distributable } & & 60,000 \
\hline \text { Paid-In Capital in Excess of Par Value } & & \
\text { Common Stock } & & 180,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | c | c | } 
\hline \text { Retained Earnings } & 240,000 & \
\hline \text { Common Stock Dividend Distributable } & & 240,000 \
\hline
\end{array}$$
E) No entry is made until the stock is issued

Accepted Answer

The answer of A corporation had 20,000 shares of $10...

Question 3

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of paid-in capital in excess of par is:
A) $100
B) $600
C) $1,000
D) $6,000
E) $7,000

Accepted Answer

$7,000 - (60 shares x $100 par) = $1,000

Question 4

On September 1,a corporation had 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings.On that date,when the market price of the stock is $15 per share,the corporation issues a 2-for-1 stock split.The general journal entry to record this transaction is:
A) $\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 750,000 & \
\hline \text { Common Stock Split Distributable } & & 750,000 \
\hline
\end{array}$

B) $\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 750,000 & \
\hline \text { Common Stock } & & 750,000 \
\hline
\end{array}$

C) $\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 250,000 & \
\hline \text { Common Stock } & & 250,000 \
\hline
\end{array}$

D) $\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 250,000 & \
\hline \text { Stock split payable } & & 250,000 \
\hline
\end{array}$

E) No entry is made for this transaction.

Accepted Answer

A stock split does not require a journal entry as it does not affect the accounting records; it only increases the number of shares and decreases the par value per share.

Question 5

A corporation had 40,000 shares of $10 par value common stock outstanding on August 1.Later that day,the board of directors declared a 9% stock dividend when the market value of each share was $72.The entry to record this dividend is:
A) $$\begin{array} { | c | r | r | } 
\hline \text { Common Stock Dividend Distributable } & 259,200 & \
\hline \text { Retained Earnings } & & 259,200 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Retained Earnings } & 259,200 & \
\hline \text { Common Stock Dividend Distributable } & & 259,200 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Retaired Earnings } & 259,200 & \
\hline \text { Common Stock Dividend Distributable } & & \mathbf { 3 6 , 0 0 0 } \
\hline \text { Paid-In Capital in Excess of Par Value } & & \
\text { Common Stock } & & 223,200 \
\hline
\end{array}$$
D) $\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 36,000 & \
\hline \text { Common Stock Dividend Distributable } & & 36,000 \
\hline
\end{array}$

E) No entry is made until the stock is issued

Accepted Answer

The entry to record a stock dividend is to debit Retained Earnings and credit Common Stock Dividend Distributable for the fair value of the shares issued. The fair value of the shares is the market value per share multiplied by the number of shares issued. In this case, the fair value of the shares is $72 per share multiplied by 4,000 shares, which equals $259,200. The entry to record this dividend is:Retained Earnings 259,200Common Stock Dividend Distributable 259,200

Question 6

A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:
A) Stock dividend
B) Stock subscription
C) Premium on stock
D) Discount on stock
E) Treasury stock

Accepted Answer

A distribution of additional shares of a corporation's own stock to its stockholders without the receipt of payment is a stock dividend.

Question 7

A company declared a $0.50 per share cash dividend.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:
A) $\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 4,000 & \
\hline \text { Common Dividends Payable } & & 4,000 \
\hline
\end{array}$

B) $$\begin{array} { | l | c | c | } 
\hline \text { Common Dividends Payable } & 4,000 & \
\hline \text { Cash } & & 4,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | c | c | } 
\hline \text { Retained Earnings } & 4,500 & \
\hline \text { Common Dividends Payable } & & 4,500 \
\hline
\end{array}$$
D) $$\begin{array} { | l| c | c | } 
\hline \text { Common Dividends Payable } & 4,500 & \
\hline \text { Cash } & & 4,500 \
\hline
\end{array}$$
E) $\begin{array}{|l|c|c|}
\hline \text { Retained Earnings } & 5,000 & \
\hline \text { Common Dividends Payable } & & 5,000 \
\hline
\end{array}$

Accepted Answer

The dividend declaration reduces retained earnings and creates a liability for the amount of the dividend payable to shareholders.

Question 8

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:
A) Financial leverage
B) Discount on stock
C) Premium on stock
D) Preemptive right
E) Capital gain

Accepted Answer

This situation is known as financial leverage, where the company is using borrowed funds (preferred stock issuance) to earn a higher return on their common stock. By paying a lower rate of return on preferred stock than the return earned on the assets invested from that issuance, the company is essentially using the difference to increase the return on their common stock.

Question 9

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:
A) Cumulative preferred stock
B) Callable preferred stock
C) Participating preferred stock
D) Convertible preferred stock
E) Preferential preferred stock

Accepted Answer

Participating preferred stock allows preferred stockholders to receive their stated dividend rate plus an additional dividend that is shared with common shareholders. This extra dividend is typically paid only when the company's profits exceed a certain level.

Question 10

A company's board of directors votes to declare a cash dividend of $0.75 per share.The company has 15,000 shares authorized,10,000 issued,and 9,500 shares outstanding.The total amount of the cash dividend is:
A) $375
B) $4,125
C) $7,125
D) $7,500
E) $11,250

Accepted Answer

$0.75 x 9,500 shares = $7,125

Question 11

A premium on common stock:
A) Is the amount paid in excess of par by purchasers of newly issued stock.
B) Is the difference between par value and issue price when the amount paid is below par
C) Represents profit from issuing stock.
D) Represents capital gain on sale of stock.
E) Is prohibited in most states.

Accepted Answer

A premium on common stock is the amount paid in excess of par by purchasers of newly issued stock.

Question 12

Preferred stock that the issuing corporation at its option may retire by paying a specified amount to the preferred stockholders plus any dividends in arrears is called:
A) Convertible preferred stock
B) Callable preferred stock
C) Premium stock
D) Cumulative preferred stock
E) Participating preferred stock

Accepted Answer

Callable preferred stock allows the issuing corporation to call, or retire, the shares at a certain price and time. This gives the corporation flexibility in managing its capital structure. The specified amount paid to the preferred stockholders in a call situation is often a premium above the face value of the stock.

Question 13

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is called:
A) Noncumulative preferred stock
B) Participating preferred stock
C) Callable preferred stock
D) Cumulative preferred stock
E) Convertible preferred stock

Accepted Answer

The answer of Preferred stock on which the right to...

Question 14

A liquidating dividend is:
A) Only declared when a corporation closes down.
B) A return of a part of the original investment back to the stockholders.
C) Not allowed under federal law.
D) Only paid in assets other than cash.
E) Only paid in shares of stock.

Accepted Answer

A liquidating dividend is a payment made from a company's profits to its shareholders when it is winding up its operations and distributing its assets. It is a return of a part of the original investment back to the stockholders. It is different from regular dividends, which are paid periodically from a company's profits while it continues to operate.

Question 15

A 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 this dividend is:
A) $$\begin{array} { | l | c | c | } 
\hline \text { Retained Earnings } & 135,000 & \
\hline \text { Common Stock Dividend Distributable } & & 135,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | } 
\hline \text { Retained Earnings } & 135,000 & \
\hline \text { Cash } & & 135,000 \
\hline
\end{array}$$
C) $$\begin{array} { |l | r | r | } 
\hline \text { Retaired Eanniriss } & 135,000 & \
\hline \text { Common Stock Dividend Distributable } & & 100,000 \
\hline \text { Paid-In Capital in Excess of Par Value } & & \
\text { Common Stock } & & 35,000 \
\hline
\end{array}$$
D) $$\begin{array} { |l | c | c | } 
\hline \text { Retained Earnings } & 100,000 & \
\hline \text { Common Stock Dividend Distributable } & & 100,000 \
\hline
\end{array}$$
E) No entry is made until the stock is issued

Accepted Answer

The stock dividend is recorded at market value. 10% of 50,000 shares is 5,000 shares. At $27 per share, the total is $135,000. The par value of 5,000 shares is $100,000 (5,000 shares x $20 par value), and the excess over par is $35,000 (5,000 shares x $7 excess).

Question 16

The date the board of directors votes to pay a dividend is called the:
A) Date of stockholders' meeting
B) Date of declaration
C) Date of record
D) Date of payment
E) Liquidating date

Accepted Answer

The date the board of directors votes to pay a dividend is known as the date of declaration. This is when the board officially announces the dividend and sets a specific payment date and amount to be paid to shareholders.

Question 17

A corporation declared and issued a 15% stock dividend on November 1.The following up-to-date information was available immediately prior to the dividend:
$$\begin{array} { | l | r | } 
\hline \text { Retaired earnings } & \$ 750,000 \
\hline \text { Shares issued and outstanding } & 60,000 \
\hline \text { Market value per share } & \$ 15 \
\hline \text { Par value per share } & \$ 5 \
\hline
\end{array}$$
The amount that total stockholders' equity will increase (decrease)as a result of recording this stock dividend is:
A) $45,000
B) $135,000
C) $(90,000)
D) $(135,000)
E) $0

Accepted Answer

A stock dividend does not change the total stockholders' equity; it only transfers an amount from retained earnings to common stock and additional paid-in capital.

Question 18

A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000.The entry to record this exchange is:
A) $$\begin{array} { |l | c | c | } 
\hline \text { Land } & 60,000 & \
\hline \text { Common Stock } & & 50,000 \
\hline \begin{array} { c } 
\text { Paid-In Capital in Excess of Par Value } \
\text { Common Stock }
\end{array} & & 10,000 \
\hline
\end{array}$$
B) $$\begin{array} { | l | c | c | } 
\hline \text { Land } & 60,000 & \
\hline \text { Common Stock } & & 60,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | c | c | } 
\hline \text { Land } & 50,000 & \
\hline \text { Common Stock } & & 50,000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | l | l | } 
\hline \text { Common Stock } & 50,000 & \
\hline \begin{array} { l } 
\text { Paid-In Capital in Excess of Par Value, } \
\text { Common Stock }
\end{array} & 10,000 & \
\hline \text { Land } & & 60,000 \
\hline
\end{array}$$
E) $$\begin{array} { |l | c | c | } 
\hline \text { Common Stock } & 60,000 & \
\hline \text { Land } & & 60,000 \
\hline
\end{array}$$

Accepted Answer

The land is recorded at its market value of $60,000. The common stock is recorded at par value, which is $50,000 (5,000 shares x $10). The excess amount of $10,000 is recorded as Paid-In Capital in Excess of Par Value.

Question 19

Assume Garrison Guitar Company declared a $0.28 per share cash dividend and that the company has 25,000 shares authorized,19,000 shares issued,and 12,000 shares of common stock outstanding.The general journal entry to record the dividend declaration is:
A) $\begin{array}{|l|r|l|}
\hline \text { Retained Earnings } & 3,360 & \
\hline \text { Common Dividends Payable } & & 3,360 \
\hline
\end{array}$

B) $$\begin{array} { |l | r | r | } 
\hline \text { Common Dividends Payable } & 5,320 & \
\hline \text { Cash } & & 5,320 \
\hline
\end{array}$$
C) $\begin{array}{|l|r|c|}
\hline \text { Retained Earnings } & 5,320 & \
\hline \text { Common Dividends Payable } & & 5,320 \
\hline
\end{array}$

D) $\begin{array}{|l|c|c|}
\hline \text { Common Dividends Payable } & 3,360 & \
\hline \text { Cash } & & 3,360 \
\hline
\end{array}$

E) $\begin{array}{|l|r|r|}
\hline \text { Retained Earnings } & 7,000 & \
\hline \text { Common Dividends Payable } & & 7,000 \
\hline
\end{array}$

Accepted Answer

The answer of Assume Garrison Guitar Company declared a $0.28...

Question 20

A stock dividend transfers:
A) Contributed capital to retained earnings.
B) Retained earnings to contributed capital.
C) Retained earnings to assets.
D) Contributed capital to assets.
E) Assets to contributed capital.

Accepted Answer

A stock dividend results in a transfer of retained earnings to contributed capital. The shareholders receive additional shares of the company's stock, and the market value of the shares outstanding is reduced proportionately to reflect the increase in shares. No assets are transferred in this process.

Quiz 11: Corporate Reporting and Analysis

A corporation had 20,000 shares of $10 par value common stock outstanding on January 10.Later that day the board of directors declared a 30% stock dividend when the market value of each share was $40.The entry to record this dividend is:

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of paid-in capital in excess of par is:

On September 1,a corporation had 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings.On that date,when the market price of the stock is $15 per share,the corporation issues a 2-for-1 stock split.The general journal entry to record this transaction is:

A corporation had 40,000 shares of $10 par value common stock outstanding on August 1.Later that day,the board of directors declared a 9% stock dividend when the market value of each share was $72.The entry to record this dividend is:

A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:

A company declared a $0.50 per share cash dividend.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:

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:

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:

A company's board of directors votes to declare a cash dividend of $0.75 per share.The company has 15,000 shares authorized,10,000 issued,and 9,500 shares outstanding.The total amount of the cash dividend is:

A premium on common stock:

Preferred stock that the issuing corporation at its option may retire by paying a specified amount to the preferred stockholders plus any dividends in arrears is called:

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

A liquidating dividend is:

A 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 this dividend is:

The date the board of directors votes to pay a dividend is called the:

A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000.The entry to record this exchange is:

Assume Garrison Guitar Company declared a $0.28 per share cash dividend and that the company has 25,000 shares authorized,19,000 shares issued,and 12,000 shares of common stock outstanding.The general journal entry to record the dividend declaration is:

A stock dividend transfers: