Deck 11: Stockholders Equity: Paid-In Capital

Question 1

The par value of a stock is the minimum amount of capital of the corporation existing for the protection of creditors.

Answer 1

True

Question 2

When a corporation fails to pay a dividend one year on its common stock,it is said to be "in arrears."

Answer 2

False

Question 3

When par value capital stock is issued,capital stock is credited with the par value of the shares issued,regardless of whether the issuance price is equal to par,more than par,or less than par.

Answer 3

True

Question 4

A corporation is a legal entity separate from its owners; it may sue and be sued,but it may not own property in its own name.

Question 5

When no-par stock is issued,the entire proceeds are credited to Capital Stock and this amount is viewed as legal capital not subject to withdrawal.

Question 6

Authorization of a stock issue creates an asset on the books of the issuing corporation.

Question 7

The board of directors is at the top of a corporate organization chart,followed by the stockholders,then the CEO or president of the corporation.

Question 8

A corporation continues in existence even if a stockholder dies or withdraws from the organization.

Question 9

The costs to organize a corporation (organization costs)are reported as an intangible asset in the balance sheet and amortized to expense over the 5-year life used by the IRS.

Question 10

If capital stock is issued by a corporation at a price lower than par value,the difference represents a loss in the period in which the shares of stock are issued.

Question 11

It is illegal for the government to double tax corporate earnings.

Question 12

Stockholders of a corporation are personally liable for the debts of the corporation if all shares of stock are owned by the officers of the corporation.

Question 13

An underwriter is a bank or trust company that maintains a corporation's stockholder records.

Question 14

Stockholders in a corporation elect the board of directors,pass the bylaws of the corporation,and hire top corporate officers and managers.

Question 15

The number of shares a corporation may issue is specified in the articles of incorporation and approved by the Securities and Exchange Commission.

Question 16

Preferred stockholders generally do not have the same voting rights as do common stockholders in a corporation.

Question 17

A stockholders' subsidiary ledger will have entries made for each stockholder showing the number of shares held.

Question 18

The additional paid-in capital account represents profit to the corporation and,as such,it is credited to Retained Earnings.

Question 19

When a corporation issues capital stock,most state laws require the corporation to credit Retained Earnings for the par value of shares of stock issued.

Question 20

When a stockholder sends in a proxy statement to a corporation he or she owns stock in,they grant management the voting rights associated with their shares.

Question 21

To be consistent with international standards,the FASB has changed reporting requirements for redeemable p

Question 22

Treasury stock is stock of a corporation that has been issued and then reacquired and then cancelled.

Question 23

The sale of treasury stock at a price in excess of its cost results in a realized gain which should be presented as a non-operating item in the income statement.

Question 24

A stock split will decrease the par value per share of the stock.

Question 25

Interest rates impact the market value of common stock more than they impact the market value of p

Question 26

The purchase of treasury stock for cash causes no change in total assets.

Question 27

Which of the following is not a characteristic of the corporate form of organization?

A)The owners of a corporation cannot lose more than the amount of their investment.
B)Shares of stock in a corporation are more readily transferable than is an interest in a partnership.
C)Stockholders have authority to decide by majority vote the amount of dividends to be paid.
D)The corporation is a very efficient vehicle for obtaining large amounts of capital required for large-scale production.

Question 28

A primary disadvantage of the corporate form of organization is:

A)Unlimited personal liability for business debts.
B)Ownership is difficult to transfer.
C)Corporate earnings are subject to double taxation.
D)Corporation may continue its operations without disruption despite retirement of individual stockholders.

Question 29

The most important factor affecting the market price of common stock is the stated dividend rate.

Question 30

International accounting standards require mandatory redeemable p

Question 31

The relationship between book value and market price of capital stock is a measure of investors' confidence in a company's management.

Question 32

A corporation must always have more than one class of stock.

Question 33

The purchase of treasury stock creates an asset for the corporation and is recorded at the cost of the shares purchased.

Question 34

Book value per share of preferred stock is computed as total stockholders' equity less the amount assigned to common stock plus any dividends in arrears divided by the number of shares of preferred stock outstanding.

Question 35

A stock split will normally increase the market price of the stock and decrease the number of shares on the market.

Question 36

Cumulative preferred stock means the stock is entitled to its regular dividend plus an additional share of the total amount of declared dividends.

Question 37

The advantages of corporations going public include all of the following except:

A)Professional management.
B)Transferability of ownership.
C)Limited shareholder liability.
D)Ability to remove assets.

Question 38

In the Stockholders' Equity section of a balance sheet,par value of common stock is presented first,followed by par value of p

Question 39

Treasury stock is stock that is issued and outstanding but not authorized.

Question 40

The payment of cash dividends to common stockholders is classified as a financing activity on the statement of cash flows whereas payment of a cash dividend to p

Question 41

The ownership of common stock in a corporation usually carries the following rights:

A)To vote for directors.
B)To declare dividends.
C)To share in a distribution of assets if the corporation is to be liquidated.
D)Both to vote for directors and share in a distribution of assets if the corporation is to be liquidated.

Question 42

When a corporation issues capital stock at a price higher than the par value:

A)The amount received over par value increases retained earnings.
B)The entire issue price is credited to the Capital Stock account.
C)The amount received in excess of par value constitutes profit to the issuing corporation.
D)The amount received in excess of par value becomes part of paid-in capital.

Question 43

Which of the following best describes the relationship between revenue and retained earnings?

A)Revenue increases net income,which in turn increases retained earnings.
B)Revenue represents a cash receipt; retained earnings is an element of stockholders' equity.
C)Revenue represents the price of goods sold or services rendered; retained earnings represents cash available for paying dividends.
D)Retained earnings is equal to assets minus expenses.

Question 44

Which of the following would usually be the greatest amount?

A)The number of shares authorized.
B)The number of shares issued.
C)The number of shares outstanding.
D)The number of shares of Treasury Stock.

Question 45

Thurman Corporation issued 450,000 shares of $.50 par value capital stock at its date of incorporation for cash at a price of $4 per share.During the first year of operations,the company earned $100,000 and declared a dividend of $40,000.At the end of this first year of operations,the balance of the Common Stock account is:

A)$1,800,000.
B)$1,860,000.
C)$225,000.
D)$1,820,000.

Question 46

Shares that have been sold and are in the hands of stockholders are called:

A)Outstanding.
B)Issued.
C)Treasury.
D)Underwritten.

Question 47

Which of the following is not an addition to total paid-in-capital?

A)Preferred stock.
B)Common stock.
C)Preferred stock and treasury stock.
D)Retained earnings and treasury stock.

Question 48

The board of directors' primary functions include all of the following except:

A)Hiring corporate officers.
B)Setting officers' salaries.
C)Declaring dividends.
D)Transacting corporate business.

Question 49

When no-par stock is issued:

A)The entire amount received is credited to the Additional Paid-in Capital account.
B)The issue price is credited to the Capital Stock account.
C)There is no legal capital created because there is no par or stated value.
D)The transaction usually involves only an exchange for non-cash assets or services,since the stock has no value on the stock exchanges.

Question 50

In a corporation's organization chart,who has/have the highest position?

A)Stockholders.
B)Board of directors.
C)CEO.
D)President.

Question 51

Public corporations are required by law or regulation to perform all of the following except:

A)Submit much of their financial information to the SEC for review.
B)Make regularly scheduled dividend payments to all stockholders.
C)Have their annual financial statements audited by an independent CPA.
D)Disclose their financial information to the public.

Question 52

Which of the following apply to closely held corporations?

A)There is no organized market for buying and selling the company's shares.
B)The company must prepare and issue its financial statements in conformity with generally accepted accounting principles.
C)The company must have its financial statements audited by an independent firm of CPAs.
D)The company's financial information must be submitted to the Securities and Exchange Commission.

Question 53

Which of the following best describes retained earnings?

A)Cash available for dividends.
B)The amount initially invested in the business by stockholders.
C)Cash available for expansion and growth.
D)Income that has been reinvested in the business rather than distributed as dividends to stockholders.

Question 54

Which of the following is not a right of stockholders?

A)To vote for directors and on key issues.
B)To participate in dividends declared.
C)To share in the distribution of assets if the corporation is liquidated.
D)To select the Chief Executive Officer.

Question 55

The term paid-in capital means:

A)All assets other than retained earnings.
B)Legal capital plus retained earnings.
C)Total stockholders' equity minus retained earnings.
D)Legal capital minus retained earnings.

Question 56

If a corporation has only common stock outstanding,which of the following constitutes legal capital at a particular date?

A)The amount in the Common Stock account.
B)The sum of the Common Stock account and any additional paid-in capital.
C)The total amount of stockholders' equity.
D)The sum of the Common Stock account and retained earnings.

Question 57

The rights of a common stockholder do not include the right:

A)To vote for directors.
B)To withdraw a share of corporate net assets proportionate to the person's stockholdings.
C)To receive a proportionate share of corporate assets upon liquidation,after creditors have been paid.
D)To share in profits when the board of directors declares a dividend.

Question 58

Zigma Corporation is authorized to issue 2,000,000 shares of $4 par value capital stock.The corporation issued half the stock for cash at $8 per share,earned $336,000 during the first three months of operation,and declared a cash dividend of $60,000.The total paid-in capital of Zigma Corporation after three months of operation is:

A)$7,940,000.
B)$8,000,000.
C)$8,276,000.
D)$8,336,000.

Question 59

The entry to record the issuance of common stock at a price above its par value includes:

A)A credit to Cash.
B)A credit to a liability account for the difference between the price paid by the stockholders and the par value of the stock.
C)A credit to Additional Paid-in Capital: Common Stock.
D)A debit to Common Stock.

Question 60

The directors of a corporation:

A)Are hired by the officers to run the business on a day-to-day basis.
B)May not own stock in the same corporation or be officers of the same corporation.
C)Are responsible for formulating corporate policy and for hiring corporate officers.
D)Are elected by the shareholders to run day-to-day operations.

Question 61

Topper Corporation has 60,000 shares of $1 par value common stock and 16,000 shares of cumulative 7%,$100 par p

A)$117,000.
B)$341,000.
C)$327,000.
D)$177,000.

Question 62

Shore and Gardiner each own 10,000 shares of S&G Corporation $12 par value stock which they purchased for $38 per share directly from the corporation.If Shore sells his stock to Gardiner for $475,000:

A)Stockholders' equity of S&G Corporation increases.
B)Assets of S&G Corporation increase.
C)Stockholders' equity of S&G Corporation decreases.
D)No account of S&G Corporation is affected.

Question 63

Most p

A)To receive dividends on a preferred basis.
B)Cumulative dividends.
C)Voting rights.
D)Callable at the option of the corporation.

Question 64

Seville Corporation has net assets of $2,072,000 and paid-in capital of $700,000.The only stock issue consists of 74,000 outstanding shares of common stock.From this information,it can be deduced that the company has:

A)Retained earnings of $2,072,000.
B)A deficit of $2,072,000.
C)A book value of $9.46 per share of common stock.
D)A book value of $28 per share of common stock.

Question 65

The financial statements of a corporation that failed during the current year to pay any dividends on its cumulative p

A)Include the amount of the omitted dividends among its current liabilities.
B)Include a footnote disclosing the amount of the dividends in arrears.
C)Show the amount of the omitted dividends as a deduction from retained earnings.
D)List the omitted dividends as a long-term liability.

Question 66

Coronet Corp.has total stockholders' equity of $7,400,000.The company's outstanding capital stock includes 100,000 shares of $10 par value common stock and 20,000 shares of 6%,$100 par value p

A)$39.
B)$49.
C)$54.
D)$74.

Question 67

Mayfair Corporation has outstanding 70,000 shares of $1 par value common stock as well as 20,000 shares of 7%,$100 par value cumulative p

A)$1,080,000.
B)$1,670,000.
C)$890,000.
D)$310,000.

Question 68

Century Corporation issued 400,000 shares of $4 par value common stock at the time of its incorporation.The stock was issued for cash at a price of $16 per share.During the first year of operations,the company sustained a net loss of $100,000.The year-end balance sheet would show the balance of the Common Stock account to be:

A)$1,600,000.
B)$1,500,000.
C)$6,300,000.
D)$6,400,000.

Question 69

If the p

A)Dividends on preferred stock are guaranteed.
B)Dividends cannot be declared in an amount less than that stated on the stock certificate.
C)Preferred stockholders participate in dividends paid in excess of a stated amount on the common shares.
D)Dividends in arrears must be paid on preferred stock before any dividend can be paid on common stock.

Question 70

Santa Fe Boat Yard has total stockholders' equity of $4,100,000,comprised of the following: - $2,000,000 in $5 p

A)$30.00.
B)$58.57.
C)$45.71.
D)$6.00.

Question 71

The market price of a p

A)The dividend rate.
B)The chance that the company will not operate profitably.
C)The level of interest rates.
D)The dividend rate,the chance that the company will not operate profitably,and the level of interest rates.

Question 72

Marks Corporation has total stockholders' equity of $7,400,000.The company has outstanding 300,000 shares of $1 par value common stock and 20,000 shares of 8% p

A)$9.00.
B)$24.06.
C)$24.66.
D)$18.00.

Question 73

Which of the following best describes the book value of a share of stock?

A)Net assets divided by the number of shares outstanding.
B)The amount at which the stock would sell on the market if sold by a willing and informed seller to a willing and informed buyer.
C)Total assets of the company,as reported in the accounting records,divided by the number of shares of stock outstanding.
D)Total stockholders' equity divided by the number of shares authorized.

Question 74

In a "pump-and-dump" scheme,the owners of the company:

A)Falsely claim the business has high growth potential.
B)Artificially raise the price of the stock.
C)Sell the stock at a high price.
D)Falsely claim that the business has high growth potential,artificially raise the price of the stock,and sell the stock at a high price.

Question 75

Which of the following individuals has the most power to influence corporate policy on a long-term basis?

A)A shareholder owning 60% of the outstanding common stock.
B)A shareholder owning 80% of the outstanding preferred stock.
C)The treasurer of the corporation.
D)The controller of the corporation.

Question 76

Assuming there is no p

A)Stockholders' equity divided by the number of shares authorized.
B)Stockholders' equity divided by the number of shares outstanding.
C)Net income divided by the number of shares outstanding.
D)Net income divided by the number of shares authorized.

Question 77

All of the following are activities seen in "pump-and-dump" schemes except:

A)The owners of the company purchase their shares at artificially high prices.
B)High-pressure sales tactics are used to get individuals to buy the stock.
C)Limited financial information is filed with the SEC.
D)The owners of the company claim that a previously private company has high growth potential.

Question 78

If p

A)Board of directors.
B)CEO.
C)CFO.
D)Stockholders.

Question 79

Which of the following is not a characteristic of most p

A)Dividends that vary as income changes.
B)Preference as to dividends.
C)Preference as to assets in the event of liquidation of the company.
D)No voting power.

Question 80

The net assets of a corporation are equal to:

A)Total assets - total liabilities.
B)Total assets - retained earnings.
C)Total assets + total liabilities.
D)Total assets + retained earnings.