Deck 12: Stockholders Equity

Question 1

One disadvantage of a corporation is the continuous existence of the corporation.

Answer 1

False

Question 2

The board of directors carries out the day-to-day operations of the business.

Answer 2

False

Question 3

The price/earnings (P/E)ratio is a common measure of management's performance.

Answer 3

False

Question 4

Return on equity equals net income divided by average stockholders' equity.

Question 5

An advantage of the corporate form is that the board cannot hire professional managers to attend to the corporation's affairs.

Question 6

The dividends yield is measured in terms of "times."

Question 7

No entry is required on the date of record for a cash dividend.

Question 8

Corporate earnings are not subject to double taxation.

Question 9

A cash dividend is usually paid when a company is going out of business or reducing its operations.

Question 10

The liability of a stockholder is usually limited to the stockholder's investment in the corporation and the stockholder's personal assets.

Question 11

Stockholders elect the officers who appoints the board of directors of a corporation.

Question 12

The par value of stock refers to its value on the open market.

Question 13

Underwriters typically charge 5 percent of the selling price to guarantee the sale of initial public offerings of stock.

Question 14

Stock options often are granted by a corporation to management personnel as a means of additional compensation to and motivation of these employees.

Question 15

The limited liability of a stockholder can be viewed as both an advantage and a disadvantage.

Question 16

The par value of stock is an arbitrary amount assigned to each share of stock.

Question 17

A dividend that represents a return to the stockholders of a part of their paid-in capital rather than a distribution out of retained earnings is called a cash dividend.

Question 18

A corporation often uses an underwriter for an initial public offering (IPO).

Question 19

Cash dividends become a liability of a corporation when the stock goes ex-dividend.

Question 20

A corporation is a separate entity for legal purposes.

Question 21

Corporations are subject to less government control and regulation than are other forms of business.

Question 22

Financing a business with common stock is riskier than financing it with bonds.

Question 23

The declaration of a cash dividend causes an increase in a corporation's liabilities at the date of record.

Question 24

Preferred stock is considered the residual equity of a corporation.

Question 25

Start-up and organization costs should be amortized over ten years or more.

Question 26

Dividends in arrears are often disclosed in the notes to the financial statements.

Question 27

The Dividends account is closed by transferring to Retained Earnings at the end of the period.

Question 28

Dividends in arrears pertain to noncumulative preferred stock.

Question 29

The stockholders' equity in a corporation consists of capital contributed by stockholders and retained earnings.

Question 30

Treasury shares are shares that are issued and outstanding.

Question 31

The entry required to record start-up and organization costs will cause a decrease in net income for the period.

Question 32

Retained earnings represent the stockholders' claims to assets resulting from profitable operations.

Question 33

The sale of shares in a corporation by one stockholder to another does not affect the total capital of the corporation.

Question 34

Stockholders who own common stock usually have voting rights,whereas stockholders who own preferred stock usually do not have voting rights.

Question 35

Retained earnings are a component of contributed capital.

Question 36

The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder.

Question 37

The death of a stockholder results in the dissolution of the corporation.

Question 38

Dividends on cumulative preferred stock become a liability of the corporation at the end of each year.

Question 39

Callable preferred stock is preferred stock that may be redeemed or retired at the option of the stockholder.

Question 40

Start-up and organization costs include state incorporation fees and attorneys' fees for drawing up the articles of incorporation.

Question 41

Once an owner of convertible preferred stock has converted to common,he or she cannot convert back to preferred.

Question 42

Treasury stock is reported in the stockholders' equity section of the balance sheet.

Question 43

Treasury stock usually is recorded at cost when purchased.

Question 44

The concept of legal capital exists to protect the corporation's assets for the stockholders of the corporation.

Question 45

The entry to record the retirement of treasury stock will include a debit to Common Stock for the amount of the par value of the shares.

Question 46

The number of authorized shares should always equal or exceed the number of outstanding shares.

Question 47

When no-par common stock has a stated value,the stated value of the shares issued normally is not considered the legal capital of the corporation.

Question 48

When no-par common stock without a stated value is issued for cash,the Common Stock account is credited for an amount equal to the cash proceeds.

Question 49

For accounting purposes,stated value is treated differently than par value.

Question 50

The balance in the Additional Paid-in Capital account must be added to the balance of the Common Stock account to compute the amount of legal capital for a corporation with a par value common stock.

Question 51

A liability arises when the board of directors declares a stock dividend.

Question 52

The cost of treasury stock is deducted from total Contributed Capital and Retained Earnings in determining total stockholders' equity.

Question 53

Stockholders are entitled to any dividends in arrears when a corporation calls in its preferred stock.

Question 54

A person owning stock on the date of payment will receive stock dividends that have been declared.

Question 55

A stock dividend is a pro rata distribution of cash to a corporation's stockholders.

Question 56

When common stock with a par value is sold for a price that exceeds par value,the Common Stock account is credited for an amount equal to the cash proceeds.

Question 57

When treasury stock is sold at a price below its cost,the entry to record the sale has the effect of reducing total stockholders' equity.

Question 58

The sale of treasury stock at an amount greater than cost does not result in a gain on the income statement.

Question 59

The entry to record the purchase of treasury stock will cause total stockholders' equity to decrease by the amount of the cost of the treasury shares.

Question 60

No rights or privileges are associated with common stock.

Question 61

A statement of stockholders' equity can take the place of a statement of retained earnings.

Question 62

A statement of retained earnings is not as informative as a statement of stockholders' equity.

Question 63

The price/earnings (P/E)ratio is measured in terms of

A) dollars.
B) a percentage.
C) times.
D) days.

Question 64

Book value per share of stock represents the amount of equity the shareholder of one share of stock has in the net assets of the company.

Question 65

The book value of one share of callable preferred stock is equal to the call value of the preferred share minus any dividends in arrears.

Question 66

A 3-for-1 stock split will have the same effect on the number of shares outstanding as a 300 percent stock dividend.

Question 67

A large stock dividend normally results in a transfer from Retained Earnings to Contributed Capital of an amount equal to the par value of the stock.

Question 68

A stock dividend exceeding 20 to 25 percent is properly treated as a stock split.

Question 69

A stock dividend does not affect the total amount of stockholders' equity.

Question 70

Return on equity is measured in terms of

A) days.
B) times.
C) a percentage.
D) dollars.

Question 71

A stock dividend will cause a decrease in total contributed capital at the date the dividend is declared.

Question 72

The date on a statement of stockholders' equity is for a period of time rather than for a specific point in time.

Question 73

In computing book value per share of common stock,common stock distributable is included in the number of shares outstanding.

Question 74

The declaration of cash dividends will increase the book value per share of common stock.

Question 75

A stock split normally decreases total stockholders' equity.

Question 76

Dividend yield equals

A) market price per share divided by dividends per share.
B) net income divided by market price per share.
C) net income divided by total equity
D) dividends per share divided by market price per share.

Question 77

A stock dividend will cause an increase in the total number of shares issued and outstanding.

Question 78

A disadvantage of the corporate form of business is

A) limited liability.
B) professional management.
C) ease of transfer of ownership.
D) double taxation.

Question 79

The account Common Stock Distributable is classified as a stockholders' equity account.

Question 80

A stock split results in a transfer of the market value of the stock from Retained Earnings to Contributed Capital.