Deck 11: Stockholders Equity: Paid-In Capital

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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 5

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 6

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

Question 7

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

Question 8

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 9

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 10

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 11

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

Question 12

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 13

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

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 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 16

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

Question 17

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 18

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.

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

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

Question 32

In the Stockholders' Equity section of a balance sheet,par value of common stock is presented first,followed by par value of preferred stock,followed by additional paid-in capital on common stock,followed by additional paid-in capital on preferred stock.

Question 33

International accounting standards require mandatory redeemable preferred stock to be classified as a liability on the balance sheet and not as equity.

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

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

Question 36

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

Question 37

To be consistent with international standards,the FASB has changed reporting requirements for redeemable preferred stock to require it to be reported in the equity section.

Question 38

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 preferred stockholders is classified as an investing activity.

Question 39

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 40

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

Question 41

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 42

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 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

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

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

Question 45

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

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

Question 46

Thurman Corporation issued 450,000 shares of $0.50 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 47

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 48

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 49

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 50

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 51

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

A)To vote for directors.
B)To participate in dividends.
C)To share in a distribution of assets if the corporation is to be liquidated.
D)To set corporate policies.

Question 52

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 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

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 55

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 56

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 57

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 58

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 59

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 60

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 61

Assuming there is no preferred stock,book value per share of common stock is derived by which of the following?

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 62

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 63

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 64

[The following information applies to the questions displayed below.]
Shown below is information relating to the stockholders' equity of Grant Corporation at December 31,2018:
Dividends have been declared and paid for 2018.
The average issue price per share of Grant's preferred stock was:

A)$112.
B)$100.
C)$110.
D)$66.

Question 65

[The following information applies to the questions displayed below.]
Shown below is information relating to the stockholders' equity of Grant Corporation at December 31,2018:
Dividends have been declared and paid for 2018.
The total amount of Grant's paid-in capital at December 31,2018,is:

A)$1,960,000.
B)$1,090,000.
C)$3,460,000.
D)$3,050,000.

Question 66

[The following information applies to the questions displayed below.]
Shown below is information relating to the stockholders' equity of Grant Corporation at December 31,2018:
Dividends have been declared and paid for 2018.
The book value per share of common stock is:

A)$7.90.
B)$13.17.
C)$ 9.10.
D)$15.17.

Question 67

[The following information applies to the questions displayed below.]
Shown below is information relating to the stockholders' equity of Brookdale Corporation at December 31,2018:

What was the average issue price per share of common stock?

A)$2.75 per share
B)$1.25 per share
C)$1.50 per share
D)$3.75 per share

Question 68

[The following information applies to the questions displayed below.]
Shown below is information relating to the stockholders' equity of Brookdale Corporation at December 31,2018:

The average issue price per share of the preferred stock was:

A)$150.
B)$165.
C)$180.
D)$195.

Question 69

If Brookdale Corporation had reacquired 7,000 shares of treasury stock early in 2018,and this was the company's only treasury stock transaction,then some treasury stock must have been sold during 2018 for:

A)$32 per share.
B)$38 per share.
C)$27 per share.
D)$6 per share.

Question 70

Topper Corporation has 60,000 shares of $1 par value common stock and 16,000 shares of cumulative 7%,$100 par preferred stock outstanding.Topper has not paid a dividend for the prior year.If Topper declares a $1.95 per common share dividend this year,what will be the total amount they must pay their shareholders?

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

Question 71

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% preferred stock,$100 par value.(No dividends are in arrears. )The book value per share of common stock is:

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

Question 72

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.

Question 73

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 74

How many shares of common stock are outstanding?

A)600,000 shares
B)606,000 shares
C)594,000 shares
D)1,000,000 shares

Question 75

Santa Fe Boat Yard has total stockholders' equity of $4,100,000,comprised of the following: - $2,000,000 in $5 preferred stock consisting of 20,000 shares of $100 par value.
- $420,000 in common stock of $6 par value per share.
- $700,000 of additional paid-in capital.
- $980,000 in retained earnings.
Assuming there are no dividends in arrears,the book value per share of common stock is:

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

Question 76

[The following information applies to the questions displayed below.]
On January 1,2018,Juniper Corporation issued 60,000 shares of its total 200,000 authorized shares of $4 par value common stock for $8 per share.On December 31,2018,Juniper Corporation's common stock is trading at $12 per share.
Assuming Juniper Corporation did not issue any more common stock in 2018,how does the increase in value of its outstanding stock affect Juniper?

A)Juniper should recognize additional net income for 2018 of $4 per share,or $240,000.
B)Paid-in capital at December 31,2018,is $720,000 (i.e. ,60,000 shares times $12 per share).
C)This increase in market value of outstanding stock is not recorded in the financial statements of Juniper Corporation.
D)Each shareholder must pay an additional $4 per share to Jupiter.

Question 77

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 preferred stock.(No dividends are in arrears. )The book value per share of common stock is:

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

Question 78

[The following information applies to the questions displayed below.]
On January 1,2018,Juniper Corporation issued 60,000 shares of its total 200,000 authorized shares of $4 par value common stock for $8 per share.On December 31,2018,Juniper Corporation's common stock is trading at $12 per share.
Assume Juniper Corporation decides to issue an additional 1,000 shares of its common stock on December 31,2018.How will the above increase in value affect Jupiter?

A)Juniper can issue the 1,000 shares at a higher price than the initial 60,000 shares.
B)Juniper can sell the 1,000 shares for $12 each,as well as collect an additional $4 per share for each of the 60,000 shares sold initially.
C)Juniper reports a gain of $4 per share on all stock sold during the year.
D)Paid-in capital at the end of 2018 will be $732,000 (i.e. ,61,000 shares times $12 per share).

Question 79

[The following information applies to the questions displayed below.]
Shown below is information relating to the stockholders' equity of Grant Corporation at December 31,2018:
Dividends have been declared and paid for 2018.
The balance in Retained Earnings at the beginning of the year was $950,000,and there were no dividends in arrears.Net income for 2018 was $980,000.What was the amount of dividend declared on each share of common stock during 2018?

A)$2.50.
B)$2.08.
C)$2.00.
D)$2.68.

Question 80

[The following information applies to the questions displayed below.]
Shown below is information relating to the stockholders' equity of Grant Corporation at December 31,2018:
Dividends have been declared and paid for 2018.
Grant's total legal capital at December 31,2018,is:

A)$3,160,000.
B)$3,000,000.
C)$2,590,000.
D)$1,500,000.