Question 1

Kong Inc. reported net income of $298,000 during 2018 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. Common stockholders' equity was $1,200,000 on January 1, 2018, and $1,600,000 on December 31, 2018. The company's return on common stockholders' equity for 2018 is:

Accepted Answer

The answer of Kong Inc. reported net income of $298,000...

Question 2

The retained earnings statement

Accepted Answer

The retained earnings statement shows the changes in the retained earnings balance over a period. It begins with the beginning balance of retained earnings, adds net income or subtracts net loss, and adjusts for dividends. If there was an understatement of net income in a prior year, it will require an addition to the beginning retained earnings balance. Therefore, option B is correct. Option A is incorrect because the owners' equity statement includes not only retained earnings but also other equity accounts. Option C is incorrect because the retained earnings statement reflects net losses by subtracting them from the beginning retained earnings balance. Option D is partially incorrect because the retained earnings statement should reconcile the beginning and ending retained earnings balances, but in some cases, it may fail to do so due to errors or omissions.

Question 3

Vega Corporation's December 31, 2018 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 15,000 shares  Vega's total paid-in capital was

Accepted Answer

The answer of Vega Corporation's December 31, 2018 balance sheet...

Question 4

The payout ratio is computed by dividing cash dividends declared on common stock by

Accepted Answer

The payout ratio measures the percentage of earnings paid out to shareholders as cash dividends. Therefore, the numerator should be the cash dividends declared on common stock, which is a distribution of earnings to shareholders. The most appropriate denominator is net income, as it represents the earnings available to shareholders after all expenses are paid. Therefore, the correct formula for the payout ratio is: Cash dividends declared on common stock / Net income.

Question 5

In the stockholders' equity section of the balance sheet,

Accepted Answer

The answer of In the stockholders' equity section of the...

Question 6

Rouse Corporation's December 31, 2018 balance sheet showed the following: 8% preferred stock, $10 par value, cumulative, 20,000 shares  Rouse's total stockholders' equity was

Accepted Answer

The answer of Rouse Corporation's December 31, 2018 balance sheet...

Question 7

Assume that all balance sheet amounts for Marley Company represent average balance figures.  What is the return on common stockholders' equity for Marley?

Accepted Answer

Return on Common Stockholders' Equity = Net Income / Average Common Stockholders' Equity 
= $56,000 / (($90,000+$120,000)/2) 
= $56,000 / $105,000 
= 0.533 (rounded to nearest thousandth) or 53.3% 
However, since the question asks for a percentage, the answer would be 16.7% (rounded to nearest tenth). Therefore, the correct choice is B.

Question 8

Retained earnings are occasionally restricted

Accepted Answer

Retained earnings may be restricted due to contractual loan restrictions, where lenders may require the company to maintain a certain level of retained earnings as a condition for the loan. A, B, and D do not typically restrict retained earnings.

Question 9

The numerator of the return on common stockholders' equity is

Accepted Answer

The return on common stockholders' equity is calculated using net income less preferred dividends, as it represents the income available to common shareholders.

Question 10

The return on common stockholders' equity is computed by dividing net income available to common stockholders by

Accepted Answer

The return on common stockholders' equity measures the amount of net income earned per dollar of common stockholders' equity. Therefore, the numerator should be net income available to common stockholders and the denominator should be common stockholders' equity. Using the average of common stockholders' equity is more accurate because the equity balance may fluctuate during the year. Therefore, the correct calculation is net income available to common stockholders divided by average common stockholders' equity.

Question 11

Vega Corporation's December 31, 2018 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 10,000 shares  Vega's total stockholders' equity was

Accepted Answer

The answer of Vega Corporation's December 31, 2018 balance sheet...

Question 12

The trial balance of Houston Inc. includes the following balances: Common Stock, $40,000; Paid-in Capital in Excess of Par, $64,000; Treasury Stock, $6,000; Preferred Stock, $30,000. Capital stock totals

Accepted Answer

The answer of The trial balance of Houston Inc. includes...

Question 13

A net loss

Accepted Answer

A net loss is closed to the Retained Earnings account, regardless of whether it results in a debit or credit balance. This is because Retained Earnings represents the accumulated earnings (or losses) of a company since its inception, and is not limited to just the current period. Option A is incorrect because net loss is calculated as cost of goods sold minus operating expenses, so it cannot be caused by operating expenses exceeding cost of goods sold. Option B is incorrect because Retained Earnings can have a debit balance, which means the company has accumulated losses over time. Option D is incorrect because paid-in capital represents the amount raised by selling stock to investors and is not affected by the company's net income or losses.

Question 14

Each of the following is reported for common stock except the

Accepted Answer

The par value, shares issued, and shares outstanding are all commonly reported for common stock. The liquidation value is not typically reported for common stock.

Question 15

Bacon Corporation began business by issuing 180,000 shares of $5 par value common stock for $25 per share. During its first year, the corporation sustained a net loss of $30,000. The year-end balance sheet would show

Accepted Answer

The common stock is calculated as the number of shares issued multiplied by the par value per share: 180,000 shares * $5 = $900,000.

Question 16

Retained earnings restrictions are reported

Accepted Answer

Retained earning restrictions are typically disclosed in the footnotes of the current year's financial statements, providing additional information on any limitations or requirements on the use of the company's retained earnings. They are not reported directly on the current year's balance sheet, income statement, or retained earnings statement.

Question 17

Adams Corporation began business by issuing 400,000 shares of $5 par value common stock for $24 per share. During its first year, the corporation sustained a net loss of $40,000. The year-end balance sheet would show

Accepted Answer

The common stock is calculated by multiplying the number of shares issued (400,000) by the par value per share ($5), resulting in $2,000,000.

Question 18

Retained earnings is affected by each of the following except

Accepted Answer

Disposals of treasury stock do not affect retained earnings; they affect additional paid-in capital or common stock.

Question 19

Realistic Corporation's December 31, 2018 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 20,000 shares  Realistic's total paid-in capital was

Accepted Answer

The answer of Realistic Corporation's December 31, 2018 balance sheet...

Question 20

King Corporation had net income of $260,000 and paid dividends of $40,000 to common stockholders and $10,000 to preferred stockholders in 2018. King Corporation's common stockholders' equity at the beginning and end of 2018 was $870,000 and $1,130,000, respectively. There are 100,000 weighted-average shares of common stock outstanding. King Corporation's return on common stockholders' equity was

Accepted Answer

The answer of King Corporation had net income of $260,000...

Quiz 11: Corporations: Organization, Stock Transactions