Question 1

Noncumulative preferred dividends in arrears

Accepted Answer

Noncumulative preferred dividends in arrears are not required to be paid or disclosed because they do not accumulate if not declared in a given year.

Question 2

Pember Corporation started business in 2009 by issuing 200,000 shares of $20 par common stock for $36 each. In 2014, 25,000 of these shares were purchased for $52 per share by Pember Corporation and held as treasury stock. On June 15, 2015, these 25,000 shares were exchanged for a piece of property that had an assessed value of $1,010,000. Pember's stock is actively traded and had a market price of $60 on June 15, 2015. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be

Accepted Answer

The treasury stock was originally purchased for $52 per share, totaling $1,300,000 (25,000 shares x $52). When exchanged for property, the shares had a market value of $60 per share, totaling $1,500,000 (25,000 shares x $60). The difference of $200,000 ($1,500,000 - $1,300,000) is credited to paid-in capital from treasury stock transactions.

Question 3

Use the following information for questions 71 and 72.
Presented below is information related to Hale Corporation: 
-The total stockholders' equity of Hale Corporation is

Accepted Answer

The total stockholders' equity is calculated by adding up all the equity accounts. The correct choice is based on the given financial data, which indicates that the total stockholders' equity is $8,800,000.

Question 4

Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called

Accepted Answer

Book value per share is the ratio of total stockholders' equity to the number of common stock shares outstanding. Par value per share is a nominal value assigned to each share of stock by the issuing company. Stated value per share is a value assigned to a no-par stock by the issuing company, whereas fair value per share is the current market value of the stock.

Question 5

Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2014, the first year of the corporation's existence:Sold 10,000 shares of common stock for $13.50 per share.Issued 10,000 shares of common stock in exchange for a patent valued at $150,000.At the end of the Berry's first year, total paid-in capital amounted to

Accepted Answer

The total paid-in capital is calculated by adding the cash received from the sale of 10,000 shares at $13.50 per share ($135,000) and the value of the patent for which 10,000 shares were issued ($150,000). This gives a total of $285,000.

Question 6

What effect does the issuance of a 2-for-1 stock split have on each of the following?

Accepted Answer

The answer of What effect does the issuance of a...

Question 7

The rate of return on common stock equity is calculated by dividing

Accepted Answer

The rate of return on common stock equity is calculated by dividing net income less preferred dividends by average common stockholders' equity. This measures the return that common stockholders are earning on their investment.

Question 8

How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position?

Accepted Answer

Cumulative preferred dividends in arrears are not recognized as a liability until they are declared by the board of directors. Instead, they are disclosed in the notes to the financial statements to inform users about the potential obligation.

Question 9

A feature common to both stock splits and stock dividends is

Accepted Answer

Both stock splits and stock dividends do not have any effect on the total stockholders' equity of a corporation. However, stock splits increase the number of shares outstanding and decrease the par value per share, while stock dividends distribute additional shares to shareholders. Neither of these actions affects the total amount of equity in the business. Choices A, C, and D do not apply to either stock splits or stock dividends.

Question 10

Norton Company issues 4,000 shares of its $5 par value common stock having a fair value of $25 per share and 6,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $210,000. What amount of the proceeds should be allocated to the preferred stock?

Accepted Answer

The answer of Norton Company issues 4,000 shares of its...

Question 11

Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

Accepted Answer

Liquidation preferences are a type of equity security that gives the holder the right to receive a specified amount of money in the event that the company is liquidated. This type of security is typically disclosed in the equity section of the balance sheet, rather than in the notes to the financial statements.

Question 12

Gannon Company acquired 10,000 shares of its own common stock at $20 per share on February 5, 2014, and sold 5,000 of these shares at $27 per share on August 9, 2015. The fair value of Gannon's common stock was $24 per share at December 31, 2014, and $25 per share at December 31, 2015. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2015 to record the sale of 5,000 shares?

Accepted Answer

When using the cost method, treasury stock is recorded at its original cost, in this case $20 per share. When the shares are sold, the proceeds received above the cost of the treasury stock are recorded as an increase in both Treasury Stock and Paid-in Capital from Treasury Stock. The 5,000 shares were sold for $7 per share above their cost, resulting in total proceeds of $35,000 ($7 x 5,000 shares). Therefore, Gannon should credit Treasury Stock for $100,000 (5,000 shares x $20 per share) and Paid-in Capital from Treasury Stock for $35,000 (proceeds received above cost). Retained Earnings would not be affected by the sale of treasury stock under the cost method.

Question 13

Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $530,000. How much of the proceeds would be allocated to the common stock?

Accepted Answer

The total fair value of the stocks is $25 x 10,000 + $20 x 15,000 = $550,000. To allocate the lump sum of $530,000, we first need to proportionally allocate the value of each stock:

Common stock: ($25/$45) x $550,000 = $305,556 
Preferred stock: ($20/$45) x $550,000 = $244,444

Therefore, the amount allocated to common stock is $305,556 - $55,556 (the par value of the common stock: $5 x 10,000 shares) = $250,000.

Question 14

Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $264,000. The proceeds allocated to the preferred stock is

Accepted Answer

The total lump sum received is $264,000. The value of 5,000 shares of common stock is $25 per share, which gives a total value of 5,000 x $25 = $125,000. Therefore, the value of 7,500 shares of preferred stock is $264,000 - $125,000 = $139,000. 
To allocate the lump sum between the two classes of stock, we need to use the proportion of the fair value of each class to the total fair value. 
The total fair value is $125,000 + $139,000 = $264,000. 
The proportion of the fair value of the preferred stock to the total fair value is: 
$139,000 / $264,000 = 0.5258 or 52.58% (rounded to two decimal places). 
This means that 52.58% of the lump sum ($264,000) should be allocated to the preferred stock.
Therefore, the proceeds allocated to the preferred stock is: 
0.5258 x $264,000 = $139,000.

To recap, the value of preferred stock is ($15*7500)=$112,500. But the market value is $20 per share. So, the market value of preferred stock is ($20*7500)=$150,000. Now, Value of common stock = Total Value - Value of Preferred Stock = $264,000 - $150,000 = $114,000. Therefore, the allocation of $264,000 will be in the proportion of $150,000 for the Preferred Stock and $114,000 for the common stock.

Question 15

The payout ratio can be calculated by dividing

Accepted Answer

The payout ratio measures the percentage of earnings paid out as dividends to shareholders. It can be calculated by dividing cash dividends by net income less preferred dividends (Option B). Option A only considers dividends paid out per share and earnings per share, but not the overall percentage. Option C only considers the market price per share, which does not necessarily reflect the company's financial performance. Option D includes both options A and B, but net income less preferred dividends is the more relevant figure to use for calculating the payout ratio.

Question 16

Dividends are not paid on

Accepted Answer

Dividends are not paid on treasury stock, which is stock that has been bought back by the company and is being held in its treasury. Dividends are typically paid on preferred stock, but noncumulative and nonparticipating preferred stock may not be entitled to receive dividends in certain circumstances.

Question 17

Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

Accepted Answer

The answer of Younger Company has outstanding both common stock...

Question 18

Use the following information for questions 71 and 72.
Presented below is information related to Hale Corporation: 
-The total paid-in capital (cash collected) related to the common stock is

Accepted Answer

The total paid-in capital related to common stock can be calculated by adding up the par value of the common stock ($500,000) and the additional paid-in capital ($4,550,000), which equals $5,050,000.

Question 19

On September 1, 2014, Valdez Company reacquired 20,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit

Accepted Answer

When using the cost method, the treasury stock account is debited for the cost of the reacquired shares. Therefore, the journal entry to record the reacquisition of 20,000 shares for $15 per share should debit Treasury Stock for $300,000 (20,000 shares x $15 per share).

Question 20

Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $297,000. The proceeds allocated to the common stock is

Accepted Answer

First, calculate the total fair value of the shares being issued:
(6,000 common shares x $25 fair value per share) + (9,000 preferred shares x $20 fair value per share) = $150,000 + $180,000 = $330,000

Next, calculate the portion of the lump sum allocated to the common stock using the proportional method:
Common stock portion = (fair value of common stock / total fair value) x lump sum
Common stock portion = ($150,000 / $330,000) x $297,000 = $135,000

Therefore, the proceeds allocated to the common stock is $135,000.

Quiz 15: Stockholders Equity