Question 1

If preferred stock is cumulative the

Accepted Answer

If preferred stock is cumulative, any dividends not declared in a given year accumulate and are called dividends in arrears. These dividends must be paid out before any dividends can be paid to common stockholders. Therefore, preferred stockholders have priority over common stockholders when it comes to receiving dividends.

Question 2

Treasury stock should be reported in the financial statements of a corporation as a(n)

Accepted Answer

Treasury stock is the company's own stock that has been reacquired and is held by the company. It is deducted from both total paid-in capital and retained earnings in the financial statements to reflect the reduction in the company's equity. Therefore, the correct choice is D.

Question 3

Era Company has 6000 shares of 5% $100 par non-cumulative preferred stock outstanding at December 31 2017. No dividends have been paid on this stock for 2016 or 2017. Dividends in arrears at December 31 2017 total

Accepted Answer

Since the preferred stock is non-cumulative, dividends do not accumulate if they are not declared. Therefore, there are no dividends in arrears.

Question 4

Victory Corporation sold 400 shares of treasury stock for $45 per share. The cost for the shares was $35. The entry to record the sale will include a

Accepted Answer

The sale of treasury stock above cost results in a credit to Paid-in Capital from Treasury Stock for the excess amount, which is (45 - 35) * 400 = $4000.

Question 5

The Sorrento Skies Corporation issues 16000 shares of $100 par value preferred stock for cash at $120 per share. The entry to record the transaction will consist of a debit to Cash for $1920000 and a credit or credits to

Accepted Answer

When preferred stock is issued at a price higher than its par value, the excess amount is recorded in the account "Paid-in Capital in Excess of Par-Preferred Stock." Therefore, the entry will include a credit to Preferred Stock for the par value ($100 x 16000 = $1600000) and a credit to Paid-in Capital in Excess of Par-Preferred Stock for the excess amount ($120 - $100 = $20 x 16000 = $320000). The total credit will be $1920000.

Question 6

Which of the following is not a right or preference associated with preferred stock?

Accepted Answer

While common stockholders have the right to vote, preferred stockholders do not typically have this right.

Question 7

Vangaurd Corporation's December 31 2017 balance sheet showed the following: 8% preferred stock $20 par value cumulative 20000 shares $\begin{array}{lr}
\text {authorized; 15,000 shares issued}& \$ 300,000 \
\text {Common stock, $ \$ 10 $ parvalue, 2,000,000 shares authorized;}&\
\text {$ 1,950,000 $ shares issued, $ 1,920,000 $ shares outstanding}&19,500,000\
\text { Paid-in capital in excess of par-preferred stock } & 60,000 \
\text { Paid-in capital in excess of par-common stock } & 27,000,000 \
\text { Retained earnings } & 7,500,000 \
\text { Treasury stock (30,000 shares) } & 630,000
\end{array}$ Vangaurd declared and paid a $96000 cash dividend on December 15 2017. If the company's dividends in arrears prior to that date were $20000 Vangaurd's common stockholders received

Accepted Answer

The preferred stockholders are entitled to receive their dividend before any dividend is paid to common stockholders. The preferred stock is cumulative, which means that any missed dividends must be paid before common stockholders receive any dividends. In this case, the dividends in arrears were $20,000, so $20,000 of the $96,000 cash dividend went towards paying off the arrears, leaving $76,000 for the current year's dividend. Since there are 20,000 shares of preferred stock, each share is entitled to $4 of the $8 per share dividend. Therefore, the cash dividend received by preferred shareholders was $8 x 20,000 = $160,000. The remaining $76,000 was available for common stockholders, and since there is no information given about any dividends owed to common stockholders, they received the full $76,000. Thus, the total dividend paid to common stockholders was $76,000. Therefore, common stockholders receive $76,000.

Question 8

Katy Hooper Inc. issued 6000 shares of no-par common stock with a stated value of $5 per share. The market price of the stock on the date of issuance was $14 per share. The entry to record this transaction includes a

Accepted Answer

The entry includes a credit to Common Stock for the stated value of the shares issued, which is 6000 shares x $5 = $30000.

Question 9

Mountain View Inc. has 50000 shares of 8% $100 par value noncumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31 2017. There were no dividends declared in 2016. The board of directors declares and pays a $500000 dividend in 2017. What is the amount of dividends received by the common stockholders in 2017?

Accepted Answer

The preferred stockholders receive 8% of $100 par value per share, which is $8 per share. With 50,000 shares, they receive $400,000. The remaining $100,000 of the $500,000 total dividend goes to the common stockholders.

Question 10

Taylor Corporation issues 20000 shares of $50 par value preferred stock for cash at $90 per share. In the stockholders' equity section the effects of the transaction above will be reported

Accepted Answer

When a company issues stock for more than its par value, the excess amount above par value is recorded in the additional paid-in capital section of stockholders' equity. In this case, the preferred stock has been issued for $90 per share which is $40 ($90-$50) more than its par value of $50. Therefore, $40 per share will be recorded in the additional paid-in capital section, and the remaining $50 per share will be recorded in the capital stock section. Thus, the effects of the transaction will be reported under both the capital stock and additional paid-in capital sections.

Question 11

Dividends in arrears on cumulative preferred stock

Accepted Answer

Dividends in arrears on cumulative preferred stock are not recognized as liabilities until they are declared. However, they should be disclosed in the notes to the financial statements to inform users about the potential obligation and its impact on future cash flows.

Question 12

When preferred stock is cumulative preferred dividends not declared in a period are

Accepted Answer

Cumulative preferred stock dividends not declared in a period are considered dividends in arrears. This means they continue to accumulate from period to period until they are paid. They are not considered a liability until they are actually declared.

Question 13

Treasury stock is

Accepted Answer

Treasury stock is a corporation's own stock which has been issued and subsequently reacquired but not retired. It can be held by the corporation for various reasons such as to reissue in the future, to increase earnings per share, or to have available for employee stock option programs. Option A is incorrect as stock issued by the U.S. Treasury Department is called government securities, not treasury stock. Option B is correct as it describes what treasury stock actually is. Option C is incorrect as the treasurer of a company does not usually have the authority to issue corporate stock.

Question 14

Accounting for treasury stock is done by the

Accepted Answer

Accounting for treasury stock is typically done using the cost method, which involves recording the acquisition cost of the stock as a reduction of shareholder's equity. The market method is used for valuing assets and liabilities at their current market value, while LIFO and lower of cost or market are both methods used for inventory costing.

Question 15

The acquisition of treasury stock by a corporation

Accepted Answer

The acquisition of treasury stock by a corporation reduces the total number of outstanding shares and therefore decreases both total assets and total stockholders' equity. Treasury stock is considered a contra equity account and is subtracted from total stockholders' equity on the balance sheet. There is no gain or loss recognized on the income statement when a company acquires its own stock.

Question 16

Each of the following is correct regarding treasury stock except that it has been

Accepted Answer

Treasury stock has been reacquired by the issuing company, but it has not been retired. It may be held for future resale, canceled or retired at a later date. Therefore, option D is incorrect as treasury stock has not been retired. Options A, B, and C are all correct regarding treasury stock.

Question 17

Taylor Corporation issues 20000 shares of $50 par value preferred stock for cash at $90 per share. The entry to record the transaction will consist of a debit to Cash for $1800000 and a credit or credits to

Accepted Answer

The preferred stock has a par value of $50, so 20000 shares at $50 each equals $1000000. The difference between the cash received of $90 per share and the par value of $50 per share is $40. Therefore, the entry will credit Preferred Stock for the par value of $1000000 and credit Paid-in Capital in Excess of Par-Preferred Stock for the remaining $800000 ($40 x 20000 = $800000).

Question 18

A company would not acquire treasury stock

Accepted Answer

Companies would not acquire treasury stock as an asset investment. Treasury stock represents shares of a company that has been repurchased by the company itself, and it is not an asset in the traditional sense. It is not used to generate income or increase trading of the company's stock. Instead, it is held temporarily and may be used for a variety of purposes, including to reissue to officers or to have additional shares available to use in acquisitions of other companies.

Question 19

Dividends in arrears on cumulative preferred stock

Accepted Answer

Dividends in arrears on cumulative preferred stock must be paid before any dividends can be distributed to common stockholders. This ensures that preferred stockholders receive their specified dividends before common stockholders are allocated any dividends.

Question 20

Fire Red Company is authorized to issue 20000 shares of 8% $100 par value preferred stock and 1000000 shares of no-par common stock with a stated value of $1 per share. If Fire Red issues 10000 shares of preferred stock for land with an asking price of $1020000 and a market value of $1080000 which of the following would be the journal entry for Fire Red to record? a.
$\begin{array}{llr}
  \text {Land  } &1,000,000\
 \text {  Preferred Stock} &&1,000,000\
\end{array}$

b.
$\begin{array}{llr}
  \text { Land } &1,080,000\
 \text { Preferred Stock } &&1,080,000\
\end{array}$

c.
$\begin{array}{llr}
  \text {  Land} &1,200,000\
 \text { Preferred Stock } &&1,000,000\
 \text {  Paid-in Capital in Excess of Par-Preferred} &&200,000
\end{array}$

d.
$\begin{array}{llr}
  \text {Land  } &1,080,000\
 \text {  Preferred Stock} &1,000,000\
 \text {Paid-in Capital in Excess of Par-Preferred  } &80,000
\end{array}$

Accepted Answer

The answer of Fire Red Company is authorized to issue...

Quiz 13: Corporations: Organization and Capital Stock Transactions

If preferred stock is cumulative the

Treasury stock should be reported in the financial statements of a corporation as a(n)

Era Company has 6000 shares of 5% $100 par non-cumulative preferred stock outstanding at December 31 2017. No dividends have been paid on this stock for 2016 or 2017. Dividends in arrears at December 31 2017 total

Victory Corporation sold 400 shares of treasury stock for $45 per share. The cost for the shares was $35. The entry to record the sale will include a

The Sorrento Skies Corporation issues 16000 shares of $100 par value preferred stock for cash at $120 per share. The entry to record the transaction will consist of a debit to Cash for $1920000 and a credit or credits to

Which of the following is not a right or preference associated with preferred stock?

Katy Hooper Inc. issued 6000 shares of no-par common stock with a stated value of $5 per share. The market price of the stock on the date of issuance was $14 per share. The entry to record this transaction includes a

Taylor Corporation issues 20000 shares of $50 par value preferred stock for cash at $90 per share. In the stockholders' equity section the effects of the transaction above will be reported

Dividends in arrears on cumulative preferred stock

When preferred stock is cumulative preferred dividends not declared in a period are

Treasury stock is

Accounting for treasury stock is done by the

The acquisition of treasury stock by a corporation

Each of the following is correct regarding treasury stock except that it has been

Taylor Corporation issues 20000 shares of $50 par value preferred stock for cash at $90 per share. The entry to record the transaction will consist of a debit to Cash for $1800000 and a credit or credits to

A company would not acquire treasury stock

Dividends in arrears on cumulative preferred stock