Question 1

Bobber Corporation purchased 1,000 shares of its own $1 par value common stock at $10 per share.This was the first time the company had ever purchased treasury stock.Shortly thereafter,Bobber sold 100 shares of this treasury stock at $13 per share.The journal entry to record the sale of the treasury stock would include a:

Accepted Answer

The correct entry includes a credit to Paid-in-Capital from Treasury Stock Transactions for $300 because the sale of treasury stock above its cost increases equity through paid-in capital, not through a gain on the income statement.

Question 2

What type of account is Stock Dividend Distributable?

Accepted Answer

Stock Dividend Distributable is considered contributed capital because it represents an amount that is set aside to be converted into capital stock. It is not a contra account, asset, or liability, but rather an equity account that reflects the company's commitment to issue additional shares to shareholders as part of a stock dividend.

Question 3

Which of the following would tend to cause the market price of common stock to decrease?

Accepted Answer

The answer of Which of the following would tend to...

Question 4

A stockholder who received a 10% common stock dividend would have an increase in her/his ownership percentage equal to:

Accepted Answer

A 10% common stock dividend means that the stockholder receives additional shares equivalent to 10% of their current holdings, but since all shareholders receive the same percentage increase, the overall ownership percentage in the company does not change.

Question 5

Where in the balance sheet is preferred stock usually reported?

Accepted Answer

Preferred stock is part of stockholders' equity and typically reported separately from common stock in the balance sheet.

Question 6

If stock with a $2 par value was issued for $12 per share,

Accepted Answer

When a stock with a par value is issued at a price higher than par value, the common stock is credited for the par value, which in this case is $2 per share. The remaining amount above the par value is credited to the paid-in capital in excess of par account, which in this case is $10 per share ($12 selling price - $2 par value). Therefore, option C is the best choice. Options A, B, and D are incorrect.

Question 7

A 100% stock dividend and a 2 for 1 stock split are similar in that:

Accepted Answer

A 100% stock dividend means that for every share of stock an investor owns, they will receive an additional share. This effectively doubles the number of shares outstanding, which is the same effect as a 2-for-1 stock split. Both of these actions do not affect the total stockholders' equity since the company is not issuing any additional capital. Therefore, both the statements that the number of shares of stock outstanding will double (b) and total stockholders' equity will remain unchanged (c) are correct. Choice (A) is incorrect because the par value of the company's stock will not be affected by either action.

Question 8

Treasury stock is shown in a company's financial statements as a(n):

Accepted Answer

Treasury stock represents shares that were issued and subsequently reacquired by the company. It is recorded as a deduction from total shareholders' equity, making it a contra equity account, not an asset.

Question 9

When a corporation issues its own stock in payment for goods or services,the least appropriate value to use in recording the transaction is

Accepted Answer

Using the par value of the stock would not reflect the true economic value of the goods or services received in exchange for the stock. Par value is simply an arbitrary value assigned to the stock by the issuing corporation and does not necessarily reflect the fair market value of the stock at the time of the transaction. Therefore, using the par value would not accurately reflect the value of the transaction. Using the appraised or market value of the goods or services and the market value of the stock would be more appropriate in reflecting the economic value of the transaction.

Question 10

All the following except one are true statements about the declaration and distribution of stock dividends.

Accepted Answer

Stock dividends do not reduce the assets of the firm as they are essentially a transfer of some of the retained earnings to the contributed capital account. Therefore, all other statements (B, C, and D) are true.

Question 11

Retained earnings represent

Accepted Answer

Retained earnings represent the earnings of the company less the dividends paid out to shareholders. It's the cumulative earnings of a company from its inception to the present, minus any dividends paid. Therefore, choice C is the correct answer.

Question 12

How would the purchase of treasury stock affect the market price of a firm's common stock?

Accepted Answer

The purchase of treasury stock can lead to an increase in the market price of a firm's common stock because it reduces the number of shares available in the market, potentially increasing the stock's scarcity and perceived value.

Question 13

Callisto began 2008 with 100,000 shares of $3 par common stock.The firm declared a 3-for-1 stock split on March 1,2008.How will the stock split affect Callisto's stockholders' equity?

Accepted Answer

A stock split does not affect the total paid-in capital or retained earnings. It increases the number of shares while decreasing the par value per share proportionally, leaving the total stockholders' equity unchanged.

Question 14

Which of the following would not appear in the stockholders' equity section of the balance sheet?

Accepted Answer

Gains on the sale of treasury stock are not reported in the stockholders' equity section of the balance sheet. Instead, they are included in the income statement as part of the company's earnings. The stockholders' equity section typically includes items like additional paid-in capital, retained earnings, and treasury stock itself, but not the gains or losses from transactions involving treasury stock.

Question 15

The issuance of common stock for cash would appear on the

Accepted Answer

The issuance of common stock for cash would be recorded as a financing activity on the statement of cash flows and would also be reflected in the statement of stockholders' equity which explains the changes in the company's equity accounts. It would not impact the income statement or the balance sheet directly.

Question 16

How does the declaration and distribution of a stock dividend affect a firm?

Accepted Answer

Stock dividends redistribute a portion of a company's earnings back to its shareholders in the form of additional shares, rather than cash. This action does not affect the total stockholders' equity or the company's total assets, as it simply reallocates part of the retained earnings to common stock.

Question 17

How does the declaration and payment of a cash dividend affect a firm?

Accepted Answer

The answer of How does the declaration and payment of...

Question 18

The two major elements of stockholders' equity are

Accepted Answer

The answer of The two major elements of stockholders' equity...

Question 19

J&C Corporation purchased for the treasury 1,000 shares of its own $1 par value common stock at $20 per share.This was the first time the company had ever purchased treasury stock.Shortly thereafter,J&C sold 400 shares of this treasury stock at $17 per share.The journal entry to record the sale of the treasury stock would include a:

Accepted Answer

The answer of J&C Corporation purchased for the treasury 1,000...

Question 20

Reissuing treasury stock at a price higher than the price paid to acquire the stock results in a(n):

Accepted Answer

The answer of Reissuing treasury stock at a price higher...

Quiz 15: Recording and Evaluating Capital Resource Process Activities: Financing