Question 1

Which of the following is a reason to undergo a reverse stock split?

Accepted Answer

A reverse stock split reduces the number of shares outstanding, which typically results in an increase in the market price per share. It does not directly affect the total stockholders' equity.

Question 2

The major subdivisions of the Stockholders' Equity section of the balance sheet are:

Accepted Answer

The major subdivisions of the Stockholders' Equity section of the balance sheet are Paid-in Capital and Retained Earnings. This is because Paid-in Capital represents the capital contributed by stockholders in exchange for shares of stock, while Retained Earnings represent the portion of a company's earnings that are not distributed to shareholders in the form of dividends but are instead retained for reinvestment in the business or for other purposes. Common Stock and Preferred Stock (choice B) represent different types of stock that a company may issue, but they are not subdivisions of the Stockholders' Equity section. Issued Capital and Authorized Capital (choice C) are not commonly used or recognized subdivisions of Stockholders' Equity. Expenses and incomes (choice D) are not part of the Stockholders' Equity section of the balance sheet.

Question 3

A corporation has 200,000 shares of $100 par value stock outstanding.If the corporation issues a 2-for-1 stock split,the number of shares outstanding after the split will be:

Accepted Answer

A 2-for-1 stock split means each existing share is split into two, doubling the number of shares. Therefore, 200,000 shares will become 400,000 shares.

Question 4

How is treasury stock shown on the balance sheet?

Accepted Answer

Treasury stock is considered a reduction of stockholders' equity and is therefore shown as a deduction from the total stockholders' equity on the balance sheet. This is because the treasury stock represents shares of the company's own stock that have been repurchased and are no longer outstanding.

Question 5

Three dates included in a dividend announcement are date of declaration,date of record,and .

Accepted Answer

The date of declaration is when the company's board of directors announces that a dividend will be paid. The date of record is the date on which a shareholder must hold the stock in order to receive the dividend. The date of payment is the date on which the dividend is actually paid out to shareholders. Therefore, the correct choice is B, date of payment.

Question 6

Which of the following accounts is reported in the noncurrent liabilities section of the corporate balance sheet?

Accepted Answer

Bonds Payable are long-term debts that are not due for repayment within the next 12 months, and therefore classified as noncurrent liabilities on the balance sheet. Common Stock is reported in the stockholders' equity section. Dividends Payable is reported in the current liabilities section. Cash is reported in the current assets section.

Question 7

For the year that just ended,a company reports net income of $1,500,000.There are 500,000 shares authorized,300,000 shares issued,and 250,000 shares of common stock outstanding.What is the earnings per share?

Accepted Answer

The answer of For the year that just ended,a company...

Question 8

If a corporation issues only one class of stock,it is called:

Accepted Answer

If a corporation issues only one class of stock, it is typically common stock. Common stock represents ownership in the company and entitles the shareholder to vote at shareholder meetings and receive dividends when issued by the company. Choice B, treasury stock, refers to stock that has been repurchased by the company and is held in its own treasury. Choice C, no-par stock, refers to stock that doesn't have a par value. Choice D, preferred stock, represents ownership in the company but generally does not carry voting rights and may have other preferences over common stock, such as preference in dividends or in the event of liquidation.

Question 9

Which of the following is listed under long-term liabilities?

Accepted Answer

Bonds payable due in 18 months are considered long-term liabilities because they are not due within the current year or operating cycle.

Question 10

Which of the following is necessary for a corporation to pay cash dividends?

Accepted Answer

A corporation must have sufficient retained earnings to pay cash dividends. Retained earnings are the accumulated earnings of the corporation that have not been paid out as dividends. Option A is not required for a corporation to pay cash dividends, as the market value of a share has no bearing on the payment of dividends. Option B is incorrect, as a court order would not be necessary for a corporation to pay cash dividends. Option D is also incorrect, as the prior declaration of stock dividends is not necessary for the payment of cash dividends.

Question 11

Which of the following is a reason for a corporation to buy back its own stock?

Accepted Answer

Buying back stock can reduce the number of shares outstanding, which can increase the value of remaining shares and allow the company to reissue them for purposes such as employee bonuses.

Question 12

A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180.If the corporation issues a 4-for-1 stock split,the market value of the stock will fall to approximately:

Accepted Answer

The answer of A corporation has 50,000 shares of $100...

Question 13

The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a:

Accepted Answer

A stock split involves reducing the par value or stated value of a stock by issuing additional shares in proportion to the current outstanding shares. This results in the total value of the shares remaining the same, but the price per share decreasing. A stock dividend involves issuing additional shares of stock to shareholders as a dividend, but it does not necessarily involve a reduction in par or stated value. Stock options refer to contracts that give an individual the right to buy or sell shares at a certain price within a certain time frame. Preferred dividends are payments made to owners of preferred stock, which has different rights than common stock.

Question 14

On which of the following dates,a company incurs liability for a dividend?

Accepted Answer

A company incurs liability for a dividend on the date of declaration, which is when the board of directors approves the payment of a dividend. This liability is recorded as a current liability in the company's financial statements. The other options listed do not impact the liability for a dividend. The date of record determines which shareholders are eligible to receive the dividend, and the date of payment is when the dividend is actually distributed. The date of liquidation is relevant for determining how assets are distributed to shareholders in the event of a company's closure or bankruptcy, but does not impact the liability for a dividend.

Question 15

The primary purpose of a stock split is to:

Accepted Answer

The primary purpose of a stock split is to reduce the market price of the stock per share. A stock split is when a company increases the number of shares outstanding by issuing more to current shareholders. This results in a proportionate decrease in the market price per share. The overall value of the shareholder's investment remains the same, but the lower price per share may make the stock more attractive to new investors.

Question 16

The excess of issue price over par of common stock is termed as:

Accepted Answer

The excess of issue price over par of common stock is termed as premium.

Question 17

What is the effect of a stock dividend on the balance sheet?

Accepted Answer

A stock dividend does not affect the total assets, total liabilities, or total stockholders' equity. It involves reclassifying amounts within stockholders' equity, typically from retained earnings to common stock and additional paid-in capital.

Question 18

In which section of the balance sheet would treasury stock be reported?

Accepted Answer

Treasury stock represents shares of a company's own stock that have been bought back and are no longer outstanding. As a result, it is reported in the Stockholders' Equity section of the balance sheet.

Question 19

The charter of a corporation provides for the issuance of 100,000 shares of common stock.Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired.What is the number of shares outstanding?

Accepted Answer

The number of shares outstanding is the total number of shares issued minus the number of shares that have been repurchased. Therefore, the number of shares outstanding is 40,000 - 5,000 = 35,000.

Question 20

A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share.What is the effect on the accounts of this transaction?

Accepted Answer

Selling 200 shares at $13 per share generates a total cash inflow of $2,600. The par value of each share is $5, so the total common stock increase is $1,000 (200 shares x $5). Since the shares were sold at a price higher than their par value, the rest of the cash received above the par value is considered paid-in capital, which is $8 per share ($13 selling price - $5 par value). The total increase in paid-in capital is $1,600 (200 shares x $8). Therefore, the effect on the accounts of this transaction is an increase in cash of $2,600, an increase in common stock of $1,000, and an increase in paid-in capital of $1,600.

Quiz 8: Liabilities and Stockholders Equity