Question 1

Prior period adjustments are reported in the:

Accepted Answer

Prior period adjustments are adjustments made to correct material errors in financial statements from previous reporting periods. These adjustments impact the balance of retained earnings, which is reported on the statement of retained earnings. Therefore, prior period adjustments are reported in the statement of retained earnings.

Question 2

The statement of changes in stockholders' equity:

Accepted Answer

The statement of changes in stockholders' equity describes changes in contributed capital and retained earnings subcategories, including any stock issuances, dividend payments, net income or loss, and any changes in accounting policies.

Question 3

When all of the authorized shares have the same rights and characteristics, the stock is called:

Accepted Answer

Common stock is the type of stock where all authorized shares have the same rights and characteristics. Preferred stock, par value stock, stated value stock, and no-par value stock all have different characteristics and/or varying rights among their authorized shares.

Question 4

A dividend preference for preferred stock means that:

Accepted Answer

A dividend preference for preferred stock means that preferred stockholders receive their dividends before common shareholders. This is the main characteristic of preferred stock and distinguishes it from common stock.

Question 5

A company has 5,000 shares of $1 par value common stock and 6,000 shares of 2%, $98 par, non-cumulative preferred stock outstanding. The balance in Retained Earnings at the beginning of the year was $750,000. Net income for the current year was $400,000. If the company paid a dividend of $3 per share on its common stock, what is the balance in Retained Earnings at the end of the year?

Accepted Answer

The answer of A company has 5,000 shares of $1...

Question 6

A class of stock that does not have a par value and can usually be issued at any price without creating a minimum legal capital deficiency is called:

Accepted Answer

No-par stock does not have a par value and can be issued at any price. This type of stock does not create a minimum legal capital deficiency, unlike stocks with a par value. Convertible stock refers to a type of stock that can be converted into another type of security, typically common stock. Callable stock refers to stock that can be redeemed at a certain price by the issuer. Noncumulative stock does not accumulate missed dividends, whereas cumulative stock does. Discounted stock refers to stock that is sold at a lower price than its face value. Therefore, the correct answer is B.

Question 7

A company has 2,000 shares of $1 par value common stock and 200 shares of 5%, $110 par, non-cumulative preferred stock outstanding. The balance in Retained Earnings at the beginning of the year was $500,000. Net income for the current year was $300,000. If the company paid a dividend of $2 per share on its common stock, what is the balance in Retained Earnings at the end of the year?

Accepted Answer

First, calculate the amount of dividends paid on common stock:
$2 per share x 2,000 shares = $4,000

Next, calculate the amount of dividends paid on preferred stock:
No dividends are mentioned as being paid on the preferred stock, so the amount is $0.

Calculate the total amount of dividends paid:
$4,000 + $0 = $4,000

Subtract the total amount of dividends paid from the net income:
$300,000 - $4,000 = $296,000

Add the adjusted net income to the beginning balance in Retained Earnings:
$500,000 + $296,000 = $796,000

Therefore, the balance in Retained Earnings at the end of the year is $794,900 (closest to option C).

Question 8

A company had a beginning balance in retained earnings of $43,000. It had net income of $6,000 and paid out cash dividends of $5,625 in the current period. The ending balance in retained earnings account is equal to:

Accepted Answer

The calculation to determine the ending balance in retained earnings would be:

Beginning balance in retained earnings + Net income - Dividends paid = Ending balance in retained earnings

Plugging in the given values:

$43,000 + $6,000 - $5,625 = $43,375

Therefore, the ending balance in the retained earnings account is $43,375, which corresponds to answer choice D.

Question 9

A company has 3,000 shares of $2 par value common stock and 1,500 shares of 8%, $150 par, non-cumulative preferred stock outstanding. The balance in Retained Earnings at the beginning of the year was $400,000. The Net Loss for the current year was $30,000. If the company paid a dividend of $1 per share on its common stock, what is the balance in Retained Earnings at the end of the year?

Accepted Answer

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Question 10

Prior period adjustments to financial statements can result from:

Accepted Answer

Prior period adjustments result from errors or omissions in previously issued financial statements. These errors can result from using unacceptable accounting principles, misapplication of accounting principles, math errors, or fraud. Changes in estimates, discontinued operations, changes in tax law, and extraordinary items are not examples of prior period adjustments.

Question 11

The total amount of cash and other assets received by a corporation from its stockholders in exchange for common stock is:

Accepted Answer

When a corporation issues common stock, the total amount of cash and other assets it receives from its stockholders is referred to as contributed capital. This amount can be above or below the par value or stated value of the stock. Therefore, choices A, B, and E are incorrect. Retained earnings, on the other hand, are the profits a corporation has earned but not distributed as dividends to its stockholders. This has nothing to do with the initial issuance of common stock, so choice D is also incorrect.

Question 12

A company issued 7% preferred stock with a $100 par value. This means that:

Accepted Answer

The 7% preferred stock with a $100 par value means that the potential dividend per share is $7 per year. Therefore, choice B is the correct answer. Choice A is not entirely true, as even preferred shareholders do not have a guaranteed dividend if the company cannot pay it. Choice C is incorrect as it implies that all the company's income will be divided among the preferred shareholders. Choice D is not necessarily true as the market price per share can be affected by various factors, such as market demand and supply. Choice E is unrelated to the question asked.

Question 13

When all of the authorized shares have the same rights and characteristics, the stock is referred to as:

Accepted Answer

Ordinary Shares are the same as Common Shares under IFRS and GAAP, and refer to shares that have the same rights and characteristics. Therefore, it is the best choice.

Question 14

Stockholders' equity consists of:

Accepted Answer

Stockholders' equity typically includes contributed capital and retained earnings, which represent the amount of money contributed by shareholders and the cumulative amount of profits or losses the company has retained over time. Long-term assets (A) are not part of stockholders' equity, as they represent the resources the company uses to generate value, rather than the ownership interest of shareholders. Par value (C) is a nominal value assigned to shares of stock, which has little relevance to the company's financial health, and would not be included in stockholders' equity by itself. Retained earnings and cash (D) represent different types of financial resources available to the company, but only retained earnings are included in stockholders' equity. Premiums and discounts (E) refer to the difference between the market or fair value of shares of stock and the nominal par value, and are therefore not part of stockholders' equity.

Question 15

Changes in accounting estimates are:

Accepted Answer

Changes in accounting estimates are not considered errors, prior period adjustments, or extraordinary items. Instead, they are accounted for by making adjustments in the current and future periods, which is known as a prospective approach. Therefore, the correct choice is E, which states that changes in accounting estimates are accounted for in both current and future periods.

Question 16

Owners of preferred stock often do not have:

Accepted Answer

The answer of Owners of preferred stock often do not...

Question 17

Stated value of no-par stock is:

Accepted Answer

The answer of Stated value of no-par stock is:
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Question 18

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

Accepted Answer

Noncumulative preferred stock is the type of preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared. Cumulative preferred stock, on the other hand, allows for the accumulation of missed dividend payments, while participating preferred stock and convertible preferred stock are different types of preferred stock with different characteristics. Callable preferred stock refers to stock that can be redeemed by the issuer at a predetermined price.

Question 19

An amount of assets defined by state law that stockholders must invest and leave invested in a corporation is called the:

Accepted Answer

Minimum legal capital is the amount of assets that state law requires shareholders to invest and keep invested in a corporation. This is also known as statutory capital or legal capital. Par value of preferred is the minimum value assigned to a share of preferred stock, stated value is the arbitrary value assigned to a no-par stock, premium capital is not a term commonly used in finance, and working capital refers to the company's current assets minus current liabilities.

Question 20

A corporation's minimum legal capital is often defined to be the total par value of the shares:

Accepted Answer

The answer of A corporation's minimum legal capital is often...

Quiz 11: Corporate Reporting and Analysis