Question 1

A company sells 1 million shares of stock with no par value for $15 a share.In recording the transaction,it would:

Accepted Answer

Since the company sold 1 million shares of stock for $15 per share, the total amount of cash received would be $15 million. Therefore, the transaction should be recorded as a debit to Cash for $15 million and a credit to Common Shares for $15 million.

Question 2

A company has 20,000 shares of preferred shares outstanding paying 0.30 cents dividend per share.It also has 110,000 shares of common stock outstanding.If the company decides to pay a total of $35,000 in dividends.The preferred stock is cumulative with two years' dividends in arrears.What is the amount of dividend preferred stockholders will receive?

Accepted Answer

The preferred stock is cumulative with two years' dividends in arrears. So, the preferred stockholders will receive dividends for the current year and the two years in arrears. The total amount of dividends in arrears is 20,000 shares * $0.30 * 2 years = $12,000. The total amount of dividends to be paid is $35,000. So, the preferred stockholders will receive $12,000 + $35,000 - $12,000 = $18,000.

Question 3

Which of the following statements would explain why a company may want to repurchase its shares?

Accepted Answer

All of the given statements are valid reasons why a company may want to repurchase its shares. By repurchasing its own shares, a company can demonstrate confidence in its own stock, use the shares to incentivize employees, and acquire shares for potential use in acquiring another company.

Question 4

Match the descriptions with the type of stock transaction that displays the characteristic.Some letters will appear in more than one column and not all letters will necessarily be used.Some blanks will require more than one letter.

Accepted Answer

The answer of Match the descriptions with the type of...

Question 5

The incorporation of companies in the Canada is controlled by:

Accepted Answer

The answer of The incorporation of companies in the Canada...

Question 6

Shareholders of a corporation directly elect:

Accepted Answer

Shareholders of a corporation directly elect the board of directors, who are responsible for making strategic decisions for the corporation, hiring and firing the CEO, and overseeing the management team. The president and treasurer are typically appointed by the board of directors. Shareholders do not directly elect all of the employees of the corporation, as that is the responsibility of the management team.

Question 7

Which of the following is the first chance given to existing shareholders to buy newly issued shares before they are offered to others?

Accepted Answer

Pre-emptive rights are the first chance given to existing shareholders to buy newly issued shares before they are offered to others. Residual claim refers to the right of shareholders to receive assets after debts and obligations have been paid in case of liquidation. Voting rights allow shareholders to vote on company matters. Stock dividend rights allow shareholders to receive additional shares instead of cash dividends.

Question 8

Which of the following affects total shareholders' equity?

Accepted Answer

The answer of Which of the following affects total shareholders'...

Question 9

Blue Star Films issues 200,000 no-par value shares for $60 per share in 2007.Three years later,it repurchases 30,000 of these shares for $80 per share.Blue Star records the repurchase in which of the following ways?

Accepted Answer

The answer of Blue Star Films issues 200,000 no-par value...

Question 10

A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.Of the 3 million shares bought back,the company cancels 2 million and holds 1 million.The number of issued shares after these transactions are:

Accepted Answer

The company sold 12 million shares, so the number of issued shares is currently 12 million.
Then the company bought back 3 million shares, leaving 9 million shares outstanding. 
Of the 3 million shares bought back, 2 million were cancelled, which reduces the number of outstanding shares by 2 million to 7 million.
The company holds 1 million of the bought-back shares, so the total number of issued shares is 7 million + 1 million = 8 million.
Therefore, the number of issued shares after these transactions is 8 million, which is option C.

Question 11

Shareholders' equity is:

Accepted Answer

Shareholders' equity refers to the portion of a company's balance sheet that represents the inflow of capital from shareholders, retained earnings from operations, and any other funds put into the company. Choice A best describes shareholders' equity as it takes into account the amount received for all shares issued, the amount of retained earnings, and contributed surplus (refers to funds raised through non-share issuance activities, such as issuing convertible debt). It then subtracts treasury shares (shares of a company's own stock that it has repurchased) to arrive at the total shareholders' equity. Choices B and C are incorrect as they use the term "authorized" shares, which refers to the maximum number of shares a company is allowed to issue, not the actual number issued. Choice D is incorrect as it subtracts both retained earnings and treasury shares from the amount received for shares issued, which is not an accurate reflection of shareholders' equity.

Question 12

A company has 20,000 shares of preferred shares outstanding paying 0.30 cents dividend per share.It also has 110,000 shares of common stock outstanding.If the company decides to pay a total of $35,000 in dividends.The preferred stock is cumulative with two years' dividends in arrears.What is the amount of dividend common stockholders will receive?

Accepted Answer

The preferred stockholders are entitled to receive their dividends before the common stockholders. The preferred stock is cumulative, which means that if the company does not pay the preferred dividends in one year, the preferred stockholders are entitled to receive those dividends in a later year. In this case, the preferred stockholders are entitled to receive two years' worth of dividends, or $12,000. The company has $35,000 available to pay dividends, so the common stockholders will receive $23,000.

Question 13

When a company sells shares to the public for the first time,the sale is called a(n):

Accepted Answer

The sale of shares to the public for the first time is commonly referred to as an IPO or an initial public offering.

Question 14

Which of the following statements about stock dividends is true?

Accepted Answer

Stock dividends are not a distribution of actual cash to shareholders, instead, they are additional shares of stock given to shareholders. Therefore, stock dividends are reported on the statement of shareholders' equity and they increase the total shareholders' equity.

Question 15

Centrador issues 200,000 no-par value shares for $150 per share in 2007.Three years later,it repurchases 30,000 of these shares for $80 per share.Centrator records the repurchase in which of the following ways?

Accepted Answer

The answer of Centrador issues 200,000 no-par value shares for...

Question 16

For a business to be considered a corporation,it must:

Accepted Answer

To be considered a corporation, a business must be organized as a separate legal entity, meaning it has its own legal identity independent of its owners. While corporations may sell publicly traded shares and be owned by a large number of people, these factors are not essential to being classified as a corporation.

Question 17

Holders of common shares receive certain benefits,such as a residual claim,which:

Accepted Answer

A residual claim is the right to share in any remaining assets after creditors have been paid off if the company is liquidated. This means that holders of common shares are entitled to any assets left over after the company has satisfied its debts and obligations to other stakeholders, such as bondholders and preferred shareholders.

Question 18

A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.Of the 3 million shares bought back,the company cancels 2 million and holds 1 million.The number of authorized shares after these transactions are:

Accepted Answer

The corporate charter specifies that the company may sell up to 20 million shares. The company initially sells 12 million shares, which leaves 8 million authorized shares remaining. When the company buys back 3 million shares, the total number of authorized shares is still 20 million. However, the company cancels 2 million shares, which means that only 1 million shares are held. Therefore, the number of authorized shares after these transactions is still 20 million.

Question 19

Shareholders' equity does not include which of the following:

Accepted Answer

Shareholders' equity includes the total issued value of common shares, retained earnings, and contributed surplus. However, the present value of future dividends to be paid is not included in shareholders' equity.

Question 20

A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.Of the 3 million bought back,the company cancels 2 million and holds 1 million.The current number of outstanding shares after these transactions have been accounted for is:

Accepted Answer

The answer of A corporate charter specifies that the company...

Quiz 11: Stockholders Equity