Q&A Hero

Q: One of the main disadvantages of the corporate form is the a. professional management b. double taxation of dividends c. charter d. requirement to stock

Q: 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 10,000 were subsequently reacquired. What is the number of shares outstanding? a. 10,000 b. 40,000 c. 30,000 d. 50,000

Q: A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately a. $25 b. $150 c. $5 d. $30

Q: Treasury stock should be reported in the financial statements of a corporation as a(n) a. investment b. liability c. current asset d. deduction from stockholders' equity

Q: If Dakota Company issues 1,500 shares of $6 par common stock for $75,000, a. Common Stock will be credited for $75,000 b. Paid-In Capital in Excess of Par will be credited for $9,000 c. Paid-In Capital in Excess of Par will be credited for $66,000 d. Cash will be debited for $66,000

Q: The two main sources of stockholders' equity are a. investments by stockholders and net income retained in the business b. investments by stockholders and dividends paid c. net income retained in the business and dividends paid d. investments by stockholders and purchases of assets

Q: The liability for a dividend is recorded on which of the following dates? a. date of record b. date of payment c. last day of the fiscal year d. date of declaration

Q: Nexis Corp. issues 1,000 shares of $15 par value common stock at $22 per share. When the transaction is journalized, credits are made to a. Common Stock, $15,000, and Paid-In Capital in Excess of Par—Common Stock, $7,000 b. Common Stock, $22,000, and Retained Earnings, $15,000 c. Common Stock, $7,000, and Paid-In Capital in Excess of Stated Value, $15,000 d. Common Stock, $22,000

Q: A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 per share. The effect of the declaration and issuance of the stock dividend is to a. decrease retained earnings, increase common stock, and increase paid-in capital b. increase retained earnings, decrease common stock, and decrease paid-in capital c. increase retained earnings, decrease common stock, and increase paid-in capital d. decrease retained earnings, increase common stock, and decrease paid-in capital

Q: Dayton Corporation began the current year with a retained earnings balance of $32,000. During the year, the company corrected an error made in the prior year, which was a failure to record depreciation expense of $3,000 on equipment. Also, during the current year, the company earned net income of $12,000 and declared cash dividends of $7,000. Compute the year-end retained earnings balance. a. $34,000 b. $37,000 c. $41,000 d. $44,000

Q: The journal entry for the issuance of common stock at a price above par includes a debit to a. Organizational Expenses b. Common Stock c. Cash d. Paid-In Capital in Excess of Par—Common Stock

Q: Nevada Corporation has 30,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the number of shares outstanding will be a. 60,000 b. 6,000 c. 150,000 d. 15,000

Q: The journal entry for the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal fees for organizing the corporation includes a credit to a. Organizational Expenses b. Goodwill c. Common Stock d. Cash

Q: When a stock dividend is declared, which of the following accounts is credited? a. Common Stock b. Dividends Payable c. Stock Dividends Distributable d. Retained Earnings

Q: Characteristics of a corporation include a. shareholders who are mutual agents b. direct management by the shareholders (owners) c. its inability to own property d. shareholders who have limited liability

Q: When a corporation completes a 3-for-1 stock split, a. the ownership interest of current stockholders is decreased b. the market price per share of the stock is decreased c. the par value per share is decreased d. the market price per share of the stock and the par value per share are decreased

Q: A restriction/appropriation of retained earnings a. decreases total assets b. increases total retained earnings c. decreases total retained earnings d. has no effect on total retained earnings

Q: Par value a. is the monetary value assigned per share in the corporate charter b. represents what a share of stock is worth c. represents the original selling price for a share of stock d. is established for a share of stock after it is issued

Q: Which of the following would appear as a prior period adjustment? a. loss resulting from the sale of fixed assets b. difference between the actual and estimated uncollectible accounts receivable c. error in the computation of depreciation expense in the preceding year d. loss from the restructuring of assets

Q: A corporation purchased 1,000 shares of its own $5 par common stock at $10 and subsequently sold 500 of the shares at $20. What amount of revenue is realized from the sale? a. $0 b. $5,000 c. $2,500 d. $10,000

Q: A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 2% stock dividend on a date when the market price was $11 per share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend? a. $3,200 b. $6,400 c. $4,800 d. $8,800

Q: What is the total stockholders' equity based on the following account balances? Common Stock $375,000Paid-In Capital in Excess of Par 90,000Retained Earnings 190,000Treasury Stock 15,000 a. $670,000 b. $655,000 c. $640,000 d. $565,000

Q: Sabas Company has issued and outstanding 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: Year 1 $10,000Year 2 45,000Year 3 90,000 Determine the dividend per share for preferred and common stock for the second year. a. $2.25 and $0 b. $2.25 and $0.45 c. $0 and $0.45 d. $2.00 and $0.45

Q: Which of the following statements is not true about a 2-for-1 stock split? a. Par value per share is reduced to half of what it was before the split. b. Total contributed capital increases. c. The market price will probably decrease. d. A stockholder with 10 shares before the split owns 20 shares after the split.

Q: Which of the following statements concerning taxation is accurate? a. Corporations pay federal income taxes but not state income taxes. b. Corporations pay federal and state income taxes. c. Only the owners must pay taxes on corporate income. d. Corporations pay income taxes but their owners do not.

Q: All of the following are normally found in a corporation's Stockholders' Equity section of the balance sheet except a. Common Stock b. Paid-In Capital in Excess of Par c. Dividends in Arrears d. Retained Earnings

Q: Which of the following would not be considered an advantage of the corporate form of organization? a. government regulation b. separate legal existence c. continuous life d. limited liability of stockholders

Q: The balance in Retained Earnings should be interpreted as representing surplus cash left over for dividends. a. True b. False

Q: Before a stock dividend can be declared or paid, there must be sufficient cash. a. True b. False

Q: A deficit in retained earnings is reported in the Stockholders' Equity section of the balance sheet. a. True b. False

Q: The par value of stock is an assigned per-share amount defined in many states as legal capital. a. True b. False

Q: Treasury stock is listed in the Stockholders' Equity section of the balance sheet. a. True b. False

Q: The par value of common stock must always be equal to its market value on the date the stock is issued. a. True b. False

Q: The main source of paid-in capital is from issuing stock. a. True b. False

Q: If 100 shares of treasury stock were purchased for $50 per share and then sold at $60 per share, $1,000 of income is reported on the income statement. a. True b. False

Q: Under the cost method, when treasury stock is purchased by the corporation, the par value and the price at which the stock was originally issued are important. a. True b. False

Q: A prior period adjustment should be reported as an adjustment to the beginning balance of retained earnings on the retained earnings statement in the period in which the adjustment was made. a. True b. False

Q: The declaration of a stock dividend decreases a corporation's stockholders' equity and increases its liabilities. a. True b. False

Q: Cash dividends are normally paid on shares of treasury stock. a. True b. False

Q: One of the prerequisites to paying a cash dividend is sufficient retained earnings. a. True b. False

Q: When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds. a. True b. False

Q: The cost method of accounting for the purchase and sale of treasury stock is a commonly used method. a. True b. False

Q: Paid-in capital may originate from real estate transactions. a. True b. False

Q: Double taxation is a disadvantage of a corporation because the corporation has to pay income taxes at twice the rate applied to partnerships. a. True b. False

Q: The amount of a corporation's retained earnings that has been restricted/appropriated should be reported in the notes to the financial statements. a. True b. False

Q: The net increase or decrease in Retained Earnings for a period is recorded by closing entries. a. True b. False

Q: A 10% stock dividend will increase the number of shares outstanding, but the book value per share will decrease. a. True b. False

Q: If 50,000 shares are authorized, 41,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 43,000. a. True b. False

Q: While some businesses have been granted charters under state laws, most businesses receive their charters under federal laws. a. True b. False

Q: The stock dividends distributable account is listed in the Current Liabilities section of the balance sheet. a. True b. False

Q: The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder. a. True b. False

Q: The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares. a. True b. False

Q: For accounting purposes, stated value is treated the same way as par value. a. True b. False

Q: The declaration and issuance of a stock dividend do not affect the total amount of a corporation's assets, liabilities, or stockholders' equity. a. True b. False

Q: When the board of directors declares a cash or stock dividend, this action decreases retained earnings. a. True b. False

Q: If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the dividend per share would be $4. a. True b. False

Q: A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific purpose. a. True b. False

Q: A corporation is a separate entity for accounting purposes but not for legal purposes. a. True b. False

Q: The day on which the board of directors of the corporation distributes a dividend is called the declaration date. a. True b. False

Q: If a company has preferred stock, the preferred stock dividend is added to net income when computing earnings per common share. a. True b. False

Q: The reduction in the par or stated value of common stock, accompanies by the issuance of a proportionate number of additional shares, is called a stock split. a. True b. False

Q: Cash dividends become a liability to a corporation on the date of record. a. True b. False

Q: The cost of treasury stock is shown as a deduction following paid-in capital and retained earnings in the Stockholders’ Equity section of the balance sheet. a. True b. False

Q: The issuance of common stock affects both paid-in capital and retained earnings. a. True b. False

Q: . The declaration of a cash dividend decreases a corporation's stockholders equity' and decreases its assets. a. True b. False

Q: A stock split results in a transfer at market value from retained earnings to paid-in capital. a. True b. False

Q: If paid-in capital in excess of par―preferred stock is $30,000, preferred stock is $200,000, paid-in capital in excess of par―common stock is $20,000, common stock is $525,000, and retained earnings is $105,000 (deficit), total stockholders' equity is $880,000. a. True b. False

Q: Under the Internal Revenue Code, corporations are required to pay federal income taxes. a. True b. False

Q: If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders. a. True b. False

Q: A corporation has 10,000 shares of $100 par stock outstanding. If the corporation issues a 5-for-1 stock split, the number of shares outstanding after the split will be 40,000. a. True b. False

Q: Preferred stockholders must receive their current-year dividends before the common stockholders can receive any dividends. a. True b. False

Q: A large public corporation normally uses registrars and transfer agents to maintain the records of stockholders. a. True b. False

Q: The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business. a. True b. False

Q: The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares issued. a. True b. False

Q: The retained earnings statement may be combined with the income statement. a. True b. False

Q: When a corporation issues stock at a premium, it reports the premium as an Other Income item on the income statement. a. True b. False

Q: Organizational expenses are classified as intangible assets on the balance sheet. a. True b. False

Q: When common stock is issued in exchange for land, the land should be recorded in the accounts at the par value of the stock issued. a. True b. False

Q: The amount of capital paid in by the stockholders of the corporation is called legal capital. a. True b. False

Q: A large retained earnings account means that there is cash available to pay dividends. a. True b. False