Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. A Company had $3 par common stock with a total par value of $60,000, before its recent 3-for-1 stock split. The market price of the stock was $30 per share before the split. Which of the following is true as a result of the split?
a. The balance in the common stock account increased to $180,000.
b. The market price of the stock would approximate $90 after the stock split.
c. The par value of the stock decreased to $1 per share.
d. There were 20,000 shares of common stock issued after the split.
2. A company's stockholder's equity section consisted of 50,000 shares of 4%,$50 par cumulative preferred stock outstanding and 150,000 shares of $1 par common stock outstanding. The company has declared and paid dividends as follows:
2006: $35,000; 2007: $0; 2008: $75,000; 2009:$300,000. Determine the amount of dividend paid to Common Stockholders in 2009.
a. $0
b. $10,000 c. $175,000 d. $200,000
3. A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 30% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to:
a. decrease retained earnings, increase common stock, and no change in paid in capital in excess of par-common
b. increase retained earnings, decrease common stock, and increase paid-in capital in excess of par- common
c. decrease retained earnings, increase common stock, and increase paid-in capital in excess of par- common
d. increase retained earnings, decrease common stock, and decrease paid-in capital in excess of par- common
4. The stockholders' equity section of the December 31, 2009, balance sheet for Interiors, Inc. before its recent stock dividend
was as follows:
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Common Stock, $5 par, 100,000 shares issued and outstanding
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$ 500,000
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Paid-in Capital in Excess of Par--Common Stock
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100,000
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Retained Earnings
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725,000
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Total Stockholders' Equity
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$1,325,000
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Interiors declared a 10% stock dividend when the market price per share was $8.00. After the stock dividend, the components of Interior's stockholders' equity section were:
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Common Stock
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Paid-in Capital
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Retained Earnings
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a. $580,000
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$100,000
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$645,000
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b. $550,000
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$100,000
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$805,000
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c. $550,000
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$130,000
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$645,000
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d. $580,000
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$130,000
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$805,000
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5. The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:
a. Preemptive right
b. Cumulative right
c. Voting right
d. Financial leverage
6. A Corporation had the following stock as part of its stockholders equity:
-7%, $100 par Cumulative Preferred Stock, 45,000 shares authorized, 12,000 shares issued, 10,000 shares outstanding.
- $8 par, Common Stock, 250,000 shares authorized, 140,000 shares issued, 110,000 shares outstanding.
No dividends were declared in the past two years. In the current year, $300,000 is declared as dividend. The Dividend received by common shareholders will be:
a. $90,000
b. $0
c. $216,000 d. $48,000
7 The Par Value of a share of stock refers to the:
a. market value of the stock on the date financial statements are prepared.
b. the maximum selling price of a share of stock.
c. value assigned to a share of stock in the corporate charter.
d. issue price of the stock.
8. What is the effect of a 2 for 1 stock split, if a corporation has $5 par Common Stock, 200,000 shares authorized, 100,000 shares issued and 80,000 shares outstanding and the current market price of the common stock is $20?
a. The total par value of the shares increases to $2,000,000.
b. Retained Earnings decreases by $400,000.
c. Paid in Capital increases by $ 1,000,000.
d. A shareholder who owned 6,000 shares of common stock in the corporation will now have 12,000 shares with an approximate market price of $10 each.
9. On March 1, 2007, A Company purchased 800 shares of its own $2 par common stock for $8,000. On April 30, 2007, it reissued 400 of these shares for $4,800 and on June 15, 2007, reissued 300 more shares for $2,100. If there were no prior treasury stock transactions, the journal entry to record the reissue of the 300 shares will include a:
a. credit to Treasury Stock for $2,100
b. debit to Retained Earnings for $900
c. debit to Paid in Capital, Treasury Stock for $800
d. credit to Common Stock for $600
10. XYZ Company had 400,000 authorized shares of $8 par common stock. It issued 120,000 of these shares at $14 per share. There were no shares held in treasury. Later, when the market price of the stock was $22 a share, XYZ declared a 6% stock dividend. Compute the amount transferred from the Retained Earnings account to Contributed Capital accounts as a result of the stock dividend.
a. $158,400 b. $100,800 c. $57,600 d. $528,000
11. A corporation has 30,000 shares of $10 par value common stock outstanding on March 15. Later that day, the board of directors declared a 30% stock dividend when the market value of each share was $40. The entry to record the declaration of this dividend will include a:
a. Debit to Retained Earnings for $360,000
b. Debit to Retained Earnings for $90,000
c. Credit to Paid in Capital in excess of par - Common for $270,000
d. Credit to Common Stock Distributable for $360,000
12. With regard to Preferred Stock:
a. its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments
b. there is a legal requirement for a corporation to declare a dividend on its preferred stock.
c. the dividend received by the preferred stockholders will be dependent upon dividend received by the common stockholders
d. the amount of dividend is dependent upon the par value of the preferred stock.
13. A company has $10 par common stock outstanding with a total par value of $4,000,000 and 5%, $50 par cumulative, nonparticipating preferred stock with a total par value of $3,000,000. No dividend was declared on the stock in the last year. In the current year, the company earned a net income of $1,700,000 and dividends paid, included a dividend of $3 per share on the common stock. What is the total amount of dividend paid to shareholders in the current year?
a. $1,350,000 b. $300,000 c. $1,500,000 d. $1,700,000
14. A Company purchased 1,000 shares of its own $10 par common stock for $20,000. It reissued 400 of these shares for $9,200 and later reissued 300 more shares for $5,100. If there were no other treasury stock transactions, the journal entry to record the reissue of the 300 shares will include a:
a. credit toPaid in Capital, Treasury Stock for $900
b. credit to Treasury stock for $5,100
c. debit to Retained Earnings for $900
d. credit to Treasury Stock for $6,000
15. A Corporation has 1,000,000 authorized shares of $10 par-value common stock, with 300,000 shares issued and outstanding. After a 2-for-1 stock split, A Corporation would have:
a. 600,000 shares of common stock outstanding at $5 par
b. 400,000 shares of common stock outstanding at $7.50 par
c. 900,000 shares of common stock issued and outstanding at $3 par
d. 2,000,000 shares of common stock issued and outstanding at $5 par
16 A company had the following stockholders' equity section on its balance sheet on January 1, 2008:
Common stock, $2 par, 10,000 shares issued
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and outstanding
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$20,000
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Paid-in capital in excess of par-common
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40,000
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Retained earnings
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10,000
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Total stockholders' equity
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$70,000
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All common shares were originally sold for $6 each. On February 16, the company reacquired 3,000 shares of common stock at $15 per share. 500 of these treasury shares were reissued at $20 on June 1 and 1,500 of these shares were reissued at $12 on June 15. Determine the total stockholders equity after recording these events, if no other transactions impacting the stockholders equity occurred.
a. $53,000
b. $70,000
c. $55,000
d. $66,000
17. Which one of the following items would likely increase earnings per share (EPS) of a corporation?
a. declaration of a stock split
b. purchase of treasury stock
c. an increase in the common stock shares authorized to be issued
d. declaration of a stock dividend
18. A company's stockholders equity consisted of $7 par common stock, 200,000 shares authorized and 100,000 shares issued. The Paid- in capital in excess of par had a balance of $160,000. There were 2,000 shares held in treasury at a total cost of
$16,000. If the total stockholders equity is $974,000, determine the balance of retained earnings. a. $130,000
b. $128,000 c. $114,000 d. $860,000