Income/Extraordinary Income Accounting, Cash dividends, Stock splits, Cumulative dividends, Issue of Bonds, Bond types and Bond prices.
1. Which one of the following is not necessary in order for a corporation to pay a cash dividend?
a. Adequate cash
b. Approval of stockholders
c. Declaration of dividends by the board of directors
d. Retained earnings
2. Which one of the following events would not require a formal journal entry on a corporation's books?
a. 2 for 1 stock split
b. 100% stock dividend
c. 2% stock dividend
d. $1 per share cash dividend
3. Norton, Inc. has 5,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2001, and December 31, 2002. The board of directors declared and paid a $20,000 dividend in 2001. In 2002, $40,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2002?
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Preferred
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Common
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a. $0
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$40,000
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b. $30,000
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$10,000
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c. $20,000
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$20,000
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d. $40,000
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$0
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4. A prior period adjustment that corrects income of a prior period requires that an entry be made to
a. an income statement account.
b. a current year revenue or expense account.
c. the retained earnings account.
d. an asset account.
5. The discontinued operations section of the income statement refers to
a. discontinuance of a product line.
b. the income or loss on products that have been completed and sold.
c. obsolete equipment and discontinued inventory items.
d. the disposal of a significant segment of a business.
6. Indicate the circumstances under which an item would be classified as an extraordinary item on the income statement.
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Unusual in Nature
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Infrequent in Occurrence
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a. Yes
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No
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b. No
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Yes
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c. Yes
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Yes
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d. No
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No
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7. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that
a. bond interest is deductible for tax purposes.
b. interest must be paid on a periodic basis regardless of earnings.
c. income to stockholders may increase as a result of trading on the
equity.
d. the bondholders do not have voting rights.
8. Bonds that are secured by real estate are termed
a. mortgage bonds.
b. serial bonds.
c. debentures.
d. bearer bonds.
9. The contractual interest rate is always stated as a(n)
a. monthly rate.
b. daily rate.
c. semiannual rate.
d. annual rate.
10. If the market interest rate is greater than the contractual interest rate, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated interest rate is increased.