Question 1: The term "Retained Earnings" is best explained by which of the following statements?
- Money set aside for the redemption of bonds
- A measure of equity generated by a corporation through its operating activities.
- Cash retained in a separate bank account designated for emergency uses
- The difference between total revenue and total expenses in an accounting period
Question 2: The par value of common stock:
- changes in proportion to market value.
- is not related to market value.
- is greater than market value.
- is less than market value.
Question 3: Which of the following terms designates the maximum number of shares that a corporation may issue?
- outstanding shares
- authorized shares
- treasury stock
- issued shares
Question 4: Flint Company issued 2,000 shares of $10 par value common stock at a market price of $16. As a result of this accounting event, total paid-in capital would:
- increase by $12,000.
- be unaffected by the event.
- increase by $32,000.
- increase by $20,000.
Question 5: Mitchell Company was authorized to issue 50,000 shares of common stock. The company issued 22,000 shares of stock and later purchased 5,000 shares of treasury stock. The number of outstanding shares of common stock is:
- 45,000.
- 28,000.
- 22,000.
- 17,000.
Question 6: When a company purchases treasury stock:
- total equity decreases.
- cash flow from investing activities decreases.
- total assets are unaffected.
- total assets increase.
Question 7: At the end of the accounting period, Isaac Company had a balance of $4,000 in its common stock account, additional paid in capital of $4,000, retained earnings of $6,000, and $1,000 of treasury stock. The total amount of stockholders' equity is: (Points: 2)
- $10,000.
- $13,000.
- $16,000.
- $17,000.
Question 8: Madison Co. paid dividends of $3,000; $6,000; and $10,000 during 2005, 2006 and 2007 respectively. The company had 500 shares of preferred stock outstanding that paid a $10 per share cumulative dividend. The amount of dividends received by the common shareholders during 2007 would be:
- $6,000.
- $5,000.
- $3,000.
- $4,000.
Question 9: The issuance of a stock dividend will:
- not affect total equity.
- increase retained earnings.
- decrease total paid-in capital.
- All of the above.
Question 10: At the time that Billowe Company issued a 2-for-1 stock split, the company had 1,000 shares of $5 par value common stock outstanding. Stockholders' equity also included $14,000 of additional paid in capital in excess of par value and $20,000 of retained earnings. Immediately after the stock split
- the balance in the common stock account would be $10,000.
- the amount of paid-in capital would be $20,000.
- the balance in the retained earning account would be $15,000.
- the balance in the common stock account would be $5,000.
Question 11: Which of the following is a reason why a corporation may choose not to pay dividends?
- The board and management prefer to reinvest all net income for future growth.
- The corporation does not have adequate Cash.
- The corporation does not have adequate Retained Earnings.
- All of the above are valid reasons not to pay dividends.