Questions 1-25: Select the one best answer to each question.
Base your answers to questions 1 through 4 on the following information:
DiPipi Corporation had the following stock outstanding during each of its first five years of operation:
1. Fifty thousand (50,000) shares of 6%, $100-par value, cumulative, nonparticipating preferred.
2. Two hundred thousand (200,000) shares of $10-par value common.
The net income and the amounts distributed as dividends during the first five years of the company's existence were as follows:
Year Dividends
1 240,000
2 320,000
3 500,000
4 890,000
5 760,000
Required: Complete the dividend distribution schedule. Then answer questions 1 through 4 on the answer sheet.
1. The total preferred dividends paid in year 2 was
A. $260,000
B. $280,000
C. $300,000
D. $320,000
2. The preferred dividend per share paid in year 3 was
A. $7.20
B. $6.80
C. $6.40
D. $6.00
3. The total common dividend paid in year 4 was
A. $300,000
B. $445,000
C. $590,000
D. $890,000
4. The common dividend per share paid in year 5 was
A. $1.80
B. $2.30
C. $4.60
D. $10.00
Questions 5 through 6 are based on the following information.
Coleman Corporation had the following capital stock structure:
Preferred stock - 10% cumulative; participating to the extent of 3% above preference rate; par value $100; authorized, 50,000 shares; issued, 10,000 shares.
Common stock - Par value $100; authorized, 100,000 shares; issued, 10,000 shares.
The total dividend payments made during the first five years follow:
Year Dividends
1 210,000
2 280,000
3 40,000
4 370,000
5 250,000
Required: Complete the dividend distribution schedule. Then answer questions 5 through 8 on the answer sheet.
5. The total preferred dividends paid in year 1 was
A. $100,000
B. $105,000
C. $110,000
D. $130,000
6. In year 5, the common dividend paid was
A. $100,000
B. $120,000
C. $125,000
D. $150,000
7. A preferred dividend arrearage was paid in
A. Year 1
B. Year 2
C. Year 3
D. Year 4
8. The 3% participation dividend paid on preferred stock in year 2 was
A. $10,000
B. $20,000
C. $30,000
D. $40,000
9. A net income of $300,000, before taxes, was reported on the income statement. Because of timing differences in accounting and tax methods, the taxable income for the same year was $230,000. Assuming an income tax rate of 40%, what was the amount of the deferred income tax liability?
A. $180,000
B. $120,000
C. $70,000
D. $28,000
10. After reviewing the preliminary financial statements of the Widget Company for the year ended 20X1, the board of directors decided that a provision should be made for future plant expansion. This was done through an appropriation of retained earnings on the final financial statements for the year. In a comparison with the preliminary figures, the final financial statements would show
A. an increase in retained earnings
B. a decrease in unappropriated cash
C. no change in appropriate retained earnings
D. no change in total stockholders' equity
11. What kind of account is the Stock Dividend Distributable account?
A. Capital
B. Long-term Liability
C. Contra-asset
D. Current liability
12. On August 25, A. Alexander sold 25 shares of XYZ Company stock, certificate No. 184A, to B. Bailey, who then sold these 25 shares to C. Conrad on August 31. On September 6, C. Conrad sold the same 25 shares to D. Daniels. The board of directors of XYZ Company declared a dividend on August 23 to holders on record on September 5, payable on September 10. Who is entitle to the dividend for the shares of stock represented by certificate No. 184A?
A. Alexander
B. Bailey
C. Conrad
D. Daniels
13. The ABC Company has a gain on the sale of a photocopy machine that was used in its operations. This gain would be reported in the financial statements as
A. an extraordinary item
B. other income
C. a prior-period adjustment
D. deferred income
14. The Cotter Corporation is a newly organized firm which is authorized to issue 15,000 shares of no-par common stock and 3,000 shares of $100-par value preferred stock. The common stock has been assigned a stated value of $10 per share.
An incorporator received 400 shares of preferred stock in exchange for the following assets, which will be taken over by the corporation:
1. Equipment which had cost the incorporator $30,000, and on which $12,000 of depreciation had been taken. The approved fair market value of the equipment was $15,000.
2. Merchandise inventory which had cost the incorporator $37,000. The fair market value of the inventory was $38,000.
Which one of the following is the correct general journal entry for recording this transaction?
A. Equipment 15,000
Merchandise Inventory 38,000
Preferred Stock 40,000
Premium on Preferred Stock 13,000
B. Equipment 18,000
Merchandise Inventory 37,000
Preferred Stock 40,000
Premium on Preferred Stock 15,000
C. Equipment 15,000
Merchandise Inventory 38,000
Contributed Capital - Loss on Equipment 3,000
Preferred Stock 40,000
Premium on Preferred Stock 16,000
D. Equipment 15,000
Merchandise Inventory 38,000
Preferred Stock 40,000
Premium on Preferred Stock 12,000
Contributed Capital - Inventory Appraisal 1,000
15. The issuance of a stock dividend by a company increases
A. retained earnings
B. the number of shares outstanding
C. the current ratio
D. cash
Base your answers to questions 16 through 18 on the following information.
On the last day of the year, Jones Company purchased 90% of the common stock of Smith, Inc, for $5,000,000. At that time, Smith, Inc. reported the following on its balance sheet: assets, $7,400,000; liabilities, $1,300,000; common stock, $10 par, $5,000,000; retained earnings, $1,1,00,000. In negotiating the stock sale, it was determined that the book carrying amounts of Smith's recorded assets and equities approximated their current market values.
16. At the date of acquisition, the amount to be reported on the consolidated balance sheet for minority interest is
A. $110,000
B. $500,000
C. $610,000
D. $640,000
17. At the date of acquisition, the amount to be reported on the consolidated balance sheet for excess of acquisition cost over book value of acquired subsidiary is
A. $0
B. $490,000
C. $670,000
D. $760,000
Acquisition cost
Common Stock - Smith (90%)
Retained Earnings - Smith (90%)
Excess of book value over acquisition cost
18. Earnings per share is to be reported on the
A. income statement
B. statement of owner's equity
C. balance sheet
D. statement of changes in financial position
19. On September 1, 20X1, the Davidson Company purchased, on the open market, 10,000 share of its own fully paid common stock outstanding for $200,000. At the time of this purchase, the Davidson Company had 100,000 shares of common stock outstanding. On October 1, 20X1, the board of directors of the Davidson Company declared a $3 dividend to holders of record on October 10, payable October 15. The unappropriated retained earnings on August 31, 20X1, were $18,210,000. After the payment of the dividend on October 15, retained earnings available for future dividends will be
A. $17,740,000.
B. $17,910,000
C. $17,940,000
D. $18,010,000
20. The Alpha Company has 10,000 shares of $10-par value common stock, authorized and outstanding. The company wants to call in the $10-par value stock and replace each share with two shares of a new $5-par value common stock issue. This transaction will increase
A. the number of shares outstanding
B. the total stockholders' equity
C. retained earnings
D. stock dividends distributable
21. Which of the following is not a characteristic of corporations?
A. Increased borrowing ability
B. Freedom to enter into and execute contracts
C. Freedom to deviate from generally accepted accounting principles even if stock is publicly traded
D. Perpetual existence
22. Rogo Corporation's equity accounts for the year 20X2 are as follows:
Common stock ($5 par, 25,000 issued and outstanding) 125,000
Premium on Common Stock 625,000
Retained Earnings 1,000,000
1,750,000
During 20X2, Rogo had the following treasury stock transactions not included in the above accounts:
1. Rogo repurchased 5,000 shares at $15 per share.
2. Rogo resold 5,000 shares at $20 per share
After these treasury stock transactions, Rogo's adjusted total equity should be
A. $1,750,000
B. $1,775,000
C. $1,850,000
D. $1,925,000
23. Paymore Company has the following liability account balances for the year ended December 31, 20X2:
Accounts payable 50,000
Income taxes payable 5,500
Long-term notes payable 10,000
On December 25, 20X2, Paymore's board of directors declared dividends of $2,000 to be paid on January 5, 20X3. Paymore's current liabilities at December 31, 20X2 are
A. $67,500
B. $65,500
C. $57,500
D. $55,500
24. Company P acquires Company S. The purchase method of accounting is appropriately used for the business combination. Which of the following account(s) show(s) a zero balance when consolidated financial statements are prepared?
A. Investment in S Company
B. Common Stock - S Company
c. Retained Earnings - P Company
D. Both A and B
25. Plexiglass Inc. purchases 80% of the outstanding common stock of Sunglass Company on January 1, 20X2, for $1,500,000. During the year 20X2, Sunglass reports net income of $100,000 and declares dividends of $5,000. Prior to consolidation of elimination entries, the balance in Plexiglass's Investment in the Sunglass Company account was
A. $1,576,000
B. $1,595,000
C. $1,600,000
D. $1,836,000