CORPORATIONS: Additional Equity Issues And Income Reporting

CHAPTER 16

Course: Intermediate Financial Accounting

Submitted by: Syeda Abeera Ahmed

Multiple choice questions

1. Shares that can be commonly reissued at a later date are termed as

a) Common stock
b) Treasury stock
c) Preferred stock
d) Authorized stock
2. Treasury stock is acquired so that it can be used in future for
a) Guard against hostile takeover by other firms
b) Reissuing the shares
c) Earning more profit
d) Number of shares paid
3. Treasury stock cannot be regarded as
a) Asset
b) Liability
c) revenue
d) expense
4. Assume kent had authorization to issue 15000 shares of $10 par-value common stock. Further assume that
all of the shares were issued at 90$ per share and that retained earning amount to 440,000. The cost of 5000
treasury stock is 350000. After the acquisition of the 5000 treasury stocks, what would be the shareholders
equity?
a) 1200,000
b) 440,000
c) 1,440,000
d) 350,000
5. Treasury stock can be reissued
a) At or below cost
b) Below cost
c) Above cost
d) At cost
6. Which statement is correct for Date of Declaration
a) Date when the dividend is formally approved and the corporation is legally liable for payment
 b) Date when the dividend will be issued to the stockholders
c) Date when the dividend is declared by the executive member
d) Date when the corporation establishes a record date
7. Errors that affect the net income or previous periods are corrected by the use of
a) Retained earnings
b) Cash dividend adjustment
c) Prior period adjustment
d) Accumulated depreciation
8. Changes in retained earnings are often recorded on report known as
a) Statement of retained earnings
b) Income statement
c) Balance sheet
d) Statement of stockholders equity
9. Higher earnings per share will result in
a) Lower market price
b) Higher dividends
c) Higher market price
d) Higher earnings
10. Which statement is correct for stock split
a) Total stockholder equity have changes and no formal entry is required
b) Total stockholder equity remains unchanged and formal entry is required
c) Total stockholder equity remains unchanged and no formal entry is required
d) Total stockholder equity have changes and memo notation is appropriate
11. Computation of weighted average shares involves
a) Number of common shares outstanding x fraction of the year the shares were in hands of stock
holder
b) Number of common shares outstanding + fraction of the year the shares were in hands of stock
holder
c) Number of common shares outstanding - fraction of the year the shares were in hands of stock
holder
d) Number of common shares outstanding / fraction of the year the shares were in hands of stock
holder
12. What is cumulative effect?
a) Net income reported in prior years + income using new accounting principle
b) Net income reported in prior years - income using new accounting principle
c) Net income reported in prior years x income using new accounting principle
 d) Net income reported in prior years / income using new accounting principle
13. What is a stock split?
a) An increase in number of outstanding shares and an accompanying reduction of the stock’s par-
value
b) A decrease in number of outstanding shares and an accompanying reduction of the stock’s par-
value
c) An increase in number of outstanding shares and an increase in the stock’s par-value
d) A decrease in number of outstanding shares and an increase in the stock’s par-value
14. Which of the following statement about treasury stock is false?
a) The excess of sales price of treasury stock over the stock’s cost is considered paid-in-capital
b) When treasury stock is reissued at a price in excess of cost, gains occur that increase the retained
earnings account
c) When treasury stock is reissued at a price that is less than cost the transaction may result in a
reduction of the retained earnings account
d) The acquisition of treasury stock causes stockholders equity to decrease
15. The declaration of a cash dividend on common stock:
a) Decreases retained earnings
b) Increases retained earnings
c) Decreases total liabilities
d) Generally occurs shortly after the date of record
16. Hunt Corporation declared 4% stock dividend on 20,000 shares of $85 par-value common stock. The
stock’s market value on the date of declaration was $20 per share. What is the impact of the declaration-
date journal entry on total stockholders’ equity?
a) $40,000
b) $16,000
c) $4,000
d) No effect
17. Extraordinary items:
a) Are disclosed on the statement of retained earnings and statement of stockholder’s equity
b) Are disclosed as part of income from continuing operations
c) Are unusual or infrequent in nature
d) Are unusual and infrequent in nature
18. Earnings per share is determined by dividing the weighted-average number of common shares outstanding
into:
a) Net income
b) Net income minus preferred stock dividends
 c) Net income minus both preferred and common stock dividends
d) Ending retained earnings
19. Which of the following would cause a reduction in retained earnings equal to the fair market value of the
shares distributed to stockholders?
a) A 10% stock dividend
b) A 40% stock dividend
c) A 6-for-5 stock split
d) A 2-for-1 stock split
20. An African Corporation purchases 1,000 shares of its $5 par-value common stock for $25 per share. The
stock was originally issued at $20 subsequently, 500 of the treasury shares were sold at $22 per share. As a
result of these transaction:
a) A loss of $5000 would be reported on income statement
b) Africa’s retained earnings balance would increase
c) The balance in the treasury stock account would be $14000

d) Total stockholder’s equity decreases