1.

 
Corporate earnings are subject to double taxation.

 a. True  b. False

2. 
Start-up and organization costs should be expensed as incurred.

 a. True  b. False

3. 
Dividends in arrears pertain only to cumulative preferred stock.

 a. True  b. False

4. 
A corporation cannot declare a dividend that would cause stockholders' equity to fall below the legal capital.

 a. True  b. False

5. 
Treasury stock is considered a reduction in stockholders' equity, not a purchase of assets .

 a. True  b. False

6. 
A dividend that represents a return to the stockholders of a part of their paid-in capital rather than a distribution out of retained
earnings is called a liquidating dividend.

 a. True  b. False

7. 
No entry is required on the date of payment for a cash dividend.

 a. True  b. False

8. 
When the date of declaration and the payment date occur in the same period, the amount of dividends shown on the statement of
stockholders' equity and on the statement of cash flows will be equal.

 a. True  b. False

9. 
A stock dividend will cause a decrease in the total number of shares issued and outstanding.

 a. True  b. False

10. 
Compensation expense related to employee stock options is a tax-deductible expense for the corporation.

 a. True  b. False

11. 
Treasury shares plus outstanding shares equal
a. unissued shares.
b. authorized shares.
c. subscribed shares.
d. issued shares.
12. 
Which of the following classifications represents the largest number of shares?
a. Treasury shares.
b. Authorized shares.
c. Issued shares.
d. Outstanding shares.
13. 
Use the following information to answer the question below.

The following accounts appear in the ledger of Pepper Corporation on December 31, 20x5 

Preferred Stock $60,000

Common Stock 116,000
Additional Paid-in Capital, Preferred 14,000
Additional Paid-in Capital, Common 36,000
Retained Earnings 80,000

A balance sheet prepared on December 31, 20x5 , would report total contributed capital of
a. $306,000.
b. $190,000.
c. $176,000.
d. $226,000.
14. 
In the rare instance when a par value stock is issued at a cash price below par, the excess of the par value over the amount of cash
received should be
a. debited to an account titled Discount on Capital Stock.
b. debited to the Retained Earnings account.
c. credited to the Retained Earnings account.
d. credited to a liability account.
15. 
When stock is issued for noncash assets or services, the dollar amount to be recorded for this exchange is determined by the
a. market value of the stock or the market value of the consideration received when the market value of the stock cannot be
determined.
b. market value of the stock or the market value of the consideration received, whichever is greater.
c. par value of the stock.
d. treasurer of the corporation.
16. 
Use the following information to answer the question below.

The following transactions involving Cactus Wren Corporation occurred during the year:

Apr. 1 Purchased 2,000 shares of its own preferred stock for $20, the current market price. This is the first transaction involving
its own stock engaged in by the company.
May 3 Sold 400 of the shares purchased on April 1 for $25 per share.
June 5 Retired 600 of the shares purchased on April 1. The original issue price was $10. The par value of the stock is $5.

The entry to record the May 3 transaction is:

a. Cash                                                       10,000 
              Treasury Stock, Preferred                                   8,000
               Paid-in Capital, Treasury Stock                          2,000

b. Treasury Stock, Preferred                      10,000 

              Cash                                                                  10,000

c. Treasury Stock, Preferred                       8,000 

              Cash                                                                    8,000
d. Cash                                                       4,000 
                Retained Earnings                             6,000 
               Treasury Stock, Preferred                                 10,000

17. 
The board of directors of Lark Corporation declared a cash dividend of $3.50 per share on 57,000 shares of common stock on
June 14, 20x5. The dividend is to be paid on July 15, 20x5, to shareholders of record on July 1, 20x5. The proper entry to be
recorded on June 14, 20x5 is,
a. No journal entry is necessary on this date.

b. Dividends                            199,500 
              Dividends Payable                         199,500

c. Dividends                           199,500 
              Retained Earnings                          199,500

d. Dividends payable            199,500 
              Dividends                                        199,500
18. 
Use this information to answer the following question.

Pinnacle Corporation has 90,000 shares of $10 par value common stock outstanding. The following transactions occurred during
the year:

Mar. 17 Declared a 10 percent stock dividend to stockholders of record on March 20. Market value of the
stock was $22 on March 17.
30 Distributed the stock dividend.

The entry to record the transaction of March 17 is: 

a. Common Stock Distributable           90,000 
              Common Stock                                                 90,000

b. Stock Dividends                              198,000 

              Common Stock Distributable                            90,000
               Additional Paid-in Capital                               108,000

c. Common Stock Distributable         198,000 

              Common Stock                                                  90,000
               Retained Earnings                                         108,000

d. Stock Dividends                             198,000 
               Cash                                                             198,000
19. 
Which of the following items will not be disclosed on a statement of stockholders' equity?
a. Conversion of preferred stock into common stock
b. Results of discontinued operations
 c. Declaration of a stock dividend
d. Purchase of treasury stock
20. 
The value at which one share of stock can be bought or sold is called
a. book value.
b. par or stated value.
c. market value.
d. call value.
21. 
Book value per share refers to the
a. net assets represented by one share of a company's stock.
b. highest price that investors will pay for a share of stock.
c. par or stated value of a share of stock.
d. issue price of the stock, less any market decline since issuance.
22. 
Adobe Corporation had net income of $120,000 in 20x4 and $164,000 in 20x5. Total stockholders' equity at the end of 20x4 was
$760,000 and total stockholders' equity at the end of 20x5 was $820,000. Adobe's total assets at the end of 20x4 were $1,320,000
and its total assets at the end of 20x5 were $1,410,000. Based on this information, what is Adobe's return on equity for 20x5?
a. 12.01%
b. 20.76%
c. 20.00%
d. 17.97%

ANSWER KEY 

1 True
2 True
3 True
4 True
5 True
6 True
7 False
8 True
9 False
10 True
11 d
12 b
13 d
14 a
15 a
16 a
17 b
18 b
19 b
20 c
21 a
22 b