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Financial and Managerial Accounting, 8e (Wild)
Chapter 11 Corporate Reporting and Analysis
1) A corporation is a legal entity separate from its owners.
Answer: TRUE
Difficulty: 1 Easy
Topic: Characteristics of Corporations
Learning Objective: 11-C1 Identify characteristics of corporations and their organization.
Bloom's: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Legal; FN Reporting
2) Corporations avoid many of the state regulations and controls that proprietorships and
partnerships are subject to.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
3) Organization expenses of a corporation often include legal fees and promoter fees.
Answer: TRUE
Difficulty: 2 Medium
Bloom's: Understand
4) Shareholders in a corporation have the power to bind the corporation to contracts.
Answer: FALSE
Bloom's: Understand
AICPA: BB Legal; FN Decision Making
1
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
5) A proxy is a document that gives a designated agent the right to vote a shareholder's stock.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
6) Common shareholders always share equally with all other shareholders (including preferred
shareholders) in dividends.
Answer: FALSE
Topic: Issuance of Preferred Stock
Learning Objective: 11-C2 Explain characteristics of, and distribute dividends between,
common and preferred stock.
Bloom's: Understand
AICPA: BB Legal; FN Measurement
7) A preemptive right means shareholders can purchase their proportional share of common
stock issued later by the corporation.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
8) Stock is attractive to investors because stockholders are not liable for the corporation's actions
and debts and because stock is easily transferred.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
2
9) A registrar keeps stockholder records for dividend payments and stockholder meetings.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
10) Stockholders' equity consists of paid-in capital and retained earnings.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
11) The price at which a share of stock is bought or sold is known as par value.
Answer: FALSE
Bloom's: Understand
12) Paid-in capital is the total amount of cash and other assets the corporation receives from its
stockholders in exchange for its stock.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
3
13) The total number of shares outstanding is always equal to the number of shares authorized.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
14) If a corporation is authorized to issue 1,000 shares of $5 common stock, it is said to have
$5,000 of common stock outstanding.
Answer: FALSE
Bloom's: Understand
15) Minimum legal capital is the least amount that the buyers of stock must contribute to the
corporation or be at risk to pay creditors at a future date.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
16) Stated value stock is no-par stock that is assigned a "stated" value per share.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
AICPA: BB Industry; FN Reporting
4
17) A corporation may be authorized to issue both common and preferred stock.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
18) Common stock always carries a preference for receiving dividends over preferred stock.
Answer: FALSE
Bloom's: Understand
19) A special right often granted to preferred stock is additional voting privileges.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
AICPA: BB Industry; FN Measurement
20) Cumulative preferred stock carries the right to be paid both current and all prior periods'
unpaid dividends before any dividends are paid to common shareholders.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
5
21) Retained earnings generally consists of a company's cumulative net income less any net
losses and dividends declared.
Answer: TRUE
Difficulty: 1 Easy
Topic: Statement of Retained Earnings
Learning Objective: 11-C3 Explain the items reported in retained earnings.
Bloom's: Remember
22) Retained earnings are part of the stockholders' claims on the company's net assets.
Answer: TRUE
Bloom's: Understand
23) The term restricted retained earnings refers to statutory but not contractual restrictions.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
24) A common statutory restriction is reported on the income statement; whereas a common
contractual restriction is reported in the stockholders' equity section of the balance sheet.
Answer: FALSE
Bloom's: Understand
6
25) Cash dividends reduce Retained Earnings.
Answer: TRUE
Difficulty: 1 Easy
Topic: Dividends
Learning Objective: 11-P2 Record transactions involving cash dividends, stock dividends, and
stock splits.
Bloom's: Remember
26) A company made an error in recording the Year 1 purchase of computer equipment as an
expense. This was discovered in Year 2. The item should be reported as a prior period
adjustment on the Year 2 income statement.
Answer: FALSE
Bloom's: Understand
27) Changes in accounting estimates are accounted for in current and future periods.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
28) Earnings per share is the amount of income earned per share of a company's outstanding
(weighted-average) common stock.
Answer: TRUE
Difficulty: 1 Easy
Topic: Earnings Per Share
Learning Objective: 11-A1 Compute earnings per share and describe its use.
Bloom's: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
AICPA: BB Resource Management; FN Risk Analysis
7
29) If a company has no preferred stock, basic earnings per share is equal to net income divided
by the number of weighted average common shares outstanding.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
30) If a company has noncumulative preferred stock, basic earnings per share is equal to net
income less preferred dividends declared divided by the number of weighted average common
shares outstanding.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
31) Lewis Company had net income of $67,000. The company had 9,000 weighted average
common shares outstanding. The basic earnings per share equals $7.44 per share.
Answer: TRUE
Explanation: Basic earnings per share = Net income − preferred dividends / Weighted-average
common shares outstanding
$7.44 = $67,000 − 0 / 9,000
Bloom's: Understand
32) The price-earnings ratio reveals information about the stock market's expectations for a
company's future earnings growth.
Answer: TRUE
Difficulty: 1 Easy
Topic: Price-Earnings Ratio
Learning Objective: 11-A2 Compute price-earnings ratio and describe its use in analysis.
Bloom's: Remember
8
33) Price-earnings ratio is computed by dividing annual dividends by average market value per
share.
Answer: FALSE
Bloom's: Understand
34) The price-earnings ratio is computed by dividing earnings per share by the par value per
share.
Answer: FALSE
Bloom's: Understand
35) A company has earnings per share of $6.50. Its dividend per share is $0.50, and its market
price per share is $80. Its price-earnings ratio equals 13.
Answer: FALSE
Explanation: Price-Earnings Ratio = Market Price per Share/Earnings per Share; $80/$6.50 =
12.3
Bloom's: Understand
36) Dividend yield shows the annual amount of cash dividends distributed to common shares
relative to the stock's market price.
Answer: TRUE
Difficulty: 1 Easy
Topic: Dividend Yield
Learning Objective: 11-A3 Compute dividend yield and explain its use in analysis.
Bloom's: Remember
9
37) Dividend yield is defined as the annual cash dividends per share divided by the market price
per share of a company's stock.
Answer: TRUE
Bloom's: Understand
38) Growth stocks generally pay large dividends on a regular basis.
Answer: FALSE
Bloom's: Understand
39) Dividend yield is computed by dividing earnings per share by the market value per share.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
40) Book value per share reflects the value per share if a company is liquidated at balance sheet
amounts.
Answer: TRUE
Difficulty: 1 Easy
Topic: Book Value Per Share
Learning Objective: 11-A4 Compute book value and explain its use in analysis.
Bloom's: Remember
10
41) The main limitation in using book value per share for stock valuation models is the potential
difference between recorded value and market value for both assets and liabilities.
Answer: TRUE
Bloom's: Understand
42) Dividing stockholders' equity applicable to common shares by the number of common shares
outstanding yields the book value per common share.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
43) If a corporation receives assets other than cash in exchange for stock, it records the assets
received at their market value.
Answer: TRUE
Difficulty: 1 Easy
Topic: Common Stock
Learning Objective: 11-P1 Record the issuance of corporate stock.
Bloom's: Remember
44) A corporation may not legally give shares of its stock to promoters in exchange for their
services in organizing the corporation.
Answer: FALSE
Difficulty: 1 Easy
Topic: Common Stock
Bloom's: Remember
11
45) When no-par stock is not assigned a stated value, the total amount received is recorded in the
Common Stock account.
Answer: TRUE
Difficulty: 1 Easy
Topic: Common Stock
Bloom's: Remember
46) The date of record is the date that directors vote to pay a cash dividend to shareholders.
Answer: FALSE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
47) A debit balance in retained earnings is referred to as a retained earnings deficit.
Answer: TRUE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
48) The declaration of cash dividends increases retained earnings.
Answer: FALSE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
12
49) The journal entry to record the declaration of dividends on common stock includes a debit to
Retained Earnings and a credit to Common Dividend Payable.
Answer: TRUE
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
50) A stock split is the distribution of additional shares of stock to stockholders according to
their percent of ownership.
Answer: TRUE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
AICPA: BB Resource Management; FN Measurement
51) A stock dividend does not reduce a corporation's assets or its stockholders' equity.
Answer: TRUE
Topic: Dividends
stock splits.
Bloom's: Understand
52) Large stock dividends are recorded at par or stated value.
Answer: TRUE
Topic: Dividends
stock splits.
Bloom's: Understand
13
53) Common Stock Dividend Distributable is a liability account.
Answer: FALSE
Topic: Dividends
stock splits.
Bloom's: Understand
54) Common Stock Dividend Distributable is an equity account.
Answer: TRUE
Topic: Dividends
stock splits.
Bloom's: Understand
55) Small stock dividends are recorded at par or stated value.
Answer: FALSE
Topic: Dividends
stock splits.
Bloom's: Understand
56) A stock dividend is a distribution of corporate assets that returns part of the original
investment to shareholders.
Answer: FALSE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
14
57) A stock split can be done in any ratio.
Answer: TRUE
Topic: Dividends
stock splits.
Bloom's: Understand
58) Declaration of a stock dividend results in a liability being recorded.
Answer: FALSE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
59) A stock split increases total stockholders' equity.
Answer: FALSE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
60) A large stock dividend only occurs when a distribution of more than 50% of previously
outstanding shares is issued.
Answer: FALSE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
AICPA: BB Industry; FN Resource Management
15
61) A stock dividend decreases the market price of the company's stock.
Answer: TRUE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
62) A stock dividend, declared by a corporation's directors, is a distribution of additional shares

of the corporation's own stock to its stockholders without any payment in return.
Answer: TRUE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
63) All stock dividends are recorded at par value so there would never be a credit to the paid-in
capital in excess of par value account.
Answer: FALSE
Topic: Dividends
stock splits.
Bloom's: Understand
64) Paid and declared preferred dividends are called dividends in arrears.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
16
65) Accumulation of dividends in arrears on cumulative preferred stock does not guarantee the
dividends will be paid.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
66) A liability for a cash dividend does not exist until the directors declare a cash dividend.
Answer: TRUE
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
67) Participating preferred stock has a feature that allows its holders to share with common
shareholders in any dividends paid in excess of the amount stated on the preferred stock.
Answer: TRUE
Bloom's: Understand
68) Corporations issue preferred stock to raise capital without giving up control of the
corporation and/or to boost the return earned by common shareholders.
Answer: TRUE
Bloom's: Understand
17
69) Treasury stock is stock that has been authorized, issued, and is outstanding.
Answer: FALSE
Topic: Treasury Stock
Learning Objective: 11-P3 Record purchases and sales of treasury stock.
Bloom's: Understand
70) Purchasing treasury stock reduces the corporation's assets and stockholders' equity by
unequal amounts.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
71) The Paid-in Capital, Treasury Stock account can never have a debit balance.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
72) The Paid-in Capital, Treasury Stock account can have a zero or credit balance.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
18
73) If a company resells treasury stock below the acquisition cost, a loss from the sale of treasury
stock is recorded.
Answer: FALSE
Bloom's: Understand
74) The costs of bringing a corporation into existence, including legal fees and promoter fees, are
called:
A) Minimum legal capital.
B) Stock subscriptions.
C) Organization expenses.
D) Selling expenses.
E) Prepaid fees.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
75) The right of common shareholders to purchase their proportional share of any common stock
later issued by the corporation is called a:
A) Preemptive right.
B) Proxy right.
C) Right to call.
D) Financial leverage.
E) Voting right.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
19
76) Market value per share is:
A) The price at which a stock is bought and sold.
B) A contractual commitment by an investor to purchase unissued shares of stock.
C) Stock not assigned a value per share.
D) The right of common stockholders to protect their proportionate interests in a corporation by
having the first opportunity to purchase additional shares of common stock issued by the
corporation.
E) An amount assigned to no-par stock.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
77) The board of directors of a corporation:

A) Are elected by the corporate registrar.
B) Are responsible for day-to-day operations of the business.
C) Do not have the power to bind the corporation to contracts, due to lack of mutual agency.
D) May not also be executive officers of the corporation, due to the separate entity principle.
E) Are responsible for overseeing corporate activities.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
78) The number of shares that a corporation's charter allows it to sell is referred to as:
A) Issued stock.
B) Outstanding stock.
C) Common stock.
D) Preferred stock.
E) Authorized stock.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
20
79) Par value of a stock refers to the:
A) Issue price of the stock.
B) Value assigned per share by the corporate charter.
C) Market value of the stock on the date of the financial statements.
D) Maximum selling price of the stock.
E) Dividend value of the stock.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
80) When a corporation has only one class of stock, the stock is called:
A) Preferred stock.
B) Common stock.
C) Par value stock.
D) Stated value stock.
E) No-par value stock.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
81) The least amount that the buyers of stock must contribute to the corporation or be at risk to
pay creditors at a future date is called the:
A) Par value of preferred.
B) Minimum legal capital.
C) Premium capital.
D) Stated value.
E) Working capital.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
21
82) The total amount of cash and other assets received by a corporation from its stockholders in
exchange for its stock is:
A) Always equal to its par value.
B) Always equal to its stated value.
C) Referred to as paid-in capital.
D) Referred to as retained earnings.
E) Always below its stated value.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
83) Stated value of no-par stock is:

A) Another name for redemption value.
B) An amount assigned to par value stock by the state of incorporation.
C) The market value of the stock on the date of issuance.
D) The difference between the par value of stock and the amount below or above par value paid-
in by the stockholder.
E) An amount assigned to no-par stock by the corporation's board of directors.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
84) Stockholders' equity consists of which of the following?

A) Long-term assets.
B) Paid-in capital and retained earnings.
C) Paid-in capital and par value.
D) Retained earnings and cash.
E) Premiums and discounts.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
22
85) A class of stock for which there is no minimum legal capital is called:
A) Convertible stock.
B) No-par stock.
C) Callable stock.
D) Noncumulative stock.
E) Discounted stock.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
86) The number of shares a corporation's charter allows it to sell:

A) Issued.
B) Authorized.
C) Subscribed.
D) Outstanding.
E) In treasury.
Answer: B
Bloom's: Understand
87) Retained earnings:

A) Generally consists of a company's cumulative net income less any net losses and dividends
declared since its inception.
B) Can only be appropriated by setting aside a cash fund.
C) Represent an amount of cash available to pay shareholders.
D) Are never adjusted for anything other than net income or dividends.
E) Represents the amount shareholders are guaranteed to receive upon company liquidation.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
23
88) Prior period adjustments to financial statements can result from:
A) Changes in estimates of salvage value.
B) Unacceptable accounting practices.
C) Discontinued operations.
D) Changes in tax law.
E) Changes in estimates of useful life.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
89) Prior period adjustments are reported in the:

A) Multiple-step income statement.
B) Balance sheet.
C) Statement of retained earnings.
D) Statement of cash flows.
E) Single-step income statement.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
90) Changes in accounting estimates are:

A) Considered accounting errors.
B) Reported as prior period adjustments.
C) Accounted for with a cumulative "catch-up" adjustment.
D) Statement of cash flow items.
E) Accounted for in current and future periods.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
24
91) A company had a beginning balance in retained earnings of $430,000. It had net income of
$60,000 and declared and paid cash dividends of $56,250 in the current period. The ending
balance in retained earnings equals:
A) $546,250.
B) $426,250.
C) $116,250.
D) $433,750.
E) $490,000.
Answer: D
Explanation:
Beginning balance $ 430,000
Plus net income 60,000
Less dividends (56,250)
Ending balance $ 433,750
Difficulty: 3 Hard
Bloom's: Apply
92) A company had a beginning balance in retained earnings of $400,000. It had net income of
$50,000 and declared and paid cash dividends of $55,000 in the current period. The ending
balance in retained earnings equals:
A) $505,000.
B) $405,000.
C) $395,000.
D) $455,000.
E) $350,000.
Answer: C
Explanation:
Beginning balance $ 400,000
Less dividends (55,000)
Ending balance $ 395,000
Difficulty: 3 Hard
Bloom's: Apply
25
93) Companies report prior period adjustments, net of any income tax effects in the:
A) Statement of cash flows.
B) Balance sheet.
C) Statement of retained earnings.
D) Income statement.
E) No disclosure is required.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
94) Changes in retained earnings are commonly reported in the:

A) Statement of cash flows.
B) Balance sheet.
C) Statement of stockholders' equity.
D) Multiple-step income statement.
E) Single-step income statement.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
95) A company made an error in calculating and reporting amortization expense in Year 1. The
error was discovered in Year 2. The item should be reported as a prior period adjustment:
A) on the Year 1 statement of retained earnings.
B) on the Year 1 income statement.
C) on the Year 2 statement of retained earnings.
D) on the Year 2 income statement.
E) accounted for with a cumulative "catch-up" adjustment in Year 2.
Answer: C
Bloom's: Understand
26
96) The statement of changes in stockholders' equity:
A) Is part of the statement of retained earnings.
B) Shows only the ending balances in stockholders' equity.
C) Describes changes in paid-in capital and retained earnings subcategories.
D) Does not include changes in treasury stock.
E) Is reported by very few companies.
Answer: C
Bloom's: Understand
97) The amount of income earned per share of a company's outstanding common stock is known
as:
A) Restricted retained earnings per share.
B) Earnings per share.
C) Continuing operations per share.
D) Dividends per share.
E) Book value per share.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
27
98) Mayan Company had net income of $132,000. The weighted-average common shares
outstanding were 80,000. The company has no preferred stock. The company's earnings per
share is:
A) $1.65.
B) $1.59.
C) $44.00.
D) $26.67.
E) $1.71.
Answer: A
Explanation: Earnings per Share = (Net Income − Preferred Dividends)/Weighted-Average
Common Shares Outstanding
Earnings per Share = ($132,000 − $0)/80,000 = $1.65
Bloom's: Apply
99) Mayan Company had net income of $132,000. The weighted-average common shares
outstanding were 80,000. The company declared a $27,000 dividend on its noncumulative,
nonparticipating preferred stock. There were no other stock transactions. The company's earnings
per share is:
A) $1.65.
B) $1.99.
C) $1.31.
D) $0.34.
E) $4.89.
Answer: C
Explanation: Earnings per Share = (Net Income − Preferred Dividends)/Weighted-Average
Common Shares Outstanding
Earnings per Share = ($132,000 − $27,000)/80,000 = $1.31
Bloom's: Apply
28
100) The price-earnings ratio is calculated by dividing:
A) Market value per share by earnings per share.
B) Earnings per share by par value per share.
C) Dividends per share by earnings per share.
D) Dividends per share by market value per share.
E) Market value per share by dividends per share.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
101) A company has net income of $90,000; its weighted-average common shares outstanding
are 18,000. Its dividend per share is $0.45, its market price per share is $88, and its book value
per share is $76. Its price-earnings ratio equals:
A) 9.0.
B) 17.6.
C) 12.5.
D) 15.2.
E) 16.9.
Answer: B
Explanation: Price-Earnings Ratio = Market Price per Share/Earnings per share
Market Price per Share / (Net Income/Weighted-Average Common Shares Outstanding)
Price-Earnings Ratio = $88/($90,000/18,000) = 17.6
Difficulty: 3 Hard
Bloom's: Apply
29
102) A company has earnings per share of $9.60. Its dividend per share is $0.50, its market price
per share is $110, and its book value per share is $96. Its price-earnings ratio equals:
A) 1.15.
B) 0.87.
C) 19.2.
D) 10.0.
E) 11.46.
Answer: E
Explanation: Price-Earnings Ratio = Market Price per Share/Earnings per Share
Price-Earnings Ratio = $110/$9.60 = 11.46
Difficulty: 3 Hard
Bloom's: Apply
103) The amount of annual cash dividends distributed to common shareholders relative to the
common stock's market value is the:
A) Dividend payout ratio.
B) Dividend yield.
C) Price-earnings ratio.
D) Current yield.
E) Earnings per share.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
30
104) The dividend yield is computed by dividing:
A) Annual cash dividends per share by earnings per share.
B) Earnings per share by cash dividends per share.
C) Annual cash dividends per share by the market value per share.
D) Par value per share by cash dividends per share.
E) Cash dividends per share by retained earnings.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
105) Stocks that pay large cash dividends on a regular basis are called:
A) Small capital stocks.
B) Mid capital stocks.
C) Growth stocks.
D) Large capital stocks.
E) Income stocks.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
106) Dividend yield is the percent of cash dividends paid to common shareholders relative to the:
A) Common stock's market value.
B) Earnings per share.
C) Investors' purchase price of the stock.
D) Amount of retained earnings.
E) Amount of cash.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
31
107) A company paid $0.48 in cash dividends per share. Its earnings per share is $3.20 and its
market price per share is $20.00. Its dividend yield equals:
A) 2.4%.
B) 6.25%.
C) 6.4%.
D) 6.67%.
E) 15.00%.
Answer: A
Explanation: Dividend Yield = Cash Dividends per Share/Market Price per Share
Dividend Yield = $0.48/$20 = 2.4%
Difficulty: 3 Hard
Bloom's: Apply
108) A company paid $0.85 in cash dividends per share. Its earnings per share is $3.50, and its
market price per share is $35.50. Its dividend yield equals:
A) 2.0%.
B) 2.4%.
C) 9.9%.
D) 21.4%.
E) 24.2%.
Answer: B
Explanation: Dividend Yield = Cash Dividends per Share/Market Price per Share
Dividend Yield = $0.85/$35.50 = 2.4%
Difficulty: 3 Hard
Bloom's: Apply
32
109) Book value per share:
A) Reflects the value per share if a company is liquidated at balance sheet amounts.
B) Is assets divided by equity.
C) Is assets divided by the number of common shares outstanding.
D) Measures the current market value assets.
E) Is equal to par value per share.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
110) Book value per common share is computed by:

A) Multiplying the number of common shares outstanding times the market price per common
share.
B) Dividing total assets by the number of shares outstanding.
C) Dividing stockholders' equity applicable to common shares by the number of common shares
outstanding.
D) Multiplying the number of common shares outstanding by par value per share.
E) Dividing the number of common shares outstanding by stockholders' equity applicable to
common shares.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
33
111) A company has 50,000 shares of common stock outstanding. The stockholders' equity
applicable to common shares is $1,470,000, and the par value per common share is $5. The book
value per share is:
A) $4.75.
B) $14.70.
C) $10.00.
D) $29.40.
E) $47.50.
Answer: D
Explanation: Book Value per Share = Stockholders' Equity Applicable to Common/Common
Shares Outstanding
Book Value per Share = $1,470,000/50,000 = $29.40 per share
Bloom's: Apply
112) James Company has 1,000 shares of $10 par preferred stock, which were issued at par. It
also has 25,000 shares of common stock outstanding, and its total stockholders' equity equals
$500,000. The book value per common share is:
A) $16.00.
B) $19.60.
C) $19.96.
D) $20.00.
E) $10.00.
Answer: B
Shares Outstanding
Book Value per Share = [$500,000 − (1,000 shares × $10/share)]/25,000 = $19.60/share
Difficulty: 3 Hard
Bloom's: Apply
34
113) MBP Company has 10,000 shares of $10 par preferred stock, which were issued at par. It
also has 250,000 shares of common stock outstanding, and its total stockholders' equity equals
$4,000,000. The book value per common share is:
A) $16.67.
B) $16.00.
C) $40.00.
D) $15.60.
E) $10.00.
Answer: D
Shares Outstanding
Book Value per Share = [$4,000,000 − (10,000 shares × $10/share)]/250,000 = $15.60/share
Difficulty: 3 Hard
Bloom's: Apply
114) A company has 500 shares of $60 par value preferred stock outstanding. It also has 20,000
shares of common stock outstanding, and the total value of its stockholders' equity is $680,000.
The company's book value per common share equals:
A) $31.71.
B) $32.50.
C) $32.75.
D) $33.17.
E) $60.00.
Answer: B
Shares Outstanding
Book Value per Share = [$680,000 − (500 shares × $60/share)]/20,000 = $32.50/share
Difficulty: 3 Hard
Bloom's: Apply
35
115) The Discount on Common Stock account reflects:
A) The difference between the par value of stock and its issue price when it is issued at a price
below par value.
B) One share's portion of the issued corporation's net assets recorded in its accounts.
C) The difference between the par value of the stock and the amount paid-in by stockholders
when the amount paid-in is more than par value.
D) An amount of assets defined by state law that stockholders must invest and leave invested in a
corporation.
E) The amount a corporation must pay in addition to dividends in arrears if and when it exercises
its right to retire a share of callable preferred stock.
Answer: A
Topic: Common Stock
Bloom's: Understand
116) Percy Corporation was formed on January 1. The corporate charter authorized 100,000
shares of $10 par value common stock. During the first month of operation, the corporation
issued 400 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of
incorporation. The entry to record this transaction would include:
A) A debit to Organization Expenses for $4,000.
B) A debit to Organization Expenses for $5,000.
C) A credit to Common Stock for $5,000.
D) A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.
E) A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.
Answer: B
Explanation:
Debit Organization Expense $ 5,000
Credit Common Stock, $10 Par Value $ 4,000
Credit Paid-in Capital in Excess of Par Value,
$ 1,000
Common Stock
Topic: Common Stock
Bloom's: Understand
36
117) A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13
per share. The entry to record this transaction would include:
A) A debit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000.
B) A debit to Cash for $14,000.
C) A credit to Common Stock for $182,000.
D) A credit to Common Stock for $14,000.
E) A credit to Paid-in Capital in Excess of Par Value, Common Stock for $196,000.
Answer: D
Explanation:
Debit Cash $ 182,000
Credit Paid-in Capital in Excess of Par
$ 168,000
Value, Common Stock
Topic: Common Stock
Bloom's: Understand
118) Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a cash
price of $12 per share. The entry to record this transaction would be:
A) Debit Cash $312,000; credit Common Stock $26,000; credit Paid-in Capital in Excess of Par
Value, Common Stock $286,000.
B) Debit Cash for $312,000; credit Common Stock $312,000.
C) Debit Common Stock $26,000; debit Paid-in Capital in Excess of Par Value, Common Stock
$286,000; credit Cash $312,000.
D) Debit Cash $312,000; credit Stock Liability $286,000; credit Common Stock $26,000.
E) Debit Common Stock $26,000; credit Cash $26,000.
Answer: A
Explanation:
Debit Cash $ 312,000
$ 286,000
Value, Common Stock
Topic: Common Stock
Bloom's: Understand
37
119) A corporation issued 6,000 shares of its $2 par value common stock in exchange for land
that has a market value of $84,000. The entry to record this transaction would include:
A) A debit to Common Stock for $12,000.
B) A debit to Land for $12,000.
C) A credit to Land for $12,000.
D) A credit to Paid-in Capital in Excess of Par Value, Common Stock for $72,000.
E) A credit to Common Stock for $84,000.
Answer: D
Explanation:
Debit Cash $ 84,000
$ 72,000
Value, Common Stock
Topic: Common Stock
Bloom's: Understand
120) A corporation issued 100 shares of its $5 par value common stock in payment of a $1,800
charge from its accountant for assistance in filing its charter with the state. The entry to record
this transaction will include:
A) A $1,800 credit to Common Stock.
B) A $300 debit to Organization Expenses.
C) A $1,300 credit to Paid-in Capital in Excess of Par Value, Common Stock.
D) A $1,800 debit to Legal Expenses.
E) A $1,800 credit to Cash.
Answer: C
Explanation:
Debit Organization Expense $ 1,800
Credit Common Stock, $5 Par Value $ 500
$ 1,300
Common Stock
Topic: Common Stock
Bloom's: Understand
38
121) A company issued 60 shares of $100 par value common stock for $7,000 cash. The total
amount of paid-in capital is:
A) $100.
B) $600.
C) $1,000.
D) $6,000.
E) $7,000.
Answer: E
Difficulty: 3 Hard
Topic: Common Stock
Bloom's: Apply
122) A company issued 60 shares of $100 par value common stock for $7,000 cash. The journal
entry to record the issuance is:
A) Debit Cash $7,000; credit Common Stock $7,000.
B) Debit Investment in Common Stock $7,000; credit Cash $7,000.
C) Debit Cash $7,000; credit Common Stock $6,000; credit Paid-in Capital in Excess of Par
D) Debit Common Stock $6,000, debit Investment in Common Stock $1,000; credit Cash
$7,000.
E) Debit Cash $7,000; credit Paid-in Capital in Excess of Par Value, Common Stock $6,000,
credit Common Stock $1,000.
Answer: C
Explanation:
Debit Cash $ 7,000
$ 1,000
Common Stock
Topic: Common Stock
Bloom's: Understand
39
123) A company issued 70 shares of $30 par value preferred stock for $4,000 cash. The journal
entry to record the issuance is:
A) Debit Cash $2,100; credit Preferred Stock $2,100.
B) Debit Investment in Preferred Stock $2,100; credit Cash $2,100.
C) Debit Cash $4,000; credit Preferred Stock $4,000.
D) Debit Preferred Stock $2,100, debit Investment in Preferred Stock $1,900; credit Cash
$4,000.
E) Debit Cash $4,000; credit Paid-in Capital in Excess of Par Value, Preferred Stock $1,900,
credit Preferred Stock $2,100.
Answer: E
Explanation:
Debit Cash $ 4,000
$ 1,900
Common Stock
Bloom's: Understand
124) A company issued 60 shares of $100 par value common stock for $7,000 cash. The total
amount of paid-in capital in excess of par is:
A) $100.
B) $600.
C) $1,000.
D) $6,000.
E) $7,000.
Answer: C
Explanation: Cash $7,000 − Par Value (60 × $100) = Paid-in capital in excess of par $1,000
Topic: Common Stock
Bloom's: Understand
40
125) A corporation issued 5,000 shares of $10 par value common stock in exchange for some
land with a market value of $70,000. The entry to record this exchange is:
A) Debit Land $70,000; credit Common Stock $50,000; credit Paid-In Capital in Excess of Par
B) Debit Land $70,000; credit Common Stock $70,000.
C) Debit Land $50,000; credit Common Stock $50,000.
D) Debit Common Stock $50,000; debit Paid-In Capital in Excess of Par Value, Common Stock
$20,000; credit Land $70,000.
E) Debit Common Stock $70,000; credit Land $70,000.
Answer: A
Explanation:
Debit Cash $ 70,000
$ 20,000
Value, Common Stock
Difficulty: 3 Hard
Topic: Common Stock
Bloom's: Apply
126) A premium on common stock:

A) Occurs when a corporation sells its stock for more than par or stated value.
B) Is the difference between par value and issue price when the amount paid is below par.
C) Represents profit from issuing stock.
D) Represents capital gain on sale of stock.
E) Is prohibited in most states.
Answer: A
Topic: Common Stock
Bloom's: Understand
41
127) The date the directors vote to declare and pay a dividend is called the:
A) Date of stockholders' meeting.
B) Date of declaration.
C) Date of record.
D) Date of payment.
E) Liquidating date.
Answer: B
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
AICPA: BB Industry; FN Decision Making
128) A liquidating dividend is:

A) Only declared when a corporation closes down.
B) A return of a portion of the capital contributed back to the stockholders.
C) Not allowed under federal law.
D) Only paid in assets other than cash.
E) Only paid in shares of stock.
Answer: B
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
42
129) A liability for dividends exists:
A) When cumulative preferred stock is sold.
B) On the date of declaration.
C) On the date of record.
D) On the date of payment.
E) For dividends in arrears on cumulative preferred stock.
Answer: B
Topic: Dividends
stock splits.
Bloom's: Understand
130) A company's board of directors votes to declare a cash dividend of $.75 per share of
common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares
outstanding. The total amount of the cash dividend is:
A) $10,250.
B) $14,625.
C) $7,125.
D) $7,500.
E) $11,250.
Answer: C
Explanation: $0.75 × 9,500 shares outstanding = $7,125
Topic: Dividends
stock splits.
Bloom's: Understand
43
131) A corporation with $10 par common stock issues a small stock dividend. The capitalization
of retained earnings is equal to:
A) The par value of the shares to be distributed.
B) The par value of the shares outstanding.
C) The market value of the shares to be distributed.
D) The market value of the shares outstanding.
E) There is no capitalization of retained earnings in the case of a small stock dividend.
Answer: C
Topic: Dividends
stock splits.
Bloom's: Understand
132) A corporation with $10 par common stock issues a large stock dividend. The capitalization
of retained earnings is equal to:
A) The par value of the shares to be distributed.
B) The par value of the shares outstanding.
C) The market value of the shares to be distributed.
D) The market value of the shares outstanding.
E) There is no capitalization of retained earnings in the case of a large stock dividend.
Answer: A
Topic: Dividends
stock splits.
Bloom's: Understand
44
133) A company's board of directors votes to declare a cash dividend of $1.00 per share on its
12,000 common shares outstanding. The journal entry to record the declaration of the cash
dividend is:
A) Debit Dividend Expense $12,000; credit Cash $12,000.
B) Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
C) Debit Common Dividend Payable $12,000; credit Cash $12,000.
D) Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
E) Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.
Answer: D
Topic: Dividends
stock splits.
Bloom's: Understand
134) A company's board of directors votes to declare a cash dividend of $1.00 per share on its
12,000 common shares outstanding. The journal entry to record the payment of the cash dividend
is:
A) Debit Dividend Expense $12,000; credit Cash $12,000.
B) Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
C) Debit Common Dividend Payable $12,000; credit Cash $12,000.
D) Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
E) Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.
Answer: C
Topic: Dividends
stock splits.
Bloom's: Understand
45
135) Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The
company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common stock
outstanding. The journal entry to record the dividend declaration is:
A) Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
B) Debit Common Dividends Payable $4,000; credit Cash $4,000.
C) Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
D) Debit Common Dividends Payable $4,500; credit Cash $4,500.
E) Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.
Answer: A
Explanation: $0.50 × 8,000 shares = $4,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
136) Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The
company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common stock
outstanding. The journal entry to record the dividend payment is:
Answer: B
Explanation: $0.50 × 8,000 shares = $4,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
46
137) A corporation's distribution of additional shares of its own stock to its stockholders without
the receipt of any payment in return is called a:
A) Stock dividend.
B) Stock subscription.
C) Premium on stock.
D) Discount on stock.
E) Treasury stock.
Answer: A
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
138) Which of the following is true of a stock dividend?

A) It is a liability on the balance sheet.
B) The decision to declare a stock dividend resides with the shareholders.
C) Transfers a portion of equity from retained earnings to a cash reserve account.
D) Does not affect total equity, but transfer amounts between the components of equity.
E) Reduces a corporation's assets and stockholders' equity.
Answer: D
Topic: Dividends
stock splits.
Bloom's: Understand
47
139) On September 1, Ziegler Corporation had 50,000 shares of $5 par value common stock, and
$1,500,000 of retained earnings. On that date, when the market price of the stock is $15 per
share, the corporation issues a 2-for-1 stock split. The general journal entry to record this
transaction is:
A) Debit Retained Earnings $750,000; credit Common Stock Split Distributable $750,000.
B) Debit Retained Earnings $750,000; credit Common Stock $750,000.
C) Debit Retained Earnings $250,000; credit Common Stock $250,000.
D) Debit Retained Earnings $250,000; credit Stock Split Payable $250,000.
E) No entry is made for this transaction.
Answer: E
Topic: Dividends
stock splits.
Bloom's: Understand
140) All of the following statements regarding stock dividends are true except:
A) Directors can use stock dividends to keep the market price of the stock affordable.
B) Stock dividends provide evidence of management's confidence that the company is doing
well.
C) Stock dividends do not reduce assets or equity.
D) Stock dividends decrease the number of shares outstanding.
E) Stock dividends transfer a portion of equity from retained earnings to contributed capital.
Answer: D
Topic: Dividends
stock splits.
Bloom's: Understand
AICPA: BB Industry; FN Risk Analysis
48
141) A stock dividend is recorded with a transfer from:
A) Contributed capital to retained earnings.
B) Retained earnings to paid-in capital.
C) Retained earnings to assets.
D) Contributed capital to assets.
E) Assets to contributed capital.
Answer: B
Difficulty: 1 Easy
Topic: Dividends
stock splits.
Bloom's: Remember
142) A corporation declared and issued a 15% stock dividend on October 1. The following
information was available immediately prior to the dividend:
Retained earnings $ 750,000

Shares issued and outstanding 60,000
Market value per share $ 15
Par value per share $ 5
The amount that contributed capital will increase (decrease) as a result of recording this stock
dividend is:
A) $45,000.
B) $135,000.
C) $(45,000).
D) $(135,000).
E) $0.
Answer: B
Explanation: 60,000 shares × 0.15 = 9,000 × $15 = $135,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
49
143) Global Corporation had 50,000 shares of $20 par value common stock outstanding on July
1. Later that day the board of directors declared a 10% stock dividend when the market value of
each share was $27. The entry to record the dividend declaration is:
A) Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $135,000.
B) Debit Retained Earnings $135,000; credit Cash $135,000.
C) Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $100,000;
credit Paid-In Capital in Excess of Par Value, Common Stock $35,000.
D) Debit Retained Earnings $100,000; credit Common Stock Dividend Distributable $100,000.
E) No entry is made until the stock is issued.
Answer: C
Explanation: Retained earnings: 50,000 shares × 10% × $27 = $135,000
Common Stock Dividend Distributable: 50,000 shares × 10% × $20 = $100,000
Paid-in Capital in Excess of Par Value, Common Stock: 50,000 shares × 10% × $7 = $35,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
144) Eastline Corporation had 10,000 shares of $10 par value common stock outstanding when
the board of directors declared a stock dividend of 3,000 shares. At the time of the stock
dividend, the market value per share was $12. The entry to record this dividend is:
A) Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $36,000.
B) Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $30,000;
credit Paid-In Capital in Excess of Par Value, Common Stock $6,000.
C) Debit Common Stock Dividend Distributable $36,000; credit Retained Earnings $36,000.
D) Debit Retained Earnings $30,000; credit Common Stock Dividend Distributable $30,000.
E) No entry is needed.
Answer: D
Explanation: 3,000/10,000 shares = large stock dividend of 30%
Large stock dividends are recorded at par value (3,000 shares × $10 = $30,000)
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
50
145) Preferred stock that has the right to prior periods' unpaid dividends even if they were not
declared is called:
A) Noncumulative preferred stock.
B) Participating preferred stock.
C) Callable preferred stock.
D) Cumulative preferred stock.
E) Convertible preferred stock.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
146) Preferred stock that allows preferred stockholders to share with common stockholders any
dividends paid in excess of the percent or dollar amount stated on the preferred stock is called:
A) Convertible preferred stock.
B) Participating preferred stock.
C) Premium stock.
D) Cumulative preferred stock.
E) Common stock.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
51
147) When the dividend rate on preferred stock is less than the rate of return earned on a
corporation's assets, it is called:
A) Financial leverage.
B) Discount on stock.
C) Premium on stock.
D) Preemptive right.
E) Capital gain.
Answer: A
Bloom's: Understand
148) Preferred stock that limits stockholders to receiving only the stated amount as a dividend is
called:
A) Cumulative preferred stock.
B) Callable preferred stock.
C) Nonparticipating preferred stock.
D) Convertible preferred stock.
E) Participating preferred stock.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
52
149) Ultimate Sportswear has $100,000 of 8% noncumulative, nonparticipating, preferred stock
outstanding. Ultimate Sportswear also has $500,000 of common stock outstanding. In the
company's first year of operation, no dividends were paid. During the second year, the company
paid cash dividends of $30,000. This dividend should be distributed as follows:
A) $8,000 preferred; $22,000 common.
B) $16,000 preferred; $14,000 common.
C) $7,500 preferred; $22,500 common.
D) $15,000 preferred; $15,000 common.
E) $0 preferred; $30,000 common.
Answer: A
Explanation: Preferred stock dividend: $100,000 × 8% = $8,000
Common stock dividend: $30,000 − $8,000 = $22,000
Difficulty: 3 Hard
Bloom's: Apply
150) Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred

stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first
year, the company paid cash dividends of $30,000. This dividend should be distributed as
follows:
C) $30,000 preferred; $0 common.
Answer: D
Explanation: Preferred stock dividend: $200,000 × 6% = $12,000
Common stock dividend: $30,000 − $12,000 = $18,000
Bloom's: Understand
53
151) Torino Company has 10,000 shares of $5 par value, 4% cumulative and nonparticipating
preferred stock and 100,000 shares of $10 par value common stock outstanding. The company
paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be
paid to preferred stockholders in the second year before any dividend is paid to common
stockholders is:
A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.
E) $0.
Answer: C
Explanation: Preferred stock dividend: 10,000 shares × $5/share × 4% = $2,000
Prior year: Dividend Paid = $1,000; $1,000 in arrears
Current year: $1,000 in arrears + $2,000 current dividend = $3,000
Bloom's: Understand
152) Preferred stock on which the right to receive dividends is forfeited for any year that the
dividends are not declared is referred to as:
A) Participating preferred stock.
B) Callable preferred stock.
C) Cumulative preferred stock.
D) Convertible preferred stock.
E) Noncumulative preferred stock.
Answer: E
Bloom's: Understand
54
153) A dividend preference for preferred stock means that:
A) Preferred stockholders are allocated their dividends before dividends are allocated to common
shareholders.
B) Preferred shareholders are guaranteed dividends.
C) Dividends are paid quarterly.
D) Preferred stockholders prefer dividends more than common stockholders.
E) Dividends must be declared on preferred stock.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
154) Alto Company issued 7% preferred stock with a $100 par value. This means that:
A) Preferred shareholders have a guaranteed dividend.
B) The amount of the potential dividend is $7 per year per preferred share.
C) Preferred shareholders are entitled to 7% of the annual income.
D) The market price per share will approximate $100 per share.
E) Only 7% of the total paid-in capital can be preferred stock.
Answer: B
Bloom's: Understand
155) Stock that was reacquired and is still held by the issuing corporation is called:
A) Capital stock.
B) Treasury stock.
C) Redeemed stock.
D) Preferred stock.
E) Callable stock.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
55
156) Treasury stock is classified as:
A) An asset account.
B) A contra asset account.
C) A revenue account.
D) A contra equity account.
E) A liability account.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
157) The following data were reported by a corporation:
Authorized shares 20,000

Issued shares 15,000
Treasury shares 3,000
The number of outstanding shares is:

A) 12,000.
B) 15,000.
C) 17,000.
D) 20,000.
E) 23,000.
Answer: A
Explanation: Issued Shares − Treasury Shares = Outstanding Shares
15,000 − 3,000 = 12,000
Bloom's: Understand
56
158) Corporations may buy back their own stock for any of the following reasons except to:
A) Avoid a take-over.
B) Have shares available for a merger or acquisition.
C) Have shares available for employee compensation.
D) Maintain market value for the company stock.
E) Allow management to assume the voting rights.
Answer: E
Bloom's: Understand
159) The following data has been collected about Keller Company's stockholders' equity
accounts:
Common stock $10 par value 20,000 shares
authorized, 10,000 shares issued, and 9,000 shares outstanding $100,000
Paid-in capital in excess of par value, common stock 50,000
Retained earnings 25,000
Treasury stock 11,500
Assuming the treasury shares were all purchased at the same price, the cost per share of the
treasury stock is:
A) $1.15.
B) $1.28.
C) $11.50.
D) $10.50.
E) $10.00.
Answer: C
Explanation: Issued shares − Outstanding shares = Treasury shares; 10,000 − 9,000 = 1,000
$11,500/1,000 = $11.50, the cost per share of treasury stock
Bloom's: Understand
57
160) The following data has been collected about Keller Company's stockholders' equity
accounts:
Common stock $10 par value 20,000 shares

$100,000
authorized, 10,000 shares issued, and 9,000 shares outstanding
Paid-in capital in excess of par value, common stock 50,000
Retained earnings 25,000
Treasury stock 11,500
Assuming the treasury shares were all purchased at the same price, the number of shares of
treasury stock is:
A) 1,150.
B) 1,000.
C) 575.
D) 11,000.
E) 21,000.
Answer: B
Explanation: Issued shares − Outstanding shares = Treasury shares; 10,000 − 9,000 = 1,000
Bloom's: Understand
161) Prior to June 30, a company has never had any treasury stock transactions. A company
repurchased 100 shares of its common stock on June 30 for $40 per share. On July 20, it reissued
50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share.
What is the balance in the Treasury Stock account on August 2?
A) $5,050.
B) $2,600.
C) $100.
D) $1,200.
E) $0.
Answer: D
Explanation: Treasury Stock = # of shares held × initial cost per share
(100 − 50 − 20) × $40 = $1,200
Bloom's: Understand
58
162) Prior to May 1, Fortune Company has never had any treasury stock transactions. A
company repurchased 100 shares of its common stock on May 1 for $5,000. On July 1, it
reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury
shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on
August 2?
A) $5,050.
B) $2,600.
C) $100.
D) $50.
E) $0.
Answer: D
Explanation: $5,000 / 100 shares = $50 cost per share
Paid-in Capital, Treasury Stock:

May 1 $ 0
July 1: ($52 sell - $50 cost)
$2/share × 50 shares 100
August 1: ($49 sell - $50 cost)
$−1/share × 50 shares (50)
Balance, August 2 $ 50
Difficulty: 3 Hard
Bloom's: Apply
163) All of the following regarding accounting for Treasury Stock are true except:
A) Corporations do not record gains or losses on transactions involving their own stock.
B) Treasury Stock receives cash dividends but not stock dividends.
C) Purchasing Treasury Stock reduces the corporation's assets and equity by equal amounts.
D) Treasury Stock is presented on the balance sheet as a contra equity account.
E) Treasury Stock does not have voting rights.
Answer: B
Bloom's: Understand
59
164) Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000
shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to
record the dividend declaration is:
Answer: C
Explanation: $0.55 × (190,000 issued shares − 8,000 treasury shares) = $100,100
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
165) West Company declared a $0.50 per share cash dividend. The company has 190,000 shares
issued, and 10,000 shares in treasury stock. The journal entry to record the dividend declaration
is:
Answer: A
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
60
166) West Company declared a $0.50 per share cash dividend. The company has 190,000 shares
issued, and 10,000 shares in treasury stock. The journal entry to record the payment of the
dividend is:
Answer: D
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
167) Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000
shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to
record the payment of the dividend is:
Answer: D
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
61
168) Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred
stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the
first three years of operation, the corporation declared and paid the following total cash
dividends.
Dividends Declared & Paid
year 1 $ 20,000
year 2 $ 6,000
year 3 $ 32,000
The amount of dividends paid to preferred and common shareholders in year 1 is:
A) $200 preferred; $19,800 common.
E) $20,000 preferred; $0 common.
Answer: A
Explanation: Preferred stock dividend: 400 shares × $10/share × 5% = $200
$20,000 − $200 preferred = $19,800 to common
Bloom's: Understand
62
169) Sweet Company's outstanding stock consists of 1,000 shares of cumulative 5% preferred
dividends.
year 1 $ 2,000
year 2 $ 6,000
year 3 $ 32,000
The amount of dividends paid to preferred and common shareholders in year 3 is:
D) $32,000 preferred; $0 common.
Answer: A
Explanation: Preferred stock dividend: 1,000 shares × $100/share × 5% = $5,000 per
year × 3 years = $15,000 total preferred dividends. $15,000 − $8,000 paid to preferred in
years 1 and 2 = $7,000 paid to preferred in year 3. $32,000 − $7,000 preferred = $25,000
to common
Bloom's: Understand
63
170) Sweet Company's outstanding stock consists of 1,000 shares of noncumulative 5%
preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value.
During the first three years of operation, the corporation declared and paid the following total
cash dividends.
year 1 $ 2,000
year 2 $ 6,000
year 3 $ 32,000
The total amount of dividends paid to preferred and common shareholders over the three-year
period is:
E) $10,000 preferred; $30,000 common.
Answer: D
Explanation: Preferred stock dividend: 1,000 shares × $100/share × 5% = $5,000 per year. Year
1: $2,000 to preferred, $0 to common. Year 2: $5,000 to preferred, $1,000 to common. Year 3:
$5,000 to preferred, $27,000 to common. Preferred total = $2,000 + $5,000 + $5,000 = $12,000.
Common total = $0 + $1,000 + $27,000 = $28,000.
Bloom's: Understand
64
171) Sweet Company's outstanding stock consists of 1,000 shares of cumulative 5% preferred
dividends.
year 1 $ 2,000
year 2 $ 6,000
year 3 $ 32,000
The total amount of dividends paid to preferred and common shareholders over the three-year
period is:
E) $10,000 preferred; $30,000 common.
Answer: A
Explanation: Preferred stock dividend: 1,000 shares × $100/share × 5% = $5,000 per year. Year
1: $2,000 to preferred, $0 to common. Year 2: $6,000 to preferred, $0 to common. Year 3:
$7,000 to preferred, $25,000 to common. Preferred total = $2,000 + $6,000 + $7,000 = $15,000.
Common total = $0 + $0 + $25,000 = $25,000.
Bloom's: Understand
65
172) Halverstein Company's outstanding stock consists of 7,000 shares of cumulative 5%
preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value.
During the first three years of operation, the corporation declared and paid the following total
cash dividends.
Year 1 $ 0
Year 2 $ 6,000
Year 3 $ 32,000
The amount of dividends paid to preferred and common shareholders in Year 2 is:
C) $0 preferred; $6,000 common.
E) $6,000 preferred; $0 common.
Answer: E
Explanation: Preferred stock dividend: 7,000 shares × $10/share × 5% = $3,500
Year 1 dividends in arrears $3,500
Year 2 dividends paid to preferred shareholders = $3,500 in arrears + $2,500 of remaining
dividend declared; $1,000 of the Year 2 dividend is in arrears
Bloom's: Understand
66
repurchased 100 shares of its $1 par common stock on June 30 for $40 per share. On July 20, it
reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per
share. What is the journal entry necessary to record the repurchase of stock on June 30?
A) Debit Common Stock $4,000; credit Cash $4,000.
B) Debit Common Stock $100; debit Treasury Stock $3,900; credit Cash $4,000.
C) Debit Treasury Stock $3,900; debit Paid-in Capital, Treasury Stock $100; credit Cash $4,000.
D) Debit Treasury Stock, Common $4,000; credit Cash $4,000.
E) Debit Cash $4,000; credit Treasury Stock $4,000.
Answer: D
Bloom's: Understand
repurchased 100 shares of its $1 par common stock on June 30 for $40 per share. On July 20, it
reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per
share. What is the journal entry necessary to record the reissuance of treasury stock on July 20?
A) Debit Common Stock $2,300; credit Cash $2,300.
B) Debit Common Stock $20; debit Treasury Stock $2,290; credit Cash $2,300.
C) Debit Common Stock $2,300; credit Treasury Stock $2,000; credit Paid-In Capital, Treasury
Stock $300.
D) Debit Cash $2,300; credit Paid-in Capital, Treasury Stock $300; credit Treasury Stock
$2,000.
E) Debit Cash $2,300; credit Treasury Stock $2,300.
Answer: D
Explanation: Resale cost per share $46 − Cost per treasury share = $40 = $6 per share Paid-in
Capital, Treasury Stock
Difficulty: 3 Hard
Bloom's: Apply
67
175) A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per
share. The entry to record this transaction would be:
A) Debit Cash $27,500; credit Paid-in Capital in Excess of Par Value, Common Stock $2,500;
credit Common Stock $25,000.
B) Debit Cash $27,500; credit Common Stock $27,500.
C) Debit Common Stock $27,500; credit Cash $27,500.
D) Debit Treasury Stock $27,500; credit Cash $27,500.
E) Debit Treasury Stock $2,500; debit Paid-in Capital in Excess of Par Value, Treasury Stock
$25,000; credit Common Stock $27,500.
Answer: B
Explanation: 2,500 shares × $11 per share = $27,500
Topic: Common Stock
Bloom's: Understand
176) A corporation issued 5,000 shares of its no par common stock that was assigned a $1 stated
value per share. The issue price was $10 per share. The entry to record this transaction would be:
A) Debit Cash $50,000; credit Paid-in Capital in Excess of Stated Value, Common Stock
B) Debit Cash $50,000; credit Common Stock $50,000.
C) Debit Common Stock $50,000; credit Cash $50,000.
D) Debit Treasury Stock $50,000; credit Cash $50,000.
E) Debit Common Stock $25,000; debit Paid-in Capital in Excess of Par Value, Common Stock
Answer: A
Explanation:
Debit Cash $ 50,000
$ 45,000
Value, Common Stock
Topic: Common Stock
Bloom's: Understand
68
177) What is a corporation? Identify the key advantages and disadvantages of corporations.
Answer: A corporation is an entity created by law that is separate from its owners and having
most of the rights and privileges granted to individuals. Ownership of corporations is represented
by shares of stock. Owners of the stock are called shareholders or stockholders. Advantages of
corporations include: limited liability of stockholders, ease of ownership transfer, continuous
life, lack of mutual agency for stockholders, and ease of capital accumulation. Two
disadvantages of corporations are: government regulation and double taxation.
Bloom's: Understand
178) What are the rights generally granted to common stockholders?
Answer: Common stockholders generally have the right to vote at stockholders' meetings; sell
or otherwise dispose of their stock; receive the same dividend, if any on each common share of
the corporation; purchase their proportional share of any common stock later issued by the
corporation; and share in any assets remaining after creditors are paid when and if the
corporation is liquidated.
Bloom's: Understand
179) Explain how to calculate the price-earnings ratio and describe how it is used in analysis of a
company's financial condition and performance.
Answer: The price-earnings ratio of a common stock is computed by dividing the stock's
market value per share by its earnings per share. The price-earnings ratio represents the stock
market's expectations of a company's future performance. Some analysts view a high PE (greater
than 20 to 25, for instance) ratio as an indication that a stock is overvalued. A low ratio (less than
5 to 8) may indicate that a stock is undervalued.
Bloom's: Understand
69
180) Explain how to compute dividend yield and discuss how it is used in analysis of a
company's financial condition.
Answer: Dividend yield is the ratio of annual cash dividends per share divided by the market
value per share of stock. The resulting dividend yield represents the annual amount of cash
dividends distributed to common shares relative to their market value. Dividend yield can be
used to identify whether a stock is an income stock or a growth stock. Companies that pay large
dividends on a regular basis are income stocks. Companies that distribute little or no cash but use
the cash to finance expansion are known as growth stocks.
Bloom's: Understand
181) Explain how to compute book value per common share and discuss how it can be used to
analyze the financial condition of a corporation.
Answer: Book value per common share is calculated by dividing the stockholders' equity
applicable to common shareholders by the number of common shares outstanding. Book value
per common share reflects value per share if a company were liquidated at balance sheet
amounts. Book value per share is the starting point in many stock valuation models, merger
negotiation, price setting for public utilities and loan contracts. Its main limitation is the potential
difference between recorded value and market value for assets.
Topic: Book Value per Share
Bloom's: Understand
70
182) What is a stock split? How is a stock split different from a stock dividend?
Answer: A stock split is the distribution of additional shares to stockholders according to their
present ownership. When a stock split occurs, the corporation "calls in" its outstanding shares
and issues more than one new share in exchange for each old share. Splits can be done in any
ratio. Stock splits reduce the par or stated value per share. Total paid-in capital, retained
earnings, and stockholders' equity are unchanged by stock splits. Stock dividends are
distributions of additional shares of the corporation's own stock to its stockholders without the
receipt of any payment in return. A stock dividend does not change the par or stated value per
share, but total paid-in capital is increased and total retained earnings is decreased. Total
stockholders' equity is unchanged from a stock dividend.
Topic: Dividends
stock splits.
Bloom's: Understand
183) Explain the difference between a large stock dividend and a small stock dividend. In
addition, explain how to record these two types of stock dividends.
Answer: A large stock dividend is a distribution of more than 25% of previously outstanding
shares. A large stock dividend is recorded by capitalizing retained earnings for an amount equal
to the par or stated value of the shares, or other minimum amount required by state law
governing the corporation. A small stock dividend is a distribution of less than or equal to 25%
of the previously outstanding shares. A small stock dividend is recorded by capitalizing retained
earnings for an amount equal to the market value of the shares to be distributed.
Topic: Dividends
stock splits.
Bloom's: Understand
71
184) What is treasury stock? What reasons might a company hold treasury stock?
Answer: Treasury stock is the company's own issued shares that it reacquires. Corporations
acquire shares of their own stock for reasons such as using the shares to acquire another
corporation, avoiding a hostile takeover of the company, reissuing them to employees as
compensation, and maintaining a strong market for their stock.
Bloom's: Understand
185) Boron Company is authorized to issue 50,000 shares of $50 par value, 8%, cumulative,
fully participating preferred stock, and 750,000 shares of $5 par value common stock. Prepare
journal entries to record the following selected transactions that occurred during the company's
first year of operations:
May 5 Exchanged 2,200 shares of preferred stock for a building with a market
value of $135,000.
July 20 Sold 1,550 shares of preferred stock for $50 cash per share.
Dec. 20 Sold 1,000 shares of preferred stock at $52 cash per share.
Answer:
May 5 Building …………………………………… 135,000

Preferred Stock (2,200 * $50) ………….
Paid-in Capital in Excess of 110,000
Par Value, Preferred Stock 25,000
July 20 Cash (1,550 * $50) ……………………….. 77,500

Preferred Stock ……………………….. 77,500
Dec. 20 Cash (1,000 * $52) ……………………….. 52,000

Preferred Stock (1,000 * $50) …………
Paid-in Capital in Excess of 50,000
Par Value, Preferred Stock …………. 2,000
Difficulty: 3 Hard
Bloom's: Apply
72
186) A corporation received its charter and began business this year. The company is authorized
to issue 500,000 shares of $100 par, 6%, noncumulative, nonparticipating preferred stock, and
1,000,000 shares of no-par common stock. The following selected transactions occurred during
this year:
Mar. 5 Issued 250 shares of preferred stock for $102 cash per share.
July 15 Exchanged 750 shares of common stock for $12,000 in legal
services incurred in the organization of the company.
Prepare journal entries to record these transactions.
Answer:
Mar. 5 Cash (250 * $102) …………………….. 25,500
Preferred Stock (250 * $100) …….. 25,000
Paid-in Capital in Excess of
Par Value, Preferred Stock …….. 500
Jul. 15 Organization Expenses 12,000
Common Stock, No-Par………….… 12,000
Topic: Common Stock; Issuance of Preferred Stock
Learning Objective: 11-P1 Record the issuance of corporate stock.; 13-C2 Explain
characteristics of, and distribute dividends between, common and preferred stock.
Bloom's: Understand
73
187) Rhoads Corporation is authorized to issue 250,000 shares of $50 par, 10%, noncumulative,
nonparticipating preferred stock and 5,000,000 shares of no-par common stock. Prepare journal
entries to record the following selected transactions that occurred during this year:
Feb. 1 Issued 10,000 shares of common stock for $30 cash per share
Feb. 15 Exchanged 2,000 shares of preferred stock for equipment and merchandise
inventory with market values of $80,000 and $30,000, respectively.
Answer:
Feb. 1 Cash …………………………………………. 300,000
Common Stock, No-Par (10,000 * $30)
…… 300,000
15 Equipment …………………………………… 80,000

Inventory …………………………………… 30,000
Preferred Stock (2,000 *
$50)………………. 100,000
Paid-in Capital in Excess of Par Value,
Preferred Stock ……………………………. 10,000
Topic: Common Stock; Issuance of Preferred Stock
Learning Objective: 11-P1 Record the issuance of corporate stock.; 13-C2 Explain
characteristics of, and distribute dividends between, common and preferred stock.
Bloom's: Understand
74
188) Given the following information about a corporation's current year activities, compute the
retained earnings for the current year.
Retained earnings, December 31 (prior year) $280,000

Cost of goods sold $90,000
Other operating expenses $54,000
Cash dividends $31,800
Correction of understatement of net income in prior
period (inventory error) $23,000
Stock dividends $20,000
Net income $36,000
Answer: Retained Earnings = $287,200
Supporting computations:
Retained earnings, December 31 (prior year) $280,000
Correction of understatement of net income in
Prior (inventory error) 23,000
Retained earnings, adjusted $303,000
Add: Net income 36,000
$339,000
Less: Cash dividends $31,800
Stock dividends 20,000 51,800
Retained earnings, current year $287,200
Difficulty: 3 Hard
Bloom's: Apply
75
189) Given the following information about a corporation's current year activities, compute the
retained earnings for the current year.
Retained earnings, January 1 $342,000

Cash dividends $51,700
Stock dividends $40,000
Net income $141,000
Answer:
Retained Earnings = $391,300
Supporting computations:
Retained earnings, January 1 $342,000
Add: Net income 141,000
$483,000
Less: Cash dividends $51,700
Stock dividends 40,000 91,700
Retained earnings, current year $391,300
Bloom's: Understand
190) Explain how each of the following items should be reported by a corporation:
(1) The accounting department discovered that an entry was made last year to Insurance Expense
instead of to Prepaid Insurance. The after-tax effect of the charge to Insurance Expense was
$5,000.
(2) The accounting department determined the depreciable lives of equipment will be five years
instead of the original estimate of seven years.
Answer:
(1) This is an error that should be reported as a prior period adjustment. Accordingly, it should
be reported in the statement of retained earnings, net of taxes, as a reduction from the beginning
retained earnings balance.
(2) Accounted for in the current and future periods.
Bloom's: Understand
76
191) Shaw Corporation reported stockholders' equity on December 31 of the prior year as
follows:
Common stock, $5 par value, 1,000,000 shares

authorized, 500,000 shares issued……. $2,500,000
Paid-in capital in excess of par, common stock... 1,000,000
Retained earnings………………………………. 3,000,000
The following selected transactions occurred during the current year:
Feb. 15 The board of directors declared a 5% stock dividend to stockholders of record

on March 1, payable March 20. The stock was selling for $8 per share.
Mar. 9 Distributed the stock dividend.
May 1 A cash dividend of $0.30 per share was declared by the board of directors to
stockholders of record on May 20, payable June 1.
June 1 Paid the cash dividend.
Aug. 20 The board decided to split the stock 4-for-1, effective on September 1.
Sept. 1 Stock split 4-for-1.
Dec. 31 Earned a net income of $800,000 for the current year.
Prepare a statement of retained earnings as of December 31 of the current year.
Answer:
Shaw Corporation
Statement of Retained Earnings
For the Year Ended December 31
Retained earnings, December 31 (prior year) … $3,000,000
Plus net income ……………………………….. 800,000
Less:
Stock dividend (500,000 shares * 5% * $8) $(200,000)
Cash dividend (525,000 shares * $0.30) ….. (157,500) (357,500)
Retained earnings, December 31 (current year) $3,442,500
Difficulty: 3 Hard
Bloom's: Apply
77
192) Beagle Company earned $90,000 in income and paid cash dividends of $7,000 to preferred
shareholders during the current year. Beagle had 15,500 weighted-average shares of common
stock outstanding for the year. Calculate the company's earnings per share.
Answer: Earnings per Share = Net Income — Preferred Dividends/Weighted-Average Common

Shares Outstanding
Earnings per Share = ($90,000 — $7,000)/15,500 shares = $5.35
Topic: Earnings per Share
Bloom's: Understand
AICPA: BB Industry; FN Measurement; FN Risk Analysis
193) Slate Corporation had the following balances in its stockholders' equity accounts at
December 31, 2017:
Common Stock, $10 par, 500,000 shares authorized,

20,000 shares issued …………………………………. $200,000
Paid-in Capital in Excess of Par Value, Common ………… 250,000
Retained Earnings ……………………………………….. 500,000
Treasury Stock, 1,000 shares …………………………… (20,000)
Total stockholders' equity ……………………………….. $930,000
The following transactions occurred during 2018:
February 3 Sold and issued 2,000 shares of common stock for $22 per share.
May 10 Declared a $0.50 per share dividend on common stock.
October 12 Sold 500 shares of the treasury stock for $20 per share.
December 31 Net income for the year was determined to be $75,000.
Based on the above information, prepare a statement of stockholders' equity for 2018. Use the
form below.
78
Slate Corporation
Statement of Stockholders' Equity
December 31, 2018
Paid-in Capital in
Common Excess of Par Retained Treasury Total
Stock Value, Common Earnings Stock Equity
Balance,
December 31, 2017 $200,000 $250,000 $500,000 $(20,000) $930,000
Answer:
Slate Corporation
Statement of Stockholders' Equity
December 31, 2018
Paid-in
Capital in
Excess of Par
Common Value, Retained Treasury Total
Stock Common Earnings Stock Equity
Balance,
December 31, 2017 $200,000 $250,000 $500,000 $(20,000) $930,000
Net Income 75,000 75,000
Issuance of common
stock 20,000 24,000 44,000
Reissuance of
treasury stock 10,000 10,000
Cash dividend * (10,500) (10,500)
Balance,
December 31, 2018 $220,000 $274,000 $564,500 $(10,000) $1,048,500
*(20,000 — 1,000 + 2,000) shares * $0.50/share = $10,500
Difficulty: 3 Hard
Bloom's: Apply
79
194) A corporation had current year net income of $237,500. It paid preferred dividends of
$40,000 cash and had 480,000 weighted-average shares of common stock outstanding. Calculate
the corporation's earnings per share.
Answer: Earnings per Share = Net Income — Preferred Dividends/Weighted-Average Common

Shares Outstanding
Earnings per Share = ($237,500 — $40,000)/480,000 shares = $0.41
Bloom's: Understand
195) A company's stock is selling for $63.20 per share and its earnings per share is $3.60 for the
current year. Calculate the price-earnings ratio.
Answer: Price-Earnings Ratio = Market Price per Share/Earnings per Share

Price-Earnings Ratio = $63.20/$3.60 = 17.6
Bloom's: Understand
196) A company reported net income of $836,000 for the current year. The year-end market
price per common share was $12 and there were 475,000 weighted-average shares of common
stock outstanding. Calculate the company's price-earnings ratio.
Answer: Price-Earnings Ratio = Market Price per Share/ (Net Income/Weighted-Average

Common Shares Outstanding)
Price-Earnings Ratio = $12/ ($836,000/475,000 shares) = 6.8
Difficulty: 3 Hard
Bloom's: Apply
80
197) A company reported $960,000 in net income for the current year. Total weighted-average
common shares outstanding are 150,000 shares, and the year-end market price is $67.20 per
common share. Calculate the company's price earnings ratio.

Price-Earnings Ratio = $67.20/ ($960,000/150,000 shares) =10.5
Difficulty: 3 Hard
Bloom's: Apply
198) A company reported $1,050,000 in net income for the current year. Earnings per common
share is $1.75 and the year-end market price of the shares is $31.50. Calculate the company's
price earnings ratio.

Price-Earnings Ratio = $31.50/1.75=18
Bloom's: Understand
199) A corporation reported net income of $2,730,000 and paid preferred cash dividends of
$120,000 during the current year. There were 600,000 weighted-average shares of common stock
outstanding and the market price per common share at year-end was $58.30. Calculate the
company's price-earnings ratio.
Answer: Price-Earnings Ratio = Market Price per Share/ [(Net Income — Preferred
Dividends)/Weighted-Average Common Shares Outstanding]
Price-Earnings Ratio = $58.30/ [($2,730,000 — $120,000)/600,000 shares] = 13.4
Difficulty: 3 Hard
Bloom's: Apply
81
200) Gershwin Company reported net income of $428,000 and paid $8,500 in preferred cash
dividends during the current year. The company had 110,000 common shares issued, and 10,000
common shares in treasury during the year. The year-end market price per common share was
$41.05. Calculate the company's price-earnings ratio.

Price-Earnings Ratio = $41.05/ [($428,000 — $8,500)/ (110,000 shares — 10,000 shares)] = 9.8
Difficulty: 3 Hard
Bloom's: Apply
201) A company's stock is selling for $35.70 per share at year-end. This current year it paid
shareholders a $1.43 per share cash dividend, reported earnings per share of $11.00, and had
750,000 common shares outstanding at year-end. Calculate the company's dividend yield.
Answer: Dividend Yield = Cash Dividend per Share/Market Price per Share
Dividend Yield = $1.43/$35.70 = 4%
Difficulty: 3 Hard
Bloom's: Apply
202) A corporation paid a cash dividend of $0.85 per share during the current year. It had
1,550,000 common shares outstanding at year-end, its current year earnings per share was $3.45,
and the stock's year-end market price was $10.63 per share. Calculate the company's dividend
yield.
Dividend Yield = $0.85/$10.63 = 8%
Difficulty: 3 Hard
Bloom's: Apply
82
203) Lafferty Corporation reported earnings per share of $9.75, paid a $6.00 cash dividend per
share to preferred shareholders, and paid a $0.54 cash dividend per share to common
shareholders. There were 10,000 shares of preferred stock outstanding and 600,000 shares of
common stock outstanding during the year, and the market price per share of common stock was
$41.60. Calculate the company's dividend yield for common stock.
Dividend Yield = $0.54/$41.60 = 1.3%
Difficulty: 3 Hard
Bloom's: Apply
204) A company paid a cash dividend of $0.88 per share during the current year, and reported
18,000 shares of common stock issued, and 2,000 common shares in treasury stock during the
current year. The year-end market price per share was $27.50. Calculate the following: (1) total
amount of cash dividends paid to common shareholders, and (2) dividend yield.
Answer:
(1) $0.88 * (18,000 shares — 2,000 shares) = $14,080
(2) Dividend Yield = Cash Dividend per Share/Market Price per Share
Dividend Yield = $0.88/$27.50 = 3.2%
Difficulty: 3 Hard
Topic: Issuance of Preferred Stock; Dividend Yield
common and preferred stock.; 13-A3 Compute dividend yield and explain its use in analysis.
Bloom's: Apply
83
205) A company has 2,000,000 common shares authorized, 400,000 common shares issued, and
15,000 common shares in treasury stock at the current year-end. It paid $0.96 per share cash
dividends during the year. The year-end market price of the stock is $15. Calculate (1) the total
dividends paid and (2) the dividend yield.
Answer: (1) $0.96 * (400,000 shares — 15,000 shares) = $369,600

(2) Dividend Yield = Cash Dividend per Share/Market Price per Share
Dividend Yield = $0.96/$15 = 6.4%
Difficulty: 3 Hard
Topic: Issuance of Preferred Stock; Dividend Yield
common and preferred stock.; 13-A3 Compute dividend yield and explain its use in analysis.
Bloom's: Apply
206) Avro Corporation has $875,000 in stockholders' equity and 350,000 weighted-average
shares of common stock outstanding. Calculate the book value per common share.
Answer: $875,000/350,000 shares = $2.50/common share

Bloom's: Understand
207) A company has $2,400,000 in stockholders' equity that includes 500 shares of $50 par value
preferred stock outstanding and 250,000 shares of common stock outstanding. Calculate the book
value per (1) preferred share, and (2) common share.
Answer: (1) Book value/preferred share: $50 per preferred share.

(2) Book value/common share: ($2,400,000 — $25,000)/250,000 shares = $9.50 per common
share
Difficulty: 3 Hard
Bloom's: Apply
84
208) A company reports the following stockholders' equity:
Paid-in Capital:
Common stock, $2 par, 5,000,000 shares authorized $3,000,000

Paid-in capital in excess of par, Common stock …… 1,300,000
Total paid-in capital ………………………………… $4,300,000
Retained earnings ………………………………… 1,400,000
Total stockholders' equity ………………………… $5,700,000
Compute the (1) number of common shares outstanding and (2) book value per common share.
Answer: (1) Number of common shares outstanding = $3,000,000/$2 = 1,500,000 shares

(2) Book value per common share = $5,700,000/1,500,000 shares = $3.80
Difficulty: 3 Hard
Bloom's: Apply
85
209) The stockholders' equity section of a company's year-end balance sheet follows:
Preferred stock, $50 par value, 9% cumulative and

nonparticipating, 10,000 shares outstanding …………… $500,000
Paid-in capital in excess of par value, preferred stock 50,000
Total capital paid-in by preferred stockholders ………… $550,000
Common stock, $0.50 par value, 1,500,000 shares
outstanding ……………………………………… $750,000
Paid-in capital in excess of par value, common stock … 150,000
Total capital paid-in by common stockholders ………… 900,000
Total paid-in capital …………………………………… $1,450,000
Retained earnings ……………………………………… 1,690,000
Total stockholders' equity ……………………………… $3,140,000
The preferred stock has one year of dividends in arrears. Calculate the book value per common
share.
Answer:
Total stockholders' equity $3,140,000
Less equity applicable to preferred shares:
Par value ($50 * 10,000 shares) $500,000
Cumulative dividends in arrears (9% *
$500,000) 45,000 (545,000)
Equity applicable to common shares $2,595,000
Book value per common share: $2,595,000/1,500,000 shares = $1.73 per common share
Difficulty: 3 Hard
Bloom's: Apply
86
210) A corporation reports the following year-end stockholders' equity:
Paid-in capital:
Preferred stock, 8%, 100,000 shares authorized, 50,000 shares
issued …………………. $ 2,500,000
Common stock, $1 par, 5,000,000 shares
authorized, 4,000,000 shares issued ……………….. 4,000,000
Paid-in capital in excess of par, Common ………….. 1,325,000
Total paid-in capital ……………………………….. $ 7,825,000
Retained earnings …………………………………….. 10,675,000
Total stockholders' equity ……………………………. $18,500,000
Determine the following:

(1) Par value for the preferred stock.
(2) Book value per share for common stock
Answer:
(1) Preferred stock par value = $2,500,000/50,000 shares = $50
(2) Book values per share:
Total stockholders' equity ……………………… $18,500,000

Less preferred stockholders' equity
2,500,000
Common stockholders' equity ………………….. $16,000,000
Book value per share of common stock

($16,000,000/4,000,000 shares)…………….. $4
Difficulty: 3 Hard
Bloom's: Apply
87
211) The stockholders' equity section of a corporation's balance sheet follows:
Preferred stock, $25 par value, 6%, cumulative, 10,000 shares

authorized, 5,000 shares issued and outstanding ………….. $125,000
Common stock, $5 par value, 50,000 shares authorized,
20,000 shares issued and outstanding.…………………….. 100,000
Paid-in capital in excess of par value, Common stock ……… 90,000
Retained earnings ………………………………………. 95,000
Total stockholders' equity ………………………………. $410,000
(1) Assuming that no dividends are in arrears, compute the book values per preferred share and
per common share.
(2) Assuming that one year of cumulative preferred dividends is in arrears, compute the book
value per common share.
Answer:
(1) Book value per preferred share
($125,000/5,000 shares) $25.00
Book value per common share

[($410,000 — $125,000)/20,000 shares] $14.25
(2)
Total stockholders' equity $410,000
Less equity applicable to preferred shares:
$125,000
Cumulative dividends in arrears (6% * 125,000) 7,500 132,500
Equity applicable to common shares $277,500
Book value per common share ($277,500/20,000 shares) $13.88

Difficulty: 3 Hard
Bloom's: Apply
88
212) A company is authorized to issue 750,000 shares of $2 par value common stock. Prepare
journal entries to record the following selected transactions that occurred during the company's
first year of operations:
Jan. 10 Sold 102,000 shares of common stock for $8 cash per share.
Jan. 15 Exchanged 10,000 shares of common stock for equipment with a market
value of $70,000.
Feb. 1 Exchanged 500 shares of common stock for $3,000 of legal services
incurred during the company's organization.
Answer:
Jan. 10 Cash (102,000 * $8) ………….………….… 816,000
Common Stock (102,000 * $2) 204,000
Common Stock 612,000
15 Equipment ………….………….…………. 70,000

Common Stock (10,000 * $2) ………… 20,000
Common Stock 50,000
Feb. 1 Organization Expenses ………….…………. 3,000

Common Stock (500 * $2) 1,000
Common Stock 2,000
Topic: Common Stock
Bloom's: Understand
89
213) On July 1, a corporation issued 15,000 shares of no-par common stock with a stated value
of $3 per share in exchange for a tract of land having a market value of $215,000. Prepare the
general journal entry to record this transaction.
Answer:
Jul 1 Land ………….………….………….………….… 215,000
Common Stock (15,000 * $3) ……………… 45,000
Paid-in Capital in Excess of Stated Value,
Topic: Common Stock
Bloom's: Understand
214) On September 20, Fletcher Corporation issued 25,000 shares of no-par common stock for
equipment having a market value of $85,000. Prepare the general journal entry to record this
transaction.
Answer:
Sept 20 Equipment……….………….…………. 85,000
Common Stock …………………… 85,000
Topic: Common Stock
Bloom's: Understand
90
215) A corporation had the following stock outstanding when the company's board of directors
declared a $75,000 cash dividend in the current year:
Preferred stock, $40 par, 6%, 12,500 shares issued $ 500,000

Common stock, $10 par, 70,000 shares issued ……………. 700,000
Total ……………………………………………………….. $1,200,000
Allocate the cash dividend between the preferred and common stockholders assuming the
preferred stock is noncumulative and nonparticipating.
Answer:
Topic: Dividends
stock splits.
Bloom's: Apply
91
216) A corporation had the following stock outstanding when the company's board of directors
declared a $55,000 cash dividend during the current year:
Preferred stock, $10 par, 4%, 50,000 shares issued $ 500,000

Common stock, $1 par, 750,000 shares issued …….. 750,000
Total ………………………………………………… $ 1,250,000
Allocate the cash dividend between the preferred and common stockholders assuming the
preferred stock is cumulative and nonparticipating and dividends are one year in arrears.
Answer:
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
217) A company has $200,000 of 10% noncumulative, nonparticipating, preferred stock

outstanding, and $150,000 of common stock outstanding. In the company's first year of
operation, no dividends were paid, but during the second year, it paid cash dividends of $25,000.
Compute the dividends to be distributed to (1) preferred shares and (2) common shares.
Answer:
(1) Preferred: 10% × $200,000 = $20,000; (2) Common: $25,000 — $20,000 = $5,000
Topic: Dividends
stock splits.
Bloom's: Apply
92
218) A company was organized in January Year 1 and has 20,000 shares of $10 par value, 10%,
nonparticipating preferred stock outstanding and 150,000 shares of $2 par value common stock
outstanding. It has declared and paid cash dividends each year as shown below. Calculate the
total dividends distributed to each class of stockholder under each of the assumptions given.
Assuming Preferred Assuming Preferred
Stock Stock
Cash Is Noncumulative Is Cumulative
Dividends
Declared Preferred Common Preferred Common
Year and Paid Dividend Dividend Dividend Dividend
Year 1 $18,000 ________ ________ ________ ________

Year 2 $36,000 ________ ________ ________ ________
Year 3 $60,000 ________ ________ ________ ________
Answer:
Assuming Preferred Assuming Preferred
Stock Stock
Cash Is Noncumulative Is Cumulative
Dividends
Declared Preferred Common Preferred Common
Year and Paid Dividend Dividend Dividend Dividend
Year 1 $18,000 $18,000 0 $18,000 0

Year 2 $36,000 20,000 $16,000 22,000 $14,000
Year 3 $60,000 20,000 40,000 20,000 40,000
Preferred dividend: 20,000 shares * $10 par * 10% = $20,000

Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
93
219) On June 30, a company declared a cash dividend of $0.35 per common share to the
shareholders of record on July 15. The cash dividend will be paid on July 31. This company has
500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required
on June 30, July 15 and July 31.
Answer:
June 30 Retained Earnings ………………………… 35,000
Common Dividend Payable ……………… 35,000
July 15 No entry required.
July 31 Common Dividend Payable ………………… 35,000

Cash ……………………………………… 35,000
Topic: Dividends
stock splits.
Bloom's: Understand
94
220) The following selected transactions took place during the current year for a company:
Feb 25 Declared a $2.50 per share cash dividend on 20,000 shares of common stock
outstanding
Mar. 20 Paid the cash dividends declared on Feb. 25.
Dec 31 Closed the $72,000 credit balance in Income Summary that reflects net income
to Retained Earnings.
(a) Prepare the journal entries for these transactions.

(b) If Retained Earnings had a $155,000 credit balance on January 1, calculate its year-end
balance as of December 31.
Answer:
(a) Feb. 25 Retained Earnings (20,000 shares * $2.5/share) 50,000
Common Dividend Payable. 50,000
Mar. 20 Common Dividend Payable 50,000

Cash 50,000
Dec. 31 Income Summary 72,000

Retained Earnings 72,000
(b) Retained earnings, January 1 $ 155,000

$227,000
Less dividends declared (50,000)
Retained earnings, December 31 $177,000
Difficulty: 3 Hard
Topic: Statement of Retained Earnings; Dividends
Learning Objective: 11-C3 Explain the items reported in retained earnings.; 13-P2 Record
transactions involving cash dividends, stock dividends, and stock splits.
Bloom's: Apply
AICPA: BB Industry; FN Measurement; FN Reporting
95
221) Cactus Joe Corporation reported stockholders' equity on January 1 of the current year as
follows: Common Stock, $5 par value, 1,000,000 shares authorized, 600,000 shares issued; Paid-
in Capital in Excess of Par Value, Common Stock, $1,025,000; Retained Earnings, $1,850,000.
Prepare journal entries to record the following transactions:
May 1 A cash dividend of $1.05 per common share was declared by the board of
directors to stockholders of record on May 20, payable June 1.
May 20 The date of record.
June 1 Paid the cash dividend.
Answer:
May 1 Retained Earnings (600,000 * $1.05) ……… 630,000
Common Dividend Payable ……………… 630,000
May 20 No entry required.
June 1 Common Dividend Payable ……………… 630,000

Cash …………………………………… 630,000
Topic: Dividends
stock splits.
Bloom's: Apply
96
222) For each of the following independent transactions a through d, prepare the necessary
journal entry:
(a) Declared a $0.40 per share cash dividend on 300,000 shares of preferred stock outstanding.
(b) Declared and distributed an 8% stock dividend on 800,000 shares of $5 par value common
stock outstanding. Market price per common share on this date was $25.
(c) Declared and distributed a 2-for-1 stock split on 400,000 shares of $10 par value common
stock outstanding.
(d) Declared and distributed a 35% stock dividend on 700,000 common shares of $1 par value
common stock outstanding. Market price per common share on this date was $20.
Answer:
(a) Retained Earnings ………………………… 120,000
Preferred Cash Dividends Payable ……… 120,000
(b) Retained Earnings (800,000 * 8% * $25) … 1,600,000

Common Stock (800,000 * 8% * $5) …… 320,000
Common Stock 1,280,000
No journal entry required. Memo: Split common stock 2-for-1. Number of

(c) shares outstanding is now 800,000; par value is now $5 per share.
(d) Retained Earnings (700,000 * 35% * $1) …… 245,000

Common Stock …………………...………… 245,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
97
223) Parlay Corporation has 2,000,000 shares of $0.50 par value common stock outstanding. The
following selected transactions related to the company's stock took place during the current year:
Apr. 15 Declared a 40% stock dividend to stockholders of record on May 1, to be
issued May 10. The current market value is $15 per common share.
Prepare necessary journal entries to record the events of April 15, May 1 and May 10.
Answer:
Apr. 15 Retained Earnings (2,000,000 * 40% * $0.50) 400,000
Common Stock Dividend Distributable … 400,000
May 1 No entry required.
May 10 Common Stock Dividend Distributable …… 400,000

Common Stock …………………… 400,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
224) On August 1, a company's board of directors declared a 10% stock dividend to be

distributed on September 1 to the stockholders of record on August 20. The company had
1,000,000 shares of $2.50 par value common stock outstanding with a market value of $23 per
share. Prepare the journal entries required on August 1, August 20, and September 1.
Answer:
Aug. 1 Retained Earnings (1,000,000 * 10% * $23) 2,300,000
Common Stock Dividend Distributable
(1,000,000 * 10% * $2.50)…… 250,000
Common Stock……………….. 2,050,000
Aug. 20 No entry required.
Sept. 1 Common Stock Dividend Distributable 250,000

Common Stock………………………… 250,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
98
225) Dynasty Corporation had stockholders' equity on January 1 as follows: Common Stock, $5
par value, 1,000,000 shares authorized, 400,000 shares issued; Paid-in Capital in Excess of Par
Value, Common Stock, $800,000; Retained Earnings, $3,600,000. Prepare journal entries to
record the following transactions:

on March 1, to be issued on March 20. The stock was trading at $7 per share
prior to the dividend
Mar. 1 The date of record.
Mar. 20 Issued the stock dividend.
Answer:
Feb. 15 Retained Earnings (400,000 * 5% * $7) ………… 140,000
Common Stock Dividend Distributable
(400,000 * 5% * $5) ………… 100,000
Paid-in Capital in Excess
of Par Value, Common Stock …………….. 40,000
Mar. 1 No entry required.
Mar. 20 Common Stock Dividend Distributable ………….. 100,000

Common Stock ……………………………… 100,000
Difficulty: 3 Hard
Topic: Dividends
stock splits.
Bloom's: Apply
99
226) A corporation had stockholders' equity on January 1 as follows: Common Stock, $1 par
value, 1,500,000 shares authorized, 600,000 shares issued; Paid-in Capital in Excess of Par
Value, Common Stock, $1,100,000; Retained Earnings, $2,300,000. Prepare journal entries to
record the following transactions:
on March 1, to be issued on April 15. The stock was trading at $12 per share
prior to the dividend.
Mar. 31 Sold 100,000 shares of common stock for $13 per share.
Apr. 15 Issued the stock dividend.
Answer:
Feb. 15 Retained Earnings (600,000 * 10% * $12) 720,000
Common Stock Dividend
Distributable (600,000 * 10% * $1) 60,000
Mar. 31 Cash 1,300,000

Common Stock 1,200,000
Apr. 15 Common Stock Dividend Distributable 60,000

Common Stock 60,000
Difficulty: 3 Hard
Topic: Common Stock; Dividends
Learning Objective: 11-P1 Record the issuance of corporate stock.; 13-P2 Record transactions
involving cash dividends, stock dividends, and stock splits.
Bloom's: Apply
100
227) A company had the following stockholders' equity on January 1:
Common Stock — $1 par value; 1,000,000 shares authorized,

350,000 shares issued and outstanding ………. $ 350,000
Paid-in capital in excess of par value, common stock …….... 700,000
Retained earnings …………………………………………… 364,000
Total stockholders' equity …………………………………… $1,414,000
On January 10, the company declared a 40% stock dividend to stockholders of record on January
25, to be distributed January 31. The market value of the stock on January 10 prior to the
dividend was $20 per share. What is the book value per common share on February 1?
Answer: Total stockholders' equity does not change; however, the number of shares outstanding
is now 350,000 shares + (350,000 shares * .40) = 490,000 shares.
Book value per share = $1,414,000/490,000 shares = $2.89/common share
Difficulty: 3 Hard
Topic: Book Value per Share; Dividends
Learning Objective: 11-A4 Compute book value and explain its use in analysis.; 13-P2 Record
transactions involving cash dividends, stock dividends, and stock splits.
Bloom's: Apply
101
228) A company reported the following stockholders' equity on January 1 of the current year:
Common stock, $10 par, 1,000,000 shares authorized, 250,000 shares

issued ………………….. $2,500,000
Paid-in capital in excess of par, common ……………… 1,260,000
Retained earnings ……………………………………… 1,675,000
Total stockholders' equity …………………..…………. $5,435,000
Prepare journal entries for the following selected transactions related to this company's stock
during the current year:
Mar. 1 Purchased 10,000 shares of treasury stock for $18 per share.
May 5 Sold 4,000 shares of treasury stock for $16 per share.
Oct. 12 Sold 2,000 shares of treasury stock for $19 per share.
Answer:
Mar. 1 Treasury Stock…………………………… 180,000
Cash (10,000 shares * $18)………….. 180,000
May 5 Cash (4,000 shares * $16)………………... 64,000

Retained Earnings………………………… 8,000
Treasury Stock (4,000 shares * $18)…. 72,000
Oct. 12 Cash (2,000 shares * $19)………………... 38,000

Treasury Stock (2,000 * $18)………... 36,000
Paid-in Capital, Treasury Stock………. 2,000
Difficulty: 3 Hard
Bloom's: Apply
102
229) Underwood Company's only treasury stock transactions for the current year follow: (1)
2,000 shares of its common stock were purchased on June 1 for $80,000; (2) On July 1 it
reissued 500 of these shares at $45 per share; (3) On August 1 it reissued an additional 500
treasury shares at $38 per share.
1) Prepare the journal entries required to record these transactions.

2) Calculate the balance in Paid-in Capital, Treasury Stock, on September 1 assuming its
beginning-year balance is zero.
Answer:
1) Jun 1 Treasury Stock, Common …………………… 80,000
Cash ………………………………………… 80,000
July 1 Cash (500 * $45) ……………………………… 22,500

Treasury Stock, Common (500 * $40)
……… 20,000
Paid-in Capital, Treasury Stock …………… 2,500
August 1 Cash (500 * $38) ……………………………… 19,000

Paid-in Capital, Treasury Stock ……………… 1,000
Treasury Stock, Common (500 * $40)
……… 20,000
2) There is a credit balance in Paid-in Capital, Treasury Stock of $1,500: $2,500 — $1,000 =
$1,500
Difficulty: 3 Hard
Bloom's: Apply
103
230) On January 10, Mood Corporation purchased 15,000 shares of its own common stock at
$17.50 per share. On August 4, a total of 2,000 treasury shares were sold at $19.00 per share.
These are the only treasury stock transactions ever made by the corporation. Prepare the journal
entries required on January 10 and August 4.
Answer:
Jan. 10 Treasury Stock, Common (15,000 * $17.50) 262,500
Cash …………………………………… 262,500
Aug. 4 Cash (2,000 * $19.00) ……………………. 38,000
Paid-in Capital, Treasury Stock ……… 3,000
Treasury Stock, Common (2,000 * $17.50) 35,000
Difficulty: 3 Hard
Bloom's: Apply
231) Record the following transactions of Naches Corporation in general journal form:
(a) Reacquired 8,000 of its own $3 par value common stock at $20 cash per share. The stock was
originally issued at $15 per share.
(b) Sold 2,000 shares of the stock reacquired under part (a) at $23 cash per share.
(c) Sold 3,000 shares of the stock reacquired under part (a) at $19 cash per share.
Answer:
(a) Treasury Stock (8,000 * $20) 160,000
Cash 160,000
(b) Cash (2,000 * $23) 46,000
Treasury Stock (2,000 * $20) 40,000
Paid-in Capital, Treasury Stock 6,000
(c) Cash (3,000 * $19) 57,000
Paid-in Capital, Treasury Stock 3,000
Treasury Stock (3,000 * $20) 60,000
Difficulty: 3 Hard
Bloom's: Apply
104
232) The group responsible for overseeing the corporation's activities is (are) the ________.
Answer: board of directors or directors

Difficulty: 1 Easy
Bloom's: Remember
233) A corporation is responsible for its own acts and debts because it is considered a ________.
Answer: separate legal entity

Difficulty: 1 Easy
Bloom's: Remember
234) The ________ protects stockholders' proportional interest in a corporation by allowing

them to purchase their proportional share of any common stock later issued by the corporation.
Answer: preemptive right

Difficulty: 1 Easy
Bloom's: Remember
235) A stock ________ keeps stockholder records and prepares official lists of stockholders for
stockholder meetings and dividend payments.
Answer: registrar
Difficulty: 1 Easy
Bloom's: Remember
105
236) The number of shares that a corporation's charter allows it to sell is the ________ stock.
Answer: authorized
Difficulty: 1 Easy
Bloom's: Remember
237) The total amount of cash and other assets the corporation receives from its stockholders in
exchange for common stock is called ________.
Answer: paid-in capital

Difficulty: 1 Easy
Bloom's: Remember
238) The cumulative net income and loss not distributed as dividends to a corporation's
shareholders is called ________.
Answer: retained earnings

Difficulty: 1 Easy
Bloom's: Remember
239) Stock that has been issued and is held by stockholders is ________ stock.
Answer: outstanding
Difficulty: 1 Easy
Bloom's: Remember
106
240) The amount assigned per share to stock by the corporation in its charter is the ________.
Answer: par value

Difficulty: 1 Easy
Bloom's: Remember
241) Stock not assigned a value per share by the corporate charter, allowing it to be issued at any
price, is called ________.
Answer: no-par stock

Difficulty: 1 Easy
Bloom's: Remember
242) ________ is a general term that refers to any shares issued to obtain owner financing in a
corporation.
Answer: Capital stock

Difficulty: 1 Easy
Bloom's: Remember
243) The least amount that the buyers of stock must contribute to the corporation or be at risk to
pay creditors at a future date is called ________.
Answer: minimum legal capital

Difficulty: 1 Easy
Bloom's: Remember
107
244) ________ are corrections of material errors in prior period financial statements.
Answer: Prior period adjustments

Difficulty: 1 Easy
Bloom's: Remember
245) ________ is the amount of income earned per share of a company's outstanding common
stock.
Answer: Earnings per share

Difficulty: 1 Easy
Bloom's: Remember
246) ________ is the stockholders' equity applicable to common shares divided by the number of
common shares outstanding.
Answer: Book value per common share

Difficulty: 1 Easy
Bloom's: Remember
247) ________ is the annual amount of cash dividends per share distributed to common
shareholders relative to the stock's market price.
Answer: Dividend yield

Difficulty: 1 Easy
Bloom's: Remember
108
248) When preferred stock is cumulative and the directors either do not declare a dividend to
preferred stockholders or declare one that does not cover the total amount of cumulative
dividends, the unpaid amount is called ________.
Answer: dividend in arrears

Difficulty: 1 Easy
Bloom's: Remember
109
Another random document with
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Father.
Elijah Cobb to his Son, Elijah Cobb, 2nd

Brewster Septr 12th 1838
Dear Son
The packet did not git to her moorings, to enable us to git the
roller & seed out, untill monday eve”, anticipating it wou’d come, Mr
F. had prepared the upland for the seed, Viz. the peice where yr
wheat was, & the strip, quite down to the ditch, where my oats was;
for the swamp part of that; plouged, equal to any of the upland,
having been well mixed with upland soil, & frequently ploughed,
before—calculation was made, to commence opperations with the
seed & roller, on tuesday morn”, but when the morning came, a
storm had commenced, which still continues, without intermission,
consequently, they were compelled to suspend those opperans for
the time being. They have got in, nearly all the Indian wheat, that is
worth harvesting; that article, turns out slim; Genl Mayo, Mr Crocker,
& Capt Freeman, have abandoned the Idea of harvesting any,
except, for their hogs, in the straw—I have givin mine, (the little strip)
to my pigs, as they required it—they love it dearly, & thrive finely
upon it.—We think there is somthing uncongenial in our atmospere
to that plant.
Since the storm commenced, they have been attending to
threshing wheat &c &c. Mr Freeman had got all the creek stuff,
home, & all the salt hay secured in stack, before the storm
commenced, so that you have nothing exposed to injury, except the
peat, & that is so far made, that the injury to it, will be little, or
nothing. In regard to seed, for the swampy part of your land, we think
a bushel will be sufficient, for what you will be able to seed this fall—I
wish you to understand, that we included, in the 4 Acres of upland,
the strip, east of my orchard, & the whole of the south strip (next Mrs
Snows) down to the main ditch—that strip, has been raised & tilled
so much, that it is susceptable of the same seed, as upland, for this,
you have sent seed already. If you cannot procure foul meadow
seed, I should recommend that you git 3 pecks of red top, & one
peck of herds grass, & mix them, in the same bag—if you can git foul
meadow, ½ bushl of each, that, & red top, & no herds grass.
The Plough I surely wrote you how the swamp ploughed
east of my orchard; that after going round; that they
had to stop the team, & work with hoes, hands &c—there were, an
abundance of large roots & stumps, which required prying out,
hauling away &c; they have carried, somthing like a cord, to your
wood house. The plough, is A 2½, a larger one, no doubt, would do
better, but no plough would turn it over smooth, while coming in
contact, every few feet, with stumps & roots that required the team &
prys to start out of their beds—however, with hoes, elbow greass, &
the plough, it looks as if the rollow & harrow would leave it pritty
smooth; it would add greatly to the benifit of it, if you can git on a
quantity of sand; or soil of some kind before sowing the seed on the
swamp. I hope you will be able to be here, the last of the week, &
see, & act for yourself.
Mr. Freeman says the sheer of the plough, has worn so small,
that anew one is necessary, the present one will not cut a furrow of
any weadth, & under those circomstances, haveing considerable
hard plouging to perform, this fall, & next spring, perhaps it will be
advisable to git a new, & larger one, the present one can be fitted for
light ploughing, and favour the new one.
The print (Nettle)[16] directed to Capt Freeman & myself, was
received, & I annex a list of 8 subscribers, will you order them sent,
with the back numbers, & pay for them, & I will have the money
collected to refund, when you come.
all well.
Father
Subscribers to the Nettle.
| They come so cheap, that no
Geo” Copeland—Jo. Sampson.
Enoch Pratt—Freeman Mayo. | dou[bt][15] 20 or 30 wou’d be
{ taken, in the Tow[n][15] if it was
Benjn Berry—Solon Freeman. |
Freeman Rogers—E. Cobb. known—Copeland, & Docter
| say; they will increase the list.
A Southerly Thursday A. M. 13th

Blow
The wind has got round to the south, & blows a
hurrycane, I have just returned from your young orchard, have been
assisting Mr F. in resecuring some of the trees, which it seemed as if
the wind would take from the ground, roots, stakes, & all—the fruit is
prostrated, nearly all; I beleive there are 8 of those delicious plums,
remain’g on the tree, but those which blew off, were perfectly ripe—if
practicable, they will be kept untill you, & caro” come; I advised Mr F.
to take those from the tree also.
Notwithstanding the weight of your roller, it runs very easy, F. &
Eldridge, after puting it together, could run it about any where, with
ease.
Father
the wife of Elisha Bangs, expired at 7 this morn”.
[1] I conclude the old Admiral, was mistaken here, as the

name, Cobb, is not in her list of passengers, but I did not know it
then—they, probably, came in the next vessell, the Cherub.
[2] Lorient.
[3] La Vendée.
[4] [rowing. Ed.]
[5] [cartile. Probably cartel = an agreement between enemies
for the exchange of prisoners. Ed.]
[6] [General Cobb seems to have had in mind the frigate
Congress. If so, his memory was at fault, for it was in the Essex
that Porter captured the Alert, which was the first British war
vessel taken in the War of 1812. Ed.]
[7] Capt. Isaac Clark, Capt. Joseph Mayo, Capt. David
Nickerson, Godfrey Lincoln (Capt. Warren’s young brother) died in
Africa or on the passage home.
[8] [Elijah Winslow Cobb, a grandson of Elijah Cobb. Ed.]
[9] [“A white linen fabric made in Silesia for export to America.”
Simmonds, Dict. Trade, 1858. Ed.]
[10] MS. damaged.
[11] MS. damaged.
[12] MS. damaged.
[13] MS. damaged.
[14] MS. damaged.
[15] MS. torn.
[16] [A Whig Campaign paper published in Boston. Volume I,
Number 1, appeared September 5, 1838. Ed.]
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Financial and Managerial Accounting

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Financial and Managerial Accounting 7th Edition Wild

Financial and Managerial Accounting 4th Edition Wild

Financial and Managerial Accounting 7th Edition Wild

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Financial and Managerial Accounting Information for

Financial and Managerial Accounting Information for

1) A corporation is a legal entity separate from its owners.

4) Shareholders in a corporation have the power to bind the corporation to contracts.

10) Stockholders' equity consists of paid-in capital and retained earnings.

38) Growth stocks generally pay large dividends on a regular basis.

47) A debit balance in retained earnings is referred to as a retained earnings deficit.

48) The declaration of cash dividends increases retained earnings.

52) Large stock dividends are recorded at par or stated value.

54) Common Stock Dividend Distributable is an equity account.

55) Small stock dividends are recorded at par or stated value.

58) Declaration of a stock dividend results in a liability being recorded.

59) A stock split increases total stockholders' equity.

62) A stock dividend, declared by a corporation's directors, is a distribution of additional shares

77) The board of directors of a corporation:

83) Stated value of no-par stock is:

84) Stockholders' equity consists of which of the following?

86) The number of shares a corporation's charter allows it to sell:

87) Retained earnings:

89) Prior period adjustments are reported in the:

90) Changes in accounting estimates are:

94) Changes in retained earnings are commonly reported in the:

110) Book value per common share is computed by:

126) A premium on common stock:

128) A liquidating dividend is:

138) Which of the following is true of a stock dividend?

Retained earnings $ 750,000

150) Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred

157) The following data were reported by a corporation:

Authorized shares 20,000

The number of outstanding shares is:

Common stock $10 par value 20,000 shares

Paid-in Capital, Treasury Stock:

178) What are the rights generally granted to common stockholders?

May 5 Building …………………………………… 135,000

July 20 Cash (1,550 * $50) ……………………….. 77,500

Dec. 20 Cash (1,000 * $52) ……………………….. 52,000

15 Equipment …………………………………… 80,000

Retained earnings, December 31 (prior year) $280,000

Answer: Retained Earnings = $287,200

Retained earnings, January 1 $342,000

Common stock, $5 par value, 1,000,000 shares

The following selected transactions occurred during the current year:

Feb. 15 The board of directors declared a 5% stock dividend to stockholders of record

Prepare a statement of retained earnings as of December 31 of the current year.

Answer: Earnings per Share = Net Income — Preferred Dividends/Weighted-Average Common

Common Stock, $10 par, 500,000 shares authorized,

The following transactions occurred during 2018:

Answer: Earnings per Share = Net Income — Preferred Dividends/Weighted-Average Common

Answer: Price-Earnings Ratio = Market Price per Share/Earnings per Share

Answer: Price-Earnings Ratio = Market Price per Share/ (Net Income/Weighted-Average

Answer: Price-Earnings Ratio = Market Price per Share/ (Net Income/Weighted-Average

Answer: Price-Earnings Ratio = Market Price per Share/ (Net Income/Weighted-Average

Answer: Price-Earnings Ratio = Market Price per Share/ (Net Income/Weighted-Average

Answer: (1) $0.96 * (400,000 shares — 15,000 shares) = $369,600

Year 1 $18,000