Corporate

1) A corporation is a separate legal entity and is organized independently of its owners.
Answer: TRUE
2) Stockholders of a corporation are not personally liable for the corporation's debt.
Answer: TRUE
3) All classes and types of a corporation's stock carry the same degrees of risk for the shareholder.
Answer: FALSE
4) Preferred stockholders receive a dividend preference over common stockholders.

Answer: TRUE
5) Paid-in capital is externally generated capital and results from transactions with outsiders.
Answer: TRUE
6) Stated value stock is no-par stock that has been assigned an amount similar to par value.
Answer: TRUE
7) Retained earnings represents amounts received from stockholders of a corporation in exchange for
stock.
False
8) Which of the following is true of a corporation?

A) Stock of a corporation can be publicly or privately held.
B) A corporation has to pay income taxes on its business earnings.
C) A corporation has a limited life.
D) The owners of a corporation have unlimited liabilities for the corporation's debts.
9) Which of the following explains the term "lack of mutual agency" of a corporation?
A) The liabilities of the corporation cannot be extended to the personal assets of the shareholder.
B) Shares of stock can be readily bought and sold by investors on the open market.
C) Shareholders are not authorized to sign contracts or make business commitments on behalf of the
corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on
corporate dividends and gains from sale of stock.
10) Which of the following statements is true of a corporation?

A) The liabilities of the corporation can be paid by the personal assets of the shareholders.
B) Shares of stock cannot be readily bought and sold by investors on the open market.
C) Shareholders are authorized to sign contracts or make business commitments on behalf of the
corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on
corporate dividends and gains from sale of stock.
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Copyright © 2015 Pearson Education
11) Which of the following corporate characteristics is a disadvantage of a corporation?
A) Stockholders of a corporation have limited liability.
B) A corporation has a continuous life.
C) There is no mutual agency among the stockholders and the corporation.
D) Earnings of a corporation are taxed twice.
12) Outstanding stock refers to the:

A) shares of stock that are held by the stockholders.
B) shares of stock that have been sold for the highest price.
C) total amount of stock that has been authorized by state law.
D) total amount of stock that has not been sold yet.
13) Which of the following characteristics is an advantage of the corporate form of business?
A) less degree of government regulation
B) limited liability of stockholders
C) separation of ownership and management
D) low start-up costs
14) Which of the following represents one of the basic rights of stockholders?
A) Stockholders may sell their stock back to the company if they wish.
B) Stockholders may authorize a business contract on behalf of the corporation.
C) Stockholders may receive dividends from corporate earnings.
D) Stockholders may determine at what price the company issues stock.
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15) Which of the following is true of stockholders?
A) Stockholders have a right to access confidential information about the business before the information
is disseminated to the public.
B) Stockholders can claim a portion of the corporate assets after the corporation pays it debts in the
event the company is liquidated.
C) Stockholders may authorize a business contract on behalf of the corporation.
D) Stockholders may determine at what price the company issues stock.
16) The par value of stock is:

A) the current selling price of stock.
B) the highest price for which a share can sell.
C) the price paid if the corporation purchases its own stock back.
D) the amount assigned by a company to a share of its stock.
17) The two basic sources of stockholders' equity are:

A) common stock and bonds.
B) common stock and preferred stock.
C) paid-in capital and retained earnings.
D) loans from banks and gifts from donors.
18) Paid-in capital consists of:

A) amounts paid by customers.
B) capital raised by issuing bonds or preferred stocks.
C) earnings generated by the corporation.
D) amounts received from stockholders in exchange for stock.
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19) The retained earnings of a corporation is the:
A) internally generated capital that is raised from profitable operations.
B) externally generated capital that is contributed by shareholders.
C) externally generated capital that is raised from banks and other creditors.
D) internally generated capital that from the direct investment of employees.
20) Preferred stock is a stock:

A) that sells for a very high price.
B) that is distributed to employees of the company as a performance incentive.
C) that is distributed by corporations to avoid liquidation.
D) that gives its owners certain benefits over common stock.
21) Which of the following types of stock is considered least risky for investors?
A) common stock
B) par value stock
C) no-par stock
D) preferred stock
22) Preferred shareholders:

A) are guaranteed that they will not take a loss on their investment.
B) have higher voting rights than common shareholders.
C) are sold for a price lower than that of common stock.
D) have the first claim on dividend funds.
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23) Which of the following is true of preferred stock?
A) Preferred shareholders generally receive a fixed amount of dividends before common stockholders
do.
B) Preferred shareholders are guaranteed that they will not take a loss on their investment.
C) Preferred shareholders have higher voting rights than common shareholders.
D) Preferred shareholders may sell their shares for a price higher than that of common stock.
24) In the event of liquidation, preferred shareholders:

A) are guaranteed to get their investment back in full.
B) have first claim on remaining corporate assets after debts are paid.
C) may sell their shares for higher amounts than common stock.
D) may retain their proportionate share of voting rights.
Learning Objective 13-2
1) When a corporation sells 10,000 shares of $10 par value common stock for $120,000, the Common Stock
account is credited for $100,000.
Answer: TRUE
2) Stock sold for amounts in excess of par value results in a gain reported on the income statement.
Answer: FALSE
3) The price that the corporation receives from issuing stock is called the issue price.
Answer: TRUE
4) When a company sells stock for less than the par value, it will record a gain on sale for the amount in
excess of par.
Answer: FALSE
5) Most corporations set par value low and issue common stock for a price above par called a premium.
Answer: TRUE
6) A company cannot report a gain or loss when buying or selling its own stock.
Answer: TRUE
7) Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par
value common stock at $13 per share cash?
A) Cash would be debited for $65,000.
B) Common Stock would be debited for $50,000.
C) Common Stock would be credited for $65,000.
D) Paid-In Capital in Excess of Par—Common would be debited for $15,000.
8) Which of the following occurs when a shareholder invests cash in a corporation in exchange for stock?
A) Both liabilities and stockholders' equity are increased.
B) Both assets and stockholders' equity are increased.
C) One asset is increased and another asset is decreased.
D) Both assets and liabilities are increased.
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9) The following information is from the balance sheet of Lawson Corporation as of December 31, 2015.
Preferred Stock, $100 par $500,000

Paid-in Capital In Excess of Par—Preferred 35,000
Common Stock, $1 par 170,000
Paid-in Capital in Excess of Par—Common 510,000
Retained Earnings 131,500
Total Stockholders' Equity $1,346,500
What was the average issue price of the common stock shares?
A) $1.90
B) $1.00
C) $3.00
D) $4.00
10) The following information is from the balance sheet of Jackson Corporation as of December 31, 2015.

Paid-in Capital in Excess of Par—Preferred 14,000
Total Stockholders' Equity $537,600
What is the average issue price of the preferred stock shares?

A) $107
B) $100
C) $176
D) $105
11) The following information is from the balance sheet of Tudor Corporation as of December 31, 2015.

Paid-in Capital in Excess of Par—Preferred 21,000
Total Stockholders' Equity $807,900
What was the total paid-in capital as of December 31, 2015?

A) $606,000
B) $807,900
C) $729,000
D) $708,000
12) Bradley Corporation issued 10,000 shares of common stock on January 1, 2015. The stock has a par
value of $0.01 per share and was sold for cash at par. Which of the following is the correct journal entry to
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record this transaction?
A) Cash debited for $100 and Common Stock—$0.01 Par Value credited for $100
B) Cash credited for $10,000 and Common Stock—$0.01 Par Value debited for $10,000
C) Paid-In Capital in Excess of Par—Common debited for $9,900 and Common Stock—$0.01 Par Value
credited for $9,900
D) Cash debited for $10,000, Common Stock—$0.01 Par Value credited for $100, and Paid-In Capital in
Excess of Par-Common credited for $9,900
13) Dallkin Corporation issued 5,000 shares of common stock on January 1, 2015. The stock has no par
value and was sold at $18 per share. The journal entry for this transaction would include a:
A) debit to Cash for $90,000 and a credit to Common Stock—No-Par Value for $90,000.
B) debit to Cash for $90,000 and a credit to Paid-In Capital in Excess of Par—Common for $600,000.
C) credit to Cash for $90,000 and a debit to Common Stock—No-Par Value for $90,000.
D) credit to Cash for $90,000, a debit to Paid-In Capital in Excess of Par—Common for $5,000, and a debit
to Common Stock—No-Par Value for $85,000.
14) On December 2, 2015, Ewell Company purchases a piece of land from the original owner. In payment
for the land, Ewell Company issues 8,000 shares of common stock with $1.00 par value. The land has been
appraised at a market value of $400,000. Which of the following is included in the journal entry to record
this transaction?
A) debit Common Stock—$1 Par Value for $8,000 and debit Paid-In Capital in Excess of Par—Common
$392,000.
B) credit Common Stock—$1 Par Value for $8,000 and credit Paid-In Capital in Excess of Par—
Common $392,000.
C) credit Common Stock—$1 Par Value for $400,000.
D) debit Cash $400,000.
15) Osbourne Company issued 50,000 shares of common stock in exchange for manufacturing equipment.
The equipment has a fair value of $1,000,000. The stock has par value of $0.01 per share. Which of the
following is included in the journal entry to record this transaction?
A) debit Cash $5,000
B) credit Gain on Sale of Common Stock $1,050,000
C) credit Paid-In Capital in Excess of Par—Common $999,500
D) credit Common Stock—$0.01 Par Value $1,000,000
16) Peterson Company issued 4,000 shares of preferred stock for $240,000. The stock has a par value of
$60 per share. The journal entry to record this transaction would:
A) credit Cash $240,000, debit Preferred Stock—$60 Par Value $4,000, and debit Paid-In Capital in Excess
of Par—Preferred $236,000.
B) debit Cash $240,000, credit Preferred Stock—$60 Par Value $4,000, and credit Paid-In Capital in
Excess of Par—Preferred $236,000.
C) credit Cash $240,000 and debit Preferred Stock—$60 Par Value $240,000.
D) debit Cash $240,000 and credit Preferred Stock—$60 Par Value $240,000.
17) Lerner Company had the following transactions in 2015, its first year of operations.
• Issued 20,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $14.00
per share.
• Issued 1,000 shares of $100 par value preferred stock. Shares were issued at par.
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• Earned net income of $35,000.
• Paid no dividends.
At the end of 2015, what is the total amount of stockholders' equity?
A) $415,000
B) $120,000
C) $260,000
D) $380,000
18) Lerner Company had the following transactions in 2015, its first year of operations.
per share.
• Issued 1,000 shares of $100 par value preferred stock. Shares were issued at par.
At the end of 2015, what is the total amount of paid-in capital?

A) $415,000
B) $120,000
C) $280,000
D) $380,000
19) Moretown Company had the following transactions in 2015, its first year of operations.
per share.
At the end of 2015, what is the total amount of stockholders' equity?

A) $30,000
B) $610,000
C) $540,000
D) $70,000
20) Moretown Company had the following transactions in 2015, its first year of operations.
per share.
At the end of 2015, what is the total amount of paid-in capital?

A) $30,000
B) $610,000
C) $540,000
D) $70,000
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21) Overton Company had the following transactions in 2012, its first year of operations.
per share.
• Paid dividends of $5.00 per share.
At the end of 2012, how much is the total stockholders' equity?

A) $150,000
B) $325,000
C) $175,000
D) $350,000
22) On December 2, 2014, Ewell Company purchases a piece of land from the original owner. In exchange
for the land, Ewell Company issues 8,000 shares of common stock with $1.00 par value. The land has been
appraised at a market value of $400,000. Provide the journal entry for this transaction.
Answer:
Land 400,000
Common Stock—$1 Par Value 8,000
Paid-In Capital in Excess of Par—Common 392,000
23) Peterson Company issued 4,000 shares of preferred stock for $240,000. The stock has a par value of
$60 per share. Provide the journal entry for this transaction.
1) The declaration and payment of cash dividends cause a decrease in both assets (Cash) and
stockholders' equity (Retained Earnings) for the corporation.
Answer: TRUE
2) The declaration of a cash dividend does not create an obligation (liability) for the corporation.
Answer: FALSE
3) Declaring and paying dividends causes an increase in both assets and stockholders' equity for the
corporation.
Answer: FALSE
4) Legal capital refers to the portion of stockholders' equity that cannot be used for dividends.
Answer: TRUE
5) If preferred stock is noncumulative, then the company needs to pay dividends that were passed in
previous years.
Answer: FALSE
6) A dividend's declaration date is the date the corporation records which stockholders get dividend
checks.
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Answer: FALSE
7) No journal entry is made on the dividend declaration date.
Answer: FALSE
8) When a company has issued both preferred and common stock, the common stockholders are allocated
their dividends first.
Answer: FALSE
9) Stock dividends have no impact on the total amount of stockholders' equity.

Answer: TRUE
10) Stock dividends are distributed to stockholders in proportion to the number of shares each
stockholder already owns.
Answer: TRUE
11) The declaration of a stock dividend creates a liability for the corporation.
Answer: FALSE
12) A stock split decreases par value per share, whereas stock dividends do not affect par value per share.
Answer: TRUE
13) A stock split, like any other stock issuance, cannot involve issuing more shares of stock than
authorized in the corporate charter.
Answer: TRUE
14) A 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value.
Answer: TRUE
15) Memorandum entry is an entry in the journal that notes a significant event, but has no debit or credit
amount.
Answer: TRUE
16) Which of the following is true of dividends?

A) Dividends are a distribution of cash, stock, or other assets to the stockholders.
B) Dividends increase assets and decrease total stockholders' equity of a corporation.
C) Dividend payments decrease paid-in capital.
D) Dividend payments increase stockholders' equity.
17) A corporation declares a dividend of $0.50 per share on 10,000 shares of common stock. Which of the
following would be included in the entry to record the declaration?
A) Retained Earnings would be debited for $5,000.
B) Paid-In Capital in Excess of Par—Common would be credited for $5,000.
C) Retained Earnings would be credited for $5,000.
D) Dividends Payable—Common would be debited for $5,000.
18) On the ________, cash dividends become a liability of a corporation.

A) declaration date
B) date of record
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C) end of the fiscal year
D) payment date
19) Which of the following would be included in the entry to record the payment of a previously declared
dividend of $0.25 per share on 12,500 shares of common stock?
A) Retained Earnings would be debited for $3,125.
B) Cash would be debited for $3,125.
C) Retained Earnings would be credited for $3,125.
D) Dividends Payable would be debited for $3,125.
20) Which of the following occurs when a previously declared dividend is paid?
A) Assets increase.
B) Stockholders' equity increases.
C) Liabilities decrease.
D) Assets remain unchanged.
21) Which of the following occurs when a cash dividend is declared?

A) Liabilities remain unchanged.
B) Stockholders' equity decreases.
C) Liabilities decrease.
D) Assets increase.
22) Dividends in arrears are:

A) a liability on the balance sheet.
B) passed dividends on noncumulative preferred stock.
C) passed dividends on cumulative preferred stock.
D) passed dividends on common stock.
23) Saturn Corporation has 10,000 shares of 10%, $75 par noncumulative preferred stock outstanding and
20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation
declares a dividend of $180,000. How is the dividend allocated between preferred and common
stockholders?
A) The dividend is allocated $5,000 to preferred shareholders and $115,000 to common shareholders.
B) The dividend is allocated $75,000 to preferred shareholders and $105,000 to common shareholders.
C) The dividend is allocated $60,000 to preferred shareholders and $120,000 to common shareholders.
D) The dividend is allocated $72,000 to preferred shareholders and $108,000 to common shareholders.
24) A corporation has 10,000 shares of 10%, $100 par noncumulative preferred stock outstanding and
20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation
declares a dividend of $120,000. What is the dividend per share for preferred shares and for common
shares?
A) The dividend per share is $10.00 to preferred shares and $1.00 to common shares.
B) The dividend per share is $6.67 to preferred shares and $1.00 to common shares.
C) The dividend per share is $10.00 to preferred shares and $10 to common shares.
D) The dividend per share is $50.00 to preferred shares and $1.00 to common shares.
25) On November 1, 2015, Oster Company declared a dividend of $3.00 per share. Oster Company has
20,000 shares of common stock outstanding and no preferred stock. Which of the following is the journal
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entry needed to record the declaration of dividends?
A) Debit Dividends Payable—Common $60,000 and credit Retained Earnings $60,000.
B) Debit Retained Earnings $60,000 and credit Cash $60,000.
C) Debit Retained Earnings $60,000 and credit Dividends Payable—Common $60,000.
D) Debit Cash $60,000 and credit Dividends Payable—Common $60,000.
10,000 shares of common stock outstanding and 20,000 preferred shares. The date of record is November
15, and the payment date is November 30, 2014. Which of the following statements is true of the date of
record?
A) No journal entry is made on the date of record.
B) The liability must be recorded on the date of record.
C) Cash is disbursed to shareholders on the date of record.
D) The company transfers cash to a brokerage firm on the date of record.
20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15,
and the payment date is November 30, 2015. Which of the following is the journal entry needed on
November 30?
A) Debit Retained Earnings $60,000 and credit Dividends Payable—Common $60,000.
B) Debit Dividends Payable—Common $60,000 and credit Cash $60,000.
C) Debit Cash $60,000 and credit Dividends Payable—Common $60,000.
D) Debit Retained Earnings $60,000 and credit Cash $60,000.
28) Pearland Company has 5,000 shares of preferred stock outstanding. The preferred stock has a $90 par
value, a 5% dividend rate, and is noncumulative. If Pearland has sufficient funds to pay dividends, what
is the total amount of dividends that will be paid out to preferred shareholders?
A) $10,800
B) $22,500
C) $9,000
D) $4,500
29) On the date of record of dividends, the company:

A) issues new shares of stock.
B) disburses dividend payments to shareholders.
C) records the dividend payable amount.
D) determines who owns the shares of stock as of that date.
30) Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of
preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4%
noncumulative, with $100 par value. On October 15, 2015, the company declares a total dividend
payment of $40,000. How much dividend will be paid to the preferred shareholders?
A) $40,000
B) $2,000
C) $8,000
D) $4,500
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payment of $40,000. What is the total amount of dividends that will be paid to the common shareholders?
A) $40,000
B) $32,000
C) $400
D) $4,500
payment of $40,000. What is the amount of dividend that will be paid for each share of common stock?
A) $0.80
B) $400.00
C) $4.00
D) $1.00
33) Which of the following is the correct description of dividends in arrears, as it applies to cumulative
preferred stock?
A) the cumulative amount of dividends that were not paid in previous years
B) the cumulative amount of dividends that were paid in previous years
C) the amount of dividends that were paid late
D) the amount of dividends that will be paid in the coming year
34) Orleans Company was incorporated on January 1, 2012. Orleans issued 4,000 shares of common stock
and 500 shares of preferred stock on that date. The preferred shares are cumulative, $100 par, with an 8%
dividend rate. Orleans has not paid any dividends yet. In 2015, Orleans had its first profitable year, and
on November 1, 2015, Orleans declared a total dividend of $28,000. What is the total amount that will be
paid out to preferred shareholders?
A) $4,000
B) $16,000
C) $3,200
D) $28,000
35) Orleans Company was incorporated on January 1, 2012. Orleans issued 4,000 shares of common stock
and 500 shares of preferred stock on that date. The preferred shares are cumulative, $100 par, with an 8%
dividend rate. Orleans has not paid any dividends yet. In 2015, Orleans had its first profitable year, and
on November 1, 2015, Orleans declared a total dividend of $28,000. What is the total amount that will be
paid out to common shareholders?
A) $4,000
B) $16,000
C) $12,000
D) $28,000
36) From its inception through the year of 2014, Quicksales Company was profitable and made strong
dividend payments each year. In the year 2015, Quicksales had major losses and paid no dividends. In
2016, the company started making large profits again, and they were able to pay dividends to all
shareholders—both common and preferred. There are 1,500 shares of cumulative, 7% preferred stock
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outstanding. The preferred stock has a par value of $100. What is the total amount of dividends that
should be paid to the preferred shareholders in December, 2016?
A) $33,500
B) $22,000
C) $10,500
D) $21,000
37) A corporation has 15,000 shares of 10%, $50 par cumulative preferred stock outstanding and 25,000
shares of no-par common stock outstanding. Dividends of $37,500 are in arrears. At the end of the current
year, the corporation declares a dividend of $120,000. How is the dividend allocated between preferred
and common shareholders?
A) The dividend is allocated $7,500 to preferred shareholders and $112,500 to common shareholders.
B) The dividend is allocated $112,500 to preferred shareholders and $7,500 to common shareholders.
C) The dividend is allocated $120,000 to preferred shareholders and no dividend is paid to common
shareholders.
D) The dividend is allocated $75,000 to preferred shareholders and $45,000 to common shareholders.
38) A corporation has 15,000 shares of 10%, $50 par cumulative preferred stock outstanding and 25,000
shares of no-par common stock outstanding. Dividends of $37,500 are in arrears. At the end of the current
year, the corporation declares a dividend of $120,000. What is the dividend per share for preferred shares
and for common shares?
A) The dividend per share is $5.00 to preferred shares and $4.60 per share to common shares.
B) The dividend per share is $8.00 to preferred shares and $0 per share to common shares.
C) The dividend per share is $7.50 to preferred shares and $0.30 per share to common shares.
D) The dividend per share is $8.00 to preferred shares and $0.30 per share to common shares.
39) The account to be debited when a stock dividend is declared and distributed on the same date would
be:
A) Common Stock—Par Value.
B) Retained Earnings.
C) Cash.
D) Paid-In Capital in Excess of Par—Common.
40) Which of the following is true of the distribution of stock dividends?

A) It decreases both assets and liabilities.
B) It decreases assets and increase liabilities.
C) It affects only stockholder's equity accounts.
D) It increases both dividends payable and cash.
41) Which of the following will happen to a stockholder's percentage ownership in the stock of a
corporation when the corporation declares a stock dividend?
A) The stockholder's percentage ownership decreases.
B) The stockholder's percentage ownership can increase or decrease.
C) The stockholder's percentage ownership increases.
D) The stockholder's percentage ownership remains unchanged.
42) Which of the following occurs when a corporation distributes a stock dividend?
A) Total liabilities increase.
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B) Total stockholders' equity increases.
C) Total assets decrease.
D) Total stockholders' equity remains unchanged.
43) Which of the following occurs when a corporation's board of directors declares a 10% stock dividend?
A) Retained Earnings will be credited for the new shares times the current market value of the stock.
B) Retained Earnings will be debited for the new shares times the current market value of the stock.
C) Retained Earnings will be debited for the new shares times the par value of the stock.
D) Retained Earnings will be credited for the new shares times the par value of the stock.
44) Stock dividends are declared by the:

A) chief financial officer of the company.
B) board of directors of the company.
C) chief executive officer of the company.
D) stockholders of the company.
45) A company originally issued 10,000 shares of $5 par value common stock at $7 per share. The board of
directors declares a 10% stock dividend when the market price of the stock is $8 a share. Which of the
following is included in the entry to record the declaration of a stock dividend?
A) Retained Earnings is debited for $8,000.
B) Retained Earnings is credited for $8,000.
C) Retained Earnings is debited for $7,000.
D) Paid-in Capital in Excess of Par—Common is credited for $7,000.
46) A company originally issued 10,000 shares of $5 par value common stock at $9 per share. The board of
directors declares an 8% stock dividend when the market price of the stock is $10 a share. Which of the
following is included in the entry to record the declaration of a stock dividend?
A) Retained Earnings is debited for $4,000.
B) Common Stock—$5 Par Value is credited for $7,200.
C) Common Stock is credited for $8,000.
D) Retained Earnings is debited for $8,000.
47) A corporation reported the following equity section on its current balance sheet. The common stock is
currently selling for $12.00 per share.
Common stock, $5 par, 100,000 shares authorized, 50,000 shares issued $250,000
Paid in capital in excess of par—common 150,000
Retained earnings 500,000
Total stockholders' equity $900,000
Which of the following would be included in the entry to record the distribution of a 15% stock dividend?
A) Common Stock—$5 Par Value would be credited for $37,500.
B) Retained Earnings would be debited for $35,000.
C) Paid-In Capital in Excess of Par—Common is debited for $35,000.
D) Retained Earnings would be credited for $60,000.
48) Gordon Corporation reported the following equity section on its current balance sheet. The common
stock is currently selling for $11.50 per share.
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What would be the total stockholders' equity after a 10% common stock dividend?
A) $656,000
B) $320,000
C) $610,000
D) $366,000
What would be the balance in the Common Stock account after the issuance of a 10% stock dividend?
A) $300,000
B) $288,000
C) $352,000
D) $320,000
50) Landess Corporation currently has 120,000 shares outstanding of $1 par value common stock. The
stock was originally issued for $12 per share. On March 15, the board of directors declares a 10% stock
dividend when the stock is selling for $16 per share. Which of the following is the correct journal entry to
record this transaction?
A) Debit Common Stock Dividend Distributable $12,000, debit Paid-In Capital in Excess of Par—
Common for $180,000 and credit Retained Earnings $192,000.
B) Debit Retained Earnings $192,000 and credit Common Stock Dividend Distributable $192,000.
C) Debit Retained Earnings $192,000, credit Common Stock Dividend Distributable $12,000 and credit
Paid-In Capital in Excess of Par—Common $180,000.
D) Debit Paid-In Capital in Excess of Par—Common $192,000 and credit Retained Earnings $192,000.
51) Happy Holiday, Inc. has 100,000 shares of common stock issued and outstanding, with a par value of
$0.01 per share. They declared a 15% common stock dividend; market value is $12 per share. Which of the
following is the correct journal entry to record the transaction?
A) Debit Retained Earnings $180,000 and credit Paid-In Capital in Excess of Par—Common $180,000.
B) Debit Retained Earnings $180,000, credit Common Stock Dividend Distributable $150 and credit
Paid-In Capital in Excess of Par—Common $179,850.
C) Debit Retained Earnings $180,000 and credit Cash $180,000.
D) Debit Common Stock Dividend Distributable $150, debit Paid-In Capital in Excess of Par—Common
$179,850 and credit Retained Earnings $180,000.
16
52) On December 1, 2015, Arthur Company had 30,000 shares of $5 par value common stock issued and
outstanding. The next day they declared a 50% stock dividend. The market value of the stock on that date
was $9 per share. Which of the following is the correct journal entry to record this transaction?
A) Debit Retained Earnings $270,000 and credit Cash $270,000.
B) Debit Retained Earnings $270,000, credit Common Stock $150,000 and credit Paid-In Capital in
Excess of Par $120,000.
C) Debit Common Stock $75,000 and credit Cash $75000.
D) Debit Retained Earnings $75,000 and credit Common Stock Dividend Distributable $75,000.
53) On June 30, 2015, Roger Company showed the following data on the equity section of their balance
sheet:
Stockholders' equity
Common stock, $1 par 190,000 shares authorized,
140,000 shares issued and outstanding $140,000
Paid-in capital in excess of
par—Common 260,000
Total stockholder's equity $1,340,000
On July 1, 2015, Roger declared and distributed a 5% stock dividend. The market value of the stock at that
time was $13 per share. Following this transaction, what would be the new balance in the Common stock
account?
A) $147,000
B) $26,000
C) $66,000
D) $246,000
sheet:
time was $13 per share. Following this transaction, what would be the new number of shares issued
shown on the balance sheet?
A) 26,000
B) 66,000
C) 147,000
D) 105,000
17
sheet:
time was $13 per share. Following this transaction, what would be the new balance in Paid-In Capital in
Excess of Par—Common?
A) $286,000
B) $284,000
C) $260,000
D) $344,000
56) On June 30, 2015, Stephans Company showed the following data on the equity section of their balance
sheet:
On July 1, 2015, Stephans declared and distributed a 5% stock dividend. The market value of the stock at
that time was $13 per share. Following this transaction, how much would the total stockholders' equity
be?
A) $1,340,000
B) $1,500,000
C) $1,260,000
D) $1,214,000
sheet:
190,000 shares authorized,
Common stock, $1 par 140,000 shares issued and outstanding $140,000
18
On July 1, 2015, Roger declared and distributed a 5% stock dividend. The market value of the stock at
that time was $13 per share. Following this transaction, what would the new balance in Retained
Earnings be?
A) $916,000
B) $942,000
C) $966,000
D) $849,000
58) Nice International originally issued 100,000 shares of common stock at a price of $20 per share. A year
later, they distributed a 10% stock dividend to shareholders. At the time of the stock dividend, the share
price had gone up to $24 per share. Which of the following statements is true?
A) Nice will record sales revenues of $200,000.
B) Nice will record a loss of $40,000.
C) Nice will record a gain of $40,000.
D) Nice will record neither a gain nor a loss.
59) Which of the following is a reason for a company to announce a stock split?
A) to defend against a hostile takeover
B) to double the par value of the share
C) to reduce the market price at which the stock is trading
D) to provide the shareholders with something of value, when the company cannot afford a cash
dividend
60) Which of the following statements is true?

A) Both a stock dividend and a stock split increase the balance in the common stock account.
B) Both a stock dividend and a stock split reduce retained earnings.
C) Neither a stock dividend nor a stock split will result in net gains or losses.
D) A stock split increases the par value per share of the stock.
61) Which of the following occurs when the board of directors declares a 3-for-1 stock split on 10,000
outstanding shares of $15 par common stock?
A) The par value of the stock remains the same.
B) The par value of the stock increases to $30 per share.
C) The number of outstanding shares remains at 10,000.
D) The number of outstanding shares increases to 30,000.
62) Which of the following is a true statement?

A) A stock split will increase total stockholders' equity, but a stock dividend will not.
B) Neither a stock split nor a stock dividend will increase total stockholders' equity.
C) A stock dividend will increase total stockholders' equity, but a stock split will not.
D) A stock split will decrease retained earnings, but a stock dividend will not.
19
63) Which of the following occurs when a 2-for-1 stock split is declared?
A) The balance in common stock remains the same.
B) The balance in common stock is reduced to half the original amount.
C) The balance in common stock doubles.
D) The balance in paid-in capital doubles.
Common stock, $5 par, 190,000 shares authorized,

140,000 shares issued $700,000
Paid-in capital in excess of par—Common 120,000
Total stockholders' equity $1,110,000
What will the total number of shares issued be after the declaration and distribution of a 10% stock
dividend?
A) 20,000 common shares
B) 154,000 common shares
C) 140,000 common shares
D) 14,000 common shares

Paid-in capital in excess of par—Common 120,000
After a 2-for-1 stock split, what would be the number of issued shares?
A) 240,000
B) 280,000
C) 260,000
D) 120,000
66) Which of the following is a true statement?

A) Both a stock split and a stock dividend will decrease total assets.
B) Both a stock split and a stock dividend will increase total liabilities.
C) A stock split will increase total assets, but a stock dividend will not.
D) Neither a stock split nor a stock dividend will affect total assets or total liabilities.
67) Which of the following requires a formal journal entry?

A) new CEO selected
B) stock dividend distribution
C) stock split
D) CFO promoted
20
68) Apira has 2,000 shares of common stock outstanding. A stockholder has 100 shares. If Apira
distributes a 20% stock dividend, how many shares of Apira will the stockholder have?
A) 120
B) 400
C) 100
D) 20
69) ABC has 45,000 shares of $10 par common stock outstanding. They offer a stock split of 4-for-1. The
effect of the split will be:
A) par stays at $10; total shares go to 11,250.
B) par drops to $5; total shares stay at 45,000.
C) par drops to $2.50; total shares go to 180,000.
D) par goes to $40; total shares go to 180,000.
70) Which of the following actions will increase the balance in the Common Stock account?
A) cash dividend declared and paid
B) stock split
C) stock dividend declared and distributed
D) purchase of treasury stock
71) Which of the following actions could increase the balance in the Paid-In Capital in Excess of Par—
Common Account?
A) cash dividend declared
B) stock split
C) 10% stock dividend declared
72) Which of the following will decrease the balance in Retained Earnings?
A) repayment of bond principal
B) stock split
C) stock dividend declared
73) Which of the following will decrease the amount of Total Stockholders' Equity?
A) cash dividend declared
B) stock split
C) stock dividend declared
D) repayment of bond principal
21
74) On July 31, 2015, the Archer Company reported the following information in the equity section of
their balance sheet:
Common stock, $1.00 par, 500,000 shares authorized,
Paid-in capital in excess of Par—Common 1,180,000
Retained earnings 3,200,000
Assume that Archer carries out a 3-for-1 stock split. Please prepare a similar equity section showing the
effects of the stock split. (Please round all numbers to the nearest cent.)
20,000 shares of common stock outstanding and no preferred stock. Please provide the journal entry for
the declaration of dividends.
20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15,
and the payment date is November 30, 2014. Provide the journal entry needed on November 30.
77) Pearland Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred
stock outstanding. The common stock is $1.00 par value. The preferred stock has a $100 par value, a 5%
dividend rate, and is noncumulative. On October 31, 2015, the company declares dividends of $0.25 per
share for common. Provide the journal entry for the declaration of dividends.
78) Landess Corporation currently has 120,000 shares outstanding of $1 par value common stock. The
stock was originally issued for $12 per share. On March 15, the board of directors declares and distributes
a 10% stock dividend when the stock is selling for $16 per share. Prepare the journal entry to record the
stock dividend.
79) On December 1, 2015, Arther Company had 200,000 shares of $1 par value common stock issued and
outstanding. The next day they declared and distributed a 50% stock dividend. The market value of the
stock on that date was $9 per share. Provide the journal entry for the transaction.
1) Treasury stock is a contra equity account.

Answer: TRUE
2) The journal entry for the purchase of treasury stock includes a credit to the Cash account.
Answer: TRUE
3) Treasury stock is recorded at cost without reference to par value.

Answer: TRUE
4) The purchase of treasury stock:
22
A) decreases both assets and stockholders' equity.
B) increases both assets and stockholders' equity.
C) increases assets and decreases stockholders' equity.
D) decreases assets and increases stockholders' equity.
5) Treasury stock causes the number of:

A) issued shares to go down.
B) issued shares to exceed authorized shares.
C) outstanding shares to go up.
D) outstanding shares to go down.
6) Treasury stock is a:
A) contra equity account.
B) contra asset account.
C) liability account.
D) contra liability account.
7) A corporation originally issued $5 par value common stock for $6 per share. Which of the following
would be included in the entry to record the purchase of 300 shares of treasury stock for $10 per share?
A) Treasury Stock—Common would be debited for $3,000.
B) Treasury Stock—Common would be credited for $1,800.
C) Retained Earnings would be debited for $1,500.
D) Treasury Stock—Common would be debited for $1,500.
8) A corporation originally issued $8 par value common stock for $9 per share. It purchased the stock for
$10 per share for the treasury. Which of the following would be included in the entry to record the reissue
of 20 shares of treasury stock for $11 per share?
A) Paid-In Capital from Treasury Stock Transactions is credited for $220.
B) Treasury Stock—Common is credited for $200.
C) Treasury Stock—Common is credited for $220.
D) Paid-In Capital from Treasury Stock Transactions is debited for $20.
9) Ross Corporation reported the following equity section on its current balance sheet:

Which of the following would be included in the entry to record the corporation's purchase of 100,000
shares of its common stock for $7.50 per share?
A) Treasury Stock—Common would be debited for $750,000.
B) Paid-In Capital from Treasury Stock Transactions would be credited for $700,000.
C) Retained Earnings would be debited for $750,000.
D) Common Stock—$5 Par Value would be credited for $500,000.
10) Rick Co. purchases 7,000 shares of its own $2 par value common stock for $160 per share. Which of
23
the following is the correct journal entry to record this transaction?
A) Debit Common Stock—$2 Par Value $2,240,000 and credit Cash $2,240,000.
B) Debit Cash $2,240,000, and credit Paid-In Capital in Excess of Par—Common $2,240,000.
C) Debit Cash $2,240,000 and credit Treasury Stock—Common $2,240,000.
D) Debit Treasury Stock—Common $1,120,000 and credit Cash $1,120,000.
11) Assume the following information for Petra Sales Company:
• Common stock, $1.00 par, 200,000 issued, 180,000 outstanding

• Paid-in capital in excess of Par—Common: $1,600,000
• Retained earnings: $2,440,000
• Treasury stock: 20,000 shares purchased at $12 per share
If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, what number of
shares will be shown as issued and outstanding?
A) 175,000 issued; 180,000 outstanding
B) 195,000 issued; 180,000 outstanding
C) 200,000 issued; 175,000 outstanding
D) 200,000 issued; 180,000 outstanding
12) Refer to the following information for Tangent Corporation:
• Common stock, $1.00 par, 100,000 issued, 95,000 outstanding

• Paid-In capital in excess of Par—Common: $2,150,000
• Retained earnings: $910,000
• Treasury stock: 5,000 shares purchased at $20 per share
If Tangent resold 1,200 shares of treasury stock for $14.5 per share, which of the following statements
would be true?
A) The Treasury Stock account would go down by $12,000.
B) The Paid-In Capital in Excess of Par—Common account would go up by $1,200.
C) The Treasury Stock account would go down by $24.000.
D) The Retained Earnings account would go up by $17,400.
13) On March 31, 2015, the Park Place Company shows the following data on their balance sheet:
Common stock, $1 par, 1,000,000 shares authorized,
120,000 shares issued, 110,000 shares outstanding $120,000
Paid-in capital in excess of Par—Common 2,470,000
Retained earnings 4,660,000
Treasury stock, 10,000 shares at $25 (250,000)
Assume that Park Place sells 900 shares of treasury stock at $32 per share. What will the total
stockholders' equity be after this transaction?
A) $7,751,200
24
B) $7,028,800
C) $7,080,900
D) $7,030,000
14) If a company retires preferred stock:

A) total stockholders' equity will decrease.
B) total stockholders' equity will increase.
C) the company can record a gain or loss on retirement of stock.
D) the number of outstanding shares will go up.
15) Rick Co. purchases 8,500 shares of the company's $6 par common stock for $8 per share. Journalize the
transaction.
1) Companies can report a negative amount in retained earnings.

Answer: TRUE
2) Companies usually report their retained earnings restrictions on the balance sheet.
Answer: FALSE
3) The statement of retained earnings reports how the company's retained earnings balance changed from
the beginning of the period to the end of the period.
Answer: TRUE
4) A deficit occurs when a company has reoccurring losses and/or declares dividends in excess of retained
earnings.
Answer: TRUE
5) The statement of retained earnings has more information than the statement of stockholders' equity.
Answer: FALSE
6) A net loss for the year decreases the balance in Retained Earnings.
Answer: TRUE
7) Restrictions on retained earnings:

A) require adjusting journal entries.
B) are usually reported in the notes to the financial statements.
C) are reported on the income statement.
D) are designed to maximize dividends paid to shareholders.
8) Which of the following best describes restrictions on cash dividends and treasury stock purchases?
A) restrictions on cash payments that are made to ensure higher reported profits
B) limits required by lenders or creditors to ensure that the company maintains adequate levels of
equity
C) restrictions on payments made by the shareholders to lower federal income tax expense
D) limits that are established to boost sales revenues
25
9) Which of the following best describes the appropriation of retained earnings?
A) restricting a certain amount of retained earnings for expansion or contingencies
B) cash set aside for expansion
C) designating certain amounts of retained earnings for cash dividends to be paid out to shareholders
D) limiting company transactions in order to boost earnings and profits
10) Which of the following statements is true?

A) Appropriations of retained earnings require journal entries, but restrictions on retained earnings do
not.
B) No journal entries are needed to either appropriate or restrict retained earnings.
C) Both appropriations and restrictions of retained earnings require journal entries.
D) Restrictions on retained earnings must be journalized, but appropriations do not need to be
journalized.
11) Prior period adjustments:

A) always increase the beginning balance of retained earnings.
B) are shown on the statement of retained earnings as corrections to the beginning balance.
C) affect balance sheet accounts only, and must be included on single-step income statements.
D) must be included as a separate line item on a multi-step income statement.
1) Earnings per share is calculated as net income plus preferred dividends divided by the weighted
average number of common shares outstanding.
Answer: FALSE
2) A higher price/earnings ratio signifies a higher return on investment.

Answer: TRUE
3) The rate of return on common stockholders' equity shows the relationship between net income
available to common stockholders and their average common equity invested in the company.
Answer: TRUE
4) Revival Corporation's annual report is as follows.
March 31, 2014 March 31, 2015

Net Income $350,000 $423,500
Preferred Dividends 0 0
Total Stockholders' Equity $4,200,000 $5,082,000
Stockholders' Equity attributable to Preferred Stock 0 0
Number of Common Shares Outstanding 275,464 192,168
Based on the information provided above, find the earnings per share of Revival Corporation as of March
31, 2015.
5) Revival Corporation's annual report is as follows.
March 31, 2014 March 31, 2015

26
Net Income $350,000 $423,500
If the current market price is $15 on March 31, 2015, find the price/earnings ratio on March 31, 2015.
6) Revival Corporation's annual report is follows.
March 31, 2014 March 31, 2015

Net Income $350,000 $423,500
Based on the information provided, find the rate of return on common stockholders' equity on March 31,
2015.
27

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1) A corporation is a separate legal entity and is organized independently of its owners.

4) Preferred stockholders receive a dividend preference over common stockholders.

8) Which of the following is true of a corporation?

10) Which of the following statements is true of a corporation?

12) Outstanding stock refers to the:

16) The par value of stock is:

17) The two basic sources of stockholders' equity are:

18) Paid-in capital consists of:

20) Preferred stock is a stock:

22) Preferred shareholders:

24) In the event of liquidation, preferred shareholders:

Learning Objective 13-2

Preferred Stock, $100 par $500,000

Preferred Stock, $100 par $200,000

What is the average issue price of the preferred stock shares?

Preferred Stock, $100 par $300,000

What was the total paid-in capital as of December 31, 2015?

At the end of 2015, what is the total amount of paid-in capital?

At the end of 2015, what is the total amount of stockholders' equity?

At the end of 2015, what is the total amount of paid-in capital?

At the end of 2012, how much is the total stockholders' equity?

Learning Objective 13-3

9) Stock dividends have no impact on the total amount of stockholders' equity.

16) Which of the following is true of dividends?

18) On the ________, cash dividends become a liability of a corporation.

21) Which of the following occurs when a cash dividend is declared?

22) Dividends in arrears are:

29) On the date of record of dividends, the company:

40) Which of the following is true of the distribution of stock dividends?

44) Stock dividends are declared by the:

60) Which of the following statements is true?

62) Which of the following is a true statement?

Common stock, $5 par, 190,000 shares authorized,

Common stock, $5 par, 190,000 shares authorized,

66) Which of the following is a true statement?

67) Which of the following requires a formal journal entry?

Learning Objective 13-4

1) Treasury stock is a contra equity account.

3) Treasury stock is recorded at cost without reference to par value.

4) The purchase of treasury stock:

5) Treasury stock causes the number of:

Common stock, $5 par, 200,000 shares authorized,

11) Assume the following information for Petra Sales Company:

• Common stock, $1.00 par, 200,000 issued, 180,000 outstanding

12) Refer to the following information for Tangent Corporation:

• Common stock, $1.00 par, 100,000 issued, 95,000 outstanding

14) If a company retires preferred stock:

Learning Objective 13-5

1) Companies can report a negative amount in retained earnings.

7) Restrictions on retained earnings:

10) Which of the following statements is true?

11) Prior period adjustments:

Learning Objective 13-6

2) A higher price/earnings ratio signifies a higher return on investment.

4) Revival Corporation's annual report is as follows.

March 31, 2014 March 31, 2015

5) Revival Corporation's annual report is as follows.

March 31, 2014 March 31, 2015

6) Revival Corporation's annual report is follows.

March 31, 2014 March 31, 2015

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