Which of these is a disadvantage of corporations?
Government regulations
Which of the following is a characteristic of partnerships?
Limited life
Which of the following is not a stockholder's right?
The right to participate in management decisions
Vernon Corporation reported income before taxes of $3,000. It paid $540 in corporate income taxes so its net income is $2,460. The corporation paid its shareholder, an individual named Ernest, a $1,000 dividend. The shareholder is in the 15% tax bracket.
$150
Dividends x Tax bracket
If a corporation's stock is traded on a stock exchange, such as the New York Stock Exchange (NYSE), the corporation is classified as
a publicly held corporation.
Corporations have several officers who manage the corporation. One such officer is the controller. The controller
maintains the corporation's accounting records, systems of internal controls, and prepares its financial statements, tax returns, and internal reports.
Which of these statements is false?
Legal capital is intended to protect stockholders.
If a corporation issues 800 shares of $4 par common stock for $7 a share, how much is the legal capital?
The legal capital is the par value per share ($4 per share) times the number of shares issued (800) or $3,200. This will be equal to the total reported in the stock account.
Desert Towers Inc. issued 3,000 shares of $5 par value common stock for $6 per share. Which of the following is included in the journal entry to record the issuance?
Debit to Cash = 3,000 x $6 = $18,000
Credit to Common stock = 3,000 x $5 = $15,000
Credit to Paid-in capital in excess of par value = 3,000 x ($6 - $5) = $3,000
Windham, Inc. issued 1,200 shares of common stock at $10 per share. If the stock has a par value of $7 per share, which of the following will be part of the journal entry to record the issuance?
Debit to Cash = 1,200 x $10 = $12,000
Credit to Common stock = 1,200 x $7 = $8,400
Credit to Paid-in capital in excess of par value = 1,200 x ($10 - $7) = $3,600
The 13th Street Grill issued 10,000 of $3 par value common stock for $7 per share. Which of the following will be part of the journal entry to record the issuance?
Debit to Cash = 10,000 x $7 = $70,000
Credit to Common stock = 10,000 x $3 = $30,000
Credit to Paid-in capital in excess of par value = 10,000 x ($7 - $3) = $40,000
Harrison, Inc. issued 5,000 shares of $15 par value preferred stock at $18 per share. Which of the following will be part of the journal entry to record the issuance?
Debit to Cash = 5,000 x $18 = $90,000
Credit to Preferred Stock = 5,000 x $15 = $75,000
Credit to Paid-in capital in excess of par value = 5,000 x ($18 - $15) = $15,000
Which one of the following decreases when a corporation purchases treasury stock?
Outstanding shares
If everything else is held constant, what will cause earnings per share to increase?
The purchase of treasury stock
If 1,000 shares of $6 par common stock are reacquired by a corporation for $10 a share, by how much will total stockholders' equity be reduced?
Stockholders' equity is reduced by the cost of acquiring the treasury stock:
1,000 shares x $10 = $10,000.
A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited to record the repurchase of the shares?
The cost of the treasury stock: 100 shares x $12/share = $1,200.
The following data is available for Red Carpet Corporation at December 31:
Common stock, par $5 (authorized 250,000 shares) $400,000
Treasury stock (at cost $15 per share)
$3,000
Based on the data, how many shares of common stock are outstanding?
($400,000/$5 per share) - ($3,000/$15 per share) = 80,000 - 200 = 79,800
A corporation has the following equity account balances:
Common stock, $2 par value, $80,000
Paid-In Capital In Excess of Par Value, $2,700,000
Based on this information, the corporation's
- This company has $80,000 recorded in its Common Stock account, and its common stock has a $2 par value per share so it has issued 40,000 shares
- Par value is often used to determine a corporation's legal capital, and legal capital does not include Paid
A corporation has the following equity account balances:
Common stock, $2.50 par value, $75,000
Paid-In Capital In Excess of Par Value, $2,400,000
Based on this information, the corporation's
- This company has $75,000 recorded in its Common Stock account, and its common stock has a $2.50 par value per share so it has issued 30,000 shares
- The average price per share issued is computed as the proceeds from issuing the stock divided by the num
Which one of the following is not a right of preferred stockholders?
Priority voting rights
ABC Corporation has cumulative preferred stock on which it pays dividends of $20,000 per year. The dividends are in arrears for two years. If the corporation plans to distribute $90,000 as dividends in the current year, how much will the common stockholde
Preferred dividends in arrears for two years ($20,000 � 2) = $40,000
Preferred for current year = $20,000
Total dividends to preferred stockholders = $60,000 (40,000 + 20,000)
Total dividends available = $90,000
Dividends available to common stockholders
Maker-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding since its inception. No dividends were declared in the first two years. If the company pays $375,000 of dividends in the third year, how much will common
Total dividend = 10,000 x 8% x $100 = $80,000
Preferred dividends in arrears for two years ($80,000 � 2) = $160,000
Preferred for current year = $80,000
Total dividends to preferred stockholders = $240,000 (160,000 + 80,000)
Total dividends available = $3
Danielle Inc. has 10,000 shares of 4%, $40 par, non-cumulative preferred stock and 50,000 shares of $4 par common stock outstanding. Both the common stock and the preferred stock have been outstanding since the company began last year. No dividends were p
Preferred stockholder dividend = 10,000 x 4% x $40 = $16,000
Total dividends available = $100,000
Dividends available to common stockholders = $84,000
Ramona, Inc. has 3,000 shares of 6%, $100 par, cumulative preferred stock and 80,000 shares of $4 par common stock outstanding. Last year the board of directors declared and paid a $12,000 dividend. This year the dividend declared and paid was $25,000. Wh
Total dividend = 3,000 x 6% x $100 = $18,000
Preferred dividends in arrears for prior year ($18,000 - $12,000) = $6,000
Preferred dividends for current year = 18,000
Total dividends to preferred stockholders = $24,000
On which dates are entries for cash dividends required?
Declaration date and the payment date
Black Raptor Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. What will occur is Raptor declares a 10% stock
Retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.
Vista, Inc. has 250,000 shares of common stock outstanding. A 40% stock dividend was declared and issued. How many shares are outstanding after the stock dividend?
The number of outstanding shares is multiplied by the percentage of the stock dividend to get the total new shares to be issued. The new shares plus the original shares outstanding are then added together:
250,000 + (250,000 x 40%) = 350,000 shares.
A corporation is authorized to sell 1,000,000 shares of common stock. Today there are 400,000 shares outstanding, and the board of directors declares a 10% stock dividend. How many shares will be issued as a stock dividend?
400,000 shares outstanding x 10% = 40,000 new shares to be issued.
Which of the following does not affect retained earnings?
Additional investments by stockholders
Where is common stock listed in the stockholders' equity section of the balance sheet?
As part of paid-in capital
A corporation shows the following account balances:
Retained earnings, $280,000
Treasury stock, $10,000
Dividends payable, $30,000
Paid-in capital in excess of par value, $60,000
Common stock, $175,000
How much is total stockholders' equity?
Total stockholders' equity = Retained earnings - treasury stock + paid-in capital in excess of par value + common stock
Total stockholders' equity = $280,000 - $10,000 + $60,000 + $175,000 = $505,000
A corporation shows the following account balances:
Retained earnings, $375,000
Treasury stock�common, $20,000
Paid-in capital in excess of par value�common, $60,000
Treasury stock�preferred, $20,000
Common stock, $200,000
Preferred stock, $175,000
Paid-i
Total stockholders' equity = Retained earnings - treasury stock--common + paid-in capital in excess of par value--common - treasury stock--preferred + common stock + preferred stock + paid-in capital in excess of par value--preferred
Total stockholders' e
Spiral Corporation's December 31, balance sheet shows the following:
8% preferred stock, $10 par value, cumulative,
40,000 shares authorized; 18,000 shares issued, $180,000
Common stock, $1 par value, 4,000,000 shares authorized;
2,500,000 shares issued,
Total stockholders' equity = Preferred stock + Common stock + Paid-in capital in excess of par (for preferred stock & common stock) + Retained earnings - Treasury stock
Total stockholders' equity = $180,000 + 2,500,000 + 180,000 + 52,000,000 + 24,000,000
Consider the following data for a corporation:
Net income, $800,000
Preferred stock dividends, $50,000
Market price per share of stock, $25
Average common stockholders' equity, $4,000,000
Cash dividends declared on common stock, $20,000
What is the return
Return on common stockholders' equity = Net income less preferred stock dividends divided by the average common stockholders' equity
Return on common stockholders' equity = ($800,000 - $50,000)/$4,000,000 = 18.75%.
In its first year, Raydine Inc. reported sales revenue of $1,100,000, net income of $186,000 and paid dividends of $26,000 to common stockholders. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common sto
The return on common stockholders' equity is calculated by dividing the net income less the preferred stockholders' dividends by the average common stockholders' equity:
[$186,000 - (10,000 shares x $100/share x 6%)] � [($1,200,000 + $1,600,000) � 2] = 9%
Which of the following is a characteristic of sole proprietorships?
Low taxation
Which of the following is true with regard to corporate formations and corporate ownership?
All of these
The two ways that a corporation can be classified based on their ownership are
Publicly held and privately held
Which of the following represents the maximum number of shares a corporation can issue?
Authorized shares
Which of the following is not a common reason for acquiring treasury stock?
To increase the number of shares outstanding
Which of the following is a feature associated with preferred stock?
All of these
Which event does not require a journal entry?
The record date of a cash dividend
If a corporation has incurred a net loss, which of the following is true?
Debited to Retained Earnings in a closing entry
In the stockholders' equity section of the balance sheet, where and how is treasury stock reported?
It is reported as a deduction appearing after both total paid-in capital and retained earnings.
Which of the following is false with regards to corporations?
- Privately held corporations tend to have more shareholders than publicly traded corporations.
- The stock of privately held corporations are traded on stock exchanges.
Corporations have several officers who manage the corporation. One such officer is the treasurer. The treasurer
has custody of the corporation's funds and maintains the company's cash position.
What method is normally used to account for treasury stock?
Cost method
Which statement about dividends is true?
A stock dividend has no effect on total stockholders' equity.
Which one of the following is not true concerning a retained earnings restriction?
It is reported as a loss on the income statement.
Which of the following is an advantage of the corporate business form?
Continuous life
Forming a corporation does not necessarily involve
Incurring debt
For what reason might a company acquire treasury stock?
To reissue the shares to officers and employees under bonus and stock compensation plans
Which of the following represents the amount that must be retained in the business for the protection of corporate creditors?
Legal Capital
Which one of the following statements is incorrect?
Dividends may be paid on common stock while dividends are in arrears on preferred stock.
Which of the following accounts is listed first in the stockholders' equity section of the balance sheet?
Preferred stock if preferred stock had been issued. Otherwise, common stock is listed first.
Which of the following is not a characteristic of a corporation?
Unlimited liability for owners
Corporations have several officers who manage the corporation. One such officer is the chief executive officer. The chief executive officer
has overall responsibility for managing the business.
Which one of the following is not an advantage of corporations?
Additional taxes
Which one of the following is true with regard to a corporation's stock?
The number of authorized shares equals or exceeds the number of outstanding shares