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The net assets of a corporation are equal to:

A. Contributed capital.

B. Retained earnings.

C. Shareholders’ equity.

D. None of the above.

C. Shareholders’ equity.

Two of the three primary account classifications within shareholders’ equity are:

A. Preferred stock and retained earnings.

B. The par value of common stock and retained earnings.

C. Paid-in capital and retained earnings.

D. Preferred and common stock.

C. Paid-in capital and retained earnings.

Details of each class of stock must be reported:

A. On the face of the balance sheet only.

B. In disclosure notes only.

C. On the face of the balance sheet or in disclosure notes.

D. On the face of the balance sheet and in disclosure notes.

C. On the face of the balance sheet or in disclosure notes.

In terms of business volume, the dominant form of business organization is the:

A. Partnership.

B. Corporation.

C. Limited liability company.

D. Proprietorship.

B. Corporation.

The corporate charter sometimes is known as (a):

A. Articles of incorporation.

B. Statement of organization.

C. By-laws.

D. Registration statement.

A. Articles of incorporation.

Corporations are formed in accordance with:

A. The Model Business Corporation Act.

B. Federal statutes.

C. The laws of individual states.

D. Federal trade commission regulations.

C. The laws of individual states.

Outstanding common stock is:

A. Stock that is performing well on the New York Stock Exchange.

B. Stock that has been authorized by the state for issue.

C. Stock held in the corporate treasury.

D. Stock in the hands of shareholders.

D. Stock in the hands of shareholders.

Issued stock refers to the number of shares:

A. Outstanding plus treasury shares.

B. Shares issued for cash.

C. In the hands of shareholders.

D. That may be issued under state law.

A. Outstanding plus treasury shares.

The Model Business Corporation Act:

A. Uses the words "common" and "preferred" in describing distinguishing characteristics of stock.

B. Defines legal capital as the amount of net assets not available for distribution to shareholders.

C. Provides guidance for choosing an appropriate par value for new issues of stock.

D. Has affected the laws of most states.

D. Has affected the laws of most states.

When preferred stock carries a redemption privilege, the shareholders may:

A. Purchase new shares as they become available.

B. Exchange their preferred shares for common shares.

C. Surrender the preferred shares for a specified amount of cash.

D. Purchase treasury shares ahead of common shareholders.

C. Surrender the preferred shares for a specified amount of cash.

The common stock account in a company’s balance sheet is measured as:

A. The number of common shares outstanding multiplied by the stock’s par value per share.

B. The number of common shares outstanding multiplied by the stock’s current market value per share.

C. The number of common shares issued multiplied by the stock’s par value per share.

D. None of the above is correct.

C. The number of common shares issued multiplied by the stock’s par value per share.

Roberto Corporation was organized on January 1, 2013. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2013, Roberto had the following transactions relating to shareholders’ equity:

Issued 10,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.
Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).

What is total shareholders’ equity at the end of 2013?

A. $270,000.

B. $300,000.

C. $250,000.

D. $200,000.

C. $250,000.

Heidi Aurora Imports issued shares of the company’s Class B stock. Heidi Aurora Imports should report the stock in the company’s statement of financial position:

A. Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.

B. As equity unless the shares are mandatorily redeemable.

C. As equity unless the shares are redeemable at the option of the issuer.

D. Among liabilities unless the shares are mandatorily redeemable.

B. As equity unless the shares are mandatorily redeemable.

Accumulated other comprehensive income:

A. is a liability.

B. might include prior service cost from pension plan amendments.

C. includes accumulated pension expense.

D. is reported in the income statement.

B. might include prior service cost from pension plan amendments

A statement of comprehensive income does not include:

A. Net income.

B. Losses resulting from the return on pension assets exceeding expectations.

C. Losses from changes in estimates regarding the PBO.

D. Prior service cost.

B. Losses resulting from the return on pension assets exceeding expectations.

Accumulated other comprehensive income is reported:

A. In the balance sheet as an asset.

B. In the balance sheet as a liability.

C. In the balance sheet as a component of shareholders’ equity.

D. In the statement of comprehensive income.

C. In the balance sheet as a component of shareholders’ equity.

A statement of comprehensive income does not include:

A. Gains resulting from the return on assets exceeding expectations.

B. Gains and losses on unsold held-to-maturity securities.

C. Losses resulting from the return on pension assets falling short of expectations.

D. Prior service cost.

B. Gains and losses on unsold held-to-maturity securities.

Characteristics of the corporate form that have led to the growth of this form of business ownership include all of the following except:

A. Ease of raising capital.

B. Low government regulation.

C. Limited liability.

D. Ease of ownership transfer.

B. Low government regulation.

The preemptive right refers to the shareholder’s right to:

A. Maintain a proportional ownership interest in the corporation.

B. Vote for members of the board of directors.

C. Receive a share of dividends.

D. Share in profits proportionally with all other stockholders.

A. Maintain a proportional ownership interest in the corporation.

Common shareholders usually have all of the following rights except:

A. To share in the profits.

B. To share in assets upon liquidation.

C. To elect a board of directors.

D. To participate in the day-to-day operations.

D. To participate in the day-to-day operations.

The par value of shares issued is normally recorded in the:

A. Paid-in capital in excess of par account.

B. Common stock account.

C. Retained earnings account.

D. Appropriated retained earnings account.

B. Common stock account.

Authorized common stock refers to the total number of shares:

A. Outstanding.

B. Issued.

C. Issued and outstanding.

D. That can be issued.

D. That can be issued.

The par value of common stock represents:

A. The arbitrary dollar amount assigned to a share of stock.

B. The liquidation value of a share.

C. The book value of a share of stock.

D. The amount received when the stock was issued.

A. The arbitrary dollar amount assigned to a share of stock.

When stock traded on an active exchange is issued for a machine:

A. No entry is recorded until restrictions are lifted.

B. An asset is recorded for the fair value of the stock.

C. An asset is recorded for the appraised value of the machine.

D. Paid-in capital is increased by the appraised value of the machine.

B. An asset is recorded for the fair value of the stock.

Paid-in capital in excess of par is reported:

A. As a reduction of shareholders’ equity.

B. As a noncurrent asset.

C. As a noncurrent liability.

D. As an increase in shareholders’ equity.

D. As an increase in shareholders’ equity.

Share issue costs refer to the costs of obtaining the legal, promotional, and accounting services necessary to effect the sale of shares. The costs reduce the net cash proceeds from selling the shares and thus paid-in capital—excess of par, and are:

A. Not recorded separately.

B. Recorded as an asset.

C. Recorded as a liability.

D. Amortized over time.

A. Not recorded separately.

When stock is issued in exchange for property, the best evidence of fair value might be any of the following except:

A. The appraised value of the property received.

B. The selling price of the stock in a recent transaction.

C. The price of the stock quoted on the stock exchange.

D. The average book value of outstanding stock.

D. The average book value of outstanding stock.

When more than one security is sold for a single price and the total selling price is not equal to the sum of the market prices, the cash received is allocated between the securities based on:

A. Relative book values.

B. Par values.

C. Relative market values.

D. The earnings per share.

C. Relative market values.

The owners of a corporation are its shareholders. If a corporation has only one class of shares, they typically are labeled common shares. Each of the following are ownership rights held by common shareholders, unless specifically withheld by agreement, except:

A. The right to vote on policy issues.

B. The right to share in profits when dividends are declared (in proportion to the percentage of shares owned by the shareholder).

C. The right to dividends equal to a stated rate time par value (if dividends are paid).

D. The right to share in the distribution of any assets remaining at liquidation after other claims are satisfied.

C. The right to dividends equal to a stated rate time par value (if dividends are paid).

The shareholders’ equity of Green Corporation includes $200,000 of $1 par common stock and $400,000 par value of 6% cumulative preferred stock. The board of directors of Green declared cash dividends of $50,000 in 2013 after paying $20,000 cash dividends in each of 2012 and 2011. What is the amount of dividends common shareholders will receive in 2013?

A. $18,000.

B. $26,000.

C. $28,000.

D. $32,000.

A. $18,000.

The shareholders’ equity of Red Corporation includes $200,000 of $1 par common stock and $400,000 par value of 6% cumulative preferred stock. The board of directors of Red declared cash dividends of $50,000 in 2013 after paying $20,000 cash dividends in 2012 and $40,000 in 2011. What is the amount of dividends common shareholders will receive in 2013?

A. $18,000.

B. $22,000.

C. $26,000.

D. $28,000.

B. $22,000.

Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2013. In October 2013, Rick Co.’s Board of Directors declared and distributed a 1% common stock dividend when the market value of its common stock was $60 per share. In recording this transaction, Rick would:

A. Debit retained earnings for $18 million.

B. Credit paid-in capital—excess of par for $18 million.

C. Credit common stock for $18 million.

D. None of the above is correct.

A. Debit retained earnings for $18 million.

Which of the following transactions decreases retained earnings?

A. A property dividend.

B. A stock dividend.

C. A cash dividend.

D. All of the above are correct.

D. All of the above are correct.

Poodle Corporation was organized on January 3, 2013. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2013, Poodle had the following transactions relating to shareholders’ equity:

Issued 30,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.

What is total paid-in capital at the end of 2013?

A. $420,000.

B. $370,000.

C. $470,000.

D. $320,000.

B. $370,000.

Olsson Corporation received a check from its underwriters for $72 million. This was for the issue of one million of its $5 par stock that the underwriters expect to sell for $72 per share. Which is the correct entry to record the issue of the stock?
A.

B.

C.

D. Cash, Common Stock, Paid in Capital

D. Cash, Common Stock, Paid in Capital

Montgomery & Co., a well-established law firm, provided 500 hours of its time to Fink Corporation in exchange for 1,000 shares of Fink’s $5 par common stock. Montgomery’s usual billing rate is $700 per hour, and Fink’s stock has a book value of $250 per share. By what amount will Fink’s paid-in capital—excess of par increase for this transaction?

A. $345,000.

B. $295,000.

C. $350,000.

D. $300,000.

A. $345,000.

In 2011, Winn, Inc., issued $1 par value common stock for $35 per share. No other common stock transactions occurred until July 31, 2013, when Winn acquired some of the issued shares for $30 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?

A. 2013 net income is decreased.

B. Additional paid-in capital is decreased.

C. 2013 net income is increased.

D. Retained earnings is increased.

B. Additional paid-in capital is decreased.

Treasury shares are most often reported as:

A. A reduction of total shareholders’ equity.

B. A reduction of total paid-in capital.

C. A reduction to retained earnings.

D. An expense on the income statement.

A. A reduction of total shareholders’ equity.

Coy, Inc., initially issued 200,000 shares of $1 par value stock for $1,000,000 in 2011. In 2012, the company repurchased 20,000 shares for $200,000. In 2013, 10,000 of the repurchased shares were resold for $160,000. In its balance sheet dated December 31, 2013, Coy, Inc.’s treasury stock account shows a balance of:

A. $0.

B. $40,000.

C. $100,000.

D. $200,000.

C. $100,000.

When treasury shares are sold at a price above cost:

A. A gain account is credited.

B. A loss is reported.

C. A revenue account is credited.

D. Paid-in capital is increased.

D. Paid-in capital is increased.

When treasury shares are resold at a price below cost:

A. Paid-in capital and/or retained earnings is reduced.

B. Paid-in capital and/or retained earnings is increased.

C. Retained earnings is always reduced.

D. A loss is taken on the income statement.

A. Paid-in capital and/or retained earnings is reduced.

When treasury stock is purchased for an amount greater than its par value, what is the effect on total shareholders’ equity?

A. Increase.

B. Decrease.

C. No effect.

D. Cannot tell from the given information.

B. Decrease.

When preferred stock is purchased by the issuing corporation at a price below the original issue price and the stock is retired, the transaction:

A. Increases net income for the year.

B. Increases retained earnings.

C. Increases revenue for the year.

D. Increases paid-in capital share repurchase.

D. Increases paid-in capital share repurchase.

Retained earnings represent:

A. Earned capital.

B. Cash.

C. Assets.

D. Net assets.

A. Earned capital.

Retained earnings represent a company’s:

A. Undistributed net income.

B. Undistributed net assets.

C. Extra paid-in capital.

D. Undistributed cash.

A. Undistributed net income.

The retained earnings balance reported in the balance sheet typically is not affected by:

A. Net income.

B. A prior period adjustment.

C. Dividends paid.

D. Restrictions.

D. Restrictions.

Boxer Company owned 20,000 shares of King Company that were purchased in 2011 for $500,000. On May 1, 2013, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer stock outstanding. The market value of the King stock was $30 per share on the date of declaration and $32 per share on the date of distribution. By how much is retained earnings reduced by the property dividend?

A. $0.

B. $150,000.

C. $160,000.

D. $300,000.

B. $150,000. (500,000/10) x $30 = $150,000

On October 1, 2013, Chief Corporation declared and issued a 10% stock dividend. Before this date, Chief had 80,000 shares of $5 par common stock outstanding. The market value of Chief Corporation on the date of declaration was $10 per share. As a result of this dividend, Chief’s retained earnings will:

A. Decrease by $80,000.

B. Not change.

C. Decrease by $40,000.

D. Increase by $80,000.

A. Decrease by $80,000.

Preferred stock is called preferred because it usually has two preferences. These preferences relate to:

A. Dividends and voting rights.

B. Par value and dividends.

C. The preemptive right and voting rights.

D. Assets at liquidation and dividends.

D. Assets at liquidation and dividends.

When dividends are declared in one fiscal year and paid in the next fiscal year, the liability for the dividend should be recorded as of the:

A. Date the dividend is declared.

B. Last day of the fiscal year.

C. Date of record.

D. Date of payment.

A. Date the dividend is declared.

Any dividend that is considered to be a liquidating dividend will:

A. Reduce retained earnings.

B. Reduce paid-in capital.

C. Increase paid-in capital.

D. Reduce the common stock account.

B. Reduce paid-in capital.

On June 1, 2013, Blue Co. distributed to its common stockholders 200,000 outstanding common shares of its investment in Red, Inc., an unrelated party. The carrying amount on Blue’s books of Red’s $1 par common stock was $2 per share. Immediately after the declaration, the market price of Red’s stock was $2.50 per share. In its income statement for the year ended June 30, 2013, what amount should Blue report as gain before income taxes on disposal of the stock?

A. $0.

B. $100,000.

C. $400,000.

D. $500,000.

B. C

Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock?

A. The shareholders must be allowed to convert their shares to common stock.

B. The unpaid dividends are accrued as a liability.

C. The unpaid dividends are reported in a note to the financial statements.

D. The unpaid dividends accrue interest until paid.

C. The unpaid dividends are reported in a note to the financial statements.

Preferred shares that are participating may:

A. Vote for the board of directors.

B. Be exchanged for common stock.

C. Receive extra cash during corporate liquidation.

D. Receive additional dividends beyond the stated amount.

D. Receive additional dividends beyond the stated amount.

When a property dividend is declared, the reduction in retained earnings is for:

A. The book value of the property on the date of declaration.

B. The book value of the property on the date of distribution.

C. The fair value of the property on the date of distribution.

D. The fair value of the property on the date of declaration.

D. The fair value of the property on the date of declaration.

When a property dividend is declared, the property to be distributed should be revalued to fair value as of the:

A. Record date.

B. Date of distribution.

C. Date of declaration.

D. Announcement date.

C. Date of declaration.

At the beginning of 2011, Emily Corporation issued 10,000 shares of $100 par, 5%, cumulative, preferred stock for $110 per share. No dividends have been paid to preferred or common shareholders. What amount of dividends will a preferred shareholder owning 100 shares receive in 2013 if Emily pays $1,000,000 in dividends?

A. $500.

B. $1,500.

C. $1,650.

D. $10,000.

B. $1,500… 100 x 5% x 100 shares x 3 years.

Pug Corporation has 10,000 shares of $10 par common stock outstanding and 20,000 shares of $100 par, 6% noncumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $150,000 dividend will be paid. What are the dividends per share for preferred and common, respectively?

A. $7.50; $0.

B. $6; $3.

C. $6; $1.50.

D. None of the above is correct.

B. $6; $3. Preferred: $6 per share x 20,000 = $120,000; $120,000/20,000 shares = $6 per share Common: ($150,000 – $120,000)/10,000 = $3 per share

Beagle Corporation has 20,000 shares of $10 par common stock outstanding and 10,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $300,000 dividend will be paid. What are the dividends per share payable to preferred and common, respectively?

A. $6; $12.

B. $18; $6.

C. $6; $6.

D. None of the above is correct.

B. $18; $6. Preferred: $6 x 3 x 10,000 = $180,000 Common: ($300,000 – $180,000)/20,000 = $6

Lucid Company declared a property dividend of 20,000 shares of $1 par Polk Company common stock. The Polk stock was purchased for $5 per share. Market value was $10 per share on the declaration date and $11 per share on the distribution date. What is the amount of the dividend?

A. $100,000.

B. $200,000.

C. $220,000.

D. $300,000.

B. $200,000…20,000 x $10 = $200,000

The declaration and issuance of a stock dividend on shares of common stock:

A. Has no effect on assets, liabilities, or total shareholders’ equity.

B. Decreases total shareholders’ equity and increases common stock.

C. Decreases assets and decreases total shareholders’ equity.

D. Does not change retained earnings or paid-in capital.

A. Has no effect on assets, liabilities, or total shareholders’ equity.

Stock splits are issued primarily to:

A. Increase the number of outstanding shares.

B. Increase the number of authorized shares.

C. Increase legal capital.

D. Induce a decline in market value per share.

D. Induce a decline in market value per share.

A small stock dividend is defined as one that is:

A. Less than or equal to 40%.

B. Less than 40%.

C. Less than or equal to 10%.

D. Less than 25%.

D. Less than 25%.

When a company issues a stock dividend, which of the following would be affected?

A. Earnings per share.

B. Total assets.

C. Total liabilities.

D. Total shareholders’ equity.

A. Earnings per share.

R Co. has outstanding 100 million shares, $1 par common stock, selling for $8 per share. After a 1 for 4 reverse stock split:

A. R would have 25 million shares, $4 par per share.

B. The market price per share would be about $2.

C. Fractional shares would be issued.

D. Retained earnings would be reduced.

A. R would have 25 million shares, $4 par per share.

F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, a shareholder with 110 shares likely would receive:

A. Five additional shares.

B. Fractional share rights for 5½ shares.

C. Five additional shares and $6 in cash.

D. Five additional shares and a fractional share right for 2½ shares.

C. Five additional shares and $6 in cash.

Which of the terms or phrases listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards?

A. Accumulated other comprehensive income.

B. Investment revaluation reserve.

C. Share premium.

D. Preference shares.

A. Accumulated other comprehensive income.

Heidi Aurora Imports applies International Financial Reporting Standards. The company issued shares of the company’s Class B stock. Heidi Aurora Imports should report the stock in the company’s statement of financial position:

A. Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.

B. As equity unless the shares are mandatorily redeemable.

C. As equity unless the shares are redeemable at the option of the issuer.

D. Among liabilities unless the shares are mandatorily redeemable.

A. Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.

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