acct exam4 review chap 13

3) Which of the following is true of a corporation?
A) A corporation cannot be privately held.
B) The earnings of a corporation may be subject to double taxation.
C) A corporation has a limited life.
D) The stockholders of a corporation have unlimited liability for the corporation’s debt.

B) The earnings of a corporation may be subject to double taxation.

4) Lack of mutual agency is best described as which of the following?
A) The liabilities of the corporation cannot be extended to the personal assets of the stockholder.
B) Shares of stock can be readily purchased and sold by investors on an organized stock exchange.
C) Stockholders 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 income tax on corporate dividends.

C) Stockholders are not authorized to sign contracts or make business commitments on behalf of the corporation.

5) Which of the following statements is true of a corporation?
A) Shareholders can be required to pay debts of the corporation.
B) Shares of stock cannot be readily purchased and sold by investors on an organized stock exchange.
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 income tax on corporate dividends.

D) Corporations pay income tax on corporate earnings, and shareholders pay income tax on corporate dividends.

6) Which of the following corporate characteristics is a disadvantage of a corporation?
A) Stockholders have limited liability.
B) A corporation has a continuous life.
C) There is no mutual agency between the stockholders and the corporation.
D) Earnings of a corporation may be subject to double taxation.

D) Earnings of a corporation may be subject to double taxation.

7) Which of the following 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

B) limited liability of stockholders

16) Outstanding stock represents shares of stock that ________.
A) are held by the stockholders
B) are sold for the highest price
C) have been authorized by state law
D) have been issued but may or may not be held by stockholders

A) are held by the stockholders

17) Which of the following is a basic right 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 the issue price of common stock.

C) Stockholders may receive dividends from corporate earnings.

18) Which of the following is a true statement?
A) Stockholders are guaranteed annual dividends.
B) Stockholders receive their proportionate share of any assets remaining after the corporation pays its debts and liquidates.
C) Stockholders may authorize a business contract on behalf of the corporation.
D) Stockholders may determine the issue price of common stock.

B) Stockholders receive their proportionate share of any assets remaining after the corporation pays its debts and liquidates.

19) 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

D) the amount assigned by a company to a share of its stock

20) 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) no-par and stated value stock

C) paid-in capital and retained earnings

21) Paid-in capital consists of ________.
A) amounts received from customers
B) amounts raised by issuing bonds or preferred stocks
C) earnings generated by the corporation
D) amounts received from stockholders in exchange for stock

D) amounts received from stockholders in exchange for stock

22) The retained earnings of a corporation is ________.
A) internally generated equity that is earned by profitable operations that is not distributed to stockholders
B) externally generated equity that is contributed by shareholders
C) externally generated equity that is acquired from banks and other creditors
D) internally generated equity that is received from employee stock purchases

A) internally generated equity that is earned by profitable operations that is not distributed to stockholders

23) Preferred stock is stock ________.
A) that sells for a high price
B) that is distributed to employees as annual bonuses
C) that is distributed by corporations to avoid liquidation
D) that gives its owners certain advantages over common stockholders

D) that gives its owners certain advantages over common stockholders

24) Which of the following types of stock has less investment risk?
A) common stock
B) par value stock
C) no-par stock
D) preferred stock

D) preferred stock

25) Preferred stockholders ________.
A) are guaranteed that they will not have a loss on their investment
B) are guaranteed to receive an annual dividend payment
C) receive a set percentage of corporation net income
D) receive a dividend preference over common stockholders

D) receive a dividend preference over common stockholders

26) Preferred stockholders ________.
A) receive a dividend preference over common stockholders
B) are guaranteed that they will not have a loss on their investment
C) generally have voting rights
D) have more investment risk compared to common stockholders

A) receive a dividend preference over common stockholders

27) In the event of a corporate liquidation, preferred stockholders ________.
A) are guaranteed to receive a full refund of the stock purchase price
B) have first claim on remaining corporate assets after debts are paid
C) are guaranteed to receive the par value of the preferred stock
D) may retain their proportionate share of voting rights

B) have first claim on remaining corporate assets after debts are paid

3) Bradley Corporation received cash from issuing 17,000 shares of common stock at par on January 1, 2017. The stock has a par value of $0.05 per share. Which is the correct journal entry to record this transaction?
A) Cash is debited for $850, and Common Stock—$0.05 Par Value is credited for $850.
B) Cash is credited for $17,000 and Common Stock—$0.05 Par Value is debited for $17,000.
C) Paid-In Capital in Excess of Par—Common is debited for $16,150, and Common Stock—$0.05 Par Value is credited for $16,150.
D) Cash is debited for $17,000, Common Stock—$0.05 Par Value is credited for $850, and Paid-In Capital in Excess of Par-Common credited for $16,150.

A) Cash is debited for $850, and Common Stock—$0.05 Par Value is credited for $850.

9) Which of the following is included in the entry to record the issuance of 14,000 shares of $7 par value common stock at $21 per share cash?
A) Cash is debited for $294,000.
B) Common Stock is debited for $98,000.
C) Common Stock is credited for $294,000.
D) Paid-In Capital in Excess of Par—Common is debited for $196,000.

A) Cash is debited for $294,000. Explanation: A) Cash (14,000 × $21) 294,000 Common Stock ($7 × 14,000) 98,000 Paid-In Capital in Excess of Par—Common (($21 – $7) × 14,000) 196,000

10) The following information is from the December 31, 2017 balance sheet of Lawson Corporation.

Preferred Stock, $100 par $560,000
Paid-In Capital in Excess of Par—Preferred 43,000
Common Stock, $1 par 190,000
Paid-In Capital in Excess of Par—Common 510,000
Retained Earnings 191,500
Total Stockholders’ Equity $1,494,500

What was the average issue price of the common stock shares? (Round your answer to the nearest cent.)
A) $1.88
B) $1.00
C) $2.68
D) $3.68

D) $3.68 Common Stock, $1 par $190,000 No. of Shares = 190,000 / $1 190,000 Paid-In Capital in Excess of Par—Common $510,000 Average Issue Price = ($190,000 + $510,000) / 190,000 $3.68

11) Moretown, Inc. had the following transactions in 2017, its first year of operations:

• Issued 31,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $20.00 per share.
• Earned net income of $70,000.
• Paid no dividends.

At the end of 2017, what is total stockholders’ equity?
A) $31,000
B) $690,000
C) $620,000
D) $70,000

B) $690,000 Common stock (31,000 × $20) $620,000 Net income $70,000 Total stockholders’ equity $690,000

12) Green Apron, Inc. had the following transactions in 2017, its first year of operations:

• Issued 33,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $24.00 per share.
• Earned net income of $73,000.
• Paid no dividends.

At the end of 2017, what is the total amount of paid-in capital?
A) $33,000
B) $865,000
C) $792,000
D) $73,000

C) $792,000 No. of shares of common stock 33,000 Per share market value $24 Common stock (33,000 × $24) $792,000

13) Overton, Inc. had the following transactions in 2017, its first year of operations:

• Issued 8,000 shares of common stock. Stock has par value of $0.01 per share and was issued at $40.00 per share.
• Earned net income of $200,000.
• Paid dividends of $8.00 per share.

At the end of 2017, what is total stockholders’ equity?
A) $320,000
B) $456,000
C) $136,000
D) $584,000

B) $456,000 Common stock (8,000 × $40) $320,000 Net income $200,000 Dividend payment ($8 × 8,000) $(64,000) The total stockholders’ equity $456,000

16) Dallkin Corporation issued 10,000 shares of common stock on January 1, 2017. The stock has no par value and was issued at $17 per share. The journal entry for this transaction includes a ________.
A) debit to Cash for $170,000 and a credit to Common Stock—No-Par Value for $170,000
B) debit to Cash for $170,000 and a credit to Paid-In Capital in Excess of Par—Common for $170,000
C) credit to Cash for $170,000 and a debit to Common Stock—No-Par Value for $170,000
D) credit to Cash for $170,000, a debit to Paid-In Capital in Excess of Par—Common for $10,000, and a debit to Common Stock—No-Par Value for $160,000

A) debit to Cash for $170,000 and a credit to Common Stock—No-Par Value for $170,000

19) Jenkins Realty, Inc. issued 7,000 shares of $9 stated value common stock for $16 per share. The journal entry to record this transaction includes a credit to ________.
A) Common Stock for $112,000
B) Paid-In Capital in Excess of Stated — Common for $63,000
C) Common Stock — $9 Stated Value for $49,000
D) Paid-In Capital in Excess of Stated — Common for $49,000

D) Paid-In Capital in Excess of Stated — Common for $49,000

20) When 1,000 shares of $3 stated value common stock is issued at $18 per share, ________.
A) Common Stock — $3 Stated is credited for $18,000
B) the account titled Paid-In Capital in Excess of Stated is used to record the issue price of the stock
C) the difference between the issue price and the stated value is credited to Paid-In Capital in Excess of Stated
D) the accounting is exactly the same as the accounting for par value stock

C) the difference between the issue price and the stated value is credited to Paid-In Capital in Excess of Stated

23) When a stockholder contributes cash to a corporation in exchange for stock, ________.
A) liabilities and stockholders’ equity are increased
B) assets and stockholders’ equity are increased
C) one asset is increased and another asset is decreased
D) assets and liabilities are increased

B) assets and stockholders’ equity are increased

24) On December 2, 2017, Ewell, Inc. purchases land. In payment for the land, Ewell, Inc. issues 6,000 shares of common stock with $6 par value. The land has been appraised at a market value of $430,000. Which of the following is included in the journal entry to record this transaction?
A) debit Common Stock—$6 Par Value for $36,000 and debit Paid-In Capital in Excess of Par
—Common $394,000
B) credit Common Stock—$6 Par Value for $36,000 and credit Paid-In Capital in Excess of Par—Common $394,000
C) credit Common Stock—$6 Par Value for $430,000
D) debit Cash $430,000

B) credit Common Stock—$6 Par Value for $36,000 and credit Paid-In Capital in Excess of Par—Common $394,000 Explanation: B) Land 430,000 Common Stock—$6 Par Value (6,000 × $6) 36,000 Paid-In Capital in Excess of Par—Common ($430,000 – $36,000) 394,000

25) Osbourne, Inc. issued 60,000 shares of common stock in exchange for manufacturing equipment. The equipment has a fair value of $1,420,000. The stock has a par value of $0.05 per share. The journal entry to record this transaction includes a ________.
A) debit to Cash for $14,170,000
B) credit to Gain on Sale of Common Stock for $1,480,000
C) credit to Paid-In Capital in Excess of Par—Common for $1,417,000
D) credit to Common Stock—$0.05 Par Value for $1,420,000

C) credit to Paid-In Capital in Excess of Par—Common for $1,417,000 Equipment 1,420,000 Common Stock—$0.05 Par Value (60,000 × $0.05) 3,000 Paid-In Capital in Excess of Par-Common ($1,420,000 – $3,000) 1,417,000

29) The following information is from the December 31, 2017 balance sheet of Jackson Corporation.

Preferred Stock, $100 par $270,000
Paid-In Capital in Excess of Par—Preferred 22,000
Common Stock, $1 par 69,000
Paid-In Capital in Excess of Par—Common 206,000
Retained Earnings 56,600
Total Stockholders’ Equity $623,600

What is the average issue price of the preferred stock shares? (Round answers to the nearest dollar.)
A) $108
B) $100
C) $167
D) $106

A) $108 Preferred Stock, $100 par $270,000 No. of Shares = $270,000 / $100 2,700 Paid-In Capital in Excess of Par—Preferred $22,000 Average Price = ($270,000 + $22,000) / 2,700 $108

30) The following information is from the December 31, 2017 balance sheet of Tudor Corporation.

Preferred Stock, $100 par $390,000
Paid-In Capital in Excess of Par—Preferred 25,000
Common Stock, $1 par 152,000
Paid-In Capital in Excess of Par—Common 346,000
Retained Earnings 83,900
Total Stockholders’ Equity $996,900

What was the total paid-in capital as of December 31, 2017?
A) $736,000
B) $996,900
C) $913,000
D) $888,000

C) $913,000 Preferred Stock, $100 par $390,000 Paid-In Capital in Excess of Par—Preferred 25,000 Common Stock, $1 par 152,000 Paid-In Capital in Excess of Par—Common 346,000 Total Paid in Capital $913,000

31) Peterson, Inc. 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

D) debit Cash $240,000 and credit Preferred Stock—$60 Par Value $240,000 Explanation: D) Cash 240,000 Preferred Stock—$60 Par Value (4,000 × $60) 240,000

32) Lerner, Inc. had the following transactions in 2017, its first year of operations:

• Issued 22,000 shares of common stock. The stock has a par value of $3.00 per share and was issued at $16.00 per share.
• Issued 1,800 shares of $160 par value preferred stock at par.
• Earned net income of $37,000.
• Paid no dividends.

At the end of 2017, what is total stockholders’ equity?
A) $677,000
B) $354,000
C) $286,000
D) $640,000

A) $677,000 Explanation: A) Common stock (22,000 × $16) $352,000 Preferred stock (1,800 × $160) $288,000 Net income $37,000 Total stockholders’ equity $677,000

33) Castle, Inc. had the following transactions in 2017, its first year of operations:

• Issued 20,000 shares of common stock. The stock has a par value of $3.00 per share and was issued at $19.00 per share.
• Issued 2,000 shares of $200 par value preferred stock at par.
• Earned net income of $40,000.
• Paid no dividends.

At the end of 2017, what is the total amount of paid-in capital?
A) $820,000
B) $460,000
C) $380,000
D) $780,000

D) $780,000 Common stock (20,000 × $19) $380,000 Preferred stock (2,000 × $200) $400,000 Total paid-in capital $780,000

4) Treasury stock ________.
A) decreases the number of shares issued
B) increases the number of shares issued
C) increases the number of shares outstanding
D) decreases the number of shares outstanding

D) decreases the number of shares outstanding

5) Treasury stock is ________.
A) a contra equity account
B) a contra asset account
C) a liability account
D) an asset account

A) a contra equity account

6) Assume the following information for Petra Sales, Inc.:

• Common Stock, $1.00 par, 232,000 shares issued, 186,000 shares outstanding
• Paid-In Capital in Excess of Par—Common: $1,770,000
• Retained Earnings: $2,450,000
• Treasury Stock: 26,000 shares purchased at $12 per share

If Petra Sales purchases an additional 13,000 shares of treasury stock at $18 per share, what number of shares will be shown as issued and outstanding?
A) 18 issued; 186,000 outstanding
B) 219,000 issued; 186,000 outstanding
C) 232,000 issued; 173,000 outstanding
D) 232,000 issued; 186,000 outstanding

C) 232,000 issued; 173,000 outstanding Explanation: C) Total no. of shares outstanding = 186,000 – 13,000 = 173,000 shares

8) The purchase of treasury stock ________.
A) decreases assets and stockholders’ equity
B) increases assets and stockholders’ equity
C) increases assets and decreases stockholders’ equity
D) decreases assets and increases stockholders’ equity

A) decreases assets and stockholders’ equity

9) A corporation originally issued $13 par value common stock for $15 per share. Which of the following is included in the entry to record the purchase of 300 shares of treasury stock for $11 per share?
A) Treasury Stock—Common is debited for $3,300.
B) Treasury Stock—Common is credited for $45.
C) Retained Earnings is debited for $1,650.
D) Treasury Stock—Common is debited for $1,650.

A) Treasury Stock—Common is debited for $3,300. Explanation: A) Total amount debited to Treasury Stock—Common = No. of shares × purchase price per share = 300 x $11 = 3,300

10) Ross Corporation reported the following:

Common Stock, $5 par, 206,000 shares authorized, 165,000 shares issued $825,000
Paid in Capital in Excess of Par—Common 214,000
Retained Earnings 222,000
Total Stockholders’ Equity $1,261,000

Which of the following is included in the entry to record the corporation’s purchase of 40,000 shares of its common stock for $10.00 per share?
A) Treasury Stock—Common is debited for $400,000.
B) Paid-In Capital From Treasury Stock Transactions is credited for -$25,000.
C) Retained Earnings is debited for $400,000.
D) Common Stock—$5 Par Value is credited for $200,000.

A) Treasury Stock—Common is debited for $400,000. Explanation: A) Total amount debited to Treasury Stock – Common = No. of shares × purchase price per share = 40,000 × $10.00 = $400,000

11) Ropers, Inc. purchases 16,000 shares of its previously issued $2 par value common stock for $460 per share. Which of the following is the correct journal entry to record this transaction?
A) Debit Common Stock—$2 Par Value $7,360,000, and credit Cash $7,360,000.
B) Debit Cash $7,328,000, and credit Paid-In Capital in Excess of Par—Common $7,328,000.
C) Debit Cash $7,328,000, and credit Treasury Stock—Common $7,328,000.
D) Debit Treasury Stock—Common $7,360,000, and credit Cash $7,360,000.

D) Debit Treasury Stock—Common $7,360,000, and credit Cash $7,360,000. Explanation: D) 16,000 × $460 = $7,360,000

16) A corporation originally issued $8 par value common stock for $10 per share. It purchased the stock for $13 per share. Which of the following is included in the entry to record the sale of 70 shares of treasury stock for $14 per share?
A) Paid-In Capital From Treasury Stock Transactions is credited for $980.
B) Treasury Stock—Common is credited for $910.
C) Treasury Stock—Common is credited for $980.
D) Paid-In Capital From Treasury Stock Transactions is debited for $70.

B) Treasury Stock—Common is credited for $910. Explanation: B) Cash (70 × $14) 980 Treasury Stock—Common (70 × $13) 910 Paid-In Capital From Treasury Stock Transactions (70 × ($14 – $13)) 70

If Tangent resold 1,300 shares of treasury stock for $23.00 per share, which of the following statements would be true?
A) The Treasury Stock account would decrease by $21,450.
B) The Paid-In Capital in Excess of Par—Common account would increase by $1,300.
C) The Treasury Stock account would decrease by $42,900.
D) The Retained Earnings account would increase by $29,900.

C) The Treasury Stock account would decrease by $42,900. Explanation: C) 1,300 × $33 = $42,900

18) On March 31, 2017, Park Place, Inc. shows the following data on its balance sheet:

Stockholders’ Equity
Common Stock, $1 Par, 1,180,000 shares authorized
240,000 shares issued, 230,000 shares outstanding $240,000
Paid-In Capital in Excess of Par—Common 2,560,000
Retained Earnings 4,790,000
Treasury stock, 15,000 shares at $40 -600,000
Total Stockholder’s Equity $6,990,000

Assume that Park Place sells 1,500 shares of treasury stock at $33 per share. What is total stockholders’ equity after this transaction?
A) $6,940,500
B) $7,039,500
C) $6,979,500
D) $7,000,500

B) $7,039,500 Total stockholder’s equity $6,990,000 Sale of treasury stock 49,500 Total equity after the sale of stock $7,039,500

24) 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 increase

A) total stockholders’ equity will decrease

1) Which of the following is true of dividends?
A) Dividends are a distribution of cash, stock, or other property to 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.

A) Dividends are a distribution of cash, stock, or other property to stockholders.

10) A corporation declares a dividend of $0.50 per share on 18,000 shares of common stock. Which of the following is included in the entry to record the declaration?
A) Cash Dividends is debited for $9,000.
B) Paid-In Capital in Excess of Par—Common is credited for $9,000.
C) Cash Dividends is credited for $9,000.
D) Dividends Payable—Common is debited for $9,000.

A) Cash Dividends is debited for $9,000.

11) On the ________, cash dividends become a liability of a corporation.
A) declaration date
B) date of record
C) last day of the fiscal year
D) payment date

A) declaration date

12) The entry to record the payment of a previously declared dividend of $0.25 per share on 18,500 shares of common stock includes a ________.
A) debit to Cash Dividends for $4,625
B) debit to Cash $4,625
C) credit to Cash Dividends for $4,625
D) debit to Dividends Payable for $4,625

D) debit to Dividends Payable for $4,625

13) When a previously declared dividend is paid, which of the following occurs?
A) assets increase
B) stockholders’ equity increases
C) liabilities decrease
D) assets remain unchanged

C) liabilities decrease

14) 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

B) stockholders’ equity decreases

15) 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

C) passed dividends on cumulative preferred stock

16) Saturn Corporation has 13,000 shares of 14%, $84 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 $8,107 to preferred stockholders and $109,091 to common stockholders.
B) The dividend is allocated $152,880 to preferred stockholders and $27,120 to common stockholders.
C) The dividend is allocated $70,909 to preferred stockholders and $109,091 to common stockholders.
D) The dividend is allocated $235,200 to preferred stockholders and $55,200 to common stockholders.

B) The dividend is allocated $152,880 to preferred stockholders and $27,120 to common stockholders. Explanation: B) Dividend allocated to preferred stockholders: $84 × 14% × 13,000 shares = $152,880 Dividend allocated to common stockholders: $180,000 – $152,880 = $27,120

17) A corporation has 14,000 shares of 13%, $104 par noncumulative preferred stock outstanding and 22,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of $220,000. What is the dividend per share for preferred stock and for common stock? (Round your answer to the nearest cent.)
A) The dividend per share is $13.52 to preferred stock and $1.40 to common stock.
B) The dividend per share is $8.26 to preferred stock and $1.40 to common stock.
C) The dividend per share is $13.52 to preferred stock and $13.52 to common stock.
D) The dividend per share is $13.52 to preferred stock and $27.50 to common stock.

A) The dividend per share is $13.52 to preferred stock and $1.40 to common stock. Explanation: A) The dividend per share of preferred stock = $104 × 13% = $13.52 per share × 14,000

18) On November 1, 2017, Oster, Inc. declared a dividend of $4.50 per share. Oster, Inc. has 23,000 shares of common stock outstanding and no preferred stock. Which of the following is the journal entry needed to record the declaration of the dividend?
A) Debit Dividends Payable—Common $103,500, and credit Retained Earnings $103,500.
B) Debit Cash Dividends $103,500, and credit Cash $103,500.
C) Debit Cash Dividends $103,500, and credit Dividends Payable—Common $103,500.
D) Debit Cash $103,500, and credit Dividends Payable—Common $103,500.

C) Debit Cash Dividends $103,500, and credit Dividends Payable—Common $103,500. Explanation: C) Dividends Payable = Dividends per share × No. of shares = $4.50 × 23,000 = $103,500

19) On November 1, 2017, President, Inc. declared a dividend of $3.00 per share. President, Inc. has 10,000 shares of common stock outstanding and 20,000 of preferred stock. The date of record is November 15, and the payment date is November 30, 2017. Regarding the date of record, which of the following statements is true?
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.

A) No journal entry is made on the date of record.

20) On November 1, 2017, McEwing, Inc. declared a dividend of $5.00 per share. McEwing, Inc. has 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, 2017. Which of the following is the journal entry needed on November 30, 2017?
A) Debit Cash Dividends $100,000, and credit Dividends Payable—Common $100,000.
B) Debit Dividends Payable—Common $100,000, and credit Cash $100,000.
C) Debit Cash $100,000, and credit Dividends Payable—Common $100,000.
D) Debit Cash Dividends $100,000, and credit Cash $100,000.

B) Debit Dividends Payable—Common $100,000, and credit Cash $100,000. Explanation: B) Dividends Payable = Dividends per share × No. of shares = $5.00 × 20,000 = $100,000

21) Pearland, Inc. has 9,000 shares of preferred stock outstanding. The preferred stock has a $90 par value, a 14% 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 stockholders?
A) $32,143
B) $113,400
C) $57,857
D) $8,100

B) $113,400 Explanation: B) The total amount of dividends paid out to preferred stockholders = ($90 x 14%) x 9,000 = $113,400

22) On the date of record for a dividend, the company ________.
A) issues new shares of stock on that date
B) disburses dividend payments to stockholders on that date
C) records the dividend payable amount on that date
D) determines who owns the shares of stock on that date

D) determines who owns the shares of stock on that date

23) Occidental Produce, Inc. has 49,000 shares of common stock outstanding and 6,000 shares of preferred stock outstanding. The common stock is $0.08 par value; the preferred stock is 4% noncumulative with a $100.00 par value. On October 15, 2017, the company declares a total dividend payment of $56,000. How much dividend will be paid to the preferred stockholders?
A) $56,000
B) $48,000
C) $24,000
D) $3,920

C) $24,000 Explanation: C) Dividend paid to the preferred stockholders = ($100.00 × 4%) × 6,000 = $24,000

24) Happy Farmer, Inc. has 44,000 shares of common stock outstanding and 3,000 shares of preferred stock outstanding. The common stock is $0.08 par value; the preferred stock is 8% noncumulative with a $100.00 par value. On October 15, 2017, the company declares a total dividend payment of $56,000. What is the total amount of dividends that will be paid to the common stockholders?
A) $56,000
B) $32,000
C) $3,520
D) $24,000

B) $32,000 Explanation: B) Dividend paid to the common stockholders = $56,000 – [($100.00 × 8%) × 3,000] = $32,000

26) Which of the following is the correct description of dividends in arrears?
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 after the payment date
D) the amount of dividends that will be paid in the next year

A) the cumulative amount of dividends that were not paid in previous years

27) Orleans, Inc. was incorporated on January 1, 2014. Orleans issued 4,000 shares of common stock and 1,200 shares of preferred stock on that date. The preferred stock is cumulative, $100 par, with an 12% dividend rate. Orleans has not paid any dividends yet. In 2017, Orleans had its first profitable year, and on November 1, 2017, Orleans declared a total dividend of $63,000. What is the total amount that will be paid to preferred shareholders?
A) $14,400
B) $57,600
C) $13,200
D) $63,000

B) $57,600 Explanation: B) Par value $100 DPS $12 No. of preferred stock × 1,200 Dividend paid to the preferred stockholders / year $14,400 Cumulative payment = [($100 × 12%) × 1,200] × 4 = $57,600

29) From its inception through the year of 2016, Quicksales, Inc. was profitable and made strong dividend payments each year. In the year 2017, Quicksales had major losses and paid no dividends. In 2018, the company started making large profits again, and they were able to pay dividends to all shareholders—both common and preferred. There are 2,000 shares of cumulative, 10% preferred stock outstanding. The preferred stock has a par value of $100. What is the total amount of dividends that should be paid to the preferred stockholders in December, 2018?
A) $60,000
B) $90
C) $20,000
D) $40,000

D) $40,000 Par value $100 DPS $10 No. of preferred stock × 2,000 Annual preferred dividend $20,000 The total amount of dividends which should be paid to the preferred stockholders = $20,000 × 2 = $40,000

30) A corporation has 20,000 shares of 17%, $50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Dividends of $36,000 are in arrears. At the end of the current year, the corporation declares a dividend of $208,000. How is the dividend allocated between preferred and common stockholders?
A) The dividend is allocated $2,000 to preferred stockholders and $206,000 to common stockholders.
B) The dividend is allocated $206,000 to preferred stockholders and $2,000 to common stockholders.
C) The dividend is allocated $208,000 to preferred stockholders and no dividend is paid to common stockholders.
D) The dividend is allocated $170,000 to preferred stockholders and $38,000 to common stockholders.

B) The dividend is allocated $206,000 to preferred stockholders and $2,000 to common stockholders. Explanation: B) Dividend to preferred stockholders = ($50 × 17% × 20,000 shares) = $170,000 current year + $36,000 in arrears = $206,000 Dividend to common stockholders = $208,000 – $206,000 = $2,000

31) A corporation has 18,000 shares of 13%, $50 par cumulative preferred stock outstanding and 34,000 shares of no-par common stock outstanding. Dividends of $22,000 are in arrears. At the end of the current year, the corporation declares a dividend of $208,000. What is the dividend per share for preferred stock and for common stock? (Round your answer to the nearest cent.)
A) The dividend per share is $5.00 to preferred stock and $6.65 per share to common stock.
B) The dividend per share is $11.56 to preferred stock and $0 per share to common stock.
C) The dividend per share is $7.72 to preferred stock and $2.03 per share to common stock.
D) The dividend per share is $11.56 to preferred stock and $2.03 per share to common stock.

C) The dividend per share is $7.72 to preferred stock and $2.03 per share to common stock. Explanation: B) C) Total amount paid to preferred shareholders: ($50 × 13% × 18,000 shares current year) + $22,000 in arrears = $139,000 Dividend per preferred share = $139,000 / 18,000 shares = $7.72 Dividend per common share: $208,000 – $139,000 = $69,000.00 / 34,000 shares = $2.03

39) When a 5% stock dividend is declared, which account is debited?
A) Common Stock—Par Value
B) Common Stock Dividend Distributable
C) Retained Earnings
D) Paid-In Capital in Excess of Par—Common

C) Retained Earnings

40) The distribution of a stock dividend ________.
A) decreases both assets and liabilities
B) decreases assets and increase liabilities
C) effects only stockholder’s equity accounts
D) increases both dividends payable and cash

C) effects only stockholder’s equity accounts

41) When the corporation declares a stock dividend, a stockholder’s percentage ownership in the stock of the corporation ________.
A) will decrease
B) can increase or decrease
C) will increase
D) remains unchanged

D) remains unchanged

42) Which of the following occurs when a corporation distributes a stock dividend?
A) Total liabilities would increase.
B) Total stockholders’ equity would increase.
C) Total assets would decrease.
D) Total stockholders’ equity would be unchanged.

D) Total stockholders’ equity would be unchanged.

43) Which of the following occurs when a corporation’s board of directors declares a 10% stock dividend?
A) Stock Dividends will be credited for the new shares times the current market value of the stock.
B) Stock Dividends will be debited for the new shares times the current market value of the stock.
C) Stock Dividends will be debited for the new shares times the par value of the stock.
D) Stock Dividends will be credited for the new shares times the par value of the stock.

B) Stock Dividends will be debited for the new shares times the current market 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

B) board of directors of the company

45) A company originally issued 13,000 shares of $6 par value common stock at $12 per share. The board of directors declares a 12% stock dividend when the market price of the stock is $22 a share. Which of the following is included in the entry to record the declaration of a stock dividend?
A) Stock Dividends is debited for $34,320.
B) Stock Dividends is credited for $34,320.
C) Stock Dividends is debited for $18,720.
D) Paid-In Capital in Excess of Par—Common is credited for $18,720.

A) Stock Dividends is debited for $34,320. Explanation: A) 13,000 × 12% × $22 market price = $34,320 total dividend debited to Stock Dividends

46) A company originally issued 14,000 shares of $5 par value common stock at $12 per share. The board of directors declares an 14% stock dividend when the market price of the stock is $25 a share. Which of the following is included in the entry to record the declaration of a stock dividend?
A) Stock Dividends is debited for $24,500.
B) Common Stock—$5 Par Value is credited for $47,040.
C) Common Stock is credited for $49,000.
D) Stock Dividends is debited for $49,000.

D) Stock Dividends is debited for $49,000. Explanation: D) Stock Dividends (14,000 shares × 14% × $25 market price) = $49,000

47) A corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $15.00 per share.

Common Stock, $6 par, 106,000 shares authorized,57,000 shares issued and outstanding $342,000
Paid in Capital in Excess of Par 150,000
Retained Earnings 500,000
Total Stockholders’ Equity $992,000

Which of the following would be included in the entry to record the distribution of a 15% stock dividend?
A) Common Stock—$6 Par Value would be credited for $51,300.
B) Stock Dividends would be debited for $95,400.
C) Paid-In Capital in Excess of Par—Common is debited for $95,400.
D) Stock Dividends would be credited for $51,300.

A) Common Stock—$6 Par Value would be credited for $51,300. Explanation: A) Common Stock 57,000 shares × 15% × $6 = $51,300

48) Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $12.00 per share.

Common Stock, $10 Par, 103,000 shares authorized, 58,000 shares issued and outstanding $580,000
Paid-in Capital in Excess of Par—Common 125,000
Retained Earnings 302,000
Total Stockholders’ Equity $1,007,000

What would be the total stockholders’ equity after a 15% common stock dividend?
A) $1,073,700
B) $705,000
C) $1,007,000
D) $604,200

C) $1,007,000

49) Sanella Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $18.25 per share.

Common Stock, $14 Par, 129,000 shares authorized,48,000 shares issued and outstanding $672,000
Paid-in Capital in Excess of Par—Common 167,000
Retained Earnings 350,000
Total Stockholders’ Equity $1,189,000

What would be the balance in the Common Stock account after the issuance of a 10% stock dividend?
A) $334,000
B) $604,800
C) $739,200
D) $672,000

C) $739,200 Explanation: C) Par value $14 DPS $1.4 No. of common stock × 48,000 Dividend paid to the common stockholders $67,200 Common stock, $14 par, 129,000 shares authorized, 48,000 shares issued $672,000 Balance in the Common Stock account $739,200 $672,000 + (48,000 × $14 × 10%) = $739,200

50) Landess Corporation currently has 129,000 shares outstanding of $3 par value common stock. The stock was originally issued for $14 per share. On March 15, the board of directors declares a 13% stock dividend when the stock is selling for $22 per share. Which of the following is the correct journal entry to record this transaction? (Do not round intermediate calculations.)
A) debit Common Stock Dividend Distributable $50,310, debit Paid-In Capital in Excess of Par—Common for $318,630 and credit Retained Earnings $368,940
B) debit Stock Dividends $368,940 and credit Common Stock Dividend Distributable $368,940
C) debit Stock Dividends $368,940, credit Common Stock Dividend Distributable $50,310 and credit Paid-In Capital in Excess of Par—Common $318,630
D) debit Paid-In Capital in Excess of Par—Common $368,940 and credit Retained Earnings $368,940

C) debit Stock Dividends $368,940, credit Common Stock Dividend Distributable $50,310 and credit Paid-In Capital in Excess of Par—Common $318,630 Stock Dividends = (129,000 × $22 × 13%) = 368,940 Common Stock Dividend Distributable = (129,000 × $3 × 13%) = 50,310 Paid-In Capital in Excess of Par—Common = (129,000 × ($22 – $3) × 13%) = 318,630

51) Happy Holidays, Inc. has 110,000 shares of common stock issued and outstanding, with a par value of $0.03 per share. It declared a 17% common stock dividend; market value is $14 per share. Which of the following is the correct journal entry to record the transaction? (Round your answers to the nearest whole dollar.)
A) debit Stock Dividends $261,800 and credit Paid-In Capital in Excess of Par—Common $261,800
B) debit Stock Dividends $261,800, credit Common Stock Dividend Distributable $561, and credit Paid-In Capital in Excess of Par—Common $261,239
C) debit Stock Dividends $261,800 and credit Cash $261,800
D) debit Common Stock Dividend Distributable $561, debit Paid-In Capital in Excess of Par—Common $261,239, and credit Retained Earnings $261,800

B) debit Stock Dividends $261,800, credit Common Stock Dividend Distributable $561, and credit Paid-In Capital in Excess of Par—Common $261,239 Stock Dividends = (110,000 × $14 × 17%) = 261,800 Common Stock Dividend Distributable = (110,000 × $0.03 × 17%) = 561 Paid-In Capital in Excess of Par-Common = (110,000 × ($14 – $0.03) × 17%) = 261,239

52) On December 1, 2017, Arthur, Inc. had 40,000 shares of $10 par value common stock issued and outstanding. The next day it 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 Stock Dividends $360,000 and credit Cash $360,000
B) debit Stock Dividends $360,000, credit Common Stock $400,000, and credit Paid-In Capital in Excess of Par -$40,000
C) debit Common Stock $200,000 and credit Cash $200,000
D) debit Stock Dividends $200,000 and credit Common Stock Dividend Distributable $200,000

D) debit Stock Dividends $200,000 and credit Common Stock Dividend Distributable $200,000 Explanation: D) (40,000 × 50%) × $10 = $200,000

53) On June 30, 2017, Roger, Inc. showed the following data on the equity section of their balance sheet:

Stockholders’ Equity
Common Stock, $1 par; 202,000 shares authorized, 150,000 shares issued and outstanding $150,000
Paid-In Capital in Excess of Par—Common $260,000
Retained Earnings 946,000
Total Stockholder’s Equity $1,356,000

On July 1, 2017, the company declared and distributed a 9% stock dividend. The market value of the stock at that time was $20 per share. Following this transaction, what is the balance of Common Stock?
A) $163,500
B) $57,180
C) $285,540
D) $357,180

A) $163,500 Explanation: A) The new balance in the Common stock account = Common Stock + Stock dividend distributable = $150,000 + [(150,000 × 9%) × $1] = $163,500

54) On June 30, 2017, Rangers, Inc. showed the following data on the equity section of their balance sheet:

Stockholders’ Equity
Common Stock, $1 par; 197,000 shares authorized,146,000 shares issued and outstanding $146,000
Paid-In Capital in Excess of Par—Common $263,000
Retained Earnings 958,000
Total Stockholder’s Equity $1,367,000

On July 1, 2017, the company declared and distributed a 10% stock dividend. The market value of the stock at that time was $15 per share. Following this transaction, what is the number of shares issued?
A) 86,500
B) 297,300
C) 160,600
D) 146,000

C) 160,600 Explanation: C) Calculations: (146,000 × 10%) + 146,000 = 160,600 shares

55) On June 30, 2017, Martin Brothers, Inc. showed the following data on the equity section of their balance sheet:

Stockholders’ Equity
Common Stock, $1 par; 197,000 shares authorized, 146,000 shares issued and outstanding $146,000
Paid-In Capital in Excess of Par—Common $271,000
Retained Earnings 941,000
Total Stockholder’s Equity $1,358,000

On July 1, 2017, the company declared and distributed a 8% stock dividend. The market value of the stock at that time was $17 per share. Following this transaction, what is the balance of Paid-In Capital in Excess of Par—Common?
A) $227,640
B) $523,160
C) $271,000
D) $457,880

D) $457,880 Explanation: D) $271,000 + (11,680 shares × $16 per share) = $457,880

56) On June 30, 2017, Stephans, Inc. showed the following data on the equity section of their balance sheet:

Stockholders’ equity
Common stock, $1 par; 199,000 shares authorized, 157,000 shares issued and outstanding $157,000
Paid-In Capital in Excess of Par—Common $262,000
Retained Earnings 957,000
Total Stockholder’s Equity $1,376,000

On July 1, 2017, the company declared and distributed a 6% stock dividend. The market value of the stock at that time was $14 per share. Following this transaction, what is total stockholders’ equity?
A) $1,376,000
B) $1,558,140
C) $1,302,860
D) $1,208,840

A) $1,376,000

57) On June 30, 2017, Texas, Inc. showed the following data on the equity section of their balance sheet:

Stockholders’ Equity
Common Stock, $1 par; 195,000 shares authorized, 149,000 shares issued and outstanding $149,000
Paid-In Capital in Excess of Par—Common $260,000
Retained Earnings 949,000
Total Stockholder’s Equity $1,358,000

On July 1, 2017, the company declared and distributed a 11% stock dividend. The market value of the stock at that time was $20 per share. As a result of this stock dividend, what is the balance of Retained Earnings?
A) $770,580
B) $951,000
C) $981,780
D) $621,200

D) $621,200 Explanation: D) Stock Dividend = 149,000 × $20 × 11% = $327,800 Balance in Retained Earnings = $949,000 – $327,800 = $621,200

58) Nice International originally issued 105,000 shares of common stock at a price of $22 per share. A year later, it distributed a 12% stock dividend to shareholders. At the time of the stock dividend, the share price had increased to $27 per share. Which of the following statements is true?
A) Nice will record sales revenues of $277,200.
B) Nice will record a loss of $63,000.
C) Nice will record a gain of $63,000.
D) Nice will record neither a gain nor a loss.

D) Nice will record neither a gain nor a loss.

60) Which of the following requires a formal journal entry?
A) selection of a new CEO
B) stock dividend distribution
C) stock split
D) date of record

B) stock dividend distribution

61) Maywood, Inc. has 3,000 shares of common stock outstanding. A stockholder has 300 shares. If the company distributes a 25% stock dividend, the stockholder now holds ________ shares of Maywood stock.
A) 375
B) 750
C) 300
D) 75

A) 375 Existing number of shares 300 Plus: 25% stock dividend 75 Total number of shares 375

71) Which of the following occurs when the board of directors declares a 3-for-1 stock split on 20,000 outstanding shares of $25 par common stock?
A) The par value of the stock remains the same.
B) The par value of the stock increases to $50 per share.
C) The number of outstanding shares remains at 20,000.
D) The number of outstanding shares increases to 60,000.

D) The number of outstanding shares increases to 60,000. Explanation: D) 20,000 shares outstanding before the stock split × 3 = 60,000 shares outstanding after the stock split

72) Raedy Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $20.25 per share.

Common Stock, $5 par, 337,000 shares authorized, 157,000 shares issued and outstanding $785,000
Paid-In Capital in Excess of Par—Common 140,000
Retained Earnings 301,000
Total Stockholders’ Equity $1,226,000

After a 2-for-1 stock split, what is the number of issued shares?
A) 280,000
B) 314,000
C) 297,000
D) 140,000

B) 314,000 Explanation: B) 157,000 × 2 = 314,000

73) ABC has 61,000 shares of $16.00 par common stock outstanding. ABC announces a stock split of 4-for-1. What is the effect of the split?
A) par stays at $16.00; total shares increase to 15,250
B) par drops to $8.00; total shares stay at 61,000
C) par drops to $4.00; total shares increase to 244,000
D) par goes to $64.00; total shares increase to 244,000

C) par drops to $4.00; total shares increase to 244,000

80) Which of the following is true of a stock split and a stock dividend?
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.

B) Neither a stock split nor a stock dividend will increase total stockholders’ equity.

81) 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 in Excess of Par—Common doubles.

A) The balance in Common Stock remains the same.

82) Which of the following is a true statement regarding the effect of a stock split and stock dividend on total assets or liabilities?
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.

D) Neither a stock split nor a stock dividend will affect total assets or total liabilities.

83) Which of the following actions will increase the Common Stock account?
A) cash dividend
B) stock split
C) stock dividend declared and distributed
D) purchase of treasury stock

C) stock dividend declared and distributed

84) 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
D) purchase of treasury stock

C) 10% stock dividend declared

85) Which of the following actions will decrease Retained Earnings?
A) repayment of bond principal
B) stock split
C) stock dividend declared
D) purchase of treasury stock

C) stock dividend declared

86) Which of the following actions will decrease the amount of Total Stockholders’ Equity?
A) cash dividend declared
B) stock split
C) stock dividend declared
D) repayment of bond principal

A) cash dividend declared

7) Restrictions on retained earnings are ________.
A) reported on the statement of cash flows
B) usually reported in the notes to the financial statements
C) reported on the income statement
D) designed to maximize dividends paid to shareholders

B) usually reported in the notes to the financial statements

8) Cash dividends and treasury stock purchases ________.
A) represent cash payments that are made to ensure higher reported profits
B) may be limited by creditors to ensure that the company maintains a minimum level of stockholders’ equity
C) may be restricted as a way to lower federal income tax expense
D) make more resources available to pay liabilities

B) may be limited by creditors to ensure that the company maintains a minimum level of stockholders’ equity

9) Which of the following best describes the appropriation of retained earnings?
A) restricting part of retained earnings for expansion or contingencies
B) setting cash aside for expansion
C) designating certain amounts of retained earnings for cash dividends that are required to be paid to shareholders
D) limiting company transactions in order to boost earnings

A) restricting part of retained earnings for expansion or contingencies

10) Which of the following statements is true?
A) Appropriations of retained earnings require journal entries, but restrictions on retained earnings are usually reported in notes to the financial statements.
B) No journal entries are needed to 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 are usually reported in notes to the financial statements.

A) Appropriations of retained earnings require journal entries, but restrictions on retained earnings are usually reported in notes to the financial statements.

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) can be ignored because the financial statements have already been issued
D) must be recorded in the period in which the error occurred

B) are shown on the statement of retained earnings as corrections to the beginning balance

19) Regarding the statement of stockholders’ equity, which of the following statements is incorrect?
A) The statement of stockholders’ equity has more information than the statement of retained earnings because it reports the changes in all stockholders’ equity accounts.
B) The statement of stockholders’ equity does not show the changes to the Retained Earnings account because that information is provided in the statement of retained earnings.
C) The statement of stockholders’ equity is an option for reporting the changes in stockholders’ equity of a corporation.
D) The statement of stockholders’ equity reports the number of shares and any changes during the year in preferred, common, and treasury stock.

B) The statement of stockholders’ equity does not show the changes to the Retained Earnings account because that information is provided in the statement of retained earnings.

20) The statement of stockholders’ equity ________.
A) reports the number of shares and any changes during the year in preferred, common, and treasury stock
B) is required to be presented along with the statement of retained earnings
C) is not required by IFRS
D) does not show the changes to the Retained Earnings account because that information is provided in the statement of retained earnings

A) reports the number of shares and any changes during the year in preferred, common, and treasury stock

3) New Corporation had net income for 2016 of $80,000. New Corporation had 13,000 shares of common stock outstanding at the beginning of the year and 24,000 shares of common stock outstanding at the end of the year. There were 12,000 shares of preferred stock outstanding all year. During 2016, New Corporation declared and paid preferred dividends of $21,000. What is New Corporation’s earnings per share? (Round the answer to two decimal places.)
A) $3.33
B) $3.19
C) $4.32
D) $2.46

B) $3.19 Explanation: B) Average number of common shares outstanding: (13,000 + 24,000) / 2 = 18,500 Earnings Per Share = (Net income – Preferred dividends) / Average number of common shares outstanding Earnings Per Share = ($80,000 – $21,000) / 18,500 Earnings Per Share = $3.19

4) Washington Enterprises had net income for 2016 of $103,000. Washington had 39,000 shares of common stock outstanding at the beginning of the year and 43,000 shares of common stock outstanding at the end of the year. There were 6,000 shares of preferred stock outstanding all year. During 2016, Washington declared and paid preferred dividends of $29,000. What is Washington’s earnings per share? (Round the answer to two decimal places.)
A) $2.51
B) $2.40
C) $1.80
D) $1.72

C) $1.80 Explanation: C) Average number of common shares outstanding: (39,000 + 43,000) / 2 = 41,000 Earnings Per Share = (Net income – Preferred dividends) / Average number of common shares outstanding Earnings Per Share = ($103,000 – $29,000) / 41,000 Earnings Per Share = $1.80

6) Lerner had net income for 2016 of $104,000. Lerner had 32,000 shares of common stock outstanding at the beginning of the year and 48,000 shares of common stock outstanding at the end of the year. There were 5,000 shares of preferred stock outstanding all year. During 2016, Lerner declared and paid preferred dividends of $30,000. On December 31, 2106, the market price of Lerner’s common stock is $30 per share and the market price of its preferred stock is $57 per share. What is Lerner’s price/earnings ratio? (Round the answer to two decimal places.)
A) 30.81
B) 11.54
C) 13.85
D) 16.22

D) 16.22 Explanation: D) Average number of common shares outstanding: (32,000 + 48,000) / 2 = 40,000 Earnings Per Share = (Net income – Preferred dividends) / Average number of common shares outstanding Earnings Per Share = ($104,000 – $30,000) / 40,000 Earnings Per Share = $1.85 Price/earnings ratio = Market price per share of common stock / Earnings per share Price/earnings ratio = $30 / $1.85 = 16.22

7) McDaniel Corporation had net income for 2016 of $75,000. McDaniel had 6,000 shares of common stock outstanding at the beginning of the year and 22,000 shares of common stock outstanding at the end of the year. There were 8,000 shares of preferred stock outstanding all year. During 2016, McDaniel declared and paid preferred dividends of $26,000. On December 31, 2106, the market price of McDaniel’s common stock is $45 per share and the market price of its preferred stock is $73 per share. What is McDaniel’s price/earnings ratio? (Round the answer to two decimal places.)
A) 12.86
B) 20.86
C) 13.20
D) 13.63

A) 12.86 Explanation: A) Average number of common shares outstanding: (22,000 + 6,000) / 2 = 14,000 Earnings Per Share = (Net income – Preferred dividends) / Average number of common shares outstanding Earnings Per Share = ($75,000 – $26,000) / 14,000 Earnings Per Share = $3.50 Price/earnings ratio = Market price per share of common stock / Earnings per share Price/earnings ratio = $45 / $3.50 = 12.86

8) Dalmatian Corporation’s annual report is as follows.

March 31, 2016 March 31, 2017
Net Income $360,000 $428,500
Preferred Dividends 0 0
Total Stockholders’ Equity $4,250,000 $5,102,000
Stockholders’ Equity attributable to Preferred Stock 0 0
Number of Common Shares Outstanding 290,464 196,168

If the current market price is $23 on March 31, 2016, compute the price/earnings ratio on March 31, 2017. (Round any intermediate calculations and your final answer to the nearest cent.)
A) 13.07
B) 2.18
C) 1.76
D) 10.55

A) 13.07 Explanation: A) Average Number of Common Shares Outstanding = (290,464 + 196,168) / 2 = 243,316.00 Earnings Per Share = Net Income / Average Number of Common Shares Outstanding Earnings Per Share = $428,500 / 243,316.00 = $1.76 P/E Ratio = Current Market Price / EPS P/E Ratio = $23 / $1.76 = 13.07