Question 1

A major advantage of debt financing is that interest expense is tax deductible.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements would not explain why a company may want to repurchase its stock?

Accepted Answer

A) To demonstrate to investors that it believes its own stock is worth purchasing. 
B) To obtain shares to reissue to employees as part of an employee stock plan. 
C) To obtain shares that can be reissued as payment for purchase of another company. 
D) To increase the number of shares of outstanding stock. 
A) To demonstrate to investors that it believes its own stock is worth purchasing. 
B) To obtain shares to reissue to employees as part of an employee stock plan. 
C) To obtain shares that can be reissued as payment for purchase of another company. 
D) To increase the number of shares of outstanding stock.

Question 3

Match each term with the appropriate definition.Not all definitions will be used.
-Stock Dividend

Accepted Answer

A) Stock shares that pay a fixed dividend rate but have no voting rights. 
B) The shares of stock held by stockholders. 
C) Stock that allows owners to be listed among creditors. 
D) This payment raises stockholders' equity. 
E) This payment decreases stockholders' equity.
F)The shares of stock held by the issuing company.
G)Earnings per share that reflects treasury and preferred stock.
H)(Net income less preferred dividends)divided by average stockholders' equity.
I)This dividend does not reduce stockholders' equity.
J)Stockholders' entitlement to remaining assets after creditors are repaid.
K)The additional shares of stock a company can issue beyond what are already issued.
L)(Net income less preferred dividends)divided by the average number of outstanding common shares.
M)When a company first starts selling stock to the public. 
A) Stock shares that pay a fixed dividend rate but have no voting rights. 
B) The shares of stock held by stockholders. 
C) Stock that allows owners to be listed among creditors. 
D) This payment raises stockholders' equity. 
E) This payment decreases stockholders' equity.
F)The shares of stock held by the issuing company.
G)Earnings per share that reflects treasury and preferred stock.
H)(Net income less preferred dividends)divided by average stockholders' equity.
I)This dividend does not reduce stockholders' equity.
J)Stockholders' entitlement to remaining assets after creditors are repaid.
K)The additional shares of stock a company can issue beyond what are already issued.
L)(Net income less preferred dividends)divided by the average number of outstanding common shares.
M)When a company first starts selling stock to the public.

Question 4

A stock split increases total stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 5

Match each term with the appropriate definition.Not all definitions will be used.
-Preferred Stock

Accepted Answer

A) Stock shares that pay a fixed dividend rate but have no voting rights. 
B) The shares of stock held by stockholders. 
C) Stock that allows owners to be listed among creditors. 
D) This payment raises stockholders' equity. 
E) This payment decreases stockholders' equity.
F)The shares of stock held by the issuing company.
G)Earnings per share that reflects treasury and preferred stock.
H)(Net income less preferred dividends)divided by average stockholders' equity.
I)This dividend does not reduce stockholders' equity.
J)Stockholders' entitlement to remaining assets after creditors are repaid.
K)The additional shares of stock a company can issue beyond what are already issued.
L)(Net income less preferred dividends)divided by the average number of outstanding common shares.
M)When a company first starts selling stock to the public. 
A) Stock shares that pay a fixed dividend rate but have no voting rights. 
B) The shares of stock held by stockholders. 
C) Stock that allows owners to be listed among creditors. 
D) This payment raises stockholders' equity. 
E) This payment decreases stockholders' equity.
F)The shares of stock held by the issuing company.
G)Earnings per share that reflects treasury and preferred stock.
H)(Net income less preferred dividends)divided by average stockholders' equity.
I)This dividend does not reduce stockholders' equity.
J)Stockholders' entitlement to remaining assets after creditors are repaid.
K)The additional shares of stock a company can issue beyond what are already issued.
L)(Net income less preferred dividends)divided by the average number of outstanding common shares.
M)When a company first starts selling stock to the public.

Question 6

Which of the following statements about treasury stock is correct?

Accepted Answer

A) When a company reissues treasury stock for more than it originally paid for the stock,it does not report a gain. 
B) When a company purchases treasury stock,it increases total stockholders' equity. 
C) Treasury stock is reported as an asset on the balance sheet. 
D) Treasury stock is reported as issued and outstanding stock. 
A) When a company reissues treasury stock for more than it originally paid for the stock,it does not report a gain. 
B) When a company purchases treasury stock,it increases total stockholders' equity. 
C) Treasury stock is reported as an asset on the balance sheet. 
D) Treasury stock is reported as issued and outstanding stock.

Question 7

Preferred stock has some distinctly different characteristics from common stock.Which of the characteristics below is not related to preferred stock?

Accepted Answer

A) Its dividends may be paid at a fixed rate. 
B) It has a higher priority for the distribution of assets than common stock. 
C) It has a higher priority for the payment of dividends than common stock. 
D) It generally has voting rights. 
A) Its dividends may be paid at a fixed rate. 
B) It has a higher priority for the distribution of assets than common stock. 
C) It has a higher priority for the payment of dividends than common stock. 
D) It generally has voting rights.

Question 8

Comparing EPS across companies is not advised because:

Accepted Answer

A) the number of shares outstanding may vary. 
B) EPS is not a meaningful measure. 
C) Retained Earnings may vary. 
D) the price per share may vary. 
A) the number of shares outstanding may vary. 
B) EPS is not a meaningful measure. 
C) Retained Earnings may vary. 
D) the price per share may vary.

Question 9

Match each term with the appropriate definition.Not all definitions will be used.
-Residual Claim

Accepted Answer

A) Stock shares that pay a fixed dividend rate but have no voting rights. 
B) The shares of stock held by stockholders. 
C) Stock that allows owners to be listed among creditors. 
D) This payment raises stockholders' equity. 
E) This payment decreases stockholders' equity.
F)The shares of stock held by the issuing company.
G)Earnings per share that reflects treasury and preferred stock.
H)(Net income less preferred dividends)divided by average stockholders' equity.
I)This dividend does not reduce stockholders' equity.
J)Stockholders' entitlement to remaining assets after creditors are repaid.
K)The additional shares of stock a company can issue beyond what are already issued.
L)(Net income less preferred dividends)divided by the average number of outstanding common shares.
M)When a company first starts selling stock to the public. 
A) Stock shares that pay a fixed dividend rate but have no voting rights. 
B) The shares of stock held by stockholders. 
C) Stock that allows owners to be listed among creditors. 
D) This payment raises stockholders' equity. 
E) This payment decreases stockholders' equity.
F)The shares of stock held by the issuing company.
G)Earnings per share that reflects treasury and preferred stock.
H)(Net income less preferred dividends)divided by average stockholders' equity.
I)This dividend does not reduce stockholders' equity.
J)Stockholders' entitlement to remaining assets after creditors are repaid.
K)The additional shares of stock a company can issue beyond what are already issued.
L)(Net income less preferred dividends)divided by the average number of outstanding common shares.
M)When a company first starts selling stock to the public.

Question 10

Par value is use to record ________ and market value is used to record ________.

Accepted Answer

A) small stock dividends;stock splits 
B) large stock dividends;small stock dividends 
C) stock splits;small stock dividends 
D) large stock dividends;stock splits 
A) small stock dividends;stock splits 
B) large stock dividends;small stock dividends 
C) stock splits;small stock dividends 
D) large stock dividends;stock splits

Question 11

Why is Additional Paid-In Capital recorded for a small stock dividend?

Accepted Answer

A) Because small stock dividends are recorded at market value. 
B) Because large stock dividends are recorded at par value. 
C) Because small stock dividends are recorded at par value. 
D) Because large stock dividends are recorded at market value. 
A) Because small stock dividends are recorded at market value. 
B) Because large stock dividends are recorded at par value. 
C) Because small stock dividends are recorded at par value. 
D) Because large stock dividends are recorded at market value.

Question 12

The Dewie,Cheatum,and Howe partnership paid each of the partners $100,000 for the work they performed during the year.As a result of these payments,the closing process will include a:

Accepted Answer

A) credit to Salary Expense. 
B) credit to each partner's Capital account. 
C) credit to each partner's Drawing account. 
D) debit to Salary Expense. 
A) credit to Salary Expense. 
B) credit to each partner's Capital account. 
C) credit to each partner's Drawing account. 
D) debit to Salary Expense.

Question 13

Earnings per share (EPS)can be affected by all of the following except:

Accepted Answer

A) how the company chose to finance its operations. 
B) the method of depreciation. 
C) the inventory costing method. 
D) classification of debt as current or long-term. 
A) how the company chose to finance its operations. 
B) the method of depreciation. 
C) the inventory costing method. 
D) classification of debt as current or long-term.

Question 14

In its most basic form,the earnings per share ratio is calculated as:

Accepted Answer

A) dividends paid on common stock divided by the average number of outstanding common shares. 
B) the difference between net income and preferred dividends divided by the average number of outstanding common shares. 
C) total dividends paid divided by the average number of total stock shares. 
D) net income divided by average stockholders' equity. 
A) dividends paid on common stock divided by the average number of outstanding common shares. 
B) the difference between net income and preferred dividends divided by the average number of outstanding common shares. 
C) total dividends paid divided by the average number of total stock shares. 
D) net income divided by average stockholders' equity.

Question 15

Jackson and O'Neill form a partnership that produces gates.Jackson provides $30,000 of capital while O'Neill contributes $90,000 of capital;they agree to split net income by the same proportion.The partnership's net income is $80,000 for the first year.They did not draw any income out of the business or add any additional capital during the first year.At the end of the year,the partners' equity is:

Accepted Answer

A) $70,000 for Jackson and $130,000 for O'Neill for a total of $200,000. 
B) $200,000 minus income tax expense for the partnership. 
C) $200,000 minus the income tax paid by each partner. 
D) $50,000 for Jackson and $150,000 for O'Neill for a total of $200,000. 
A) $70,000 for Jackson and $130,000 for O'Neill for a total of $200,000. 
B) $200,000 minus income tax expense for the partnership. 
C) $200,000 minus the income tax paid by each partner. 
D) $50,000 for Jackson and $150,000 for O'Neill for a total of $200,000.

Question 16

One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce Retained Earnings.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a reason a company would repurchase stock?

Accepted Answer

A) To reduce the number of outstanding shares. 
B) To give the impression that the stock is worth buying. 
C) To have shares of stock to issue when stock options are exercised. 
D) To increase the total stockholders' equity balance and improve the ROE. 
A) To reduce the number of outstanding shares. 
B) To give the impression that the stock is worth buying. 
C) To have shares of stock to issue when stock options are exercised. 
D) To increase the total stockholders' equity balance and improve the ROE.

Question 18

Corporations will declare stock dividends in order to:

Accepted Answer

A) reduce the market price of a share of stock and make it more attractive to some investors. 
B) increase the market price of a share of stock to help maximize the stockholders' wealth. 
C) increase a stockholders' ownership percentage in the corporation. 
D) increase the corporation's Retained Earnings. 
A) reduce the market price of a share of stock and make it more attractive to some investors. 
B) increase the market price of a share of stock to help maximize the stockholders' wealth. 
C) increase a stockholders' ownership percentage in the corporation. 
D) increase the corporation's Retained Earnings.

Question 19

A cumulative dividend preference means that:

Accepted Answer

A) preferred stockholders are paid dividends before common stockholders are paid dividends for the current year only. 
B) unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends. 
C) preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation. 
D) unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period. 
A) preferred stockholders are paid dividends before common stockholders are paid dividends for the current year only. 
B) unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends. 
C) preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation. 
D) unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period.

Question 20

Which of the following accounts is used to record a small stock dividend on common stock but is not used to record a large stock dividend on common stock?

Accepted Answer

A) Retained Earnings 
B) Common Stock 
C) Additional Paid-In Capital 
D) Cash 
A) Retained Earnings 
B) Common Stock 
C) Additional Paid-In Capital 
D) Cash

A major advantage of debt financing is that interest expense is tax deductible.

Which of the following statements would not explain why a company may want to repurchase its stock?

Match each term with the appropriate definition.Not all definitions will be used. -Stock Dividend

A stock split increases total stockholders' equity.

Match each term with the appropriate definition.Not all definitions will be used. -Preferred Stock

Which of the following statements about treasury stock is correct?

Preferred stock has some distinctly different characteristics from common stock.Which of the characteristics below is not related to preferred stock?

Comparing EPS across companies is not advised because:

Match each term with the appropriate definition.Not all definitions will be used. -Residual Claim

Par value is use to record and market value is used to record .

Why is Additional Paid-In Capital recorded for a small stock dividend?

The Dewie,Cheatum,and Howe partnership paid each of the partners $100,000 for the work they performed during the year.As a result of these payments,the closing process will include a:

Earnings per share (EPS)can be affected by all of the following except:

In its most basic form,the earnings per share ratio is calculated as:

One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce Retained Earnings.

Which of the following is not a reason a company would repurchase stock?

Corporations will declare stock dividends in order to:

A cumulative dividend preference means that:

Which of the following accounts is used to record a small stock dividend on common stock but is not used to record a large stock dividend on common stock?

Business Decisions and Financial Accounting

The Balance Sheet

The Income Statement

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Liabilities

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

Exam 11: Stockholders Equity

A major advantage of debt financing is that interest expense is tax deductible.

Which of the following statements would not explain why a company may want to repurchase its stock?

Match each term with the appropriate definition.Not all definitions will be used. -Stock Dividend

A stock split increases total stockholders' equity.

Match each term with the appropriate definition.Not all definitions will be used. -Preferred Stock

Which of the following statements about treasury stock is correct?

Preferred stock has some distinctly different characteristics from common stock.Which of the characteristics below is not related to preferred stock?

Comparing EPS across companies is not advised because:

Match each term with the appropriate definition.Not all definitions will be used. -Residual Claim

Par value is use to record ________ and market value is used to record ________.

Why is Additional Paid-In Capital recorded for a small stock dividend?

The Dewie,Cheatum,and Howe partnership paid each of the partners $100,000 for the work they performed during the year.As a result of these payments,the closing process will include a:

Earnings per share (EPS)can be affected by all of the following except:

In its most basic form,the earnings per share ratio is calculated as:

One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce Retained Earnings.

Which of the following is not a reason a company would repurchase stock?

Corporations will declare stock dividends in order to:

A cumulative dividend preference means that:

Which of the following accounts is used to record a small stock dividend on common stock but is not used to record a large stock dividend on common stock?

Business Decisions and Financial Accounting

The Balance Sheet

The Income Statement

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Liabilities

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

Par value is use to record and market value is used to record .