Question 1

Why must a corporation have sufficient retained earnings before it may declare cash dividends?

Accepted Answer

By definition,a dividend is the distribution of assets generated by past earnings to the corporate owners.Accordingly,to pay a dividend that exceeds existing retained earnings is,in substance,to return a portion of the stockholders' investment (which normally is illegal).

Question 2

Mercy Corporation has 2,000,000 authorized shares of $20 par value common stock.As of June 30,2013,there were 1,000,000 shares issued and outstanding.On June 30,2013,the board of directors declared a $0.40 per share cash dividend to be paid on August 1,2013,to shareholders of record on July 15,2013.Prepare the necessary entries in journal form to be recorded on (a)the date of declaration,(b)the date of record,and (c)the date of payment.(Omit explanations.)

Accepted Answer

The answer of Mercy Corporation has 2,000,000 authorized shares of...

Question 3

Stock options often are granted by a corporation to management personnel as a means of additional compensation to and motivation of these employees.

Accepted Answer

A) True 
 B)False  True

Question 4

Cash dividends become a liability of a corporation when the stock goes ex-dividend.

Accepted Answer

A) True 
 B)False

Question 5

A corporation is a separate entity for legal purposes.

Accepted Answer

A) True 
 B)False

Question 6

When stock is issued for noncash assets or services,the dollar amount to be recorded for this exchange is determined by the

Accepted Answer

A)  treasurer of the corporation. 
B)  par value of the stock. 
C)  market value of the stock or the market value of the consideration received,whichever is greater. 
D)  market value of the stock or the market value of the consideration received when the market value of the stock cannot be determined. 
A)  treasurer of the corporation. 
B)  par value of the stock. 
C)  market value of the stock or the market value of the consideration received,whichever is greater. 
D)  market value of the stock or the market value of the consideration received when the market value of the stock cannot be determined.

Question 7

Use the following information to answer the question below. 
The following accounts appear in the ledger of Bullock Corporation on December 31,2013:
$\begin{array}{lc}
\text { Preferred Stock } & \$ 60,000 \
\text { Common Stock } & 94,000 \
\text { Additional Paid-in Capital, Preferred } & 14,000 \
\text { Additional Paid-in Capital, Common } & 36,000 \
\text { Retained Earnings } & 80,000
\end{array}$ A balance sheet prepared on December 31,2013,would report total stockholders' equity of

Accepted Answer

A)  $154,000. 
B)  $168,000. 
C)  $204,000. 
D)  $284,000. 
A)  $154,000. 
B)  $168,000. 
C)  $204,000. 
D)  $284,000.

Question 8

On July 1,2013,Lee Corporation had 10,000 shares of its $200 par value common stock outstanding.On July 2,2013,Lee declared a 15 percent stock dividend to be distributed on August 6,2013,to shareholders of record on July 16,2013.What amount of retained earnings should be transferred to contributed capital because of this dividend?

Accepted Answer

A)  None 
B)  Market value of the stock at the date of distribution multiplied by the number of dividend shares 
C)  Market value of the stock at the date of declaration multiplied by the number of dividend shares 
D)  Par value per share multiplied by the number of dividend shares 
A)  None 
B)  Market value of the stock at the date of distribution multiplied by the number of dividend shares 
C)  Market value of the stock at the date of declaration multiplied by the number of dividend shares 
D)  Par value per share multiplied by the number of dividend shares

Question 9

The balance in the Additional Paid-in Capital account must be added to the balance of the Common Stock account to compute the amount of legal capital for a corporation with a par value common stock.

Accepted Answer

A) True 
 B)False

Question 10

Match each definition with the correct term below.
-Authorized shares

Accepted Answer

A) The maximum number of shares of stock that a corporation's state charter allows it to issue. 
B) A distribution among stockholders of the assets that a corporation's earnings have generated. 
C) A summary of the changes in the components of the stockholders' equity section of the balance sheet. 
D) A proportional distribution of shares among a corporation's shareholders. 
E) Stock that does not have a par value.
F)Represents a company's total assets minus its liabilities.
G)No-par stock that has a value assigned to it either by the board of directors or the state.
H)A dividend declared by a company that is in excess of its retained earnings.
I)The shares of stock that a corporation sells or otherwise transfers to stockholders.
J)When a corporation increases the number of shares of stock issued and outstanding and reduces the par or stated value proportionally. 
A) The maximum number of shares of stock that a corporation's state charter allows it to issue. 
B) A distribution among stockholders of the assets that a corporation's earnings have generated. 
C) A summary of the changes in the components of the stockholders' equity section of the balance sheet. 
D) A proportional distribution of shares among a corporation's shareholders. 
E) Stock that does not have a par value.
F)Represents a company's total assets minus its liabilities.
G)No-par stock that has a value assigned to it either by the board of directors or the state.
H)A dividend declared by a company that is in excess of its retained earnings.
I)The shares of stock that a corporation sells or otherwise transfers to stockholders.
J)When a corporation increases the number of shares of stock issued and outstanding and reduces the par or stated value proportionally.

Question 11

Dividends in arrears cannot exist in conjunction with

Accepted Answer

A)  callable preferred stock. 
B)  convertible preferred stock. 
C)  noncumulative preferred stock. 
D)  cumulative preferred stock. 
A)  callable preferred stock. 
B)  convertible preferred stock. 
C)  noncumulative preferred stock. 
D)  cumulative preferred stock.

Question 12

Match each definition with the correct term below.
-Dividend

Accepted Answer

A) The maximum number of shares of stock that a corporation's state charter allows it to issue. 
B) A distribution among stockholders of the assets that a corporation's earnings have generated. 
C) A summary of the changes in the components of the stockholders' equity section of the balance sheet. 
D) A proportional distribution of shares among a corporation's shareholders. 
E) Stock that does not have a par value.
F)Represents a company's total assets minus its liabilities.
G)No-par stock that has a value assigned to it either by the board of directors or the state.
H)A dividend declared by a company that is in excess of its retained earnings.
I)The shares of stock that a corporation sells or otherwise transfers to stockholders.
J)When a corporation increases the number of shares of stock issued and outstanding and reduces the par or stated value proportionally. 
A) The maximum number of shares of stock that a corporation's state charter allows it to issue. 
B) A distribution among stockholders of the assets that a corporation's earnings have generated. 
C) A summary of the changes in the components of the stockholders' equity section of the balance sheet. 
D) A proportional distribution of shares among a corporation's shareholders. 
E) Stock that does not have a par value.
F)Represents a company's total assets minus its liabilities.
G)No-par stock that has a value assigned to it either by the board of directors or the state.
H)A dividend declared by a company that is in excess of its retained earnings.
I)The shares of stock that a corporation sells or otherwise transfers to stockholders.
J)When a corporation increases the number of shares of stock issued and outstanding and reduces the par or stated value proportionally.

Question 13

A stock split normally decreases total stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 14

Once an owner of convertible preferred stock has converted to common,he or she cannot convert back to preferred.

Accepted Answer

A) True 
 B)False

Question 15

When callable preferred stock is called and surrendered,the shareholder is entitled to all of the following except

Accepted Answer

A)  dividends in arrears. 
B)  the par value of the stock. 
C)  a call premium. 
D)  the market value of the stock. 
A)  dividends in arrears. 
B)  the par value of the stock. 
C)  a call premium. 
D)  the market value of the stock.

Question 16

The sale of treasury stock at an amount greater than cost does not result in a gain on the income statement.

Accepted Answer

A) True 
 B)False

Question 17

Simpson Corporation is authorized to issue 100,000 shares of no-par stock.The company recently sold 40,000 shares for $13 per share.
a.Prepare the entry in journal form to record the sale of the stock assuming there is no stated value.
b.Prepare the entry in journal form if a $10 stated value is authorized by the company's board of directors.

Accepted Answer

The answer of Simpson Corporation is authorized to issue 100,000...

Question 18

Cleburne Corporation has 3,000 shares of $200 par value,7 percent cumulative preferred stock,and 10,000 shares of $20 par value common stock outstanding during its first five years of operation.Cleburne Corporation paid cash dividends as follows: 2009,$33,000; 2010,$0; 2011,$130,000; 2011,$60,000; 2013,$30,000.The amount of dividends the common stockholders received during 2009 was

Accepted Answer

A)  $0. 
B)  $16,500. 
C)  $33,000. 
D)  $49,500. 
A)  $0. 
B)  $16,500. 
C)  $33,000. 
D)  $49,500.

Question 19

The concept of legal capital exists to protect the corporation's assets for the stockholders of the corporation.

Accepted Answer

A) True 
 B)False

Question 20

The board of directors of Blount Corporation declared a cash dividend of $5.00 per share on 57,000 shares of common stock on April 14,2013.The dividend is to be paid on May 15,2013,to shareholders of record on May 1,2013.The effects of the entry to record the payment of the dividend on May 15,2013,are to

Accepted Answer

A)  increase assets and decrease stockholders' equity. 
B)  decrease stockholders' equity and decrease liabilities. 
C)  decrease liabilities and decrease assets. 
D)  increase stockholders' equity and decrease liabilities. 
A)  increase assets and decrease stockholders' equity. 
B)  decrease stockholders' equity and decrease liabilities. 
C)  decrease liabilities and decrease assets. 
D)  increase stockholders' equity and decrease liabilities.

Why must a corporation have sufficient retained earnings before it may declare cash dividends?

Stock options often are granted by a corporation to management personnel as a means of additional compensation to and motivation of these employees.

Cash dividends become a liability of a corporation when the stock goes ex-dividend.

A corporation is a separate entity for legal purposes.

When stock is issued for noncash assets or services,the dollar amount to be recorded for this exchange is determined by the

The balance in the Additional Paid-in Capital account must be added to the balance of the Common Stock account to compute the amount of legal capital for a corporation with a par value common stock.

Match each definition with the correct term below. -Authorized shares

Dividends in arrears cannot exist in conjunction with

Match each definition with the correct term below. -Dividend

A stock split normally decreases total stockholders' equity.

Once an owner of convertible preferred stock has converted to common,he or she cannot convert back to preferred.

When callable preferred stock is called and surrendered,the shareholder is entitled to all of the following except

The sale of treasury stock at an amount greater than cost does not result in a gain on the income statement.

The concept of legal capital exists to protect the corporation's assets for the stockholders of the corporation.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

The Statement of Cash Flows

Financial Performance Measurement

Investments

Filters

Exam 12: Stockholders Equity

Why must a corporation have sufficient retained earnings before it may declare cash dividends?

Stock options often are granted by a corporation to management personnel as a means of additional compensation to and motivation of these employees.

Cash dividends become a liability of a corporation when the stock goes ex-dividend.

A corporation is a separate entity for legal purposes.

When stock is issued for noncash assets or services,the dollar amount to be recorded for this exchange is determined by the

The balance in the Additional Paid-in Capital account must be added to the balance of the Common Stock account to compute the amount of legal capital for a corporation with a par value common stock.

Match each definition with the correct term below. -Authorized shares

Dividends in arrears cannot exist in conjunction with

Match each definition with the correct term below. -Dividend

A stock split normally decreases total stockholders' equity.

Once an owner of convertible preferred stock has converted to common,he or she cannot convert back to preferred.

When callable preferred stock is called and surrendered,the shareholder is entitled to all of the following except

The sale of treasury stock at an amount greater than cost does not result in a gain on the income statement.

The concept of legal capital exists to protect the corporation's assets for the stockholders of the corporation.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

The Statement of Cash Flows

Financial Performance Measurement

Investments

Filters