Question 1

When a corporation sells 10,000 shares of $10 par value common stock for $120,000, the Common stock account is credited for $100,000.

Accepted Answer

A) True 
 B)False

Question 2

The following information is from the balance sheet of Tudor Corporation as of December 31, 2014.
$\begin{array}{|l|r|r|}
\hline \text { Preferred stock, } \$ 100 \text { par } & \quad\quad& \$ 500,000 \
\hline \text { Paid-in capital in excess of par-preferred } && 35,000 \
\hline \text { Common stock, } \$ 1 \text { par }& & 190,000 \
\hline \text { Paid-in capital in excess of par-common } & & 380,000 \
\hline \text { Retained earnings } & & 131,500 \
\hline \text { Total stockholders' equity } && \$ 1,236,500\
\hline 
\end{array}$

-
What was the average issue price of the common stock shares?

Accepted Answer

A)  $1.90 
B)  $1.00 
C)  $3.00 
D)  $13.15

Question 3

Which of the following describes preferred stock?

Accepted Answer

A)  Stock that sells for a very high price 
B)  Stock that is sold to employees of the company as a performance incentive 
C)  Stock that is purchased by the corporation for investment purposes 
D)  Stock which gives shareholders certain preferences and advantages over common stock

Question 4

Moretown Company had the following transactions in 2013, its first year of operations.
• Issued 30,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $18.00
per share.
• Earned net income of $70,000.
• Paid no dividends.
The company charter authorizes 1,000,000 shares of common stock and 100,000 shares of preferred stock.
Please provide the stockholders' equity section of the balance sheet at December 31, 2013. Include information on par values, and the number of shares authorized and issued, where necessary. No subtotals are needed for total paid-in capital, but please show total stockholders' equity on the bottom line.
 $$\begin{array} { | l | l | l | l | l | } 
\hline \text { Account } & \text { Par value info } & \text { Shares authorized } & \text { Shares issued } & \text { Balance } \
\hline & & & & \
\hline & & & & \
\hline & & & & \
\hline & & & & \
\hline & & & & \
\hline
\end{array}$$

Accepted Answer

The answer of Moretown Company had the following transactions in...

Question 5

Rattner Company has the following information available for the year 2014:
$$\begin{array} { | l | r | } 
\hline \text { Total assets, January 1 } & \$ 420,000 \
\hline \text { Total assets, December 31 } & 500,000 \
\hline \text { Net income } & 37,400 \
\hline \text { Interest expense } & 4,000 \
\hline
\end{array}$$
How much is the return on total assets? (Please round to two decimal places.)

Accepted Answer

A)  0.10 
B)  0.04 
C)  0.09 
D)  0.12

Question 6

Onyx Company's income statement shows net income before income tax of $38,000. The company's tax return shows taxable income of $34,000. Company's tax rate is 40%. Which of the following entries would be used to record tax expense and tax payable?

Accepted Answer

A)  Debit Income tax expense $15,200 and credit Cash $15,200. 
B)  Debit Deferred tax liability $13,600 and credit Income tax payable $13,600. 
C)  Debit Income tax expense $15,200, credit Deferred tax liability $1,600 and credit Income tax payable $13,600. 
D)  Debit Deferred tax liability $1,600, debit Income tax expense $13,600 and credit Income tax payable $15,200.

Question 7

Please refer to the equity section shown below:
$\begin{array}{|l|l|}
\hline\text { Preferred stock, } \$ 100 \text { par, } 4 \% \text { non-cumulative } & \$ 20,000 \
\hline 1,000 \text { shares authorized, } 200 \text { shares outstanding } & \
\hline \text { Common stock, } \$ 0.01 \text { par } & 400\\hline 1,000,000 \text { shares authorized, } 40,000 \text { shares outstanding } & \
\hline \text { Paid-in capital in exces of par } & 359,600 \
\hline \text { Retained earnings } & 820,000 \
\hline \text { Total stockholders' equity } & \$ 1,200,000\\hline
\end{array}$
Assume the preferred shares have no stated liquidation value. The preferred shares are non-cumulative, so there are no dividends in arrears.
Please calculate the book value per share of common stock.

Accepted Answer

A)  $30.00 per share 
B)  $8.99 per share 
C)  $9.00 per share 
D)  $29.50 per share

Question 8

Osbourne Company issued 50,000 shares of common stock in exchange for manufacturing equipment. The equipment was valued at $1,000,000. The stock has par value of $0.01 per share. Osbourne should record a gain on the sale of stock for the difference between the equipment's market value and the stock's current market value.

Accepted Answer

A) True 
 B)False

Question 9

Beta Company was founded in 2012. Its yearly earnings and dividend payments are shown here:
2012: Net income $4,000, paid zero dividends
2013: Net income $20,000, paid $10,000 dividends
2014: Net income of $8,000, paid $5,000 dividends
2015: Net loss of $22,000, paid zero dividends
At the end of 2015, which of the following statements would be accurate?

Accepted Answer

A)  Beta has a cumulative operating loss. 
B)  Beta has a retained earnings deficit. 
C)  Beta has retained earnings surplus. 
D)  Beta has negative contributed capital.

Question 10

The two basic sources of equity are:

Accepted Answer

A)  common stock and bonds. 
B)  common stock and preferred stock. 
C)  paid-in capital and retained earnings. 
D)  loans from banks and gifts from donors.

Question 11

Which of the following is the price for which a person can buy or sell a share of stock?

Accepted Answer

A)  Book value 
B)  Market value 
C)  Liquidation value 
D)  Amortized value

Question 12

Please refer to the equity section of the balance sheet, below:
$\begin{array}{|l|c|}
\hline \text { Common stock, } \$ 0.01 \text { par } & \$ 500 \
\hline 1,000,000 \text { shares authorized, } 50,000 \text { shares outstanding } &\
\hline \text { Paid-in capital in excess of par } & 399,500  \
\hline \text { Retained earnings } & 150,000 \
\hline \text { Total stockholder's' equity } & \$ 550,000 \
\hline
\end{array}$
Please calculate the book value per share of common stock.

Accepted Answer

A)  $3.00 per share 
B)  $8.00 per share 
C)  $11.00 per share 
D)  $29.50 per share

Question 13

Bradley Corporation issued 10,000 shares of common stock on January 1, 2013. The stock has par value of $0.01 per share and was sold for cash at par. The journal entry to record this transaction would:

Accepted Answer

A)  debit Cash $100 and credit Common stock $100. 
B)  credit Cash $10,000 and debit Common stock $10,000. 
C)  debit Paid-in capital $9,900,and credit Common stock $9,900. 
D)  debit Cash $10,000, credit Common stock $100, and credit Paid-in capital $9,900.

Question 14

A corporation has 15,000 shares of 10%, $50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Dividends of $37,500 are in arrears. At the end of the current year, the corporation declares a dividend of $120,000.
What is the dividend per share for preferred shares and for common shares?

Accepted Answer

A)  The dividend per share is $.50 to preferred shares and $4.60 to common shares. 
B)  The dividend per share is $8.00 to preferred shares and $0 to common shares. 
C)  The dividend per share is $7.50 to preferred shares and $.30 to common shares. 
D)  None of the above are correct.

Question 15

The stock of publicly owned corporations is bought and sold on stock exchanges, such as the New York Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 16

Origami Company is considering a new project and needs to raise $800,000 of capital. Their after-tax net income would be $75,000 if they do not implement the new project. If the new project is implemented, it will add an additional $50,000 of profits before tax and interest. Origami's income tax rate is 40%. If they use debt financing, the interest will be at 5%.
-  Origami has 25,000 shares of common stock outstanding, and no preferred stock. They would have to issue an additional 10,000 shares of common stock to finance the project with equity capital.
If Origami decides to implement the project using equity financing, what will be the earnings per share amount? (Please round to the nearest cent.)

Accepted Answer

A)  $3.24 
B)  $4.14 
C)  $3.40 
D)  $3.00

Question 17

Paid-in capital is equity that is generated internally by corporate business transactions.

Accepted Answer

A) True 
 B)False

Question 18

On November 1, 2014, Oster Company declared a dividend of $3.00 per share. Oster Company 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, 2014. Please provide the journal entry needed on November 30.
 $$\begin{array} { | l | l | l | } 
\hline \quad\quad\quad\quad\quad& \quad\quad&\quad\quad \
\hline & & \
\hline
\end{array}$$

Accepted Answer

The answer of On November 1, 2014, Oster Company declared...

Question 19

Which of the following describes the correct sequence of year-end closing entries?

Accepted Answer

A)  Close Revenues to Income summary; close Expenses to Income summary; close Income summary to Retained earnings. 
B)  Close Expenses to Income summary; close Revenues to Income summary; close Income summary to Retained earnings. 
C)  Close Revenues to Income summary; close Income summary to Retained earnings; close Expenses to Retained earnings. 
D)  Close Revenues to Retained earnings; close Expenses to Retained earnings; close Income summary to Retained earnings.

Question 20

Moretown Company had the following transactions in 2014, its first year of operations.
• Issued 30,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $18.00
Per share.
• Earned net income of $70,000.
• Paid no dividends.
-
At the end of 2014, what is the total amount of Stockholders' equity?

Accepted Answer

A)  $30,000 
B)  $610,000 
C)  $540,000 
D)  $70,000

Exam 12: Corporations: Paid-In Capital and the Balance Sheet

When a corporation sells 10,000 shares of $10 par value common stock for $120,000, the Common stock account is credited for $100,000.

Which of the following describes preferred stock?

Onyx Company's income statement shows net income before income tax of $38,000. The company's tax return shows taxable income of $34,000. Company's tax rate is 40%. Which of the following entries would be used to record tax expense and tax payable?

The two basic sources of equity are:

Which of the following is the price for which a person can buy or sell a share of stock?

Bradley Corporation issued 10,000 shares of common stock on January 1, 2013. The stock has par value of $0.01 per share and was sold for cash at par. The journal entry to record this transaction would:

The stock of publicly owned corporations is bought and sold on stock exchanges, such as the New York Stock Exchange.

Paid-in capital is equity that is generated internally by corporate business transactions.

Which of the following describes the correct sequence of year-end closing entries?