1. legal capital is best defined as a. the amount of capital the state of incorporation allows the company to accumulate a corporate form of business
... [Show More] organization, legal cap- ital is best defined as over its existence. b. the par value of all capital stock issued. c. the amount of capital the federal government allows a corporation to generate. d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission. 2. Total stockholders' equity represents a. a claim to specific assets contributed by the own- ers. b. the maximum amount that can be borrowed by the enterprise. c. a claim against a portion of the total assets of an enterprise. d. only the amount of earnings that have been retained in the business. 3. When a corporation issues its capital stock in pay- ment for services, the least appropriate basis for recording the transaction is the a. market value of the services received. b. par value of the shares issued. c. market value of the shares issued. d. Any of these provides an appropriate basis for recording the transaction. 4. Direct costs incurred to sell stock such as underwrit- ing costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset. b. the par value of all capital stock is- sued. c. a claim against a portion of the total assets of an enter- prise. b. par value of the shares issued. 1 5. A "secret reserve" will be created if a. inadequate depreciation is charged to income. b. a capital expenditure is charged to expense. c. liabilities are understated. d. stockholders' equity is overstated. 6. Stock that has a fixed per-share amount printed on each stock certificate is called a. stated value stock. b. fixed value stock. c. uniform value stock. d. par value stock. 7. Which of the following is not a legal restriction related to profit distributions by a corporation? a. The amount distributed to owners must be in com- pliance with the state laws governing corporations. b. The amount distributed in any one year can never exceed the net income reported for that year. c. Profit distributions must be formally approved by the board of directors. d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation. 8. In January 2012, Finley Corporation, a newly formed b. a capital expen- diture is charged to expense. d. par value stock. b. The amount dis- tributed in any one year can never ex- ceed the net in- come reported for that year. a. decreased total company, issued 10,000 shares of its $10 par common stockholders' equi- stock for $15 per share. On July 1, 2012, Finley Cor- poration reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these trea- sury shares a. decreased total stockholders' equity. b. increased total stockholders' equity. c. did not change total stockholders' equity. d. decreased the number of issued shares. 9. When treasury stock is purchased for more than the par value of the stock and the cost method is used to ty. account for treasury stock, what account(s) should be debited? a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. b. Paid-in capital in excess of par for the purchase price. c. Treasury stock for the purchase price. d. Treasury stock for the par value and retained earn- ings for the excess of the purchase price over the par value. 10. Gains" on sales of treasury stock (using the cost method) should be credited to a. paid-in capital from treasury stock. b. capital stock. c. retained earnings. d. other income. 11. Porter Corp. purchased its own par value stock on January 1, 2012 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein. c. retained earnings. d. net income. 12. How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? a. As ordinary earnings shown on the income state- ment. c. Treasury stock for the purchase price. a. paid-in capi- tal from treasury stock. a. additional paid-in capital to the extent that pre- vious net "gains" from sales of the same class of stock are includ- ed therein; oth- erwise, from re- tained earnings. b. As paid-in cap- ital from treasury stock transactions. b. As paid-in capital from treasury stock transactions. c. As an increase in the amount shown for common stock. d. As an extraordinary item shown on the income statement. 13. Which of the following best describes a possible re- sult of treasury stock transactions by a corporation? a. May increase but not decrease retained earnings. b. May increase net income if the cost method is used. c. May decrease but not increase retained earnings. d. May decrease but not increase net income. 14. Which of the following features of preferred stock makes the security more like debt than an equity in- strument? a. Participating b. Voting c. Redeemable d. Noncumulative 15. According to the FASB, redeemable preferred stock should be a. included with common stock. b. included as a liability. c. excluded from the stockholders' equity heading. d. included as a contra item in stockholders' equity. 16. Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as a. an increase in current liabilities. b. an increase in stockholders' equity. c. a footnote. d. an increase in current liabilities for the current por- tion and long-term liabilities for the long-term portion. 17. Which of the following statements about property div- idends is not true? a. A property dividend is usually in the form of secu- rities of other companies. c. May decrease but not increase retained earnings c. Redeemable b. included as a li- ability. c. a footnote. c. The accounting for a property div- idend should be based on the car- b. A property dividend is also called a dividend in kind. rying value (book c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d. All of these statements are true. 18. Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2012, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a a. property dividend. b. stock dividend. c. liquidating dividend. d. cash dividend. 19. A dividend which is a return to stockholders of a portion of their original investments is a a. liquidating dividend. b. property dividend. c. liability dividend. d. participating dividend. 20. A mining company declared a liquidating dividend. The journal entry to record the declaration must in- clude a debit to a. Retained Earnings. b. a paid-in capital account. c. Accumulated Depletion. d. Accumulated Depreciation. 21. The declaration and issuance of a stock dividend larg- er than 25% of the shares previously outstanding a. increases common stock outstanding and increas- es total stockholders' equity. b. decreases retained earnings but does not change total stockholders' equity. c. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity. d. increases retained earnings and increases total stockholders' equity. value) of the non- monetary assets transferred. a. property divi- dend. a. liquidating divi- dend. b. a paid-in capital account. b. decreases re- tained earnings but does not change total stock- holders' equity. 22. At the date of declaration of a small stock dividend the entry should not include a. a credit to Common Stock Dividend Payable. b. a credit to Paid-in Capital in Excess of Par. c. a debit to Retained Earnings. d. All of these are acceptable. 23. The balance in Common Stock Dividend Distributable should be reported as a(n) a. deduction from common stock issued. b. addition to capital stock. c. current liability. d. contra current asset. 24. Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements? a. Dividend preferences b. Liquidation preferences c. Call prices d. Conversion or exercise prices 25. Younger Company has outstanding both common stock and nonparticipating, non- cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by a. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value. b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value. c. the payment of a previously declared cash dividend on the common stock. d. a 2-for-1 split of the common stock. 26. Dividends are not paid on a. noncumulative preferred stock. a. a credit to Com- mon Stock Divi- dend Payable. b. addition to capi- tal stock. b. Liquidation pref- erences c. the payment of a previously de- clared cash divi- dend on the com- mon stock. c. treasury com- mon stock b. nonparticipating preferred stock. c. treasury common stock. d. Dividends are paid on all of these. 27. How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position? a. Note disclosure b. Increase in stockholders' equity c. Increase in current liabilities d. Increase in current liabilities for the amount expect- ed to be declared within the year or operating cycle, and increase in long-term liabilities for the balance 28. Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2012, the first year of the corpora- tion's existence: Sold 10,000 shares of common stock for $18 per share. Issued 10,000 shares of common stock in exchange for a patent valued at $200,000. At the end of the Berry's first year, total paid-in capital amounted to a. $80,000. b. $180,000. c. $200,000. d. $380,000. 29. Pember Corporation started business in 2007 by issu- ing 200,000 shares of $20 par common stock for $36 a. Note disclosure d. $380,000.(10,000 × $18) + $200,000 = $380,000. ($60 - $52) × 30,000 = each. In 2012, 30,000 of these shares were purchased $240,000. for $52 per share by Pember Corporation and held as treasury stock. On June 15, 2013, these 30,000 shares were exchanged for a piece of property that had an assessed value of $810,000. Perber's stock is actively traded and had a market price of $60 on June 15, 2013. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be a. $1,200,000. b. $720,000. c. $585,000. d. $240,000. 30. On September 1, 2012, Valdez Company reacquired 16,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit a. Treasury Stock for $160,000. b. Common Stock for $160,000. c. Common Stock for $160,000 and Paid-in Capital in Excess of Par for $60,000. d. Treasury Stock for $240,000. 31. Gannon Company acquired 8,000 shares of its own common stock at $20 per share on February 5, 2012, and sold 4,000 of these shares at $27 per share on August 9, 2013. The fair value of Gannon's common stock was $24 per share at December 31, 2012, and $25 per share at December 31, 2013. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2013 to record the sale of 4,000 shares? a. Treasury Stock for $108,000. b. Treasury Stock for $80,000 and Paid-in Capital from Treasury Stock for $28,000. c. Treasury Stock for $80,000 and Retained Earnings for $28,000. d. Treasury Stock for $96,000 and Retained Earnings for $12,000. 16,000 × $15 = $240,000. 4,000 × $20 = $80,000; 4,000 × $7 = $28,000. 32. 84 $700,000 + (3,600 × $5) - (2,400 × $4) = $708,400. 33. 85 $1,450,000 - (3,000 × $28) - (3,000 × $35) + (1,800 × $30) 34. Luther Inc., has 3,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 + $450,000 = $1,765,000. 3,000 × $50 × .06 = $9,000 par value common stock outstanding at December 31, ($9,000 - $7,500) 2013, and December 31, 2012. The board of directors declared and paid a $7,500 dividend in 2012. In 2013, $36,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2013? a. $25,500 b. $18,000 c. $ 10,500 d. $ 9,000 35. Colson Inc. declared a $240,000 cash dividend. It cur- rently has 9,000 shares of 7%, $100 par value cumu- lative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders? a. $114,000. b. $126,000. c. $177,000. d. None. + $9,000 = $10,500. 9,000 × $100 × .07 = $63,000 $240,000 - ($63,000 × 2) = $114,000. 36. 90 ($90,000 ÷ $10) × $21 = $189,000 [$21 - ($90,000 ÷ 10,000)] × 9,000 = $108,000 $189,000 - $108,000 = $81,000. 37. Gibbs Corporation owned 20,000 shares of Oliver Cor- poration's $5 par value common stock. These shares were purchased in 2009 for $240,000. On September 15, 2013, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $21 per share, there were 180,000 shares (180,000 ÷ 10) × $21 = $378,000 $378,000 - [$378,000 - ($240,000 × 18/20)] = $216,000. of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend? a. $162,000 b. $378,000 c. $108,000 d. $216,000 38. Hernandez Company has 490,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $1,739,500. b. $735,000. c. $269,500. d. $245,000 490,000 × .10 × $30 = $1,470,000 $1,470,000 + (490,000 × 1.10 × $.50) = $1,739,500. 39. 97 $95,000 - $10,000 - (1,500 × $6) = $76,000. 40. On January 1, 2012, Culver Corporation had 110,000 100,000 × .15 × $8 shares of its $5 par value common stock outstanding. = $120,000. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $8, the corporation declared a 15% stock dividend to be issued to stock- holders of record on December 16, 2012. What was the impact of the 15% stock dividend on the balance of the retained earnings account? a. $ 75,000 decrease b. $120,000 decrease c. $132,000 decrease d. No effect 41. At the beginning of 2013, Flaherty Company had re- tained earnings of $250,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a "gain" of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock div- idend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of $250,000 + $100,000 - $60,000 - (3,000 × $20) = $230,000. 2013 was a. $230,000. b. $260,000. c. $266,000. d. $296,000. 42. Mingenback Company has 560,000 shares of $10 par value common stock outstanding. During the year Mingenback declared a 10% stock dividend when the market price of the stock was $48 per share. Two months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by: a. $352,000. b. $369,600. c. $2,688,000. d. $3,057,600. 43. Mays, Inc. had net income for 2012 of $3,180,000 and 560,000 × .10 × $48) + (560,000 × 1.10 × $.60) = $3,057,600. X earnings per share on common stock of $5. Includ- —————————— ed in the net income was $450,000 of bond interest expense related to its long-term debt. The income tax rate for 2012 was 30%. Dividends on preferred stock were $600,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2012? a. $645,000. b. $795,000. c. $723,750. d. $967,500. 44. Written, Inc. has outstanding 500,000 shares of $2 par common stock and 100,000 shares of no- par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $250,000 will be distributed as a divi- dend in the current year, how much will the common stockholders receive? a. Zero. b. $130,000. c. $170,000. d. $210,000. 45. Assuming that $105,000 will be distributed as a divi- dend in the current year, how much will the preferred stockholders receive? a. $35,000. ($3,180,000 - $600,000) $250,000 - (100,000 × $5 × .08 × 3) = $130,000. 100,000 × $5 × .08 × 3 = $120,000 > $105,000. b. $40,000. c. $80,000. d. $105,000. 46. Assuming that $305,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive? a. $185,000. b. $150,000. c. $155,000. d. $80,000. 47. Yoder, Inc. has 100,000 shares of $10 par value com- mon stock and 50,000 shares of $10 par value, 6%, cumulative, participating preferred stock outstand- ing. Dividends on the preferred stock are one year in arrears. Assuming that Yoder wishes to distribute $270,000 as dividends, the common stockholders will receive a. $60,000. b. $110,000. c. $160,000. d. $210,000. 48. Glavine Company issues 6,000 shares of its $5 par val- ue common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $312,000. The proceeds allocated to the common stock is a. $32,500 b. $141,818 c. $162,500 d. $170,182 49. Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $260,000. The proceeds allocated to the pre- ferred stock is a. $232,917 b. $162,500 c. $141,818 d. $118,182 50. Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. Long acquired 10,000 shares of its own common stock at $15 per share. Three months later Long sold 5,000 of these shares at $19 per share. If the cost method is used to record treasury stock 160000 [(6,000 × $25) ÷ [(6,000 × $25) + (9,000 × $20)]] × $312,000 = $141,818. [(7,500 × $20) ÷ [(5,000 × $25) + (7,500 × $20)]] × $260,000 = $141,818. 5,000 × $15 = $75,000; 5,000 × $4 = $20,000. transactions, to record the sale of the 5,000 treasury shares, Long should credit a. Treasury Stock for $95,000. b. Treasury Stock for $50,000 and Paid-in Capital from Treasury Stock for $45,000. c. Treasury Stock for $75,000 and Paid-in Capital from Treasury Stock for $20,000. d. Treasury Stock for $75,000 and Paid-in Capital in Excess of Par for $20,000. 51. 82 and 83 $700,000 + (2,000 × $5) - (500 × $10) = $705,000. (900,000 × $4) + (120,000 × $7) = $4,440,000. 52. On December 1, 2012, Abel Corporation exchanged 30,000 × $55 = 30,000 shares of its $10 par value common stock held $1,650,000. in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase by a. $300,000. b. $1,200,000. c. $1,650,000. d. $1,350,000. 53. Anders, Inc., has 10,000 shares of 5%, $100 par value, 10,000 × $100 × cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2011. The board of directors declares and pays a $90,000 dividend in 2012 and in 2013. What is the amount of dividends received by the common stockholders in 2013? a. $30,000 b. $50,000 c. $90,000 d. $0 .05 = $50,000 ($90,000 × 2) - ($50,000 × 3) = $30,000. 54. 91 ($270,000 ÷ $10) × $21 = $567,000 55. Winger Corporation owned 300,000 shares of Fe- gan Corporation stock. On December 31, 2012, when Winger's account "Equity Investment (Fegan Corpo- ration") had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a divi- dend. Winger originally paid $8 for each share. Fegan has 1,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Fegan share was $7 on the declara- tion date and $9 on the distribution date. What would be the reduction in Winger's stockhold- ers' equity as a result of the above transactions? a. $1,200,000. b. $1,500,000. c. $2,400,000. d. $2,700,000. 56. Melvern's Corporation has an investment in 10,000 shares of Wallace Company common stock with a [$21 - ($270,000 ÷ 30,000)] × 27,000 = $324,000 $567,000 - $324,000 = $243,000. (300,000 × $7) - [($7 - $5) × 300,000] = $1,500,000. (10,000 × $63) = $630,000 cost of $436,000. These shares are used in a property $630,000 - dividend to stockholders of Melvern's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The fair value per share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of a. $680,000. b. $660,000. c. $630,000. d. $436,000. ($630,000 - $436,000) = $436,000. 57. 96 80,000 × $50) + $4,000,000 = $8,000,000. 58. 98 160,000 × .10 × $35 = $560,000. 59. 99 120,000 × .15 × $20 = $360,000. 60. Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 10% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $1,789,200 b. $1,512,000 c. $277,200 d. $264,000 61. At the beginning of 2013, Hamilton Company had re- tained earnings of $180,000. During the year Hamilton reported net income of $75,000, sold treasury stock at a "gain" of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock div- idend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2013 was: a. $214,500. b. $192,000. c. $187,500. d. $165,000. 62. Mann Co. has outstanding 60,000 shares of 8% pre- 420,000 × .10 × $36) + (420,000 × 1.10 × $.60) = $1,789,200. $180,000 + $75,000 - $45,000 - (1,500 × $30) = $165,000. $300,000 - ferred stock with a $10 par value and 150,000 shares of ($600,000 × 8% × $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and nonparticipating and $300,000 is distributed, the common stockholders will receive a. $0. b. $204,000. c. $252,000. d. $300,000. 2) = $204,000. 63. 120 d 64. On July 1, 2012, Nall Co. issued 2,500 shares of its $10 b par common stock and 5,000 shares of its $10 par con- vertible preferred stock for a lump sum of $140,000. At this date Nall's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall's preferred stock should be a. $70,000. b. $84,000. c. $90,000. d. $77,000. 65. 122 20,000 × $2 = $40,000. 66. 123 (6,000 × $18) = $108,000; (6,000 × $7) = $42,000. 67. 124 c 68. Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2009 for $300,000. On December 15, 2012, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15, 2013. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $500,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of a. $0. b. $200,000. c. $300,000. d. $500,000. $500,000 (fair val- ue). 69. 126 b 70. On May 1, 2012, Ziek Corp. declared and issued a 10% d common stock dividend. Prior to this dividend, Ziek had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Ziek 's com- mon stock was $20 per share on May 1, 2012. As a result of this stock dividend, Ziek's total stockholders' equity a. increased by $200,000. b. decreased by $200,000. c. decreased by $10,000. d. did not change. 71. 128 d 72. 129 $154,000 - $32,000 - (900 × $18) = $105,800. 73. 130 ($300,000 × .08) + $12,000 = $36,000 $45,000 - $36,000 = $9,000. [Show Less]