Financial Accounting A Business Process Approach Jane L. Reimers 3rd Edition Test Bank

Financial Accounting A Business Process Approach Jane L. Reimers  3rd Edition  Test Bank
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Financial Accounting: A Business Process Approach, 3e (Reimers)
Chapter 8 Accounting for Shareholders Equity

Learning Objective 8-1

8.1-1) Which stock offers shareholders preference in receiving dividends?
A) common stock
B) preferred stock
C) treasury stock
D) callable stock
Answer: B
Diff: 2
Objective: LO 8-1

8.1-2) Preferred stock offers shareholders the right to ________.
A) receive dividends after the common shareholders receive any dividends
B) receive, in the event of bankruptcy, a share of the assets before common shareholders
C) pre-emptive rights
D) voting rights
Answer: B
Diff: 2
Objective: LO 8-1

8.1-3) Contributed capital includes ________.
A) only capital stock
B) only additional paid-in capital
C) both capital stock and retained earnings
D) both capital stock and additional paid-in capital
Answer: D
Diff: 1
Objective: LO 8-1

8.1-4) Paid-in capital includes ________
A) capital stock and additional paid-in capital
B) capital stock and retained earnings
C) additional paid-in capital and retained earnings
D) additional paid-in capital and treasury stock
Answer: A
Diff: 1
Objective: LO 8-1

8.1-5) In exchange for stock, corporations may receive ________.
A) earnings
B) cash or other assets
C) income
D) treasury stock
Answer: B
Diff: 2
Objective: LO 8-1
8.1-6) The number of shares of stock a corporation may issue when a corporation is formed is called ________ shares.
A) authorized
B) issued
C) outstanding
D) treasury
Answer: A
Diff: 2
Objective: LO 8-1

8.1-7) ________ is the stock sold to the public.
A) Authorized stock
B) Issued stock
C) Outstanding stock
D) Treasury stock
Answer: B
Diff: 2
Objective: LO 8-1

8.1-8) Stock in the hands of shareholders is called ________ stock.
A) authorized
B) par value
C) outstanding
D) treasury
Answer: C
Diff: 2
Objective: LO 8-1

8.1-9) Stock that has been sold and then repurchased by the issuing corporation is called ________ stock.
A) authorized
B) issued
C) outstanding
D) treasury
Answer: D
Diff: 2
Objective: LO 8-1

8.1-10) The owners of common stock do NOT have the specific right to ________.
A) vote for members of the board of directors
B) share in the corporations earning
C) acquire more shares when a corporation issues more stock
D) receive dividends automatically each year
Answer: D
Diff: 2
Objective: LO 8-1
8.1-11) The owners of common stock do NOT have the specific right to ________.
A) vote for members of the board of directors
B) share in the corporations earnings
C) share in any assets left when a company declares bankruptcy
D) receive dividends before preferred shareholders
Answer: D
Diff: 2
Objective: LO 8-1

8.1-12) The owners of ________ stock have the specific right to vote for members of the board of directors.
A) common
B) preferred
C) treasury
D) both common and preferred
Answer: A
Diff: 2
Objective: LO 8-1

8.1-13) A monetary value assigned to and printed on each share of stock is called ________.
A) additional paid-in capital
B) paid-in capital
C) par value
D) retained earnings
Answer: C
Diff: 2
Objective: LO 8-1

8.1-14) Investors purchase preferred stock because preferred ________.
A) stock offers a possibility of a specified annual dividend
B) dividends are increased each year
C) shareholders have voting rights
D) stock can always be converted to common stock
Answer: A
Diff: 3
Objective: LO 8-1

8.1-15) AZ Best, Inc.s corporate charter allows it to issue 1,500,000 shares of common stock. In 2011, its first year of business, the company sold 200,000 shares of common stock. In 2011, the company bought back 5,000 shares to be held as treasury stock. At December 31, 2011, how many shares of common stock are authorized?
A) 5,000 shares
B) 1,300,000 shares
C) 200,000 shares
D) 1,500,000 shares
Answer: D
Diff: 1
Objective: LO 8-1
8.1-16) AZ Best, Inc.s corporate charter allows it to issue 1,500,000 shares of common stock. In 2011, its first year of business, the company sold 200,000 shares of common stock. In 2011, the company bought back 5,000 shares to be held as treasury stock. At December 31, 2011, how many shares of common stock are issued?
A) 5,000 shares
B) 1,300,000 shares
C) 200,000 shares
D) 1,500,000 shares
Answer: C
Diff: 1
Objective: LO 8-1

8.1-17) AZ Best, Inc.s corporate charter allows it to issue 1,500,000 shares of common stock. In 2011, its first year of business, the company sold 200,000 shares of common stock. In 2011, the company bought back 5,000 shares to be held as treasury stock. At December 31, 2011, how many shares of common stock are outstanding?
A) 5,000 shares
B) 1,300,000 shares
C) 200,000 shares
D) 195,000 shares
Answer: D
Diff: 1
Objective: LO 8-1

8.1-18) The state charter of Vest Corporation allows the corporation to sell 500,000 shares. Vest has issued 425,000 shares of stock. There are 15,000 shares of treasury stock. The number of outstanding shares is ________ shares.
A) 15,000
B) 410,000
C) 425,000
D) 500,000
Answer: B
Diff: 2
Objective: LO 8-1

8.1-19) Cartier, Inc.s corporate charter allows it to sell 1 million shares of $0.50 par value common stock. As of December 31, 2011, the company had sold 500,000 shares for $4 each. Cartier has 20,000 shares of treasury stock that cost $100,000. On the December 31, 2011 balance sheet, the number of shares authorized is ________ shares.

A) 1,000,000
B) 500,000
C) 480,000
D) 400,000
Answer: A
Diff: 1
Objective: LO 8-1
8.1-20) Cartier, Inc.s corporate charter authorizes it to sell 1 million shares of $0.50 par value common stock. As of December 31, 2011, the company had sold 500,000 shares for $4 each. Cartier has 20,000 shares of treasury stock that cost $100,000. On the December 31, 2011 balance sheet, the number of shares issued is ________ shares.
A) 1,000,000
B) 500,000
C) 480,000
D) 400,000
Answer: B
Diff: 1
Objective: LO 8-1

8.1-21) Cartier, Inc.s corporate charter authorizes it to sell 1 million shares of $0.50 par value common stock. As of December 31, 2011, the company had sold 500,000 shares for $4 each. Cartier has 20,000 shares of treasury stock that cost $100,000. On the December 31, 2011 balance sheet, the number of shares outstanding is ________ shares.
A) 1,000,000
B) 500,000
C) 480,000
D) 400,000
Answer: C
Diff: 2
Objective: LO 8-1

8.1-22) If 10,000 shares of $2 par value common stock are issued for $10 per share, then additional paid-in capital will increase by ________.
A) $120,000
B) $100,000
C) $80,000
D) $20,000
Answer: C
Diff: 2
Objective: LO 8-1

8.1-23) The state charter of Team Shirts authorizes the corporation to sell 300,000 shares. Team Shirts has issued 200,000 shares of stock. There are 7,500 shares of treasury stock. The number of outstanding shares is ________.
A) 300,000
B) 200,000
C) 192,500
D) 7,500
Answer: C
Diff: 2
Objective: LO 8-1
8.1-24) Team Shirts issued 20,000 shares of stock for $20 per share. The par value of the stock was $1 per share. Calculate the value of capital stock and additional paid-in capital.
A) capital stock $400,000; additional paid-in capital $0
B) capital stock $380,000; additional paid-in capital $20,000
C) capital stock $20,000; additional paid-in capital $380,000
D) capital stock $0; additional paid-in capital $400,000
Answer: C
Diff: 2
Objective: LO 8-1

8.1-25) Lees Lions issued 15,000 shares of stock for $17 per share. The par value of the stock was $0.50 per share. Calculate the value of capital stock and additional paid-in capital.
A) capital stock $0; additional paid-in capital $255,000
B) capital stock $7,500; additional paid-in capital $247,500
C) capital stock $247,500; additional paid-in capital $7,500
D) capital stock $255,000; additional paid-in capital $0
Answer: B
Diff: 2
Objective: LO 8-1

8.1-26) Jems Jewelers reported total shareholders equity of $100,000 on its February 28 balance sheet. During March, the business earned $250,000, and declared and paid a cash dividend of $10,000. What was total shareholders equity on March 31?
A) $360,000
B) $350,000
C) $340,000
D) $260,000
Answer: C
Diff: 2
Objective: LO 8-1

8.1-27) Common stocks par value is usually ________.
A) equal to the market price of the common stock
B) greater than the market price of the common stock
C) less than the market price of the common stock
D) zero
Answer: C
Diff: 2
Objective: LO 8-1

8.1-28) The number of shares outstanding equals the number of shares ________.
A) authorized minus the number of shares issued
B) issued minus the number of shares authorized
C) issued minus the number of shares of treasury stock
D) of treasury stock minus the number of shares issued
Answer: C
Diff: 2
Objective: LO 8-1
8.1-29) Which of the following is true about bonds and common stock?
A) Bonds and common stock are both shareholders equity accounts.
B) The company that has issued bonds and common stock has a legal responsibility to pay back the principal when the bonds and stock mature.
C) The company has a legal responsibility to pay interest and dividends each year.
D) Bondholders do not have voting rights, while common shareholders do.
Answer: D
Diff: 2
Objective: LO 8-1

8.1-30) When common stock is issued, the amount recorded in Additional paid-in capital is ________.
A) the cash received minus the amount recorded in the Common stock account
B) the cash received plus the amount received in excess of par
C) the par value plus the market price of the stock
D) nothing; Additional paid-in capital is not affected by issuing common stock
Answer: A
Diff: 2
Objective: LO 8-1

8.1-31) Use the information below to answer the following question:

Common stock, $1 par, 100,000 shares
authorized, _________ shares issued $ 40,000
Additional paid-in capital 160,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (6,000)
Total shareholders equity $294,000

How many shares of common stock have been issued?
A) 100,000 shares
B) 40,000 shares
C) 1,000 shares
D) 39,000 shares
Answer: B
Diff: 2
Objective: LO 8-1

8.1-32) The owners claims to the assets of a corporation are called shareholders equity or stockholders equity.
Answer: TRUE
Diff: 1
Objective: LO 8-1

8.1-33) Retained earnings is the amount owners have invested in a corporation.
Answer: FALSE
Diff: 1
Objective: LO 8-1

8.1-34) Paid-in capital is divided into capital stock and retained earnings.
Answer: FALSE
Diff: 2
Objective: LO 8-1
8.1-35) State charters allow corporations to issue an unlimited number of shares of common stock.
Answer: FALSE
Diff: 2
Objective: LO 8-1

8.1-36) Explain the difference between authorized, issued, treasury and outstanding stock.
Answer: Authorized stock is the total amount of stock that a corporations charter will allow the corporation to sell to the public. Issued stock represents the amount of stock that a corporation has sold to the public. Treasury stock is a corporations own stock that has been issued and bought back by the corporation. Outstanding stock is the shares that are issued minus the shares in treasury.
Diff: 1
Skill: Communication abilities
Objective: LO 8-1

8.1-37) What is the difference between the par value of a stock and its market value?
Answer: Par value is an arbitrary amount printed on the stock certificate. Par value does not change over the life of the stock. Market value is what a stock is selling for on any given day. Marlet value changes over time.
Diff: 2
Skill: Communication abilities
Objective: LO 8-1

8.1-38) Explain the difference between contributed capital, capital stock, and additional paid-in capital.
Answer: Contributed capital is the total amount of cash and other assets invested in a company by its owners. Contributed capital is made up of: a.) Capital stock, which is the par value of issued stock times the number of shares of stock issued; and b.) Additional paid-in capital, which represents the difference between the total par value of issued stock and the market price of the stock at the time the shares were issued.
Diff: 2
Skill: Communication abilities
Objective: LO 8-1

8.1-39) Discuss the ownership rights available to common shareholders.
Answer: Common shareholders have the right to vote for members of the board of directors of the corporation. Common shareholders have the right to share in any distribution of corporate earnings. If a corporation goes bankrupt, common shareholders may recover some of the amount invested in the corporation after creditors and preferred shareholders are paid. Finally, common shareholders have the right to purchase more shares when a corporation issues new stock.
Diff: 2
Skill: Communication abilities
Objective: LO 8-1

8.1-40) Verst Corporations state charter allows the corporation to issue 500,000 shares of $1 par value common stock. It has sold 305,000 shares of common stock to the public and it currently holds 5,000 shares of treasury stock.
1. How many shares are authorized?
2. How many shares are issued?
3. How many shares are outstanding?
Answer: 1. authorized = 500,000 shares
2. issued = 305,000 shares
3. outstanding = 305,000 5,000 = 300,000 shares
Diff: 1
Objective: LO 8-1

8.1-41) G-Hi Corporations state charter authorizes the corporation to issue 1,000,000 shares of $1 par value common stock. It has sold 600,000 shares of common stock to the public. At the end of the year it held 20,000 shares of treasury stock.
1. How many shares are authorized?
2. How many shares are issued?
3. How many shares are outstanding?
Answer: 1. authorized = 1,000,000 shares
2. issued = 600,000 shares
3. outstanding = 600,000 shares 20,000 = 580,000 shares
Diff: 1
Objective: LO 8-1

8.1-42) Mufti Company issued 1,500 shares of its $1 par value common stock. The market price on the day of sale was $15 per share. Describe the effect of this transaction on each of the following items:
1. Cash
2. Total paid-in capital
3. Capital stock
4. Additional paid-in capital
Answer:
1. Cash increases $22,500
2. Total paid-in capital increases $22,500
3. Common stock increases $1,500
4. Additional paid-in capital increases $21,000
Diff: 2
Skill: Analytic skills
Objective: LO 8-1

8.1-43) Marcys Catering has been so successful that the business needs to expand its facility. Marcy has decided to change the business from a sole proprietorship to a corporation in order to raise more money from the sale of stock to investors. Marcys accountant has prepared a proposed shareholders equity section of the balance sheet. Explain to Marcy what each line item represents.

Shareholders equity:
Paid-in capital:
Preferred stock
Common stock
Additional paid-in capital
Treasury stock
Retained earnings
Total shareholders equity
Answer: The owners claims to the assets of a corporation are called shareholders equity or stockholders equity. There are two parts to shareholders equity: contributed capital and retained earnings. Contributed capital, or paid-in capital, is the amount owners have invested in the corporation. Paid-in capital is further divided into capital stock and additional paid-in capital. Stock can be either preferred stock or common stock. Owners of preferred stock receive preference rights on the distribution of dividends; however, they have no voting rights. Owners of common stock have the right to participate in the distribution of dividends and the right to vote for members of the board of directors. Additional paid-in capital represents the difference between the par value of the corporations stock and the market price at which the stock was issued. Treasury stock is corporate stock that has been issued and later repurchased by the corporation. Retained earnings represent the total net income minus dividends since the day the corporation began.
Diff: 3
Skill: Communication abilities
Objective: LO 8-1

8.1-44) Vest, Inc. received cash from selling 100 shares of its $1 par value common stock at $10 per share. Show the effect of issuing stock on the accounting equation, including both account titles and amounts.
Shareholders equity
Assets Liabilities Contributed capital Retained earnings

Answer: Shareholders equity
Assets Liabilities Contributed capital Retained earnings
1,000 cash 100 common stock
900 additional paid-in capital

Diff: 2
Objective: LO 8-1
8.1-45) Out of Africa had the following shareholders equity section on its balance sheet as of
December 31.

Preferred stock: $100 par, 6%, cumulative $100,000
Common stock: $1 par value 25,000
Additional paid-in capital 300,000
Retained earnings 57,000

Calculate the following:
a. Number of shares of preferred stock outstanding
b. Number of shares of common stock outstanding
Answer:
a. $100,00/$100 par value = 1,000 preferred shares
b. $25,000/$1 par value = 25,000 common shares
Diff: 1
Objective: LO 8-1

8.1-46) What is preferred stock?
Answer: Preferred stock is a special class of capital stock. It has several features which distinguish it from common stock. Holders of preferred stock receive dividends before holders of common stock. Preferred shareholders have the right to receive a share of the assets before common shareholders in the event of bankruptcy. Unlike common shareholders, preferred shareholders have no voting rights.
Diff: 2
Skill: Communication abilities
Objective: LO 8-1

Learning Objective 8-2

8.2-1) A difference between preferred stock and common stock is preferred shareholders ________.
A) have voting rights, while common shareholders do not
B) have the right to share in any assets left if the company goes out of business after both the creditors and common shareholders receive their share
C) have the right to buy new shares in order to maintain their percentage ownership before the company can issue new shares to the general public
D) must receive their dividends before any of the common shareholders are paid
Answer: D
Diff: 2
Objective: LO 8-1 & LO 8-2

8.2-2) Team Shirts reported total shareholders equity of $80,000 on its October 31 balance sheet. During November, the business earned $270,000, and declared and paid a cash dividend of $20,000. What was total shareholders equity on November 30?
A) $80,000
B) $350,000
C) $250,000
D) $330,000
Answer: D
Diff: 2
Objective: LO 8-2
8.2-3) Distributions of a corporations earnings to its shareholders are called ________.
A) dividends
B) paid-in capital
C) retained earnings
D) distribution expense
Answer: A
Diff: 2
Objective: LO 8-2

8.2-4) The declaration date is the date ________.
A) on which the board of directors of a corporation announces that a dividend will be paid
B) used to determine exactly who will receive dividends
C) when cash is actually paid to the shareholders
D) when earnings are declared
Answer: A
Diff: 2
Objective: LO 8-2

8.2-5) The date of record is the date ________.
A) on which the board of directors of a corporation announces that a dividend will be paid
B) used to determine exactly who will receive dividends
C) when cash is actually paid to the shareholders
D) when earnings are declared
Answer: B
Diff: 2
Objective: LO 8-2

8.2-6) The date of payment is the date ________.
A) on which the board of directors of a corporation announces that a dividend will be paid
B) used to determine exactly who will receive dividends
C) when cash is actually paid to the shareholders
D) when earnings are declared
Answer: C
Diff: 2
Objective: LO 8-2

8.2-7) The date on which the board of directors of a corporation decides that earnings are sufficient to pay a dividend is the ________.
A) declaration date
B) date of record
C) date of payment
D) dividend date
Answer: A
Diff: 1
Objective: LO 8-2
8.2-8) Cumulative preferred stock means that ________.
A) the fixed dividend amount accumulates from year to year. The entire amount of all past unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to common shareholders
B) the preferred dividend rate will increase each year the shares are outstanding
C) preferred dividends accumulate as earnings accumulate
D) the balance in the Preferred stock account is increased by any additional shares that are sold during the year
Answer: A
Diff: 2
Objective: LO 8-2

8.2-9) Noncumulative preferred stock means that ________.
A) the fixed dividend amount accumulates from year to year. The entire amount of all past unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to common shareholders
B) the board of directors has the option to decide whether past unpaid dividends will be paid to preferred shareholders
C) preferred dividends accumulate as earnings accumulate
D) the balance in the Preferred stock account is increased by any additional shares that are sold during the year
Answer: B
Diff: 2
Objective: LO 8-2

8.2-10) A company has 2,000 shares of $100 par, 6%, noncumulative preferred stock outstanding. If the board of directors declares a dividend this year, how much will the preferred shareholders receive?
A) $100 per share
B) $6 per share
C) $200,000 in total
D) $60 per share
Answer: B
Diff: 2
Skill: Analytic skills
Objective: LO 8-2

8.2-11) Dividends ________.
A) are the distribution of profits
B) are expenses and cause shareholders equity to decrease
C) cause retained earnings to increase
D) cause common stock to decrease
Answer: A
Diff: 2
Objective: LO 8-2
8.2-12) Dividends ________.
A) cause retained earnings to decrease
B) are expenses and cause shareholders equity to decrease
C) cause retained earnings to increase
D) are expenses and cause shareholders equity to increase
Answer: A
Diff: 2
Objective: LO 8-2

8.2-13) Which of these comes first?
A) declaration date
B) date of record
C) payment date
D) liquidation date
Answer: A
Diff: 1
Objective: LO 8-2

8.2-14) Angeliques Antiques declared and paid cash dividends of $25,000. There were 1,000 shares of 10%, $30 par value, noncumulative preferred stock outstanding. How much of the cash dividends were paid to PREFERRED shareholders?
A) $0
B) $3,000
C) $22,000
D) $25,000
Answer: B
Diff: 3
Skill: Analytic skills
Objective: LO 8-2

8.2-15) Angeliques Antiques declared and paid cash dividends of $25,000. There were 1,000 shares of 10%, $30 par value, noncumulative preferred stock outstanding. How much of the cash dividends were paid to COMMON shareholders?
A) $0
B) $1,500
C) $22,000
D) $25,000
Answer: C
Diff: 3
Skill: Analytic skills
Objective: LO 8-2
8.2-16) Out of Africa, a multi-national corporation had a very successful year. The board of directors declared and paid a cash dividend of $50,000. The prior year, Out of Africa did not pay dividends on its 400 shares of cumulative, 8%, $100 par, preferred stock. How much of the cash dividend was paid to the PREFERRED shareholders?
A) $6,400
B) $3,200
C) $8,000
D) $4,000
Answer: A
Diff: 3
Skill: Analytic skills, Dynamics of the global economy
Objective: LO 8-2

8.2-17) Out of Africa, a multi-national corporation had a very successful year. The board of directors declared and paid a cash dividend of $50,000. The prior year, Out of Africa did not pay dividends on its 400 shares of cumulative, 8%, $100 par, preferred stock. How much of the cash dividend was paid to the COMMON shareholders?
A) $50,000
B) $49,992
C) $46,800
D) $43,600
Answer: D
Diff: 3
Skill: Analytic skills, Dynamics of the global economy
Objective: LO 8-2

8.2-18) Trading Places, a multi-national corporation, had a very successful year. The board of directors declared and paid a cash dividend of $50,000. The prior year, Trading Places did not pay dividends on its 400 shares of noncumulative, 8%, $100 par, preferred stock. How much of the cash dividend was paid to the PREFERRED shareholders?
A) $6,400
B) $3,200
C) $8,000
D) $4,000
Answer: B
Diff: 3
Skill: Analytic skills
Objective: LO 8-2

8.2-19) Trading Places, a multi-national corporation, had a very successful year. The board of directors declared and paid a cash dividend of $50,000. The prior year, Trading Places did not pay dividends on its 400 shares of noncumulative, 8%, $100 par, preferred stock. How much of the cash dividend was paid to the COMMON shareholders?
A) $46,800
B) $0
C) $43,600
D) $50,000
Answer: A
Diff: 3
Skill: Analytic skills, Dynamics of the global economy
Objective: LO 8-2
8.2-20) Team Shirts declared and paid cash dividends of $40,000. There were 1,000 shares of 6%, $10 par value, noncumulative preferred stock outstanding. How much of the cash dividends were paid to PREFERRED shareholders?
A) $40,000
B) $2,400
C) $600
D) $0
Answer: C
Diff: 3
Skill: Analytic skills
Objective: LO 8-2

8.2-21) Team Shirts declared and paid cash dividends of $40,000. There were 1,000 shares of 6%, $10 par value, noncumulative preferred stock outstanding. How much of the cash dividends were paid to COMMON shareholders?
A) $40,000
B) $39,400
C) $2,400
D) $600
Answer: B
Diff: 3
Skill: Analytic skills
Objective: LO 8-2

8.2-22) Dividends are distributions of a corporations earnings to its shareholders.
Answer: TRUE
Diff: 1
Objective: LO 8-2

8.2-23) Dividends are an operating expense of a corporation.
Answer: FALSE
Diff: 2
Objective: LO 8-2

8.2-24) Dividends decrease net income.
Answer: FALSE
Diff: 2
Objective: LO 8-2

8.2-25) Dividends decrease retained earnings.
Answer: TRUE
Diff: 2
Objective: LO 8-2

8.2-26) Dividends decrease contributed capital.
Answer: FALSE
Diff: 2
Objective: LO 8-2
8.2-27) Preferred stock has preference over common stock when dividends are paid.
Answer: TRUE
Diff: 2
Objective: LO 8-2

8.2-28) Common stock has preference over preferred stock when dividends are paid.
Answer: FALSE
Diff: 2
Objective: LO 8-2

8.2-29) What are dividends?
Answer: Dividends are distributions of corporate earnings that are paid to the shareholders of a corporation. Dividends are generally paid in the form of cash.
Diff: 1
Skill: Communication abilities
Objective: LO 8-2

8.2-30) On July 1, the board of directors of Team Shirts declared a $0.75 cash dividend per share for shareholders owning company stock on July 10. The checks will be issued on July 15. What are the dates of declaration, record, and payment?
Answer: Declaration date: July 1; Date of record: July 10; Date of payment: July 15.
Diff: 1
Objective: LO 8-2

8.2-31) Team Shirts had an exceptional second quarter and earned net income of $250,000. On August 1, the board of directors of Team Shirts declared a $1.00 per share cash dividend to be paid on August 15 to shareholders owning company stock on August 10. What are the dates of declaration, record, and payment?
Answer: Declaration date: August 1; Date of record: August 10; Date of payment: August 15
Diff: 1
Objective: LO 8-2

8.2-32) On March 15, Team Shirts paid a cash dividend of $0.25 per share to its shareholders. There were 65,000 shares issued at the time. Team Shirts held 2,500 shares of treasury stock. What was the total dollar amount of the cash dividend?
Answer: 65,000 2,500 = 62,500 shares outstanding
62,500 shares x $0.25 = $15,625
Diff: 2
Skill: Analytic skills
Objective: LO 8-2

8.2-33) On June 15, Team Shirts paid a cash dividend of $0.75 per share to common shareholders. There were 45,000 shares issued at the time. Team Shirts held 1,000 shares of treasury stock. Team Shirts also paid a dividend to preferred shareholders. There were 200 shares of 8%, $100 par preferred stock outstanding. What was the total dollar amount of the cash dividend?
Answer: 45,000 1,000 = 44,000 common shares outstanding
44,000 common shares x $0.75 = $33,000
$100 par x .08 = $8 per share preferred dividend x 200 shares = $1,600
Total dividends: $33,000 + 1,600 = $34,600
Diff: 3
Skill: Analytic skills
Objective: LO 8-2

8.2-34) On July 31, Ace Electronics paid a cash dividend of $0.50 per share to common shareholders. There were 80,000 shares issued at the time. Ace held 5,000 shares of treasury stock. Ace also paid a dividend to preferred shareholders. There were 1,000 shares of 6%, $100 par preferred stock outstanding. What was the total dollar amount of the cash dividend?
Answer: 80,000 5,000 = 75,000 common shares outstanding
75,000 common shares x $0.50 = $37,500
$100 par x .06 = $6 per share preferred dividend x 1,000 shares = $6,000
Total dividends: $37,500 + 6,000 = $43,500
Diff: 3
Skill: Analytic skills
Objective: LO 8-2

8.2-35) The board of directors of Kim Brothers Fitness Center is going to declare the first-ever dividends for the new corporation. The total amount of cash available for dividends is $2,000. There are 50 shares outstanding of 10%, $100 par value preferred stock. There are 2,000 shares of common stock outstanding.
1. What is the TOTAL dollar amount of the dividend paid to preferred shareholders?
2. What is the dividend PER SHARE paid to preferred shareholders?
3. What is the TOTAL dollar amount of the dividend paid to common shareholders?
4. What is the dividend PER SHARE paid to common shareholders?
Answer:
1. $500 = 10% x $100 par x 50 shares outstanding
2. $10 = 10% x $100 par
3. $1,500 = $2,000 total dividends $500 preferred dividends
4. $0.75 = $1,500/2,000 shares
Diff: 2
Skill: Analytic skills
Objective: LO 8-2

8.2-36) On December 15, 2011, the board of directors of Ryes, Inc. declared a cash dividend of $2 per share on the 100,000 common shares outstanding, payable January 8, 2012. No dividends were declared in 2012. For each item, write in the amount (even if $0) in the column of the one financial statement where the amount is found.

December 31, 2011 financials: Income Statement Statement of Changes in Shareholders Equity Statement of Cash Flows Balance Sheet
1. Dividends payable
2. Dividends
3. Dividends paid

December 31, 2012 financials: Income Statement Statement of Changes in Shareholders Equity Statement of Cash Flows Balance Sheet
4. Dividends payable
5. Dividends
6. Dividends paid

Answer:
Income Statement Statement of Changes in Shareholders Equity Statement of Cash Flows Balance Sheet
1. $200,000
2. $(200,000)
3. $0
4. $0
5. $0
6. $(200,000)

Diff: 2
Objective: LO 8-2

8.2-37) Match each of the following items with its appropriate definition. Each item should be used only once.

a. noncumulative preferred stock
b. dividends
c. payment date
d. declaration date
e. preferred stock
f. cash dividends
g. date of record
h. cumulative preferred stock
i. dividends in arrears
j. treasury stock

______ 1. Type of corporate stock that has preference rights over common stock
______ 2. Corporate distribution of earnings to the shareholders of the corporation
______ 3. A distribution of earnings in the form of cash to the shareholders of a corporation
______ 4. Date when the board of directors of a corporation authorizes the payment of dividends to the shareholders of the corporation
______ 5. Date used to determine which shareholders should receive dividends; anyone owning stock on this date is entitled to receive dividends
______ 6. Stock of a corporation that has been issued and has been repurchased by the issuing corporation.
______ 7. Date when cash dividends are actually paid to shareholders of a corporation.
______ 8. Stock on which the fixed dividend amount accumulates from year to year; the entire amount of all past unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to the common shareholders
______ 9. Any dividends owed to the preferred shareholders from past years, but were not declared and are currently unpaid
_____ 10. Preferred stock that is not entitled to receive past, unpaid dividends
Answer: e, b, f, d, g, j, c, h, i, a
Diff: 2
Objective: LO 8-1 & LO 8-2

8.2-38) Match each of the following items with the appropriate definition. Each item is to be used only once.

a. additional paid-in capital
b. preferred stock
c. payment date
d. capital stock
e. dividends in arrears
f. treasury stock
g. contributed capital
h. cumulative preferred stock
i. noncumulative preferred stock

______ 1. Type of corporate stock that has preference rights over common stock
______ 2. Preferred stock that is not entitled to receive past, unpaid dividends
______ 3. Owners contributions to a firm
______ 4. Shares of ownership in a corporation
______ 5. The excess over par value received by a corporation when it issues stock
______ 6. Stock of a corporation that has been issued and has been repurchased by the issuing corporation
______ 7. Date when cash dividends are actually paid to shareholders of a corporation
______ 8. Stock on which the fixed dividend amount accumulates from year to year; the entire amount of all past unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to the common shareholders
______ 9. Any dividends owed to the preferred shareholders from past years that were not declared and are currently unpaid
Answer: b, i, g, d, a, f, c, h, e
Diff: 2
Objective: LO 8-1 & LO 8-2

Learning Objective 8-3

8.3-1) Treasury stock ________.
A) is a contra-equity account
B) is the amount of stock issued by the company
C) results in an increase in total shareholders equity
D) is a contra-asset account
Answer: A
Diff: 1
Objective: LO 8-3

8.3-2) Corporations repurchase their own stock to ________.
A) obtain stock to distribute to employees for stock options and retirement plans
B) decrease earnings per share
C) serve as a weapon in a hostile takeover of another company
D) decrease the market price of the stock
Answer: A
Diff: 1
Objective: LO 8-3
8.3-3) When a company buys shares of its own stock and holds them as treasury stock, ________.
A) its earnings per share are not affected
B) its earnings per share will increase
C) its earnings per share will decrease
D) the market price of its stock will decrease
Answer: B
Diff: 3
Objective: LO 8-3

8.3-4) The purchase of treasury stock ________ a corporations assets and ________ its shareholders equity.
A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases
Answer: D
Diff: 3
Objective: LO 8-3

8.3-5) Treasury stock is shown as ________ on the balance sheet.
A) a reduction of total shareholders equity
B) an addition to total shareholders equity
C) a reduction of total retained earnings
D) an addition to total retained earnings
Answer: A
Diff: 2
Objective: LO 8-3

8.3-6) The purchase of treasury stock ________.
A) requires recognition on the income statement of any gain made on the purchase
B) requires recognition on the income statement of any loss incurred on the purchase
C) does not require recognition on the income statement of any gain made on the purchase
D) always decreases net income
Answer: C
Diff: 3
Objective: LO 8-3

8.3-7) Treasury stock is a(n) _____ account.
A) asset
B) contra-asset
C) equity
D) contra-equity
Answer: D
Diff: 2
Objective: LO 8-3
8.3-8) The number of shares of treasury stock plus the number of shares outstanding equals the total amount of ________.
A) issued stock
B) voting stock
C) stock authorized
D) stock entitled to dividends
Answer: A
Diff: 2
Skill: Analytic skills
Objective: LO 8-3

8.3-9) Team Shirts repurchased $3,700 worth of its stock via the stock market. This purchase ________.
A) increased assets
B) decreased total shareholders equity
C) increased retained earnings
D) decreased retained earnings
Answer: B
Diff: 3
Skill: Analytic skills
Objective: LO 8-3

8.3-10) Team Shirts purchased $5,000 worth of its own stock in the stock market. The transaction would _________ cash by $5,000 and _________ shareholders equity by $5,000.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Answer: B
Diff: 3
Skill: Analytic skills
Objective: LO 8-3

8.3-11) Team Shirts sold $4,000 worth of its own stock in the stock market. The transaction would _________ cash by $4,000 and _________ shareholders equity by $4,000.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease, increase
Answer: A
Diff: 3
Skill: Analytic skills
Objective: LO 8-3
8.3-12) Which of the following will cause total shareholders equity to decrease?
A) issuing common stock
B) selling treasury stock
C) repaying a bonds principal
D) purchasing treasury stock
Answer: D
Diff: 2
Skill: Analytic skills
Objective: LO 8-3

8.3-13) Treasury stock is a companys own stock that the company has repurchased.
Answer: TRUE
Diff: 1
Objective: LO 8-3

8.3-14) Treasury stock is a contra-asset account.
Answer: FALSE
Diff: 2
Objective: LO 8-3

8.3-15) Treasury stock is a contra-equity account.
Answer: TRUE
Diff: 1
Objective: LO 8-3

8.3-16) Gains from treasury stock transactions increase net income.
Answer: FALSE
Diff: 2
Objective: LO 8-3

8.3-17) The purchase of treasury stock reduces a companys assets and shareholders equity.
Answer: TRUE
Diff: 3
Objective: LO 8-3

8.3-18) Treasury stock is shown as an increase in shareholders equity on the balance sheet.
Answer: FALSE
Diff: 3
Objective: LO 8-3

8.3-19) Outstanding stock has been issued and is either in the hands of shareholders or held by a corporation as treasury stock.
Answer: FALSE
Diff: 2
Objective: LO 8-3
8.3-20) Why do corporations purchase and own treasury stock?
Answer: Corporations purchase and hold treasury stock in order to have shares available to distribute to employees for compensation plans. Corporations may buy stock to distribute cash to owners who choose to sell their stock. Treasury stock can also be used to increase a corporations earnings per share by reducing the number of shares outstanding. In addition, by keeping stock in the corporate treasury, companies can reduce the amount of future cash dividends to be paid and the risk of a hostile takeover.
Diff: 2
Skill: Communication abilities
Objective: LO 8-3

8.3-21) Team Shirts had 25,000 shares of $1.00 par value common stock outstanding. It bought back 500 shares for $15.50 in the stock market to use for employee bonuses. On December 10, Team Shirts gave 250 shares to its employees as holiday bonuses. On December 31:
1. How many shares are outstanding?
2. How many shares are still held as treasury stock?
Answer:
1. 25,000 500 + 250 = 24,750 shares
2. 500 250 = 250 shares
Diff: 2
Objective: LO 8-3

8.3-22) Anika Braun, owner and CEO of Brauns Sports Den, believes that the corporation has too many shares outstanding. She is worried that a Japanese company will buy the shares and take over the business. Her accountant has suggested that Brauns Sports Den buy treasury stock. Explain to Anika why buying treasury stock may be an option.
Answer: Treasury stock is stock of a corporation that has been issued and then repurchased by the corporation. Brauns Sports Den can buy back shares of its stock on the stock market. This reduces the number of shares available for competitors to buy. Treasury stock can then be reissued to existing shareholders on a percentage of ownership basis, or given to employees as part of a profit-sharing package.
Diff: 2
Skill: Communication abilities, Dynamics of the global economy
Objective: LO 8-3

8.3-23) On October 15, Manx Company bought 400 shares of its own stock for $16 per share. Show how this transaction affects the accounting equation. Include both account titles and amounts.

Shareholders equity
Assets Liabilities Contributed capital Retained earnings

Answer: Shareholders equity
Assets Liabilities Contributed capital Retained earnings
(6,400) (6,400) Treasury stock

Diff: 1
Skill: Analytic skills
Objective: LO 8-3
8.3-24) On October 15, Manx Company bought 400 shares of its own stock for $16 per share. On December 10, Manx Company sold all of the same shares on the market for $20 per share.
Show how both of these transactions affect the accounting equation. Include both account titles and amounts.
Shareholders equity
Assets Liabilities Contributed capital Retained earnings

Answer: Shareholders equity
Assets Liabilities Contributed capital Retained earnings
(6,400) Cash
8,000 Cash (6,400) Treasury stock
6,400 Treasury stock
1,600 Paid-in capital from
treasury stock transactions

Diff: 3
Skill: Analytic skills
Objective: LO 8-3

8.3-25) In 2011, Bijoux, Inc. sold 35,000 shares of the 1,500,000 shares of $1 par value common stock it is allowed to sell. The shares sold for $8 each. Bijoux bought back 4,000 shares of its stock at a cost of $6 each. Bijoux declared and paid a $0.20 per share dividend to its common shareholders. Bijoux has no preferred stock.

1. The number of shares of common stock authorized is: shares
2. The number of shares of common stock issued is: shares
3. The number of shares of common stock outstanding is: shares
4. Total dividends paid for the year ended December 31, 2011 is: $
5. Common stock balance at December 31, 2011 is: $
6. Additional paid-in capital balance at December 31, 2011 is: $
7. Treasury stock balance at December 31, 2011 is: $

Answer:
1. 1,500,000 shares
2. 35,000 shares
3. 35,000 4,000 = 31,000 shares
4. 31,000 shares x $0.20 = $6,200
5. 35,000 shares x $1 par = $35,000
6. 35,000 shares x ($8 1 par) = $245,000
7. 4,000 shares x $6 = $(24,000)
Diff: 3
Skill: Analytic skills
Objective: LO 8-1 & LO 8-2

8.3-26) Show the effect on the accounting equation for each of the events below. Fill in the AMOUNT and the LETTER of the account title from the list of accounts provided.

A Additional paid-in capital D Dividends G Net income
B Cash E Dividends payable H Revenue
C Common stock F Interest expense I Treasury stock

Shareholders equity
Assets Liabilities Contributed capital Retained earnings
Company issued 1,000 shares of $1 par value stock for $4 each
Company repurchased 20 shares for $5 each
Company declared a $10,000 dividend to be paid in two months
Company paid the $10,000 dividend from above

Answer: Shareholders equity
Assets Liabilities Contributed capital Retained earnings
4,000 B 1,000 C
3,000 A
(100) B (100) I
10,000 E (10,000) D
(10,000) B (10,000) E

Diff: 2
Skill: Analytic skills
Objective: LO 8-1 & LO 8-2

8.3-27) Par For the Course, Inc.s financial statement included the following section:

12/31/11
Preferred stock, $100 par, 5% noncumulative $ 40,000
Common stock, $2 par value 60,000
Additional paid-in capital, common stock 480,000
Retained earnings 60,000
Treasury stock (1,000 shares) (8,000)
Total shareholders equity $632,000

1. From which financial statement did the above information come?

2. How many shares of common stock have been issued? shares
3. What was the average selling price of a share of common stock?
$
4. How many shares of preferred stock are issued?

shares
5. If you hold one share of the preferred stock, how much of a dividend would you expect for the year?
$
6. Beginning retained earnings is $50,000 and net income is $17,800. How much of the dividends go to the common shareholders?

$
7. If you hold one share of the common stock, how much of a dividend would you receive?
$

Answer:
1. balance sheet
2. 30,000 shares
3. $18
4. 400
5. $5
6. $5,800
7. $0.20 = $5,800 / (30,000 1,000 shares)

Diff: 3
Skill: Analytic skills
Objective: LO 8-1 & LO 8-2

8.3-28) Match each of the following items with the appropriate definition. Each item should be used only once.

a. additional paid-in capital
b. preferred stock
c. authorized
d. capital stock
e. outstanding
f. treasury stock
g. contributed capital
h. issued
i. par value

______ 1. Type of corporate stock that has preference rights over common stock
______ 2. Owners contributions to a firm
______ 3. Shares of ownership in a corporation
______ 4. The excess over par value received by a corporation when it issued stock
______ 5. Stock of a corporation that has been issued and has been repurchased by the issuing corporation
______ 6. The total number of shares a corporation may sell to investors as permitted by the corporations state charter
______ 7. Shares that have been sold to investors by a corporation
______ 8. Shares that have been issued and not held in the corporations treasury
______ 9. An arbitrary amount printed on a share of stock assigned by the corporation
Answer: b, g, d, a, f, c, h, e, i
Diff: 2
Objective: LO 8-1 & LO 8-2

Learning Objective 8-4

8.4-1) A corporations distribution of new shares of stock to the corporations current shareholders is called a ________.
A) cash dividend
B) liquidating dividend
C) stock dividend
D) stock split
Answer: C
Diff: 2
Objective: LO 8-4

8.4-2) A ________ is created when a corporation increases the number of shares and proportionately decreases the par value.
A) cash dividend
B) liquidating dividend
C) stock dividend
D) stock split
Answer: D
Diff: 2
Objective: LO 8-4
8.4-3) Issuing a stock dividend ________.
A) decreases total shareholders equity
B) does not increase any shareholders percentage of ownership in the company
C) increases total shareholders equity
D) decreases total assets
Answer: B
Diff: 2
Skill: Analytic skills
Objective: LO 8-4

8.4-4) Team Shirts issued a 10% stock dividend. The balance in retained earnings just before the dividend was $45,000. There were 15,000 shares outstanding on the day of the dividend. The $1 par value stock had a market price of $17.25 on the day of the dividend. Total shareholders equity will increase (decrease) by ________.
A) $4,500
B) $1,500
C) $25,875
D) $0
Answer: D
Diff: 3
Skill: Analytic skills
Objective: LO 8-4

8.4-5) Team Shirts issued a 2-for-1 stock split. Just before the split, Team Shirts had 100,000, $1 par value common shares outstanding. After the split, Team Shirts had ________ outstanding.
A) 50,000 common shares
B) 100,000 common shares
C) 200,000 common shares
D) 100,000 shares of preferred stock and 100,000 shares of common stock
Answer: C
Diff: 2
Skill: Analytic skills
Objective: LO 8-4

8.4-6) Team Shirts issued a 2-for-1 stock split. Before the split, Team Shirts had 100,000, $1 par value common shares outstanding. After the split, the par value of each common share is ________.
A) $2.00
B) $1.00
C) $0.50
D) unable to be determined since it is determined by the market not the corporation
Answer: C
Diff: 2
Skill: Analytic skills
Objective: LO 8-4
8.4-7) Team Shirts issued a 2-for-1 stock split. The balance in retained earnings just before the split was $45,000. There were 15,000 shares outstanding on the day of the split. The $1 par value stock had a market price of $17.25 on the day of the split. Retained earnings will increase (decrease) after the split by ________.
A) $4,500
B) $1,500
C) $25,875
D) $0
Answer: D
Diff: 3
Objective: LO 8-4

8.4-8) A stock split ________ total shareholders equity.
A) increases
B) decreases
C) has no effect on
D) increases both total assets and
Answer: C
Diff: 2
Objective: LO 8-4

8.4-9) Corporations split stock because ________.
A) a stock split increases shareholders equity
B) a stock split will decrease the market price per share of stock
C) a stock split will decrease the number of shares outstanding
D) a stock split will increase total assets
Answer: B
Diff: 2
Objective: LO 8-4

8.4-10) Which of these will decrease the par value of a corporations common stock?
A) a stock split
B) paying a stock dividend
C) paying a cash dividend
D) buying treasury stock
Answer: A
Diff: 1
Objective: LO 8-4

8.4-11) How many of these will decrease a corporations retained earnings?
a stock split
paying a stock dividend
paying a cash dividend
buying treasury stock
A) one
B) two
C) three
D) all four
Answer: B
Diff: 3
Objective: LO 8-4
8.4-12) Stock splits occur when a corporation increases the number of shares and proportionately decreases the par value.
Answer: TRUE
Diff: 2
Objective: LO 8-4

8.4-13) Stock splits occur when a corporation wants to decrease the market price per share of its stock.
Answer: TRUE
Diff: 2
Objective: LO 8-4

8.4-14) Stock splits occur when a corporation wants to increase the market price per share of its stock.
Answer: FALSE
Diff: 2
Objective: LO 8-4

8.4-15) On May 20, Team Shirts paid a 10% stock dividend to shareholders of record on June 15.
On June 15, there were 100,000 shares of stock outstanding. How many shares of Team Shirts stock were outstanding after the stock dividend was paid?
Answer: 100,000 shares x 1.1% = 110,000 shares
Diff: 2
Objective: LO 8-4

8.4-16) On November 1, Team Shirts announced a 3-for-1 stock split to be effective on November 15. On November 15, there were 335,000 shares of stock outstanding. How many shares of Team Shirts stock were outstanding after the stock split?
Answer: 335,000 x 3 = 1,005,000 shares
Diff: 1
Objective: LO 8-4

8.4-17) On February 1, Team Shirts announced a 4-for-1 stock split to be effective on February 15. On February 1, there were 45,000 shares of $1.00 par value common stock outstanding.
1. How many shares of Team Shirts stock were outstanding after the stock split?
2. What is the new par value per share?
Answer: 1. 45,000 x 4 = 180,000 shares
2. par value = $1 x 1/4 = $0.25 per share
Diff: 1
Objective: LO 8-4
8.4-18) Team Shirts would like to start paying dividends to its loyal shareholders; however, it believes that the business cannot spare the cash for dividends. Explain how Team Shirts could use a stock split or stock dividend to reward shareholders instead of paying a cash dividend.
Answer: A stock dividend occurs when a corporation gives existing shareholders more shares of stock. For example, Team Shirts could give one new share for every five shares outstanding. This would directly reward shareholders with more stock, but not cost Team Shirts any cash. A stock split involves a division of existing shares. A frequently-occurring stock split is 2 for 1. This means that two shares of the new stock issue replace each current share outstanding. This would signal to investors that Team Shirts is a growing company, and that the market value of Team Shirts stock should increase in the future.
Diff: 2
Skill: Communication abilities
Objective: LO 8-4

8.4-19) Explain the difference between a stock dividend and stock split.
Answer: Corporations sometimes pay stock dividends instead of cash dividends. Stock dividends are additional shares of stock given to existing shareholders. An example would be one new share of stock given for every ten existing shares. A stock split involves the division of all of the current shares of stock. This is done to increase the numbers of shares. For example, a 2-for-1 stock split for a company with 200,000 shares authorized would result in 400,000 shares authorized.
Diff: 2
Skill: Communication abilities
Objective: LO 8-4

8.4-20) Identify each of the following actions taken by the board of directors of Gems Jewelers. Each term is used only once.

a. stock split
b. declaration date
c. treasury stock
d. issued stock
e. dividends in arrears

______ 1. Authorized payment of back dividends to preferred shareholders
______ 2. Authorized the sale of 500 new shares of stock to the public
______ 3. Authorized the repurchase of 500 shares of Gems Jewelers stock
______ 4. Authorized the exchange of two new shares of stock for every one existing share
______ 5. Authorized the payment of a cash dividend on March 15
Answer: e, d, c, a, b
Diff: 3
Objective: LO 8-1 & LO 8-2
8.4-21) Identify each of the following situations using the following items. Each item is used only once.

a. stock split
b. stock dividend
c. treasury stock
d. cash dividend
e. dividends in arrears

______ 1. Team Shirts exchanged two shares of new stock for every share of existing stock.
______ 2. U Bet, Inc. skipped this years dividends for preferred stock.
______ 3. Team Shirts paid $1.00 to each shareholder.
______ 4. Team Shirts gave one share of stock for every 10 shares outstanding.
______ 5. Team Shirts bought 300 shares of Team Shirts stock.
Answer: a, e, d, b, c
Diff: 2
Objective: LO 8-1 & LO 8-2

Learning Objective 8-5

8.5-1) During 2011, Stockton, Inc. reported net income of $4,000, declared and paid a cash dividend of $2,000, and issued common stock for $20,000. At December 31, 2011, Stockton reported total shareholders equity of $58,000. What was total shareholders equity at the beginning of the year, on January 1, 2011?
A) $36,000
B) $40,000
C) $58,000
D) $60,000
Answer: A
Diff: 3
Objective: LO 8-5

8.5-2) Retained earnings is the ________.
A) past profits and dividends maintained in treasury
B) beginning retained earnings plus net income minus dividends
C) past distributed profits
D) minimum legal capital that must be retained by the company
Answer: B
Diff: 2
Objective: LO 8-5
8.5-3) Equitable, Inc. issued no new common stock and had 100,000 shares issued and outstanding during 2011. The following information is taken from Equitables accounting records:

Net income for the year ended, December 31, 2011 $370,000
Retained earnings, December 31, 2010 $280,000
Retained earnings, December 31, 2011 $360,000
Total shareholders equity at December 31, 2011 $725,000

What was the dividend declared during the year ended December 31, 2011?
A) $290,000
B) $360,000
C) $725,000
D) $365,000
Answer: A
Diff: 3
Skill: Analytic skills
Objective: LO 8-5

8.5-4) Which financial statement is the best place to look to determine the amount of dividends DECLARED?
A) Income statement
B) Statement of changes in shareholders equity
C) Balance sheet
D) Statement of cash flows
Answer: B
Diff: 2
Skill: Analytic skills
Objective: LO 8-5

8.5-5) Retained earnings are ________.
A) increased by net income since the day the company began
B) increased by net losses since the day the company began
C) increased by dividends declared to shareholders since the company began
D) increased when additional shares of stock are sold
Answer: A
Diff: 2
Objective: LO 8-5

8.5-6) Retained earnings is also called ________ capital.
A) additional paid-in
B) earned
C) contributed
D) paid-in
Answer: B
Diff: 1
Objective: LO 8-5
8.5-7) Team Shirts has a balance in retained earnings of $15,000. This amount is ________.
A) matched by the amount of cash in the Cash account
B) the amount of cash available for dividends
C) the amount of net income kept by Team Shirts
D) the cash amount received from the sale of stock
Answer: C
Diff: 2
Objective: LO 8-5

8.5-8) J & D Company had beginning retained earnings of $65,000. During the year the company had net income of $150,000, and declared and paid dividends of $9,500. The ending balance in retained earnings is ________.
A) $215,000
B) $55,500
C) $205,500
D) $224,500
Answer: C
Diff: 1
Skill: Analytic skills
Objective: LO 8-5

8.5-9) B & B Company had beginning retained earnings of $45,000. During the year the company had net income of $139,000, and declared and paid dividends of $9,500. B & B Company sold 2,500 shares of stock for $30 per share. What is the net effect of these transactions on the following accounts?
A) increase Retained earnings; increase Common stock
B) increase Retained earnings; decrease Common stock
C) no effect on Retained earnings; increase Common stock
D) increase Retained earnings; no effect on Common stock
Answer: A
Diff: 3
Skill: Analytic skills
Objective: LO 8-5

8.5-10) DM Company had beginning retained earnings of $60,000. During the year the company had net income of $275,000 and declared and paid dividends of $7,500. The ending balance in retained earnings is ________.
A) $282,500
B) $327,500
C) $335,000
D) $342,500
Answer: B
Diff: 1
Skill: Analytic skills
Objective: LO 8-5

8.5-11) Dale Murphy Company had beginning retained earnings of $60,000. During the year the company had net income of $20,000, and paid dividends of $7,500. The Company repurchased 1,000 shares of its stock for $45 during the period. What is the net effect of these transactions on the items shown below?
A) increase Retained earnings; increase Total shareholders equity
B) increase Retained earnings; decrease Total shareholders equity
C) decrease Retained earnings; increase Total shareholders equity
D) decrease Retained earnings; decrease Total shareholders equity
Answer: B
Diff: 3
Skill: Analytic skills
Objective: LO 8-5

8.5-12) Which of the following will INCREASE a companys retained earnings?
A) earning net income of $50,000 for the year
B) issuing additional shares of common stock at a price above par
C) buying additional shares of treasury stock
D) declaring cash dividends of $0.50 per share
Answer: A
Diff: 1
Objective: LO 8-5

8.5-13) Which of the following will DECREASE a companys retained earnings?
A) earning net income of $50,000 for the year
B) issuing additional shares of common stock at a price above par
C) buying additional shares of treasury stock
D) declaring cash dividends of $0.50 per share
Answer: D
Diff: 1
Skill: Analytic skills
Objective: LO 8-5

8.5-14) Use the following information obtained from the companys computerized accounting information system to answer the question(s) below. Note: There were no preferred shares outstanding and no additional common shares were issued in 2011.

2011 2010
Net income 20,000 26,000
Total assets 169,000 150,000
Total liabilities 94,000 90,000
Total shareholders equity 75,000 60,000
Common shares outstanding 10,000 shares 10,000 shares

Dividends declared in 2011 equal ________.
A) $0
B) $5,000
C) $6,000
D) an amount that cannot be determined from the information given
Answer: B
Diff: 3
Skill: Analytic skills
Objective: LO 8-5
8.5-15) Retained earnings includes the earnings kept by a company since the day it began.
Answer: TRUE
Diff: 2
Objective: LO 8-5

8.5-16) Retained earnings is also known as paid-in capital.
Answer: FALSE
Diff: 1
Objective: LO 8-5

8.5-17) Retained earnings is also known as earned capital.
Answer: TRUE
Diff: 1
Objective: LO 8-5

8.5-18) What is retained earnings. How is it calculated?
Answer: Retained earnings is the total amount of net earnings kept in a business. Retained earnings includes all net income and losses since the day a company began. Dividends declared since the company began are subtracted from retained earnings.
Diff: 1
Skill: Communication abilities
Objective: LO 8-5

8.5-19) DM Company had beginning retained earnings of $80,000. During the year the company earned net income of $200,000 and declared dividends of $70,000. The Company sold 1,000 shares of stock for $45 each during the year. What is the ending balance in retained earnings?
Answer: $80,000 + 200,000 70,000 = $210,000
Diff: 1
Objective: LO 8-5

8.5-20) Three Brothers Fitness Center had beginning retained earnings of $170,000. During the year the company had net income of $50,000 and declared dividends of $66,000. The Company issued 500 shares of stock for $15 each during the year and repurchased 100 shares of treasury stock for $11 per share. Calculate the ending balance in retained earnings.
Answer: $170,000 + 50,000 66,000 = $154,000
Diff: 2
Objective: LO 8-5
8.5-21) Aqua, Inc. had the following shareholders equity section on its December 31, 2011 balance sheet:
12/31/11
Preferred stock, $100 par, 6%, noncumulative $ 50,000
Common stock, $1 par value 400,000
Additional paid-in capital, common stock 1,200,000
Retained earnings 600,000
Total shareholders equity $2,250,000

a. How many shares of common stock have been issued? shares
b. What was the average selling price of a share of common stock? $
c. How many shares of preferred stock have been issued? shares
d. If you hold ONE SHARE of the preferred stock, how much of a dividend would you expect for the year?
$
e. Beginning retained earnings is $500,000 and net income is $180,000. What is the TOTAL dividend that the common shareholders received all together?

$

Answer:
a. 400,000 shares = $400,000/$1 par value
b. $4.00 = ($400,000 + 1,200,000)/400,000 shares
c. $500 = $50,000/$100 par value
d. $6.00 = 6% x $100 par value
e. Total dividend = $500,000 + 180,000 600,000 = $80,000
$80,000 (500 preferred shares x $6) = $77,000
Diff: 3
Skill: Analytic skills
Objective: LO 8-1, LO 8-2, & LO 8-5

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