Recording Stock Issuances
The number of shares that a corporation’s charter allows it to sell is referred to as:
a. Issued stock.
b. Outstanding stock.
c. Common stock.
d. Preferred stock.
e. Authorized stock.
e. Authorized stock.
The distribution of additional shares to stockholders according to their percent ownership is known as a:
a. Cash dividend.
b. Treasury stock buyout.
c. Stock split.
d. Cumulative dividend.
e. Participating dividend.
c. Stock split.
Retained earnings:
a. Is the cumulative net income (and loss) not distributed as dividends to its stockholders.
b. Can only be appropriated by setting aside a cash fund.
c. Represent an amount of cash available to pay shareholders.
d. Are never adjusted for anything other than net income or dividends.
e. Represents the amount shareholders are guaranteed to receive upon company liquidation.
a. Is the cumulative net income (and loss) not distributed as dividends to its stockholders.
The amount of income earned per share of outstanding common stock is known as:
a. Restricted retained earnings per share.
b. Earnings per share.
c. Continuing operations per share.
d. Dividends per share.
e. Return on assets per share.
b. Earnings per share.
Stockholders’ equity consists of which of the following?
a. Long-term assets.
b. Paid-in (or contributed) capital and retained earnings.
c. Paid-in (or contributed) capital and par value.
d. Retained earnings and cash.
e. Premiums and discounts.
b. Paid-in (or contributed) capital and retained earnings.
Percy Corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 350 shares to its attorneys in payment of a $5,500 charge for drawing up the articles of incorporation. The entry to record this transaction would include:
a. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,500.
b. A debit to Organization Expenses for $3,500.
c. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.
d. A credit to Common Stock for $5,500.
e. A debit to Organization Expenses for $5,500.
e. A debit to Organization Expenses for $5,500.
Debit Organization Expense $ 5,500
Credit Common Stock, $10 Par Value $ 3,500
Credit Paid-in Capital in Excess of Par Value, Common Stock $ 2,000
Stocks that pay little or no cash dividends but are attractive to investors because of expected stock price increases are known as:
a. Small capital stocks.
b. Mid capital stocks.
c. Growth stocks.
d. Large capital stocks.
e. Income stocks.
c. Growth stocks.
National Insurance Company has 200,000 shares authorized, 180,000 shares issued, and 40,000 shares of treasury stock. The number of shares outstanding is:
a. 200,000. b. 180,000. c. 160,000. d. 140,000.
e. 20,000.
d. 140,000.
Shares Outstanding = Shares Issued − Shares of Treasury Stock
Shares Outstanding = 180,000 − 40,000 = 140,000 shares outstanding
A company made a material error in calculating and reporting amortization expense in Year 1. The error was discovered in Year 2. The item should be reported as a prior period adjustment:
a. on the Year 1 statement of retained earnings.
b. on the Year 1 income statement.
c. on the Year 2 statement of retained earnings.
d. on the Year 2 income statement.
e. accounted for with a cumulative "catch-up" adjustment in Year 2.
c. on the Year 2 statement of retained earnings.
A company had a beginning balance in retained earnings of $44,100. It had net income of $7,100 and declared and paid cash dividends of $5,900 in the current period. The ending balance in retained earnings equals:
a. $13,000. b. $45,300. c. $57,100. d. $42,900.
e. $5,900.
b. $45,300.
Beginning balance $ 44,100
Plus net income 7,100
Less dividends (5,900)
Ending balance $ 45,300
A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:
a. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000.
b. A debit to Cash for $14,000.
c. A credit to Common Stock for $182,000.
d. A credit to Common Stock for $14,000.
e. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $196,000.
d. A credit to Common Stock for $14,000.
Debit Cash $ 182,000
Credit Common Stock, $1 Par Value $ 14,000
Credit Paid-in Capital in Excess of Par Value, Common Stock $ 168,000
Davis Enterprises has 270,000 shares of $5 par value common stock outstanding. Davis declares a 40% stock dividend on March 2 when the stock’s market value is $63 per share. The journal entry for the declaration of the stock dividend is:
a. Retained Earnings 540,000
Common Dividend Payable 540,000
b. Common Stock Dividend Distributable 540,000 Retained Earnings 540,000
c. Retained Earnings 6,804,000
Common Stock Dividend Distributable 6,804,000
d. Retained Earnings 540,000
Common Stock Dividend Distributable 540,000
e. No journal entry is required for the declaration of a stock dividend.
d. Retained Earnings 540,000
Common Stock Dividend Distributable 540,000
Torino Company has 10,000 shares of $5 par value, 4% cumulative preferred stock and 100,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is: a. $1,000. b. $2,000. c. $3,000. d. $4,000. e. $0.
c. $3,000.
Preferred stock dividend: 10,000 shares × $5/share × 4% = $2,000
Prior year: Dividend Paid = $1,000; $1,000 in arrears
Current year: $1,000 in arrears + $2,000 current dividend = $3,000
Mayan Company had net income of $37,380. The weighted-average common shares outstanding were 8,900. The company has no preferred stock. The company's basic earnings per share is:
a. $4.20. b. $7.48. c. $9.58. d. $37.38. e. $2.92.
a. $4.20.
Basic Earnings per Share = (Net Income − Preferred Dividends)/Weighted-Average Common Shares Outstanding
Basic Earnings per Share = ($37,380 − $0) / 8,900 = $4.20
A company has earnings per share of $9.60. Its dividend per share is $0.50 and its market price per share is $113.28. Its price-earnings ratio equals:
a. 1.15. b. 0.85. c. 19.20. d. 10.00. e. 11.80.
e. 11.80.
Price-Earnings Ratio = Market Value (Price) per Share/Earnings per Share
Price-Earnings Ratio = $113.28/$9.60 = 11.80
A corporation issued 6,000 shares of its $2 par value common stock in exchange for land that has a market value of $84,000. The entry to record this transaction would include:
a. A debit to Common Stock for $12,000.
b. A debit to Land for $12,000.
c. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $72,000.
d. A credit to Land for $12,000.
e. A credit to Common Stock for $84,000.
c. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $72,000.
Debit Land $ 84,000
Credit Common Stock, $2 Par Value $ 12,000
Credit Paid-in Capital in Excess of Par Value, Common Stock $ 72,000
A company's board of directors votes to declare a cash dividend of $1.75 per share of common stock. The company has 35,000 shares authorized, 30,000 issued, and 29,500 shares outstanding. The total amount of the cash dividend is:
a. $60,250. b. $52,500. c. $61,250. d. $51,625.
e. $104,125.
d. $51,625.
$1.75 × 29,500 shares outstanding = $51,625
Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on June 30 for $40 per share. On July 20, it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the balance in the Treasury Stock account on August 2?
a. $100. b. $1,200. c. $0. d. $2,600. e. $5,050.
b. $1,200.
Treasury Stock = # of shares held × initial cost per share
(100 − 50 − 20) × $40 = $1,200
A company paid $0.48 in cash dividends per share. Its earnings per share is $3.20 and its market price per share is $20.00. Its dividend yield equals:
a. 2.4%. b. 6.25%. c. 6.4%. d. 6.67%. e. 15.00%.
a. 2.4%.
Dividend Yield = Annual Cash Dividends per Share/Market Value per Share
Dividend Yield = $0.48/$20 = 2.4%
On September 1, Ziegler Corporation had 50,000 shares of $5 par value common stock, and $1,500,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. The general journal entry to record this transaction is:
a. Debit Retained Earnings $750,000; credit Common Stock Split Distributable $750,000.
b. Debit Retained Earnings $750,000; credit Common Stock $750,000.
c. Debit Retained Earnings $250,000; credit Common Stock $250,000.
d. Debit Retained Earnings $250,000; credit Stock Split Payable $250,000.
e. No entry is made for this transaction.
e. No entry is made for this transaction.
A company issued 120 shares of $100 par value common stock for $13,000 cash. The total amount of paid-in capital is:
a. $1,200. b. $100. c. $12,000. d. $1,000. e. $13,000.
e. $13,000.
A corporation declared and issued a 10% stock dividend on October 1. The following information was available immediately prior to the dividend: Retained earnings $ 830,000 Shares issued and outstanding 68,000 Market value per share $ 23 Par value/ share $ 5
The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:
a. $156,400. b. $(34,000). c. $0. d. $(156,400).
e. $34,000.
a. $156,400.
68,000 shares × 0.10 = 6,800 shares × $23 = $156,400
The following data has been collected about Keller Company's stockholders' equity accounts:
Common stock $10 par value 20,000 shares authorized, 10,000 shares issued, and 9,000 shares outstanding $ 100,000
Paid-in capital in excess of par value, common stock 50,000
Retained earnings 25,000
Treasury stock 11,500
Assuming the treasury shares were all purchased at the same price, the cost per share of the treasury stock is: a. $1.15. b. $1.28. c. $11.50. d. $10.50.
e. $10.00.
c. $11.50.
Issued shares − Outstanding shares = Treasury shares; 10,000 − 9,000 = 1,000.
$11,500/1,000 = $11.50, the cost per share of treasury stock
A company has net income of $855,000; its weighted-average common shares outstanding are 171,000. Its dividend per share is $1.40 and its market price per share is $107. Its price-earnings ratio equals:
a. 3.90. b. 21.40. c. 2.50. d. 1.10. e. 20.90.
b. 21.40.
Price-Earnings Ratio = Market Price per Share/Earnings per share
Market Price per Share/(Net Income/Weighted-Average Common Shares Outstanding)
Price-Earnings Ratio = $107/($855,000/171,000) = 21.40
Global Corporation had 60,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $30. The entry to record the dividend declaration is:
a. No entry is made until the stock is issued.
b. Debit Retained Earnings $180,000; credit Common Stock Dividend Distributable $180,000.
c. Debit Retained Earnings $180,000; credit Cash $180,000.
d. Debit Retained Earnings $120,000; credit Common Stock Dividend Distributable $120,000.
e. Debit Retained Earnings $180,000; credit Common Stock Dividend Distributable $120,000; credit Paid-In Capital in Excess of Par Value, Common Stock $60,000.
e. Debit Retained Earnings $180,000; credit Common Stock Dividend Distributable $120,000; credit Paid-In Capital in Excess of Par Value, Common Stock $60,000.
Retained earnings: 60,000 shares × 10% × $30 = $180,000
Common Stock Dividend Distributable: 60,000 shares × 10% × $20 = $120,000
Paid-in Capital in Excess of Par Value, Common Stock: 60,000 shares × 10% × $10 = $60,000