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Exam 11: Reporting and Interpreting Owners Equity

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Question 61

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Which of the following is a correct statement about cumulative and noncumulative preferred stock?

A) They both receive dividends in arrears.
B) Cumulative stock's undeclared dividends accumulate each year until paid while noncumulative stock's right to receive dividends is forfeited in any year that dividends are not declared.
C) Cumulative preferred stock is guaranteed to receive its dividends.
D) Cumulative preferred stock's right to receive dividends is forfeited in any year that dividends are not declared while noncumulative stock's undeclared dividends accumulate each year until paiD.Cumulative preferred stockholders have the right to receive dividends in arrears when dividends are subsequently declared.

E) All of the above
F) A) and B)

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Question 62

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Davidson Company has 10,000,000 common shares issued and 500,000 shares of treasury stock. The stock's par value is $2 per share and its current market price is $25 per share. Which of the following is correct when a 15% stock dividend is declared and distributed?

A) Retained earnings will decrease $37.5 million.
B) Retained earnings will decrease $35.625 million.
C) Retained earnings will decrease $3 million.
D) Retained earnings will decrease $2.85 million.

E) B) and C)
F) A) and C)

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Question 63

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During 2014, Thomas Corporation repurchased some shares of its own common stock. What effect did this transaction have on 2014 stockholders' equity and earnings per share, respectively? $\begin{array}{lll}&\underline{\text { Stockholders' Equity }}&\underline{\text { Earnings Per Share }}\\\text { A. } & \text { Decrease } & \text { No effect } \\\text { B. } & \text { Increase } & \text { No effect } \\\text { C. } & \text { Decrease } & \text { Decrease } \\\text { D. } & \text { Decrease } & \text { Increase }\end{array}$

Which of the following does not represent a description of shares of stock presented on the balance sheet?

The issue of $5 par value common stock for $18 per share results in an $18 credit to the common stock account for each share issued.

A stock split results in the reduction of the par or stated value per share and a proportionate increase in the number of shares outstanding.

A company reported total stockholders' equity of $170,000 on its balance sheet dated December 31, 2014. During the year ended December 31, 2015, the company reported net income of $20,000, declared and paid a cash dividend of $4,000, declared and distributed a 10% stock dividend with a $5,000 total market value, and issued additional common stock for $40,000. What is total stockholders' equity as of December 31, 2015?

Which of the following does not correctly describe preferred stock?

Total stockholders' equity of Grasse Company is not affected when a stockholder sells shares of Grasse Company stock to another stockholder.

Treasury stock is a corporation's own stock that was issued and then repurchased, and is still held by the corporation.

Earnings per share is calculated by dividing net income by the number of outstanding shares of common stock at year-end.

Slickers, Inc. had the following capital structure during 2014: Preferred stock, 7%, $50 par value, 1,000 shares issued and outstanding with dividends in arrears for 2012 and 2013. Common stock, $100 par value, 2,000 shares issued and outstanding. The total dividends declared and paid during 2014 totaled $25,000. How much of the dividend is paid to the common stockholders during 2014 assuming the preferred stock is cumulative?

Which of the following statements does not correctly describe preferred stock?

When a company issues common stock in exchange for cash, a cash inflow from a financing activity is reported.

A company reported total stockholders' equity of $540,000 on its balance sheet dated December 31, 2014. During the year ended December 31, 2015, the company reported net income of $60,000, declared and paid a cash dividend of $18,000, declared and distributed a 10% stock dividend with a $15,000 total market value, sold treasury stock costing $12,000 for $15,000, and issued additional common stock for $70,000. What is total stockholders' equity as of December 31, 2015?

Which of the following is not a primary advantage of a general partnership relative to a corporation?

The dividend yield ratio is dividends per share divided by the number of shares outstanding.

Watson Company has provided the following data about its common stock: • Par value is $1 per share • 10,000,000 authorized shares • 4,300,000 shares are outstanding • 4,700,000 shares are issued How many shares of treasury stock are there?