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Exam 11: Stockholders Equity

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Question 51

Multiple Choice

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Preferred stock differs from common stock in that preferred stock:

A) has more voting power and,as such,greater control over the management of the company.
B) is less risky because preferred stockholders are paid dividends before common stockholders.
C) pays a tax-free dividend.
D) has no preemptive rights or residual claims.

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

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Question 52

Multiple Choice

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AMD buys back 300,000 shares of its stock from investors at $6.50 a share.Two years later,it reissues this stock for $6.00 a share.The stock reissue would be recorded as:

A) a debit to Cash of $1.8 million,a debit to Additional Paid-in Capital of $150,000,and a credit to Treasury Stock of $1.95 million.
B) a debit to Cash of $1.95 million,a credit to Treasury Stock of $1.8 million,and a credit to Additional Paid-in Capital of $150,000.
C) a debit to Cash of $1.95 million and a credit to Treasury Stock of $1.95 million.
D) a debit to Cash of $1.8 million and a credit to Treasury Stock of $1.8 million.

E) B) and C)
F) C) and D)

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Question 53

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A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.The current number of shares of treasury stock after these transactions have been accounted for is:

A company issues 100,000 shares of preferred stock for $40 a share.The stock has fixed annual dividend rate of 5% and a par value of $3 per share.Preferred stockholders can anticipate receiving a dividend of:

Limited liability companies (LLCs) are like general partnerships in that:

A company sells 1 million shares of common stock with a par value of $0.02 for $15 a share.To record the transaction,the company would:

Which of the following factors would lead a company to prefer equity financing?

The stockholders' equity section of the balance sheet includes all of the following except:

The following data are taken from the stockholders' equity section of the balance sheet of a company: What was the average issue price per share of the common stock?

Which of the following statements is not true about the par value of common stock?

When a company reissues shares of its treasury stock,it must report a gain or a loss on the sale.

Use the information above to answer the following question.The EPS is approximately:

Which of the following statements about dividends is not true?

On February 16,a company declares a 34¢ dividend to be paid on April 5.There are 2 million shares of common stock issued and 100,000 shares of treasury stock.What does the company record in February?

A company issues 500,000 shares of preferred stock for $30 a share.The stock has a fixed annual dividend rate of 5% and a par value of $9 per share.The current price of the preferred stock is $32 a share.Preferred stockholders can anticipate receiving a per share annual dividend of:

Which of the following statements is true about retained earnings?

If a company's P/E ratio is 24 and the company's EPS is $1.50,then the company's stock price is:

Horton Company began business on January 1,2014 by issuing all of its 1,000,000 authorized shares of its $1 par value common stock for $20 per share.On June 30,they declared a cash dividend of $1 per share to stockholders of record on July 31.They paid the cash dividend on August 30.On November 1,Horton reacquired 200,000 of its own shares of stock for $25 per share.On December 22 they resold half of these shares for $30 per share. a.Prepare all of the necessary journal entries to record the events described above. b.Prepare the stockholders' equity section of the balance sheet as of 12/31/2014 assuming that the net income for the year was $3,000,000.

Company Z has 8 million shares of common stock authorized with a par value of $1 and a market price of $72.There are 4 million outstanding shares and 1 million shares held in treasury stock. a. 1)Prepare the journal entry if the company declares and distributes a 10% stock dividend. 2)Show the effect of the 10% stock dividend on assets,liabilities,and stockholders' equity. b. 1)Prepare the journal entry if the company declares and distributes a 100% stock dividend. 2)Show the effect of the 100% stock dividend on assets,liabilities,and stockholders' equity. c.Compare the two stock dividends in parts a and b above.Explain why the 100% stock dividend is not 10 times larger than a 10% stock dividend.

A corporation's legal capital (legal value) is often defined as: