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Exam 11: Reporting and Interpreting Owners Equity

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Question 1

Multiple Choice

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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) All of the above
F) C) and D)

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Question 2

Multiple Choice

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A company reported the following asset and liability balances at the end of 2009 and 2010: $\begin{array} { l r r } & 2009 & 2010 \\\text { Total Assets } & \$ 6,800,000 & \$ 7,600,000 \\\text { Total Liabilities } & 3,200,000 & 3,600,000\end{array}$ During 2010,cash dividends of $50,000 were declared and paid,and common stock was issued for $100,000.How much was the 2010 net income?

A) $400,000
B) $480,000
C) $350,000
D) $300,000

E) A) and B)
F) B) and D)

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Question 3

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

Slickers,Inc.had the following capital structure during 2010: Preferred stock,7%,$50 par value,1,000 shares issued and outstanding with dividends in arrears for 2008 and 2009. Common stock,$100 par value,2,000 shares issued and outstanding. The total dividends declared and paid during 2010 totaled $25,000.How much of the dividend is paid to the preferred stockholders during 2010 assuming the preferred stock is noncumulative?

Which of the following statements about earnings per share is correct?

Assume the following capital structure: Preferred stock,6%,$50 par value,1,000 shares issued and outstanding with dividends in arrears for three prior years (2007 - 2009) . Common stock,$100 par value,2,000 shares issued and outstanding. Total dividends declared and paid in 2010 were $50,000.How much of the 2010 dividend will be paid to the preferred stockholders assuming the preferred stock is noncumulative?

A company's assets and liabilities decrease when they pay a previously declared cash dividend.

Earnings per share increases when a company purchases treasury stock.

Outstanding shares of stock are those shares which a corporation has the ability to issue as documented in its charter in the state where incorporated.

Which of the following statements is false?

A company purchased treasury stock for $19,000; the treasury stock was initially issued for $12,000 and had a $5,000 par value.Which of the following statements correctly describes the effects of the treasury stock purchase?

Which of the following journal entries is correct when common stock is initially issued for cash at a price in excess of the stock's stated value?

Assume the following capital structure: Preferred stock,6%,$50 par value,1,000 shares issued and outstanding with dividends in arrears for three prior years (2007 - 2009) . Common stock,$100 par value,2,000 shares issued and outstanding. Total dividends declared and paid in 2010 were $50,000.How much of the 2010 dividend will be paid to the common stockholders assuming the preferred stock is cumulative?

Which of the following statements is correct?

Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $40 per share when they were repurchased at a cost of $44 per share and have a $1 par value? $\begin{array}{lr}\text { A. Cash } & 40,000 \\\text { Capital in excess of par value } & 4,000 \\\text { Treasury Stock } && 44,000\end{array}$ $\begin{array}{lrr}\text { B. Cash } & 40,000 & \\\text { Loss on sale of treasury stock } & 4,000 & \\\text { Treasury Stock } & & 44,000\end{array}$ $\begin{array}{lrr}\text { C. Cash } & 40,000 & \\\text { Capital in excess of par value } & 4,000 & \\\text { Common Stock } & & 44,000\end{array}$ $\begin{array}{lrr}\text { D. Cash } & 40,000 & \\\text { Common Stock } & &1,000 \\\text { Capital in excess of par value } && 39,000\end{array}$

Which of the following statements is false?

Net income decreases when treasury stock is sold for an amount less than its cost.

Which of the following journal entries doesn't reflect the initial cash sale of shares of common stock?

Which of the following statements is correct?

Slickers,Inc.had the following capital structure during 2010: Preferred stock,7%,$50 par value,1,000 shares issued and outstanding with dividends in arrears for 2008 and 2009. Common stock,$100 par value,2,000 shares issued and outstanding. The total dividends declared and paid during 2010 totaled $25,000.How much of the dividend is paid to the common stockholders during 2010 assuming the preferred stock is cumulative?