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Exam 12: Corporations: Organization, Stock Transactions, and Dividends

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Question 51

Multiple Choice

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Which one of the following would not be considered an advantage of the corporate form of organization?

A) government regulation
B) separate legal existence
C) continuous life
D) limited liability of stockholders

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

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Question 52

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For accounting purposes, stated value is treated the same way as par value.

A) True
B) False

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Question 53

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A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.

Texas Inc. has 10,000 shares of 6%, $125 par value cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31. What is the annual dividend on the preferred stock?

A corporation has 12,000 shares of $20 par stock outstanding that has a current market value of $150. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $50.

A corporation has 50,000 shares of $25 par stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be

How is treasury stock shown on the balance sheet?

On February 13, Epperson Company issue for cash 75,000 shares of no-par common stock (with a stated value of $125) at $140. On September 9, Epperson issued at par 15,000 shares of 1%, $60 par preferred stock at par for cash. On November 23, Epperson issued for cash 8,000 shares of 1%, $60 par preferred stock at $70. ​ Journalize the entries to record the February 13, September 9, and November 23 transactions.

Carmen Company is a corporation that has issued both preferred and common stock. As of January 1, it had 50,000 shares of 2.75% $100 par, preferred stock outstanding and 250,000 shares of $10 par common stock outstanding. Journalize the following transactions. (a) On January 31, the board of directors issues a requirement to purchase 5,000 shares of its common stock at market price. The shares are purchased at a market price of $22 per share. (b) On March 15, Carmen declares a dividend on preferred stock of $2.75 per share. The date of record is March 25 and the date of payment is March 31. (c) On December 1, Carmen declares a cash dividend on common stock of $0.12 per share. The date of record is December 15 and the date of payment is December 21. (d) On December 27, the board orders that 2,500 shares of the treasury stock purchased in (a) be sold. The sale price is $25 per share.

A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific purpose.

Match each of the following stockholders' equity concepts to the appropriate term.

The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.

Big Bluestem Inc. reported the following results for the year ending April 30: ​ $\begin{array}{lr}\text { Retained earnings, May } 1 & \$ 3,750,000 \\\text { Net income } & 720,000 \\\text { Cash dividends declared } & 80,000 \\\text { Stock dividends declared } & 220,000\end{array}$ ​ Prepare a retained earnings statement for the fiscal year ended April 30.

The reduction in the par or stated value of common stock, accompanied by the issuance of a proportionate number of additional shares, is called a stock split.

A restriction/appropriation of retained earnings

Prepare entries to record the following: (a) Issued 1,000 shares of $\$ 10$ par common stock at $\$ 59$ for cash. (b) Issued 1,400 shares of $\$ 10$ par common stock in exchange for equipment with a fair market price of $\$ 60,000$ . (c) Purchased 100 shares of treasury stock at $\$ 32$ . (d) Sold the 100 shares of treasury stock purchased in (c) at $\$ 42$ .

Match the following stockholders' equity concepts to the appropriate term

Firefly, Inc. reported the following results for the year ending July 31: ​ $\begin{array}{|l|r|}\hline \text { Retained earnings, August 1 } & \$ 875,000 \\\hline \text { Net income } & 450,000 \\\hline \text { Cash dividends declared } & 140,000 \\\hline \text { Stock dividends declared } & 60,000 \\\hline\end{array}$ ​ Prepare a retained earnings statement for the fiscal year ended July 31.

When a corporation completes a 3-for-1 stock split

The state charter allows a corporation to issue only a certain number of shares of each class of stock. This amount of stock is called