ACC 304 WEEK 10 QUIZ 7
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ACC 304 WEEK 10 QUIZ 7
ACC 304 Week 10 Quiz 7 – STR NEW
ACC 304 Week 10 Quiz 7
All Questions Included.
TRUE-FALSE—Conceptual
1. A corporation is incorporated in only
one state regardless of the number of states in which it operates.
2. The preemptive right allows
stockholders the right to vote for directors of the company.
3. Common stock is the residual
corporate interest that bears the ultimate risks of loss.
4. Earned capital consists of additional
paid-in capital and retained earnings.
5. True no-par stock should be carried
in the accounts at issue price without any additional paid-in capital reported.
6. Companies allocate the proceeds
received from a lump-sum sale of securities based on the securities’ par
values.
7. Companies should record stock issued
for services or noncash property at either the fair value of the stock issued
or the fair value of the consideration received.
8. Treasury stock is a company’s own
stock that has been reacquired and retired.
9. The cost method records all
transactions in treasury shares at their cost and reports the treasury stock as
a deduction from capital stock.
10. When a corporation sells treasury
stock below its cost, it usually debits the difference between cost and selling
price to Paid-in Capital from Treasury Stock.
11. Participating preferred stock
requires that if a company fails to pay a dividend in any year, it must make it
up in a later year before paying any common dividends.
12. Callable preferred stock permits the
corporation at its option to redeem the outstanding preferred shares at
stipulated prices.
13. The laws of some states require that
corporations restrict their legal capital from distribution to stockholders.
14. The SEC requires companies to
disclose their dividend policy in their annual report.
15. All dividends, except for
liquidating dividends, reduce the total stockholders’ equity of a corporation.
16. Dividends payable in assets of the
corporation other than cash are called property dividends or dividends in kind.
17. When a stock dividend is less than
20-25 percent of the common stock outstanding, a company is required to
transfer the fair value of the stock issued from retained earnings.
18. Stock splits and large stock
dividends have the same effect on a company’s retained earnings and total
stockholders’ equity.
19. The rate of return on common stock
equity is computed by dividing net income by the average common stockholders’
equity.
20. The payout ratio is determined by
dividing cash dividends paid to common stockholders by net income available to
common stockholders.
MULTIPLE CHOICE—Conceptual
21. The residual interest in a
corporation belongs to the
a. management.
b. creditors.
c. common stockholders.
d. preferred stockholders.
22. The pre-emptive right of a common
stockholder is the right to
a. share proportionately in corporate assets upon
liquidation.
b. share proportionately in any new issues of stock
of the same class.
c. receive cash dividends before they are
distributed to preferred stockholders.
d. exclude preferred stockholders from voting
rights.
23. The pre-emptive right enables a
stockholder to
a. share proportionately in any new issues of stock
of the same class.
b. receive cash dividends before other classes of
stock without the pre-emptive right.
c. sell capital stock back to the corporation at the
option of the stockholder.
d. receive the same amount of dividends on a
percentage basis as the preferred stockholders.
S24. In a corporate form of business
organization, legal capital is best defined as
a. the amount of capital the state of incorporation
allows the company to accumulate over its existence.
b. the par value of all capital stock issued.
c. the amount of capital the federal government
allows a corporation to generate.
d. the total capital raised by a corporation within
the limits set by the Securities and Exchange Commission.
S25. Stockholders of a business enterprise
are said to be the residual owners. The term residual owner means that
shareholders
a. are entitled to a dividend every year in which
the business earns a profit.
b. have the rights to specific assets of the
business.
c. bear the ultimate risks and uncertainties and
receive the benefits of enterprise ownership.
d. can negotiate individual contracts on behalf of
the enterprise.
26. Total stockholders’ equity
represents
a. a claim to specific assets contributed by the
owners.
b. the maximum amount that can be borrowed by the
enterprise.
c. a claim against a portion of the total assets of
an enterprise.
d. only the amount of earnings that have been
retained in the business.
27. A primary source of stockholders’
equity is
a. income retained by the corporation.
b. appropriated retained earnings.
c. contributions by stockholders.
d. both income retained by the corporation andcontributions by
stockholders.
28. Stockholders’ equity is generally
classified into two major categories:
a. contributed capital and appropriated capital.
b. appropriated capital and retained earnings.
c. retained earnings and unappropriated capital.
d. earned capital and contributed capital.
29. The accounting problem in a lump sum
issuance is the allocation of proceeds between the classes of securities. An
acceptable method of allocation is the
a. pro forma method.
b. proportional method.
c. incremental method.
d. either the proportional method or the incremental
method.
30. When a corporation issues its
capital stock in payment for services, the least appropriate basis for recording the
transaction is the
a. market value of the services received.
b. par value of the shares issued.
c. market value of the shares issued.
d. Any of these provides an appropriate basis for
recording the transaction.
31. Direct costs incurred to sell stock
such as underwriting costs should be accounted for as
1. a reduction of additional paid-in capital.
2. an expense of the period in which the stock is
issued.
3. an intangible asset.
a. 1
b. 2
c. 3
d. 1 or 3
32. A “secret reserve” will be created
if
a. inadequate depreciation is charged to income.
b. a capital expenditure is charged to expense.
c. liabilities are understated.
d. stockholders’ equity is overstated.
P33. Which of the following represents
the total number of shares that a corporation may issue under the terms of its
charter?
a. authorized shares
b. issued shares
c. unissued shares
d. outstanding shares
S34. Stock that has a fixed per-share
amount printed on each stock certificate is called
a. stated value stock.
b. fixed value stock.
c. uniform value stock.
d. par value stock.
S35. Which of the following is not a
legal restriction related to profit distributions by a corporation?
a. The amount distributed to owners must be in
compliance with the state laws governing corporations.
b. The amount distributed in any one year can never
exceed the net income reported for that year.
c. Profit distributions must be formally approved by
the board of directors.
d. Dividends must be in full agreement with the
capital stock contracts as to preferences and participation.
S36. In January 2012, Finley Corporation,
a newly formed company, issued 10,000 shares of its $10 par common stock for
$15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of
its outstanding stock for $12 per share. The acquisition of these treasury
shares
a. decreased total stockholders’ equity.
b. increased total stockholders’ equity.
c. did not change total stockholders’ equity.
d. decreased the number of issued shares.
P37. Treasury shares are
a. shares held as an investment by the treasurer of
the corporation.
b. shares held as an investment of the corporation.
c. issued and outstanding shares.
d. issued but not outstanding shares.
38. When treasury stock is purchased for
more than the par value of the stock and the cost method is used to account for
treasury stock, what account(s) should be debited?
a. Treasury stock for the par value and paid-in
capital in excess of par for the excess of the purchase price over the par
value.
b. Paid-in capital in excess of par for the purchase
price.
c. Treasury stock for the purchase price.
d. Treasury stock for the par value and retained
earnings for the excess of the purchase price over the par value.
39. “Gains” on sales of treasury stock
(using the cost method) should be credited to
a. paid-in capital from treasury stock.
b. capital stock.
c. retained earnings.
d. other income.
40. Porter Corp. purchased its own par
value stock on January 1, 2012 for $20,000 and debited the treasury stock
account for the purchase price. The stock was subsequently sold for $12,000.
The $8,000 difference between the cost and sales price should be recorded as a
deduction from
a. additional paid-in capital to the extent that
previous net “gains” from sales of the same class of stock are included
therein; otherwise, from retained earnings.
b. additional paid-in capital without regard as to
whether or not there have been previous net “gains” from sales of the same
class of stock included therein.
c. retained earnings.
d. net income.
41. How should a “gain” from the sale of
treasury stock be reflected when using the cost method of recording treasury
stock transactions?
a. As ordinary earnings shown on the income
statement.
b. As paid-in capital from treasury stock
transactions.
c. As an increase in the amount shown for common
stock.
d. As an extraordinary item shown on the income
statement.
42. Which of the following best
describes a possible result of treasury stock transactions by a corporation?
a. May increase but not decrease retained earnings.
b. May increase net income if the cost method is
used.
c. May decrease but not increase retained earnings.
d. May decrease but not increase net income.
43. Which of the following features of
preferred stock makes the security more like debt than an equity instrument?
a. Participating
b. Voting
c. Redeemable
d. Noncumulative
44. The cumulative feature of preferred
stock
a. limits the amount of cumulative dividends to the
par value of the preferred stock.
b. requires that dividends not paid in any year must
be made up in a later year before dividends are distributed to common
shareholders.
c. means that the shareholder can accumulate
preferred stock until it is equal to the par value of common stock at which
time it can be converted into common stock.
d. enables a preferred stockholder to accumulate
dividends until they equal the par value of the stock and receive the stock in
place of the cash dividends.
P45. According to the FASB, redeemable
preferred stock should be
a. included with common stock.
b. included as a liability.
c. excluded from the stockholders’ equity heading.
d. included as a contra item in stockholders’
equity.
S46. Cumulative preferred dividends in
arrears should be shown in a corporation’s balance sheet as
a. an increase in current liabilities.
b. an increase in stockholders’ equity.
c. a footnote.
d. an increase in current liabilities for the
current portion and long-term liabilities for the long-term portion.
47. At the date of the financial
statements, common stock shares issued would exceed common stock shares
outstanding as a result of the
a. declaration of a stock split.
b. declaration of a stock dividend.
c. purchase of treasury stock.
d. payment in full of subscribed stock.
48. An entry is not made on the
a. date of declaration.
b. date of record.
c. date of payment.
d. An entry is made on all of these dates.
49. Cash dividends are paid on the basis
of the number of shares
a. authorized.
b. issued.
c. outstanding.
d. outstanding less the number of treasury shares.
50. Which of the following statements
about property dividends is not true?
a. A property dividend is usually in the form of
securities of other companies.
b. A property dividend is also called a dividend in
kind.
c. The accounting for a property dividend should be
based on the carrying value (book value) of the nonmonetary assets transferred.
d. All of these statements are true.
51. Houser Corporation owns 4,000,000 shares
of stock in Baha Corporation. On December 31, 2012, Houser distributed these
shares of stock as a dividend to its stockholders. This is an example of a
a. property dividend.
b. stock dividend.
c. liquidating dividend.
d. cash dividend.
52. A dividend which is a return to
stockholders of a portion of their original investments is a
a. liquidating dividend.
b. property dividend.
c. liability dividend.
d. participating dividend.
53. A mining company declared a
liquidating dividend. The journal entry to record the declaration must include
a debit to
a. Retained Earnings.
b. a paid-in capital account.
c. Accumulated Depletion.
d. Accumulated Depreciation.
54. If management wishes to “capitalize”
part of the earnings, it may issue a
a. cash dividend.
b. stock dividend.
c. property dividend.
d. liquidating dividend.
55. Which dividends do not reduce
stockholders’ equity?
a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends
56. The declaration and issuance of a
stock dividend larger than 25% of the shares previously outstanding
a. increases common stock outstanding and increases
total stockholders’ equity.
b. decreases retained earnings but does not change
total stockholders’ equity.
c. may increase or decrease paid-in capital in
excess of par but does not change total stockholders’ equity.
d. increases retained earnings and increases total
stockholders’ equity.
57. Quirk Corporation issued a 100%
stock dividend of its common stock which had a par value of $10 before and
after the dividend. At what amount should retained earnings be capitalized for
the additional shares issued?
a. There should be no capitalization of retained
earnings.
b. Par value
c. Fair value on the declaration date
d. Fair value on the payment date
58. The issuer of a 5% common stock
dividend to common stockholders preferably should transfer from retained
earnings to contributed capital an amount equal to the
a. fair value of the shares issued.
b. book value of the shares issued.
c. minimum legal requirements.
d. par or stated value of the shares issued.
59. At the date of declaration of a
small common stock dividend, the entry should not include
a. a credit to Common Stock Dividend Payable.
b. a credit to Paid-in Capital in Excess of Par.
c. a debit to Retained Earnings.
d. All of these are acceptable.
60. The balance in Common Stock Dividend
Distributable should be reported as a(n)
a. deduction from common stock issued.
b. addition to capital stock.
c. current liability.
d. contra current asset.
61. A feature common to both stock
splits and stock dividends is
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