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Exam 13: Accounting for Corporations

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Question 1

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A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per share. The entry to record this transaction would be:

A) Debit Cash $27,500; credit Paid-in Capital in Excess of Par Value, Common Stock $2,500; credit Common Stock $25,000.
B) Debit Common Stock $27,500; credit Cash $27,500.
C) Debit Cash $27,500; credit Common Stock $27,500.
D) Debit Treasury Stock $27,500; credit Cash $27,500.
E) Debit Treasury Stock $2,500; debit Paid-in Capital in Excess of Par Value, Treasury Stock $25,000; credit Common Stock $27,500.

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Question 2

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Retained earnings:

A) Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception.
B) Represents the amount shareholders are guaranteed to receive upon company liquidation.
C) Represent an amount of cash available to pay shareholders.
D) Are never adjusted for anything other than net income or dividends.
E) Can only be appropriated by setting aside a cash fund.

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Question 3

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Participating preferred stock has a feature that allows its holders to share with common shareholders in any dividends paid in excess of the percent or dollar amount stated on the preferred stock.

A company had a beginning balance in retained earnings of $400,000. It had net income of $50,000 and paid out cash dividends of $55,000 in the current period. The ending balance in retained earnings equals:

Large stock dividends are recorded at par or stated value.

Dividend yield is the percent of cash dividends paid to common shareholders relative to the:

Book value per share:

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is:

Dividend yield is defined as the annual cash dividends per share divided by the market price per share of a company's stock.

A company issued 60 shares of $100 par value common stock for $7,000 cash. The total amount of paid-in capital is:

Stock is attractive to investors because stockholders are not liable for the corporation's actions and debts and because stock is easily transferred.

Paid and declared preferred dividends are called dividends in arrears.

Changes in retained earnings are commonly reported in the:

Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its $1 par common stock on June 30 for $40 per share. On July 20, it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the journal entry necessary to record the reissuance of treasury stock on July 20?

A corporation may not legally give shares of its stock to promoters in exchange for their services in organizing the corporation.

Minimum legal capital requirements are intended to protect creditors.

If a corporation receives assets other than cash in exchange for stock, it records the assets received at their market value as of the date of the transaction.

Paid-in capital is the total amount of cash and other assets the corporation receives from its stockholders in exchange for its stock.

Halverstein Company's outstanding stock consists of 7,000 shares of cumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. $\begin{array}{l}\begin{array} { l r r } &\text { Dividend Declared }\\\text { year 1 } & \$ 0 \\\text { year 2 } & \$ 6,000 \\\text { year 3 } & \$ 32,000 \\\end{array}\end{array}$ The amount of dividends paid to preferred and common shareholders in Year 2 is:

A stock split increases total stockholders' equity.