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Final Exam

True/False
Indicate whether the sentence or statement is true or false.
 

1. 

The financial loss that each stockholder in a corporation can incur is limited to the amount invested by the stockholder.
 

2. 

The stockholders of a corporation have unlimited liability.
 

3. 

Paid-in capital and retained earnings are the two major categories of stockholders' equity for a corporation.
 

4. 

The dividend account for a corporation is similar to the drawing account for a proprietorship.
 

5. 

The paid-in capital in excess of par account has a debit balance.
 

6. 

Treasury Stock is an asset.
 

7. 

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.
 

8. 

Cash or property dividends are normally paid on shares of treasury stock.
 

9. 

The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets, liabilities, or stockholders' equity.
 

10. 

When a stock dividend is declared, it becomes a liability.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

11. 

Which of the following is characteristic of a corporation?
a.
The stockholders have unlimited liability.
b.
When stockholders sell their shares, the corporation is dissolved.
c.
A corporation cannot own property in its name.
d.
Cash dividends paid by a corporation are taxable to the shareholders.
 

12. 

Stockholders' equity:
a.
is usually equal to cash on hand
b.
includes paid-in capital and liabilities
c.
includes retained earnings and paid-in capital
d.
is shown on the income statement
 

13. 

If a corporation issues only one class of stock, it is called:
a.
common stock
b.
treasury stock
c.
no-par stock
d.
preferred stock
 

14. 

Which of the following would normally not appear in the stockholders' equity section of the balance sheet?
a.
Goodwill
b.
Paid-In Capital in Excess of Par-Common Stock
c.
Excess of issue price over par
d.
Additional Paid-In Capital
 

15. 

The outstanding stock is composed of 10,000 shares of $100 par, cumulative, nonparticipating preferred $8 stock, and 50,000 shares of no-par common stock.  Preferred dividends have been paid every year except for the preceding year and the current year.  If $380,000 is to be distributed as a dividend for the current year, what total amount will be distributed to the preferred stockholders?
a.
$380,000
b.
$0
c.
$80,000
d.
$160,000
 

16. 

The excess of par over issue price is termed a:
a.
discount
b.
contra asset
c.
deficit
d.
premium
 

17. 

The entry to record the issuance of common stock at a price above par includes a credit to:
a.
Organization Costs
b.
Treasury Stock
c.
Cash
d.
Paid-In Capital in Excess of Par-Common Stock
 

18. 

Allen Company acquired a building valued at $155,000 for property tax purposes in exchange for 10,000 shares of its $10 par common stock.  The stock is widely traded and selling for $15 per share. At what amount should the building be recorded by Allen Company?
a.
$100,000
b.
$150,000
c.
$155,000
d.
$250,000
 

19. 

The excess of sales price of treasury stock over its cost should be credited to:
a.
Treasury Stock Receivable
b.
Premium on Capital Stock
c.
Paid-In Capital from Sale of Treasury Stock
d.
Income from Sale of Treasury Stock
 

20. 

A corporation purchased 1,000 shares of its $10 par common stock at $20 and subsequently sold 500 of the shares at $30.  What is the amount of revenue realized from the sale?
a.
$0
b.
$2,500
c.
$5,000
d.
$15,000
 

21. 

A corporation purchases 10,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity?
a.
increase, $200,000
b.
increase, $350,000
c.
decrease, $200,000
d.
decrease, $350,000
 

22. 

In which section of the balance sheet would Treasury Stock be reported?
a.
Fixed assets
b.
Long-term liabilities
c.
Stockholders' equity
d.
Intangible assets
 

23. 

The charter of a corporation provides for the issuance of 100,000 shares of common stock.  Assume that 60,000 shares were originally issued and 5,000 were subsequently reacquired.  What is the amount of cash dividends to be paid if a $1 per share dividend is declared?
a.
$60,000
b.
$5,000
c.
$100,000
d.
$55,000
 

24. 

Which of the following is not a prerequisite to paying a cash dividend?
a.
formal action by the board of directors
b.
market value in excess of par value per share
c.
sufficient cash
d.
sufficient retained earnings
 

25. 

The entry to record the declaration of a common stock dividend would include a debit to:
a.
Common Stock
b.
Accounts Receivable
c.
Stock Dividends
d.
Cash
 

26. 

The entry to record the declaration of a common stock dividend would include a credit to:
a.
Common Stock
b.
Retained Earnings
c.
Stock Dividends Distributable
d.
Cash
 

27. 

Cash or property dividends are usually not paid on which of the following?
a.
class B common stock
b.
preferred stock
c.
treasury stock
d.
class A common stock
 

28. 

Investors who are most interested in the dividend yield are those who invest for:
a.
market price appreciation
b.
current income flow
c.
both market price appreciation and current income flow
d.
neither market price appreciation or current income flow
 

29. 

A high dividend yield as opposed to market price appreciation would be most desired by investors who were:
a.
in a high marginal tax bracket
b.
in a low marginal tax bracket
c.
indifferent as to their marginal tax bracket because dividends are not taxed to the individual
d.
willing to take higher than normal risks
 

30. 

The following information is available for Dirks Co.:

 
2000 
Dividends per share of common stock
$ 0.90
Market price per share of common stock
20.00
a.
The dividend yield is 4.5%, which is of interest to investors seeking an increase in market price of their stocks.
b.
The dividend yield is 4.5%, which is of special interest to investors seeking current returns on their investments.
c.
The dividend yield is 22.2%, which is of interest to bondholders.
d.
The dividend yield is 4.5 times the market price, which is important in solvency analysis.
 



 
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