Question 1

A large retained earnings account means that there is cash available to pay dividends.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The stock dividends distributable account is listed in the Current liabilities section of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 5

Twenty percent of all businesses in the United States are corporations, and they account for 80% of the total business dollars generated.

Accepted Answer

A) True 
 B)False

Question 6

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

Accepted Answer

A)   decrease total liabilities and stockholders' equity
B)   increase total expenses and total liabilities
C)   increase total assets and stockholders' equity
D)   decrease total assets and stockholders' equityE) A) and D)
F) B) and D)

Question 7

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

Accepted Answer

A)   $5
B)   $60
C)   $25
D)   $24E) B) and C)
F) All of the above

Question 8

One of the prerequisites to paying a cash dividend is sufficient retained earnings.

Accepted Answer

A) True 
 B)False

Question 9

Retained Earnings represents past net income less past dividends; therefore, any balance in this account would be listed on the income statement.

Accepted Answer

A) True 
 B)False

Question 10

The cost method of accounting for the purchase and sale of treasury stock is a commonly used method.

Accepted Answer

A) True 
 B)False

Question 11

The issuance of common stock affects both paid-in capital and retained earnings.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements concerning taxation is accurate?

Accepted Answer

A)   Corporations pay federal income taxes but not state income taxes.
B)   Corporations pay federal and state income taxes.
C)   Only the owners must pay taxes on corporate income.
D)   Corporations pay income taxes but their owners do not.E) A) and B)
F) A) and C)

Question 13

Match each of the following stockholders' equity concepts to the appropriate term (a-h) .
-Document that formally creates a corporation

Accepted Answer

A)  Articles of incorporation
B)  Limited liability
C)  Bylaws
D)  Corporation
E)  Public corporationF) Board of directorsG) Private corporationH) DividendsI) B) and C)
J) A) and H)

Question 14

Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. When the transaction is recorded, credits are made to

Accepted Answer

A)   Common Stock, $14,000
B)   Common Stock, $10,000, and Paid-In Capital in Excess of Par-Common Stock, $4,000
C)   Common Stock, $4,000, and Paid-In Capital in Excess of Stated Value, $10,000
D)   Common Stock, $10,000, and Retained Earnings, $4,000E) B) and D)
F) C) and D)

Question 15

The liability for a dividend is recorded on which of the following dates?

Accepted Answer

A)   date of record
B)   date of payment
C)   last day of the fiscal year
D)   date of declarationE) None of the above
F) B) and C)

Question 16

Match each of the following stockholders' equity concepts to the appropriate term (a-h) .
-The day of the event that creates a liability to company

Accepted Answer

A)  Cash dividend
B)  Date of record
C)  Stock Dividends Distributable
D)  Date of declaration
E)  Treasury stockF) Preferred stockG) Date of paymentH) Paid-In Capital in Excess of ParI) B) and G)
J) A) and H)

Question 17

Which of the following statements is not true about a 2-for-1 split?

Accepted Answer

A)   Par value per share is reduced to half of what it was before the split.
B)   Total contributed capital increases.
C)   The market price will probably decrease.
D)   A stockholder with 10 shares before the split owns 20 shares after the split.E) A) and C)
F) None of the above

Question 18

Assume that retained earnings had a beginning balance of $75,000. Match the following amounts to the appropriate term (a-h) .
-Treasury Stock = Number of Common Stock Purchased × Purchase Price of Common Stock = 1,000 × $15 = $15,000

Accepted Answer

A)  Treasury stock
B)  Retained earnings
C)  Preferred stock
D)  Excess of issue price over par (preferred) 
E)  Common stockF) Total paid-in capitalG) Excess of issue price over par (common) H) Total stockholders' equityI) F) and H)
J) D) and G)

Question 19

When a corporation issues stock at a premium, it reports the premium as an Other income item on the income statement.

Accepted Answer

A) True 
 B)False

Question 20

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2-per-share dividend is declared?

Accepted Answer

A)   $80,000
B)   $10,000
C)   $90,000
D)   $100,00E) A) and B)
F) B) and C)

Exam 13: Corporations: Organization, Stock Transactions, and Dividends

Twenty percent of all businesses in the United States are corporations, and they account for 80% of the total business dollars generated.

Correct AnswerverifiedShow Answer

The issuance of common stock affects both paid-in capital and retained earnings.

Correct AnswerverifiedShow Answer

One of the prerequisites to paying a cash dividend is sufficient retained earnings.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2-per-share dividend is declared?

Correct AnswerverifiedShow Answer

The cost method of accounting for the purchase and sale of treasury stock is a commonly used method.

Correct AnswerverifiedShow Answer

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

Correct AnswerverifiedShow Answer

Retained Earnings represents past net income less past dividends; therefore, any balance in this account would be listed on the income statement.

Correct AnswerverifiedShow Answer

Which of the following statements concerning taxation is accurate?

Correct AnswerverifiedShow Answer

Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. When the transaction is recorded, credits are made to

Correct AnswerverifiedShow Answer

When a corporation issues stock at a premium, it reports the premium as an Other income item on the income statement.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Match each of the following stockholders' equity concepts to the appropriate term (a-h) . -Document that formally creates a corporation

Correct AnswerverifiedShow Answer

Match each of the following stockholders' equity concepts to the appropriate term (a-h) . -The day of the event that creates a liability to company

Correct AnswerverifiedShow Answer

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

Correct AnswerverifiedShow Answer

The liability for a dividend is recorded on which of the following dates?

Correct AnswerverifiedShow Answer

Which of the following statements is not true about a 2-for-1 split?

Correct AnswerverifiedShow Answer

A large retained earnings account means that there is cash available to pay dividends.

Correct AnswerverifiedShow Answer

The stock dividends distributable account is listed in the Current liabilities section of the balance sheet.

Correct AnswerverifiedShow Answer

Assume that retained earnings had a beginning balance of $75,000. Match the following amounts to the appropriate term (a-h) . -Treasury Stock = Number of Common Stock Purchased × Purchase Price of Common Stock = 1,000 × $15 = $15,000

Correct AnswerverifiedShow Answer

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