Question 1

When preferred stock is cumulative, preferred dividends not declared in a period are

Accepted Answer

A)  considered a liability.
B)  called dividends in arrears.
C)  distributions of earnings.
D)  never paid.

Question 2

Dividends in arrears on cumulative preferred stock are considered a liability.

Accepted Answer

A) True 
 B)False

Question 3

Many companies prepare a stockholders' equity statement instead of presenting a detailed stockholders' equity section in the balance sheet.

Accepted Answer

A) True 
 B)False

Question 4

The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.

Accepted Answer

A) True 
 B)False

Question 5

Accepted Answer

Library, Inc.has 2,500 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2020, and December 31, 2021.The board of directors declared and paid a $3,000 dividend in 2020.In 2021, $18,000 of dividends are declared and paid.What are the dividends received by the preferred and common shareholders in 2021? Library, Inc.has 2,500 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2020, and December 31, 2021.The board of directors declared and paid a $3,000 dividend in 2020.In 2021, $18,000 of dividends are declared and paid.What are the dividends received by the preferred and common shareholders in 2021?

Correct Answer
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Question 6

Which one of the following is not necessary in order for a corporation to pay a cash dividend?

Accepted Answer

A)  Adequate cash
B)  Approval of stockholders
C)  Declaration of dividends by the board of directors
D)  Retained earnings

Question 7

A corporation purchases 40,000 shares of its own $30 par common stock for $45 per share, recording it at cost.What will be the effect on total stockholders' equity?

Accepted Answer

A)  Increase by $1,800,000
B)  Decrease by $1,200,000
C)  Decrease by $1,800,000
D)  Increase by $1,200,000

Question 8

The effect of a stock dividend is to

Accepted Answer

A)  decrease total assets and stockholders' equity.
B)  change the composition of stockholders' equity.
C)  decrease total assets and total liabilities.
D)  increase the book value per share of common stock.

Question 9

The cost of a noncash asset acquired in exchange for common stock should be either the fair value of the consideration given up or the consideration received, whichever is more clearly determinable.

Accepted Answer

A) True 
 B)False

Question 10

The term residual claim refers to a stockholders' right to

Accepted Answer

A)  receive dividends.
B)  share in assets upon liquidation.
C)  acquire additional shares when offered.
D)  exercise a proxy vote.

Question 11

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to

Accepted Answer

A)  decrease total assets and total stockholders' equity.
B)  increase stockholders' equity and decrease total liabilities.
C)  decrease total retained earnings and increase total liabilities.
D)  reduce the amount of retained earnings available for dividend declarations.

Question 12

Which of the following statements regarding the date of a cash dividend declaration is not accurate?

Accepted Answer

A)  The dividend can be rescinded once it has been declared.
B)  The corporation is committed to a legal, binding obligation.
C)  The board of directors formally authorizes the cash dividend.
D)  A liability account must be increased.

Question 13

Era Company has 3,000 shares of 6%, $100 par noncumulative preferred stock outstanding at December 31, 2021.No dividends have been paid on this stock for 2020 or 2021.Dividends in arrears at December 31, 2021 total

Accepted Answer

A)  $0.
B)  $1,800.
C)  $18,000.
D)  $36,000.

Question 14

Accepted Answer

The effect of the declaration of a cash dividend by the board of directors is to

Question 15

Corporations generally issue stock dividends in order to

Accepted Answer

A)  increase the market price per share.
B)  exceed stockholders' dividend expectations.
C)  increase the marketability of the stock.
D)  decrease the amount of capital in the corporation.

Question 16

A successful corporation can have a continuous and perpetual life.

Accepted Answer

A) True 
 B)False

Question 17

Bacon Corporation began business by issuing 180,000 shares of $5 par value common stock for $25 per share.During its first year, the corporation sustained a net loss of $30,000.The year-end balance sheet would show

Accepted Answer

A)  Common stock of $900,000.
B)  Common stock of $4,500,000.
C)  Total paid-in capital of $4,470,000.
D)  Total paid-in capital of $930,000.

Question 18

Which of the following is not true of a corporation?

Accepted Answer

A)  It may buy, own, and sell property.
B)  It may sue and be sued.
C)  The acts of its owners bind the corporation.
D)  It may enter into binding legal contracts in its own name.

Question 19

On September 5, Borton Corporation acquired 2,500 shares of its own $1 par common stock for $22 per share.On October 15, 1,000 shares of the treasury stock are sold for $25 per share.
Instructions
Journalize the purchase and sale of the treasury stock assuming that the company uses the cost method.

Accepted Answer

The answer of On September 5, Borton Corporation acquired 2,500...

Question 20

The sale of common stock below par

Accepted Answer

A)  is a common occurrence in most states.
B)  is not permitted in most states.
C)  is a practice that most stockholders encourage.
D)  requires that a liability be recorded for the difference between the sales price and the par value of the shares.

Exam 11: Corporations: Organisations, Stock Transactions and Stockholders Equity

Era Company has 3,000 shares of 6%, $100 par noncumulative preferred stock outstanding at December 31, 2021.No dividends have been paid on this stock for 2020 or 2021.Dividends in arrears at December 31, 2021 total

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Corporations generally issue stock dividends in order to

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The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.

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If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to

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The term residual claim refers to a stockholders' right to

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A successful corporation can have a continuous and perpetual life.

Correct AnswerverifiedShow Answer

On September 5, Borton Corporation acquired 2,500 shares of its own $1 par common stock for $22 per share.On October 15, 1,000 shares of the treasury stock are sold for $25 per share. Instructions Journalize the purchase and sale of the treasury stock assuming that the company uses the cost method.

Correct AnswerverifiedShow Answer

When preferred stock is cumulative, preferred dividends not declared in a period are

Correct AnswerverifiedShow Answer

Which of the following is not true of a corporation?

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A corporation purchases 40,000 shares of its own $30 par common stock for $45 per share, recording it at cost.What will be the effect on total stockholders' equity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Many companies prepare a stockholders' equity statement instead of presenting a detailed stockholders' equity section in the balance sheet.

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Dividends in arrears on cumulative preferred stock are considered a liability.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The cost of a noncash asset acquired in exchange for common stock should be either the fair value of the consideration given up or the consideration received, whichever is more clearly determinable.

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Which of the following statements regarding the date of a cash dividend declaration is not accurate?

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Bacon Corporation began business by issuing 180,000 shares of $5 par value common stock for $25 per share.During its first year, the corporation sustained a net loss of $30,000.The year-end balance sheet would show

Correct AnswerverifiedShow Answer

The sale of common stock below par

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Which one of the following is not necessary in order for a corporation to pay a cash dividend?

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The effect of a stock dividend is to

Correct AnswerverifiedShow Answer

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