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Exam 11: Reporting and Interpreting Stockholders Equity

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Question 1

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When should a corporation record a liability for dividends in arrears on its cumulative preferred stock?

A) When the dividends have been declared
B) When the corporation knows it will not be paying dividends
C) When recording yearend adjusting entries
D) Never

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Question 2

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A company has net income of $5.6 million and earnings per share of $2.00.Average common stockholders' equity is $32 million.The company's current stock price is $10 per share.What is its Price/Earnings (P/E) ratio?

A) 0.2
B) 5.0
C) 0.175
D) 5.7

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Question 3

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Preferred stockholders:

Choose the appropriate letter to match the term and the definition.Not all definitions will be used. Term: 1._____ Date of Declaration 2._____ Issued Shares 3._____ Seasoned New Issues 4._____ Pro Rata Basis 5._____ Date of Record 6._____ Additional Paid-in Capital 7._____ Outstanding Shares 8._____ Stock Options 9._____ Payment Date Definition: A.The date on which a company authorizes a dividend payment. B.The total number of shares currently owned by stockholders. C.When cash or stock dividends are issued according to the proportion of stock owned. D.Dividends that have not had income tax withheld from them. E.The date on which a company determines who receives a dividend. F.When employees of a company have the opportunity to buy a company's stock in the future at a fixed price. G.The accumulation of all the past dividends the company has not paid. H.When a company sells issues of stock after its IPO. I.The date on which a company debits dividends payable and credits cash. J.When cash or stock dividends are issued in an equal dollar or share amount per stockholder. K.The date on which a liability is recorded for a dividend. L.The total number of shares the company has sold,whether held by stockholders or by the company. M.When owners of the company contribute additional capital beyond what they paid for their stock. N.The amount above the par value of the stock that owners paid the issuer for the stock.

Just In Thyme,Inc.has the following December 31,2014 equity balances: Common stock of $20,000; Additional paid-in capital of $30,000; and Retained earnings of $50,000.If Just In Thyme repurchases shares of its stock for $10,000,the total stockholders' equity balance would equal:

Which of the following statements about when cash dividends can be paid is not correct?

The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings.

Advantages of the corporate form include all of the following except:

Which of the following statements about dividends is correct?

On September 1,a corporation with 50,000 shares of $5 par value common stock and $1,000,000 of Retained Earnings issues a 2-for-1 stock split.The market price of the stock on that date is $12 per share.Which of the following statements is correct concerning this stock split?

Which of the following organizations is required by law to apply for a charter?

Corporations are governed by federal law.

Which of the following statements about the benefits enjoyed by the owners of common stock is not correct?

A company issued 8% preferred stock with a $100 par value.This means:

Stock options:

Nancy O'Rode,doing business as O'Rode Consulting,performs consulting services for companies that create online learning games for children.On January 1,2015,she started a sole proprietorship by placing $15,000 cash in a bank account opened for the business.Each month during the year,O'Rode withdrew $500 cash from the business for personal use.At December 31,2015,after the last withdrawal,the Drawings account reflected a debit balance of $6,000.During the year,the usual journal entries for the year,including adjusting and closing entries for the revenue and expense accounts,resulted in total revenue of $60,000,total expenses of $12,000,and net income of $48,000.(For purposes of the related journal entry,use the accounts "Consulting Revenue" and "Operating Expenses.") Part a.Prepare the journal entry to record the initial capital contribution. Part b.Prepare the journal entry to record one of the monthly withdrawals. Part c.Prepare the journal entry to close the net income to the N.O'Rode,Capital account. Part d.Prepare the journal entry to close the N.O'Rode,Drawings accounts at the end of the year. Part e.Prepare a Statement of Owner's Equity for the year ending December 31,2015.

The Dewie,Cheatum,and Howe partnership paid each of the partners $100,000 for the work they performed during the year.As a result of these payments,the closing process will include a:

Stockit Inc.has 1,000 shares of 5%,$100 par value,cumulative preferred stock outstanding.In its first two years of business,Stockit did not declare a dividend.As a result,Stockit's balance sheets at the end of its first two years of business should:

Choose the appropriate letter to match the description with the purpose and accounting effect of the type of stock transaction.Some letters will appear in more than one column and not all letters will necessarily be used.Some blanks will require more than one letter. A.To obtain shares to reissue to employees as part of employee stock purchase plans. B.To increase the number of shares outstanding and decrease the per-share market price while managing a company that you expect will struggle financially in the future. C.To reduce the number of outstanding shares to increase per-share measures of earnings. D.To increase the number of shares outstanding and decrease the per-share market price while signaling to financial statement users that the company expects significant future earnings. E.To obtain shares that can be reissued as payment for purchases of other companies. F.To send a signal to investors that the company itself believes its own stock is worth acquiring. G.Reduces stockholders' equity. H.Changes par value per share. I.Changes Additional Paid-in Capital account balance. J.Reduces Retained Earnings. K.Does not affect any of the account balances that comprise stockholders equity.

Ms.Jessica Duffy purchased 1 share of $10 par value common stock from Ohio Corporation for $50 per share.Ms.Duffy sold that share to Mike Truesdale for $60 per share.As a result of the sale by Duffy to Truesdale sale,Ohio Corporation would: