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The payment date for a dividend is the date on which the company:


A) debits Dividends Declared and credits Dividends Payable for the amount of the dividend.
B) debits Dividend Expense and credits Cash for the dividend amount.
C) debits Dividends Payable and credits Cash for the dividend amount.
D) establishes who will receive the dividend payment.

E) C) and D)
F) A) and B)

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C

A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.Of the 3 million shares bought back,the company cancels 2 million and holds 1 million.The number of authorized shares after these transactions are:


A) 12 million shares.
B) 20 million shares.
C) 9 million shares.
D) 18 million shares.

E) A) and D)
F) A) and C)

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Treasury shares are more common in Canada,than they are in the United States.

A) True
B) False

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One of the advantages of a partnership is:


A) limited liability.
B) the salaries of the partners can be written off as an expense.
C) ease of set-up.
D) all of the answers are acceptable.

E) B) and D)
F) All of the above

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Which of the following statements accurately explains why the board of directors of a company that is facing financial difficulties might issue a 2-for-1 stock split rather than declare a 100% stock dividend?


A) A stock split would not reduce the market price per share,whereas a stock dividend would.
B) A stock split would reduce the market price per share,whereas a stock dividend would not.
C) A stock split would increase total shareholders' equity,whereas a stock dividend would not.
D) A stock split would not reduce retained earnings,whereas a stock dividend would.

E) None of the above
F) All of the above

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For a business to be considered a corporation,it must:


A) be owned by an extremely large number of people.
B) be organized as a separate legal entity.
C) sell publicly traded shares.
D) all of the answers are acceptable.

E) A) and B)
F) A) and C)

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A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.Of the 3 million shares bought back,the company cancels 2 million and holds 1 million.The number of issued shares after these transactions are:


A) 12 million shares.
B) 9 million shares.
C) 10 million shares.
D) 18 million shares.

E) B) and D)
F) B) and C)

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Dividends in arrears do not appear on the balance sheet or require a journal entry.

A) True
B) False

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Preferred shares are not included in shareholders' equity.

A) True
B) False

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A company issues a 4 % stock dividend when the price of the stock was $6 per share.The company has 20 million common shares outstanding prior to the stock dividend.How would the company account for this stock dividend?


A) Debit retained earnings; Credit common shares
B) Debit cash; Credit common shares
C) Debit retained earnings; Credit contributed surplus
D) Debit common shares; Credit contributed surplus

E) A) and B)
F) All of the above

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Match the term and the definition.Not all definitions will be used.

Premises
Outstanding shares
ROE
Stock dividend
Diluted EPS
Residual claim
Cash dividend
EPS
Treasury shares
IPO
Preferred shares
Responses
The shares of stock repurchased by the issuing company.
Shares of stock that pay a fixed dividend rate but have no voting rights.
This payment lowers shareholders' equity.
Shareholders' entitlement to remaining assets after creditors are repaid.
Earnings per share that reflects treasury and preferred shares.
This payment raises shareholders' equity.
Earnings per share that reflects obligations involving potential new stock issuances.
Net income divided by the average number of outstanding common shares.
Stock that allows holders to be listed among creditors.
A measure of the return on individual shareholders' purchases of shares.
Net income divided by average shareholders' equity.
Shares of companies with high EPS and ROE: they tend to be expensive.
Also known as income per output; net income divided by units sold.
When a company first starts selling shares to the public.
This dividend does not reduce shareholders' equity.
The shares of stock held by shareholders.
The additional shares of stock a company can issue beyond what are already issued.

Correct Answer

The shares of stock repurchased by the issuing company.
Shares of stock that pay a fixed dividend rate but have no voting rights.
This payment lowers shareholders' equity.
Shareholders' entitlement to remaining assets after creditors are repaid.
Earnings per share that reflects treasury and preferred shares.
This payment raises shareholders' equity.
Earnings per share that reflects obligations involving potential new stock issuances.
Net income divided by the average number of outstanding common shares.
Stock that allows holders to be listed among creditors.
A measure of the return on individual shareholders' purchases of shares.
Net income divided by average shareholders' equity.
Shares of companies with high EPS and ROE: they tend to be expensive.
Also known as income per output; net income divided by units sold.
When a company first starts selling shares to the public.
This dividend does not reduce shareholders' equity.
The shares of stock held by shareholders.
The additional shares of stock a company can issue beyond what are already issued.

When a company repurchases its shares or pays a dividend,it raises shareholders' equity.

A) True
B) False

Correct Answer

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A relatively low P/E ratio illustrates


A) a correctly priced stock and typically indicates strong future performance.
B) a correctly priced stock and typically indicates weak future performance.
C) a mispriced stock and typically indicates strong future performance.
D) A relatively low P/E ratio has little to do with future performance.

E) None of the above
F) A) and D)

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A company reported net income of $5.6 million.At the beginning of the year,3.4 million shares of common shares were outstanding while during the year the average number of common shares outstanding was 3.5 million.There were 400,000 shares of preferred shares outstanding on average and no dividends were declared.The EPS is approximately:


A) $1.60.
B) $1.51.
C) $1.65.
D) $1.75.

E) A) and D)
F) C) and D)

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A company has 20,000 shares of preferred shares outstanding paying 0.30 cents dividend per share.It also has 110,000 shares of common stock outstanding.If the company pay a total of $15,000 dividend and the preferred stock is non cumulative,what is the amount of dividend common stockholders will receive?


A) $15,000
B) $9,900
C) $9,000
D) Nothing

E) A) and B)
F) B) and D)

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Fonthouse Corporation issues 10,000 shares of no-par preferred stock for cash at $60 per share. The journal entry to record the transaction will consist of a debit to Cash for $600,000 and a credit (or credits) to:


A) Preferred Shares for $600,000.
B) Preferred Shares for $500,000 and Additional Paid-In Capital for $100,000.
C) Preferred Shares for $500,000 and Retained Earnings for $100,000.
D) Investment in Fonthouse Shares for $600,000.

E) A) and C)
F) B) and D)

Correct Answer

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A

A corporation has 3 million shares of outstanding stock issued at market price of $5.It also has $45 million of retained earnings on its balance sheet.It announces a 2 for 1 stock split on August 1.The market price of the stock on that day is $12 per share.Which of the following would be the implication of this stock split?


A) Contributed capital will increase by $36 million
B) Retained earnings will decrease by $36 million
C) Dividends payable will increase by $36 million
D) No accounting entry will be made on this announcement.

E) B) and D)
F) B) and C)

Correct Answer

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When a company sells shares to the public for the first time,the sale is called a(n) :


A) IPO or initial public offering.
B) FTI or first time issue.
C) SNI or seasoned new issue.
D) ISO or initial stock offering.

E) None of the above
F) C) and D)

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A company issues 100,000 shares of preferred shares for $40 a share.The stock has a fixed annual dividend rate of $0.15 per share.Preferred shareholders can anticipate receiving a dividend of:


A) $200,000 each year.
B) $15,000 each year.
C) 5% of net income each year.
D) 5% of the market value of the stock at the time the dividend is declared.

E) B) and C)
F) A) and D)

Correct Answer

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Equity financing


A) never has to be repaid.
B) Must always be repaid.
C) usually has to be repaid.
D) answer depends on company's use of IFRS or ASPE.

E) B) and D)
F) B) and C)

Correct Answer

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A

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