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Exam 11: Reporting and Analyzing Equity

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Question 101

Multiple Choice

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Prior period adjustments are reported in the:

A) Income statement
B) Balance sheet
C) Statement of retained earnings
D) Statement of cash flows
E) Notes to the financial statements

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Question 102

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Match each definition with its term

Premises

Responses

Retained earnings reported separately as a way to inform stockholders of funding needs

Dividend yield

Occurs when a corporation calls its stock and replaces each share with less than one new share; increases both the market value per share and the par or stated value per share

Stock split

Net income less preferred dividends divided by weighted-average common shares outstanding

Proxy

A bank or trust company that assists with purchases and sales of shares by receiving and issuing certificates as necessary

Appropriated retained earnings

The date specified by directors of a corporation for identifying stockholders to receive dividends

Reverse stock split

A ratio of the annual amount of cash dividends distributed to common shareholders relative to the stock's market value

Small stock dividend

A document that gives a designated agent the right to vote a stockholder's stock

Basic earnings per share

The ratio of a company's current market value per share to its earnings per share

Date of record

A stock dividend that is 25% or less of the previously outstanding shares

Price-earnings ratio

Occurs when a corporation calls in its stock and replaces each share with more than one new share; decreases both the market value per share and the par or stated value per share

Transfer agent

Premises

Retained earnings reported separately as a way to inform stockholders of funding needs

Occurs when a corporation calls its stock and replaces each share with less than one new share; increases both the market value per share and the par or stated value per share

Net income less preferred dividends divided by weighted-average common shares outstanding

A bank or trust company that assists with purchases and sales of shares by receiving and issuing certificates as necessary

The date specified by directors of a corporation for identifying stockholders to receive dividends

A ratio of the annual amount of cash dividends distributed to common shareholders relative to the stock's market value

A document that gives a designated agent the right to vote a stockholder's stock

The ratio of a company's current market value per share to its earnings per share

A stock dividend that is 25% or less of the previously outstanding shares

Occurs when a corporation calls in its stock and replaces each share with more than one new share; decreases both the market value per share and the par or stated value per share

Responses

Dividend yield

Stock split

Proxy

Appropriated retained earnings

Reverse stock split

Small stock dividend

Basic earnings per share

Date of record

Price-earnings ratio

Transfer agent

Show Answer

Correct Answer

Premises

Responses

Retained earnings reported separately as a way to inform stockholders of funding needs

Occurs when a corporation calls its stock and replaces each share with less than one new share; increases both the market value per share and the par or stated value per share

Net income less preferred dividends divided by weighted-average common shares outstanding

A bank or trust company that assists with purchases and sales of shares by receiving and issuing certificates as necessary

The date specified by directors of a corporation for identifying stockholders to receive dividends

A ratio of the annual amount of cash dividends distributed to common shareholders relative to the stock's market value

A document that gives a designated agent the right to vote a stockholder's stock

The ratio of a company's current market value per share to its earnings per share

A stock dividend that is 25% or less of the previously outstanding shares

Occurs when a corporation calls in its stock and replaces each share with more than one new share; decreases both the market value per share and the par or stated value per share

Premises

Retained earnings reported separately as a way to inform stockholders of funding needs

Occurs when a corporation calls its stock and replaces each share with less than one new share; increases both the market value per share and the par or stated value per share

Net income less preferred dividends divided by weighted-average common shares outstanding

A bank or trust company that assists with purchases and sales of shares by receiving and issuing certificates as necessary

The date specified by directors of a corporation for identifying stockholders to receive dividends

A ratio of the annual amount of cash dividends distributed to common shareholders relative to the stock's market value

A document that gives a designated agent the right to vote a stockholder's stock

The ratio of a company's current market value per share to its earnings per share

A stock dividend that is 25% or less of the previously outstanding shares

Occurs when a corporation calls in its stock and replaces each share with more than one new share; decreases both the market value per share and the par or stated value per share

Responses

Question 103

Short Answer

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A company reported $990,000 in net income for the current year.Total weighted-average number of common shares outstanding are equal to 150,000 shares and the year-end market price is $79.20 per common share.Calculate the company's price earnings ratio.

A company has net income of $2,800,000.It also has 400,000 weighted-average common shares outstanding and a price-earnings ratio of 20.What is the market value per share of this company's stock?

On August 31,2010 Victory Corporation's common stock is priced at $30 per share before any stock dividend or split,and the stockholders' equity section of its balance sheet appears as follows.Assume that the company declares and immediately distributes a 100% stock dividend. Common stock- $\$ 7$ par value, 95,000 shares authorized, 38,000 shares $\begin{array}{lr}\text { issued and outstanding } & \$ 266,000 \\\text { Paid-in capital in excess of par value, common stock } & 100,000 \\ \text { Retained earnings } & 366,000 \\ \text { Total stockholders' equity } & \$ 732,000 \\\end{array}$ What is the total amount in the Retained Earnings account immediately after the stock dividend?

A newly formed company sold stock for $545,000.The shares had a par value of $5 each.After the transaction,the paid in capital,common stock account had a balance of $215,000.How many shares did the company sell?

The total amount of stock that a corporation's charter allows it to issue is referred to as:

Common stock always carries a preference for receiving dividends over preferred stock.

__________________________ is the annual amount of cash dividends distributed to common shareholders relative to the stock's market price.

A liquidating dividend is:

A company's only treasury stock transactions for the current year are as follows: (1)1,000 shares of its common stock were purchased on June 1 for $40,000; (2)On July 1 it reissued 500 of these shares at $45 per share; (3)On August 1 it reissued the 500 remaining treasury shares at $38 per share. 1)Prepare the journal entries required to record these transactions. 2)Calculate the balance in Contributed Capital,Treasury Stock,on September 1 assuming its beginning-year balance is zero.

Shamrock Company had net income of $30,000.On January 1,there were 8,000 shares of common stock outstanding.On April 1,the company issued an additional 2,000 shares of common stock.There were no other stock transactions.The company has an earnings per share of:

Pete's outstanding stock consists of (a) 17,000 shares of noncumulative 7.50% preferred stock with a $10 par value and (b) 42,500 shares of common stock with a $1 par value.During its first four years of operation,the corporation declared and paid the following total cash dividends. $\begin{array} { c c } 2010 & \$ 0 \\2011 & 28,000 \\2012 & 100,000 \\2013 & 198,000\end{array}$ What is the amount of dividends that the Common Stockholders receive in 2011?

On July 31,a corporation reported the following stockholders' equity: $\begin{array}{|l|r|}\hline \begin{array}{l}\text { Common stock, } \$ 10 \text { par value, } 200,000 \text { shares authorized, } 100,000 \text { shares } \\\text { issued and outstanding }\end{array} & \$ 1,000,000 \\\hline \text { Retained earnings } & 350,000 \\\hline \text { Total stockholders' equity } & \$ 1,350,000 \\\hline\end{array}$ On July 31,the market value of the corporation's stock was $15 per share.The directors were considering declaring a 10% or 30% stock dividend but wanted to know what effect each stock dividend would have on stockholders' equity.Calculate the balances in the following accounts for each proposed stock dividend distribution.

___________________________ are corrections of material errors in prior period financial statements.

The cumulative net income and loss retained by a corporation is called _____________________.

A company has $100,000 of 10% noncumulative,nonparticipating,preferred stock outstanding and $150,000 of common stock outstanding.In the company's first year of operation,no dividends were paid,but during the second year,it paid cash dividends of $25,000.Compute the dividends to be distributed to (1)preferred shares and (2)common shares.

On August 31,2010 Victory Corporation's common stock is priced at $30 per share before any stock dividend or split,and the stockholders' equity section of its balance sheet appears as follows.Assume that the company declares and immediately distributes a 100% stock dividend Common stock- $\$ 7$ par value, 95,000 shares authorized, 38,000 shares $\begin{array}{lr}\text { issued and outstanding } & \$ 266,000 \\\text { Paid-in capital in excess of par value, common stock } & 100,000 \\ \text { Retained earnings } & 366,000 \\ \text { Total stockholders' equity } & \$ 732,000 \\\end{array}$ What is the total amount in the Common Stock account immediately after the stock dividend?

Changes in accounting estimates are:

Stockholders who are not officers or managers of a corporation do not have the power to bind the corporation to contracts.This is called ______________________.