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Exam 13: Accounting for Corporations

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Question 51

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Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:

A) Premium on stock.
B) Capital gain.
C) Discount on stock.
D) Preemptive right.
E) Financial leverage.

F) A) and E)
G) A) and B)

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Question 52

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The cumulative net income and loss not distributed as dividends to a corporation's shareholders is called ________.

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Question 53

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The following selected transactions took place during the current year for a company: Feb 25 Declared a $2.50 per share cash dividend on 20,000 shares of common stock outstanding Mar. 20 Paid the cash dividends declared on Feb. 25. Dec 31 Closed the $72,000 credit balance in Income Summary that reflects net income to Retained Earnings. (a) Prepare the journal entries for these transactions. (b) If Retained Earnings had a $155,000 credit balance on January 1, calculate its year-end balance as of December 31.

The amount of annual cash dividends distributed to common shareholders relative to the common stock's market value is the:

Corporations issue preferred stock to raise capital without sacrificing control of the corporation and/or to boost the return earned by common shareholders.

Treasury stock is stock that has been authorized, issued, and is outstanding.

Stock that was reacquired and is still held by the issuing corporation is called:

Explain the difference between a large stock dividend and a small stock dividend. In addition, explain how to record these two types of stock dividends.

Changes in accounting estimates are accounted for in current and future periods.

If the dividends account is not recorded as a reduction to Retained Earnings on the date of declaration, the dividends account is closed to Retained Earnings at the end of the accounting period.

Mayan Company had net income of $132,000. The weighted-average common shares outstanding were 80,000. -The company declared a $27,000 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company's earnings per share is:

Special rights often granted to preferred stock include a preference for receiving dividends and additional voting privileges.

A company has earnings per share of $9.60. Its dividend per share is $0.50, its market price per share is $110, and its book value per share is $96. Its price-earnings ratio equals:

Prior to May 1, Fortune Company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on May 1 for $5,000. On July 1, it reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on August 2?

A company made an error in calculating and reporting amortization expense in Year 1. The error was discovered in Year 2. The item should be reported as a prior period adjustment:

Parlay Corporation has 2,000,000 shares of $0.50 par value common stock outstanding. The following selected transactions related to the company's stock took place during the current year: Apr. 15 Declared a 40% stock dividend to stockholders of record on May 1, to be issued May 10. The current market value is $15 per common share. Prepare necessary journal entries to record the events of April 15, May 1 and May 10.

The following data has been collected about Keller Company's stockholders' equity accounts: $\begin{array}{lr}\text { Common stock } \$ 10 \text { par value } 20,000 \text { shares } & \$ 100,000 \\\text { authorized and } 10,000 \text { shares issued, } 9,000 \text { shares outstanding } & \\\text { Paid-in capital in excess of par value, common stock } & 50,000 \\\text { Retained earnings } & 25,000 \\\text { Treasury stock } & 11,500\end{array}$ - Assuming the treasury shares were all purchased at the same price, the number of shares of treasury stock is:

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

A stock split increases total stockholders' equity.

Retained earnings are part of the stockholders' claims on the company's net assets.