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Exam 13: Accounting for Corporations

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Question 81

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Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:

A) $0 preferred; $30,000 common.
B) $30,000 preferred; $0 common.
C) $12,000 preferred; $18,000 common.
D) $15,000 preferred; $15,000 common.
E) $6,000 preferred; $24,000 common.

F) A) and E)
G) A) and D)

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Question 82

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A corporation is a legal entity separate from its owners.

A) True
B) False

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Question 83

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Shareholders in a corporation have the power to bind the corporation to contracts.

A stock dividend is a distribution of corporate assets that returns part of the original investment to shareholders.

The group responsible for and have final authority for managing a corporation's activities is (are) the ________.

Prior period adjustments to financial statements can result from:

Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. $\begin{array}{ll}&\text { Dividend Declared }\\\\text { year 1 } & \$ 20,000 \\\text { year 2 } & \$ 6,000 \\\text { year 3 } & \$ 32,000\end{array}$ The amount of dividends paid to preferred and common shareholders in year 1 is:

A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:

Underwood Company's only treasury stock transactions for the current year follow: (1) 2,000 shares of its common stock were purchased on June 1 for $80,000; (2) On July 1 it reissued 500 of these shares at $45 per share; (3) On August 1 it reissued an additional 500 treasury shares at $38 per share. 1) Prepare the journal entries required to record these transactions. 2) Calculate the balance in Paid-in Capital, Treasury Stock, on September 1 assuming its beginning-year balance is zero.

The statement of changes in stockholders' equity:

A stock dividend does not reduce a corporation's assets or its stockholders' equity.

Companies report prior period adjustments, net of any income tax effects in the:

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

A company was organized in January 2016 and has 20,000 shares of $10 par value, 10%, nonparticipating preferred stock outstanding and 150,000 shares of $2 par value common stock outstanding. It has declared and paid cash dividends each year as shown below. Calculate the total dividends distributed to each class of stockholder under each of the assumptions given.

A corporation with $10 par common stock issues a large stock dividend. The capitalization of retained earnings is equal to:

A company made an error in recording the Year 1 purchase of computer equipment as an expense. This was discovered in Year 2. The item should be reported as a prior period adjustment on the Year 2 income statement.

On August 1, a company's board of directors declared a 10% stock dividend to be distributed on September 1 to the stockholders of record on August 20. The company had 1,000,000 shares of $2.50 par value common stock outstanding with a market value of $23 per share. Prepare the journal entries required on August 1, August 20, and September 1.

Organization expenses of a corporation often include legal fees and promoter fees.

All of the following regarding accounting for Treasury Stock under U.S. GAAP and IFRS is true except: