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Exam 11: Reporting and Analyzing Equity

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Question 111

Multiple Choice

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Achieving an increased rate of 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) Financial leverage.
B) Discount on stock.
C) Premium on stock.
D) Preemptive right.
E) Capital gain.

F) None of the above
G) A) and B)

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Question 112

Multiple Choice

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The statement of changes in stockholders' equity:

A) Is part of the statement of retained earnings.
B) Shows only the ending balances in stockholders' equity.
C) Describes changes in paid-in capital and retained earnings subcategories.
D) Does not include changes in treasury stock.
E) Is reported by very few companies.

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

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Question 113

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A corporation received its charter and began business this year. The company is authorized to issue 500,000 shares of $100 par, 6%, noncumulative, nonparticipating preferred stock, and 1,000,000 shares of no-par common stock. The following selected transactions occurred during this year: Prepare journal entries to record these transactions.

The stockholders' equity section of a corporation's balance sheet follows: (1) Assuming that the preferred stock is not callable and no dividends are in arrears, compute the book values per preferred share and per common share. (2) Assuming that the preferred stock has a call price of $30 per share and one year of cumulative preferred dividends is in arrears, compute the book values per preferred share and per common share.

A stock split is the distribution of additional shares of stock to stockholders according to their percent of ownership.

Explain how to compute book value per common share and discuss how it can be used to analyze the financial condition of a corporation.

When no-par stock is not assigned a stated value, the total amount received is recorded in the Common Stock account.

A company reported $960,000 in net income for the current year. Total weighted-average common shares outstanding are 150,000 shares, and the year-end market price is $67.20 per common share. Calculate the company's price earnings ratio.

_______________________ is the amount of income earned per share of a company's outstanding common stock.

Growth stocks generally pay large dividends on a regular basis.

The stockholders' equity section of a company's year-end balance sheet follows: The preferred stock has a call price of $51.50 per share plus dividends in arrears. Only one year of dividends is in arrears. Calculate the book value per (1) preferred share, and (2) common share.

The journal entry to record the declaration of dividends on common stock includes a debit to Retained Earnings and a credit to Common Dividend Payable.

A company has 50,000 shares of common stock outstanding. The stockholders' equity applicable to common shares is $1,470,000, and the par value per common share is $5. The book value per share is:

Par value of a stock refers to the:

The price at which a share of stock is bought or sold is known as par value.

A company's board of directors votes to declare a cash dividend of $.75 per share of common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is:

The _______________________ protects stockholders' proportional interest in a corporation by allowing them to purchase their proportional share of any common stock later issued by the corporation.

A proxy is:

A company issued 60 shares of $100 par value common stock for $7,000 cash. The total amount of paid-in capital in excess of par is:

A stock split increases total stockholders' equity.