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Exam 11: Proprietorships, Partnerships, and Corporations

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Question 31

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The following items appeared on the financial statements of Morrisey, Inc. on December 31, 2012: On September 10, 2013, when the market value of the Morrisey stock was $140, the company declared and distributed an 8% stock dividend. Indicate whether each of the following statements is true or false. _____ a) Retained earnings would increase by $11,200 as a result of the stock dividend. _____ b) The balance in common stock would increase by $32,000 as a result of the stock dividend. _____ c) Total paid-in capital would be $111,200 after the dividend had been distributed. _____ d) Total equity would not be affected by the dividend. _____ e) Cash flow from financing activities would increase by $11,200 as a result of the stock dividend.

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a) False b) False c) True d) True e) Fal...

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Question 32

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Indicate whether each of the following statements about treasury stock is true or false. _____ a) One reason for a corporation to buy its own stock is to boost its net income when treasury stock is reissued for a higher price. _____ b) Corporations may buy back their own stock (treasury stock) to avoid hostile takeovers. _____ c) Purchasing treasury stock reduces the number of issued shares. _____ d) The treasury stock account is classified as a negative equity account. _____ e) If treasury stock is reissued for an amount lower than its purchase price, retained earnings is decreased.

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a) False b) True c) False d) True e) Tru...

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Question 33

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Discuss some of the information items normally included in a corporation's articles of incorporation.

The corporate charter of Parker Corporation authorizes the issuance of 25,000 shares of 5% cumulative, preferred stock, $60 par, and 200,000 shares of $40 par common stock. At the end of the current year, the titles and balances of stockholders' equity accounts are as follows: Parker declared dividends of $400,000 for the current year. Required: a) What is the amount of the annual dividend per share for preferred stock? b) If there are two years of preferred dividends in arrears at the beginning of the current year, what total amount of dividends will be paid to the preferred shareholder? c) What total amount will be paid to the common shareholder if there are two years of preferred dividends in arrears at the beginning of the year? d) Prepare the entry to record the declaration of the dividend.

What is treasury stock?

Preferred stockholders' claims to a corporation's assets take precedence over the claims of some creditors.

Kinco Industries had net income for the year 2013 of $650,000. Kinco had an average number of shares outstanding at the end of the year of 725,000 shares. The market price of Kinco's stock on January 1, 2013 was $14 per share. On December 31, 2013, the market price was $16 per share. The price-earnings ratio for Kinco at year end is closest to?

Stevens Corporation was organized on July 15, 2013. It was authorized to issue 150,000 shares of $15 par value common stock and 50,000 shares of 8% cumulative class A preferred stock. The class A preferred stock had a stated value of $20 per share. The following stock transactions relate to Stevens Corporation. 1) Issued 55,000 shares of common stock for $32 per share. 2) Issued 4,000 shares of the class A preferred stock for $44 per share. 3) Issued 27,500 shares of common stock for $38 per share. Prepare the general journal entries for the above transactions.

On January 2, 2013, Terra Corporation issued 20,000 shares of $20 par-value common stock for $22 per share. Which of the following statements is true?

Hinkle, Inc. purchased 200 shares of its own $20 par value stock for $30 cash per share. Which of the following answers reflects how this purchase of treasury stock would affect Hinkle's financial statements?

The Securities and Exchange Commission was established in response to the accounting scandals that occurred in 2001 and 2002.

A distribution by a sole proprietorship to the owner is called a dividend.

Which of the following is not normally a preference given to the holders of preferred stock?

Which answer would represent the financial statement presentation of stockholders' equity after the following transactions? 1) Issued 200 shares of $10 par value common stock for $25 a share. Five hundred shares are authorized. 2) Purchased 75 shares of treasury stock at $22 a share.

Parr Corporation had $10 par stock with a market price of $80, when it declared a 2-for-1 stock split. After the stock split, the number of shares outstanding will double, and the market price of the stock should drop to about $40.

Schultz Corp. has the following number of shares of stock outstanding: Schultz will distribute $42,000 to the two classes of stockholders this year. Not counting the current year, the preferred stock dividends are one year in arrears. Indicate whether each of the following statements is true or false. _____ a) Preferred stockholders will receive $16,000 of cash dividends in the current year. _____ b) After all required preferred dividends are paid, preferred and common stockholders will share the remaining dividend. _____ c) Common stockholders will receive $34,000 of cash dividend in the current year. _____ d) The amount of common dividends per share that stockholders will receive in the current year is $2.60. _____ e) The amount of dividends in arrears is zero after the $42,000 of dividends have been paid.

Which of the following is a negative or contra stockholders' equity account?

Jack Grimes started a sole proprietorship by depositing $25,000 cash in a business checking account. During the accounting period the business borrowed $10,000 from a bank, earned $6,000 of net income, and Grimes withdrew $4,000 cash from the business. Based on this information, at the end of the accounting period Grimes' capital account contained a balance of:

A corporation must record a liability for cash dividends on the date of record.

The payment of a previously declared cash dividend will