Sample Questions, Chapter 11 1.

If a corporation is authorized to issue 1,000 shares of $50 common stock, it is said to have $50,000 of stock outstanding. A) B) True a!se

" #ar va!ue per share is the price at $hich a share of stock is %ought or so!d. A) True B) a!se &. 'umu!ative preferred stock carries the right to %e paid %oth current and a!! prior periods( unpaid dividends %efore an) dividends are paid to common shareho!ders. A) True B) a!se * The dec!aration of cash dividends reduces retained earnings. A) True B) a!se 5 A !arge stock dividend reduces a corporation(s assets and its stockho!ders( e+uit). A) True B) a!se , A stock sp!it increases tota! stockho!ders( e+uit). A) True B) a!se -. #urchasing treasur) stock reduces the corporation(s assets and stockho!ders( e+uit) %) e+ua! amounts. A) True B) a!se .. If a compan) rese!!s treasur) stock %e!o$ the ac+uisition cost, then the income statement must report a !oss from the sa!e of treasur) stock. A) True B) a!se /. The tota! amount of stock that a corporation(s charter a!!o$s it to issue is referred to as0 A) Issued stock. B) 1utstanding stock. ') 'ommon stock. 2) #referred stock. 3) Authorized 4tock.

10. A compan) issued -5 preferred stock $ith a $100 par va!ue. This means that0 A) #referred shareho!ders have a guaranteed dividend. B) The amount of the potentia! dividend is $- per )ear per preferred share. ') #referred shareho!ders are entit!ed to -5 of the annua! income. 2) The market price per share $i!! appro6imate $100 per share. 3) 1n!) -5 of the tota! contri%uted capita! can %e preferred stock. 11. or a!! of "00-, A6e! 'ompan) has $1 par va!ue common stock, "00,000 shares authorized, 100,000 shares issued and /0,000 shares outstanding. The %a!ance in 7etained 3arnings at the beginning of the )ear $as $500,000. 8et income for the current )ear $as $&00,000. If the compan) dec!ared and paid a cash dividend of $" per share on its common stock during "00-, $hat is the %a!ance in 7etained 3arnings at the end of the )ear9 A) $ .00,000 B) $ 1,000,000 ') $ ,00,000 2) $ ,"0,000 3) $ *00,000

1" At :anuar) 1, "00-, Ba6ter 'ompan) has $1 par va!ue common stock, "00,000 shares authorized, /0,000 shares issued and .0,000 shares outstanding. ;o$ man) shares of treasur) stock does the compan) have at :anuar) 1, "00-9 A) &0,000 shares B) 110,000 shares ') 1"0,000 shares 2) 10,000 shares 3) cannot %e determined from the information a%ove 1&. Izz) 'orporation repurchased some of its o$n common stock from the marketp!ace in :anuar) of "00-. Izz) paid $"0 per share to purchase 1,000 shares of its $10 par va!ue stock. 8ote that this is the first treasur) stock transaction that Izz) has undertaken. Assume that, on 2ecem%er 1, "00-, Izz) reissued a!! 1,000 shares of treasur) stock at $1/ per share. The <ourna! entr) to record this reissue $ou!d inc!ude0 A. a credit to Treasur) 4tock for $1/,000 B. a credit to Treasur) 4tock for $10,000 '. a de%it to 7etained 3arnings for $1,000 2. a credit to 'ash for $1/,000 3. a de%it to =oss on 4a!e of 4tock for 1,000

"

1*. 1n 4eptem%er 1, a corporation had 50,000 shares of $5 par va!ue common stock, and $1,000,000 of retained earnings. 1n that date, $hen the market price of the stock is $15 per share, the corporation issues a ">for>1 stock sp!it. The genera! <ourna! entr) to record this transaction is0

15. A corporation had 50,000 shares of $1 par va!ue common stock outstanding on :u!) 1. =ater that da) the %oard of directors dec!ared a 1005 stock dividend $hen the market va!ue of each share $as $5 per share. The entr) to record the dec!aration of this !arge stock dividend is0 A) 7etained 3arnings 50,000 'ommon 4tock 2ividends 2istri%uta%!e 50,000 B) ') 2) 3) 7etained 3arnings 'ommon 4tock 2ividends 2istri%uta%!e 'ash 'ommon 4tock 'ash 'ommon 4tock 2ividends 2istri%uta%!e 8o <ourna! entr) is re+uired ad the date of dec!aration. 50,000 50,000 "50,000 "50,000 "50,000 "50,000

1,. Treasur) stock is c!assified as0 A) An asset account. B) A contra asset account. ') A revenue account. 2) A contra e+uit) account. 3) A !ia%i!it) account.

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1-. A!pha 'orporation had the fo!!o$ing stockho!ders? e+uit) %a!ances at :une &0, "00-0 'ommon stock, $1 par va!ue, 50,000 shares authorized, issued and outstanding. $ 50,000 7etained earnings 500,000 Tota! stockho!ders? e+uit) $550,000 1n :u!) 1, "00-, A!pha 'orporation dec!ared and distri%uted a 100 5 stock dividend. @hat %a!ance $ou!d appear in 7etained 3arnings after the distri%ution of the stock dividend9 A) $500,000 B) $550,000 ') $*50,000 2) cannot %e determined from the information a%ove 1.. Atreme 4ports has $100,000 of .5 noncumu!ative preferred stock outstanding. Atreme 4ports a!so has $500,000 of common stock outstanding. In the compan)(s first )ear of operation, no dividends $ere paid. 2uring the second )ear, Atreme 4ports paid cash dividends of $&0,000. This dividend shou!d %e distri%uted as fo!!o$s0 A) $.,000 preferredB $"",000 common. B) $1,,000 preferredB $1*,000 common. ') $-,500 preferredB $"",500 common. 2) $15,000 preferredB $15,000 common. 3) $0 preferredB $&0,000 common. 1/. Atreme 4ports has $100,000 of .5 cumu!ative preferred stock outstanding. Atreme 4ports a!so has $500,000 of common stock outstanding. In the compan)(s first )ear of operation, no dividends $ere paid. 2uring the second )ear, Atreme 4ports paid cash dividends of $&0,000. This dividend shou!d %e distri%uted as fo!!o$s0 A) $.,000 preferredB $"",000 common. B) $1,,000 preferredB $1*,000 common. ') $-,500 preferredB $"",500 common. 2) $15,000 preferredB $15,000 common. 3) $0 preferredB $&0,000 common. Answers to Chapter 11 Questions 1.B 11.D 2.B 12.D 3.A 13.C 4.A 14.E 5.B 15.A 6.B 16.D 7.A 17.C .B 1 .A !.E 1!.B 1".B

Chapter 12 Sample Questions 1. Business activities that generate or use cash are c!assified as operating, investing, or financing activities on the statement of cash f!o$s. A) True B) a!se ". inancing activities inc!ude Ca) the purchase and sa!e of !ong>term assets and C%) !ending and co!!ecting on !oans. A) True B) a!se

&. 'ash dividends paid to shareho!ders is considered an investing outf!o$ of cash. A) True B) a!se *. The fu!! disc!osure princip!e re+uires that significant noncash investing and financing activities %e disc!osed at the %ottom of the statement of cash f!o$s, or in a note to the statement of cash f!o$s. A) True B) a!se 5. @hen preparing the operating section of the statement of cash f!o$s using the indirect method, noncash operating e6penses are added %ack to net income. A) True B) a!se ,. @hen preparing the operating section of the statement of cash f!o$s using the indirect method, nonoperating gains are added to net income. A) True B) a!se -. @hen preparing the operating section of the statement of cash f!o$s using the indirect method, an increase in income ta6es pa)a%!e is added to net income. A) True B) a!se .. @hen preparing the operating section of the statement of cash f!o$s using the indirect method, a decrease in accounts receiva%!e is su%tracted from net income. A) True B) a!se /. =and costing $100,000 is so!d at a !oss of $10,000. This imp!ies that $/0,000 cash $as received from the sa!e. A) True B) a!se

10. The appropriate section in the statement of cash f!o$s for reporting the issuance of common stock for cash is0 A) 1perating activities. B) inancing activities. ') Investing activities. 2) 4chedu!e of noncash investing or financing activit). 3) 8one of these. This is not reported on the statement of cash f!o$s. 11. T)pica! cash f!o$s from investing activities inc!ude0 A) #a)ments to purchase propert), p!ant and e+uipment or other productive assets Ce6c!uding inventor)). B) #roceeds from the sa!e Cdiscounting) of notes receiva%!e made %) the compan). ') #roceeds from co!!ecting the principa! amount of notes receiva%!e. 2) A!! of the a%ove. 1". The appropriate section in the statement of cash f!o$s for reporting the purchase of !and in e6change for common stock is0 A) 1perating activities. B) inancing activities. ') Investing activities. 2) 4chedu!e or note of noncash investing or financing activit). 3) 8one of these. This is not reported an)$here $ith the statement of cash f!o$s. 1&. Dse the fo!!o$ing information and the indirect method to ca!cu!ate the net cash provided or used %) operating activities0

A) B) ') 2) 3)

$ "",000. $11-,000. $ ,/,000. $ &-,000. $ /1,000.

1*. @hich of the fo!!o$ing items is reported on the statement of cash f!o$s under financing activities9 A) 2ec!aration of a cash dividend. B) #a)ment of a cash dividend. ') 2ec!aration of a stock dividend. 2) #a)ment of a stock dividend.

3)

4tock sp!it.

15. Eiven the fo!!o$ing information, determine the amount of cash f!o$s from investing and financing activities.

A) B) ') 2) 3)

'ash provided %) investing activities, $11,000B 'ash provided %) financing activities, $-0,000. 'ash used %) investing activities, $11,000B 'ash used %) financing activities, $-0,000. 'ash provided %) investing activities, $",,000B 'ash provided %) financing activities, $55,000. 'ash used %) investing activities, $",,000B 'ash used %) financing activities, $55,000. 'ash provided %) investing activities, $",,000B 'ash provided %) financing activities, $-0,000.

or each of the ne6t 10 items, indicate $hether it $ou!d %e c!assified A. in the operating section Cindirect method) B. as an investing activit) '. as a financing activit) 2. as a significant noncash financing and investing activit). 1,. 1-. 1.. 1/. "0. "1. "". "&. "*. "5. 4o!d a patent for cash. 2ecrease in accounts receiva%!e. Issued %onds pa)a%!e for cash. Increase in $ages pa)a%!e . #urchased treasur) stock for cash. 4o!d e+uipment for cash. #urchased !and in e6change for a note pa)a%!e. #aid cash dividends. Increase in inventor). #urchases of !and for cash.

Answers to Chapter 12 Questions 1.A 2.B 3.B 4.A 5.A 6.B 7.A .B !.A 1".B 11.D 12.D 13.D 14.B 15.E 16.B 17.A 1 .C 1!.A 2".C 21.B 22.D 23.C 24.A 25.B