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1.

Treasury stock is classified as:


 A contra equity account.

2. Buying stock in a corporation is attractive to investors because:


 Stockholders are not liable for the corporation’s actions and debts.
 A corporation has unlimited life.
 Stock is easily transferred.
 Shareholders are not agents of the corporation.

3. A company has earning per share of $9.60. Its dividend per share is $0.50 and its market price
per share is &120. Its price-earnings ratio equals :
 12.5

4. The price-earnings ratio is calculated by dividing:


 Market value per share by earnings per share.

5. A liquidating dividend is:


 A return of a part of the original investment back to the stockholders.

6. Stated value of no-par stock is:


 An amount assigned to no-par stock by the corporation’s broad of directors.

7. A stock dividend:
 Does not reduce a corporation’s assets and stockholders’ equity.
 Does not affect total equity but does affect the components of equity.
 Is not a liability on the balance sheet.
 Transfers a portion of equity from retained earnings to pain-in-capital.

8. A company has net income of $850,000 it has $125,000 weighted-average common shares
outstanding and a market value per share of $115. The company’s price:
 16.9

9. Changes in accounting estimates are:


 Accounted for in current and future periods.

10. A company made an error in recording the 2009 purchase of machinery. This was discovered in
2011. The item should be reported as a prior period adjustment:
 On the 2011 statement of retained earnings.

11. Stock that was reacquired and is still held by the issuing corporation is called:
 Treasury stock.
12. Preferred stock on which the right to receive dividends is forfeited for any year that the
dividends are not declared is referred to as:
 Noncumulative preferred stock.

13. Preferred stock is often issued:


 To prevent dilution of common stock.
 To initiate of increase financial leverage.
 To appeal to investors who believe that common stock is too risky.
 To boost the return earned by common shareholders.

14. A corporation sold $14,000 shares of its $10 par value common stock at a cash of $13 per share.
The entry to record this transaction would include:
 A credit to Common Stock for $140,000.

15. Book value per common share is computed by:


 Dividing stockholders’ equity applicable to common shares by the number of common
shares outstanding.

16. Book value per share:


 Reflects the value per share if a company is liquidated at balance sheet amounts.

17. A corporation is authorized to issue 9,000 shares of $5 common stock, the corporation should
report paid-in-capital from the issuance of common stock of:
 $0.

18. The right purchase common stock at a fixed price over a specified period is:
 Stock option.

19. The date a board of directors votes to pay a dividend is called the:
 Date of declaration.

20. Prior period adjustment are reported in the:


 Statement of retained earnings.

21. A company has 40,000 shares of common stock outstanding. The stockholders’ equity applicable
to common shares is $470,000 and the par value per common share is$10. The book value per
share is:
 $11.75.

22. A liability for dividends exists:


 On the date of declaration.
23. The Discount on Common Stock account reflects:
 The difference between the par value of stock and its issue price when it is issued at a
price below par value.

24. Dividend yield is the percent of cash dividends paid to common shareholders relative to the:
 Common stock’s market value.

25. A company has 1,000 shares of $100 par preferred stock. It also has 25,000 shares of common
stock outstanding and its total stockholders’ equity equals $500,000. The book value per
common share is:
 $16.00.

26. The dividend yield is computed by dividing:


 Cash dividends per share by the market price per share.

27. A common statutory restriction is reported on the:


 Statement of stockholders’ equity.

28. A corporation issued 6,000 shares its $10 par value common stock in exchange for land that has
a market value of $84,000. The entry to record this transaction would include:
 A credit to Paid-in Capital in Excess of Par Value, Common Stock for $24,000.

29. A company has 500 shares of $50 par value preferred stock outstanding, and the call price if its
preferred stock is $60 per share. It also has 20,000 shares of common stock outstanding and the
total value of its stockholders’ equity is $680,000. The company’s book value per common share
equals:
 $32.50.

30. The total amount of cash and other assets received by a corporation from its stockholders in
exchange for common stock is:
 Referred to as paid-in capital.

31. Corporation often buy back their own stock:


 To have shares available for employee compensation.
 To have shares available for merger or acquisition.
 To maintain market value for the company stock.
 To avoid a hostile take-over.

32. A company issued 60 shares of $100 par value stock for $7,000 cash. The total amount of paid-in
capital in excess of par is:
 $1,000.
33. A premium on common stock:
 Is the amount paid in excess of par by purchasers of newly issued stock.

34. Owners of preferred stock often do not have:


 Voting rights.

35. A corporation issued 300 shares of its $5 par value common stock in payment of a $1,800 charge
from its accountant for assistance in filing its charter with the state. The entry to record this
transaction will include:
 A $300 credit to Paid-in Capital in Excess of Par Value, Common Stock.

36. A liquidating dividend is:


 A return of a part of the original investment back to the stockholders.

37. A dividend preference for preferred stock means that:


 Preferred stockholders are allocated their dividends before dividends are allocated to
common shareholders.

38. The statement of changes in stockholders’ equity:


 Describes changes in paid-in capital and retained earning subcategories.

39. Stock option are often used to encourage employee to:


 Focus on company performance.
 To help save for retirement by participation in profit-sharing plans.
 Take a long-run approach.
 Remain with the company.

40. Shamrock Company had net income of $30,000. On January 1, the number of shares if common
stock outstanding were 8,000. There were no other transactions. The company’s earnings per
share is:
 $3.75.

41. A company’s board of directors votes to declare a cash dividend of 75¢ per share. The company
has 15,000 shares authorized, 10,000 issued , and 9,500 shares outstanding. The total amount of
the cash dividend is:
 $7,125. ->0.75*9500

42. The annual amount of cash dividends distributed to common shareholders relative to the
common stock’s market value is the:
 Dividend yield.
43. A stock dividend transfers:
 Retained earnings to paid-in capital.

44. Par value of a stock refers to the:


 Value assigned to a share of stock by the corporate charter.

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

46. A company issued 7% preferred stock with a $100 par value. This means that:
 The amount of the potential dividend is $7 per year per preferred share.

47. Retained earnings:


 Can be subject to restrictions due to loan agreements.
 Generally consists of a company’s cumulative net income less any net losses and
dividend declared since its inception.
 Can be subject to a statutory restriction by a state.
 Can be subject to appropriation by a corporation’s director to limit dividends.

48. Shamrock Company had net income of $30,000. On January 1, the number of shares of common
stock outstanding was 8,000. The company declared a $2,700 dividend on its noncumulative,
nonparticipating preferred stock. There were no other transactions. The company’s earnings per
share is:
 $3.41.

49. Prior period adjustments to financial statements can result from:


 Using unacceptable accounting principles.

50. The total amount of stock that a corporation’s charter allows it to issue is referred to as:
 Authorized Stock.

51. A company has a market value per share of $73.00. Its net income is $1,750,000 and the
weighted-average number of shares outstanding is 350,000. The company’s price-earnings ratio
equals:
 14.6.

52. A class of stock that does not have a par value, and can usually be issued at any price without
creating a minimum legal capital deficiency , is called:
 No-par stock.
53. Book value per share is often used as a starting point for:
 Price setting for public utilities.
 Stock valuation.
 Merger negotiations.
 Loan contracts.

54. The cost of bringing a corporation into existence, including legal fees, promoter fees, and
amounts paid to obtain a charter are called:
 Organization costs.

55. The retirement of stock:


 Reduces the number of issued shares.
 Does not reduce the number of authorized shares.
 Reduces retained earnings if the purchase price exceeds the net amount removed from
paid-in capital.
 Removes all paid-in capital amounts related to the retired shares.

56. A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating preferred
stock and 10,000 shares 0f $10 value common stock outstanding. The company paid total cash
dividends of $1,000 in its first year of operation. The cash dividend that must be paid to
preferred stockholders in the second year before any dividend is paid to common stockholders
is:
 $3,500.

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

58. A corporation’s distribution of additional shares of its own stock to its stockholders without the
receipt of any payment is return is called a:
 Stock dividend.

59. A company paid $0.48 in cash dividends per share. Its earnings per share is $4.20 and its market
value price per share is $30.00. Its dividend yield equals:
 1.60%.

60. Stockholders’ equity consists of:


 Paid-in capital and retained earnings.

61. A premium on common stock:


 -----------------------------------------------------------
62. A company had a beginning balance in retained earnings of $43,000. It had net income of $6,000
and paid out cash dividend of $5,625 in the current period. The ending balance in retained
earnings equals:
 $43,375.

63. The statement of retained earnings may be combined with the:


 Statement of Stockholders’ Equity.

64. Preferred stock that the issuing corporation at its option may retire by paying a specified
amount to the preferred stockholders plus any dividends in arrears is called:
 Callable preferred stock.

65. A company has net income of $850,000. It has 125,000 weighted-average common shares
outstanding and a market value per share of $115. The company’s price:
 16.9. -> [115 / (850,000/125,000)]

66. Stocks that pay relatively large cash dividends on a regular basis are called:
 Income stocks.

67. Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred stock


outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In the company’s
first year, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of
$30,000. This dividend should be distributed as follows:
 $8,000 preferred; $22,000 common.

68. The right of common shareholders to protect their proportionate interest in a corporation by
having the first opportunity to buy additional proportionate shares of common stock issued by
the corporation is called a:
 Preemptive right.

69. A proxy is:


 A legal document that gives a designated agent of a stockholder the power of vote the
stock.

70. An amount of assets defined by state law that stockholders must invest and leave invested in a
corporation, which is intended to protect the creditors of the corporation, is called the:
 Minimum legal capital.

71. The Discount on Common Stock account reflects:


 The difference between the par value of stock and its issue price when it is issued at a
price below par value.
72. Companies can use stock dividends:
 Both (To keep the market price of the stock affordable. ) and ( To provide evidence of
management’s confidence that the company is doing well. )

73. A corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10
par value common stock. During the first month of operation, the corporation issued 300 shares
to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The
entry to record this transaction would include:
 A debit to Organization Expenses for $5,000.

74. The board of directors of a corporation:


 Are responsible for and have final authority for managing corporate activities.

75. Achieving an increased on common stock at a rate that is less than the rate of return earned
with the assets invested from the preferred stock issuance is called:
 Financial leverage.

76. The amount of income earned per share of a company’s common stock is called:
 Earnings per share.

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