Ch.11 Wiley Plus MC

question

Which of these is not a major advantage of a corporation?
answer

Government regulations.
question

Which one of the following is a major disadvantage of a corporation?
answer

Additional taxes.
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Which of these statements is false?
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Legal capital is intended to protect stockholders.
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Which of the following is not a characteristic of a corporation?
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Unlimited liability for stockholders.
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Which of the following is a disadvantage of the corporate business form?
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Government regulation.
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Which of the following is not a stockholder’s right?
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The right to participate in management decisions.
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Which of the following represents the maximum number of shares a corporation can issue?
answer

Authorized shares.
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If a corporation issues 1,000 shares of $3 par common stock for $7 a share, how much is the legal capital?
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$3,000.
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Ernest, an individual, receives $100 from Vernon Corp. in dividends and is in the 28% tax bracket. Vernon Corp. already paid corporate taxes on the $100 at a 20% tax rate. How much in personal taxes will Ernest need to pay?
answer

$28. (One of the disadvantages of a corporate structure is the corporation pays its own tax burden on net income and then the stockholders pay income tax on the dividends they receive. Ernest must pay an additional $28.)
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Which of the following represents the amount per share of stock that must be retained in the business for the protection of corporate creditors?
answer

Legal capital.
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Which of the following is not a characteristic of a corporation?
answer

Unlimited liability for stockholders.
question

DT Inc. issued 3,000 shares of $5 par value common stock for $6 per share. Which of the following is one part of the journal entry to record the issuance?
answer

Credit to Common Stock for $15,000. (The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 3,000 Ă— $6 = $18,000 Credit to Common stock = 3,000 Ă— $5 = $15,000 Credit to Paid-in capital in excess of par value = 3,000 Ă— ($6 – $5) = $3,000)
question

Wynola, Inc. issued 1,000 shares of common stock at $10 per share. If the stock has a par value of $4 per share, which of the following will be part of the journal entry to record the issuance?
answer

Credit to Common Stock for $4,000. (The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 1,000 Ă— $10 = $10,000 Credit to Common stock = 1,000 Ă— $4 = $4,000 Credit to Paid-in capital in excess of par value = 1,000 Ă— ($10 – $4) = $6,000)
question

Harrison, Inc. issued 4,000 shares of common stock at $12 per share. If the stock has a par value of $0.50 per share, which of the following will be part of the journal entry to record the issuance?
answer

Credit to Common Stock for $2,000. (The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 4,000 Ă— $12 = $48,000 Credit to Common stock = 4,000 Ă— $0.50 = $2,000 Credit to Paid-in capital in excess of par value = 4,000 Ă— ($12 – $0.50) = $46,000)
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Harrison, Inc. issued 600 shares of common stock at $10 per share. If the stock was no-par value stock, which of the following will be part of the journal entry to record the issuance?
answer

Credit to Common Stock for $6,000. (The journal entry will increase the cash account for the total issue price and increase the common stock account for the same amount. Debit to Cash = 600 Ă— $10 = $6,000 Credit to Common stock = 600 Ă— $10 = $6,000)
question

The 13th Street Grill issued 10,000 of $1 par value common stock for $5 per share. Which of the following will be part of the journal entry to record the issuance?
answer

A credit of $10,000 to Common Stock. (The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 10,000 Ă— $5 = $50,000 Credit to Common stock = 10,000 Ă— $1 = $10,000 Credit to Paid-in capital in excess of par value = 10,000 Ă— ($5 – $1) = $40,000)
question

Dynatech issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, which accounts are credited?
answer

Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000. (The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 1,000 Ă— $12 = $12,000 Credit to Common stock = 1,000 Ă— $10 = $10,000 Credit to Paid-in capital in excess of par value = 1,000 Ă— ($12 – $10) = $2,000)
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For what reason might a company acquire treasury stock?
answer

To reissue the shares to officers and employees under bonus and stock compensation plans.
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Which one of the following decreases when a corporation purchases treasury stock?
answer

Outstanding shares.
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What method is normally used to account for treasury stock?
answer

Cost method.
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If 1,000 shares of $5 par common stock are reacquired by a corporation for $12 a share, by how much will total stockholders’ equity be reduced?
answer

$12,000.
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A corporation sold 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited to record the repurchase of the 100 shares?
answer

Treasury Stock for $1,200. (The journal entry will increase the treasury stock account (a contra stockholders’ equity account) and will decrease the cash account for the total cost to acquire.)
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Which of the following increases when a corporation purchases treasury stock?
answer

Number of shares in treasury shares.
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A corporation has cumulative preferred stock on which it pays dividends of $20,000 per year. The dividends are in arrears for two years. If the corporation plans to distribute $90,000 as dividends in the current year, how much will the common stockholders receive?
answer

$30,000. (Preferred stockholders receive an allocation for each of the past two years and an allocation for the current year. The balance remaining goes to the common stockholders. Preferred dividends in arrears for two years ($20,000 Ă— 2) $40,000 Preferred for current year 20,000 Total to preferred stockholders $60,000 Total dividends available (90,000) Amount available to common stockholders $30,000)
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Which one of the following statements is incorrect?
answer

Dividends may be paid on common stock while dividends are in arrears on preferred stock.
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Which one of the following is not a right of preferred stockholders?
answer

Priority voting rights.
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Which of the following is a feature associated only with preferred stock?
answer

All of the above. -Dividend preference -Preference to assets in the event of liquidation -Cumulative dividends
question

M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2012. No dividends were declared in 2010 or 2011. If M-Bot wants to pay $375,000 of dividends in 2012, how much will common stockholders receive?
answer

$135,000. (Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year. Total dividend = 10,000 Ă— 8% Ă— $100 = $80,000 Preferred dividends in arrears for two years ($80,000 Ă— 2) $ 160,000 Preferred for current year 80,000 Total to preferred stockholders 240,000 Total dividends available (375,000) Amount available to common stockholders $ 135,000)
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Entries for cash dividends are required on the declaration date and the payment date, but not on the record date.
answer

Declaration date and the payment date.
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Which statement about stock dividends is true?
answer

A stock dividend has no effect on total stockholders’ equity.
question

Raptor Inc. has retained earnings of $500,000 and total stockholders’ equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. What will occur is Raptor declares a 10% stock dividend on its common stock?
answer

Retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.
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Which of the following will increase the paid-in capital section of the balance sheet?
answer

Stock dividend.
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How are dividends in arrears reported in the financial statements?
answer

In a footnote.
question

Dehesa, Inc. has 8,000 shares of 5%, $50 par, cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. No dividends were declared last year, However, the board of directors has just declared a $50,000 dividend this year to be paid in 10 days. What amount of the total dividend will be paid to common stockholders?
answer

Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year. Total dividend = 8,000 Ă— 5% Ă— $50 = $20,000 Preferred dividends in arrears for one year $ 20,000 Preferred for current year 20,000 Total to preferred stockholders 40,000 Total dividends available (50,000) Amount available to common stockholders $ 10,000
question

Ramona, Inc. has 2,000 shares of 5%, $100 par, cumulative preferred stock and 80,000 shares of $4 par common stock outstanding. Last year the board of directors declared and paid an $8,000 dividend. This year the dividend declared and paid was $15,000. What amount of this dividend will be paid to the preferred stockholders?
answer

$12,000. (Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year. Total dividend = 2,000 Ă— 5% Ă— $100 = $10,000 Preferred dividends in arrears for prior year ($10,000 – $8,000) $ 2,000 Preferred for current year 10,000 Total to preferred stockholders $12,000)
question

Vista, Inc. has 300,000 shares of common stock outstanding. A 30% stock dividend was declared and issued. How many shares are outstanding after the stock dividend?
answer

390,000. (The number of outstanding shares is multiplied by the percentage of the stock dividend to get the total new shares to be issued. The new shares plus the original shares outstanding are then added together: 300,000 + (300,000 Ă— 30%) = 390,000 shares)
question

A corporation is authorized to sell 1,000,000 shares of common stock. Today there are 400,000 shares outstanding, and the board of directors declares a 10% stock dividend. How many shares will be issued as a stock dividend?
answer

40,000. (This number of outstanding shares is multiplied by the percentage of the stock dividend to get the total new shares to be issued. 400,000 shares outstanding Ă— 10% = 40,000 new shares to be issued)
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Dehesa, Inc. has 8,000 shares of 5%, $15 par, cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. No dividends were declared last year. However, the board of directors have just declared a $34,000 dividend this year. What amount of the total dividend will be paid to common stockholders?
answer

$22,000. (Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the year in arrears and the current year. Total dividend = 8,000 Ă— 5% Ă— $15 = $6,000 Preferred dividends in arrears for prior year $ 6,000 Preferred for current year 6,000 Total to preferred stockholders 12,000 Total dividends available (34,000) Amount available to common stockholders $ 22,000)
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If a corporation has incurred a net loss, which account will it affect?
answer

Debited to Retained Earnings in a closing entry.
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Which one of the following is not true concerning a retained earnings restriction?
answer

It is reported as a loss on the income statement.
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Which of the following does not affect retained earnings?
answer

Additional investment by stockholders.
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Which one of the following is not part of ‘stock’ in the balance sheet?
answer

Paid-in capital in excess of par value-common stock.
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How is common stock listed in the stockholders’ equity section of the balance sheet?
answer

As part of paid-in capital.
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In the stockholders’ equity section of the balance sheet, from what is the cost of treasury stock deducted?
answer

Total paid-in capital and retained earnings.
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A corporation shows the following account balances:
answer

$545,000. (Retained earnings less treasury stock plus paid-in capital in excess of par value plus common stock will equal total stockholders’ equity: $300,000 – $10,000 + $55,000 + $200,000 = $545,000)
question

A corporation shows the following account balances: Retained earnings $400,000 Treasury stock—common 20,000 Paid-in capital in excess of par value—common 55,000 Treasury stock—preferred 30,000 Common stock 200,000 Preferred stock 180,000 Paid-in capital in excess of par value—preferred 60,000 How much is total stockholders’ equity?
answer

$845,000. (Retained earnings less treasury stock—common plus paid-in capital in excess of par value—common less treasury stock—preferred plus common stock plus preferred stock plus paid-in capital in excess of par value—preferred will be the total of stockholders’ equity: $400,000 – $20,000 + $55,000 – $30,000 + $200,000 + $180,000 + $60,000 = $845,000)
question

When a stock dividend is declared, which of the following accounts is debited?
answer

Stock Dividends.
question

Weeds Inc. has a balance of $10,000,000 in retained earnings and declares a 5% stock dividend on its 1,000,000 shares of $5 par value common stock. The current market value of the stock is $25 per share. What is the entry to record this transaction at the declaration date?
answer

Stock Dividends 1,250,000 Common Stock Dividends Distributable 250,000 Paid-in Capital in Excess of Par Value 1,000,000
question

Weeds Inc. has a balance of $10,000,000 in retained earnings and declares a 4% stock dividend on its 1,000,000 shares of $3 par value common stock. The current market value of the stock is $20 per share. What is the entry to record the transaction when the dividend shares are issued?
answer

Common Stock Dividends Distributable 120,000 Common Stock 120,000

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