To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity True / False Questions Outstanding shares of stock are those shares which a corporation has the ability to issue as documented in its charter in the state where incorporated FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: A major advantage a corporation has over a proprietorship or partnership is that it allows individuals to participate in ownership by purchasing small amounts of stock TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: The shares issued can be less than those outstanding when the corporation has repurchased some of their shares which are called treasury shares FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Kansas City Company has 2,000,000 shares issued and 100,000 treasury shares They report net income of $5,200,000 in 2009 Earnings per share equals $2.60 FALSE AACSB Tag: Analytic Difficulty: Medium L.O.: 11-1 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity Treasury stock is a corporation's own stock that was sold, issued, repurchased, and is still held by the corporation TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: When a company repurchases some of its shares of stock (treasury stock), the number of shares issued is reduced FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: To pay a cash dividend, a corporation needs adequate cash, authorization from the board of directors, and adequate retained earnings TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: A company has 5,000,000 shares issued and 400,000 held in the treasury If the board of directors declares a $16 million cash dividend, then the dividends per share would be $3.20 FALSE AACSB Tag: Analytic Difficulty: Medium L.O.: 11-2 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity On the date of payment of a cash dividend, the company would debit retained earnings and credit cash FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 10 The dividend yield ratio is a measure of the immediate return investors are receiving from dividends stated as a percentage of market price TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 11 A company reported earnings per share of $3.50 and dividends per share of $1.00 when the market price of the stock was $80.00 The dividend yield is 20% FALSE AACSB Tag: Analytic Difficulty: Medium L.O.: 12 A stock split results in the reduction of the par or stated value per share and a proportionate increase in the number of shares outstanding TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 11-3 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 13 The most common reason a company would declare a stock split is to reduce the market price of its stock to increase the trading activity TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 14 Preferred stock often has a preference in the distribution of assets over common stock in the event of dissolution of the corporation TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 15 When preferred stock is cumulative and the board of directors passes on a dividend, the arrearage must be shown as a liability on the balance sheet and a reduction from retained earnings on the statement of stockholders' equity and the balance sheet FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 16 Restrictions on retained earnings usually occur when a company borrows money and the creditor wants to restrict the amount of dividends that can be distributed TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 11-4 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 17 When a company reissues treasury stock, it creates cash inflow from an investing activity because treasury stock is an investment asset on the balance sheet FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 18 Payment of a cash dividend creates a cash outflow from an operating activity FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 19 Partnerships, sole proprietorships, and corporations are three basic forms of business organizations TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: Sup A 20 All businesses pay income taxes FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup A 11-5 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity Multiple Choice Questions 21 Advantages of a corporation include all of the following except A ease of participating in ownership B stockholders are not liable for a corporation's debts C the ownership rights of corporations are easily transferred D stockholders have a mutual agency relationship AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 22 From an investor's viewpoint, in today's litigious environment, what would be considered the most advantageous characteristic of the corporate form of organization? A Taxation B Ease of capital assembly C Continuity of life for the corporation D Limited liability for stockholders AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 23 Which of the following statements about a corporation is false? A Corporations are the dominant form of business organization in terms of volume of operations B Their owners have limited liability C Corporations allow even small investors to participate in ownership D Corporations are separate legal entities from their owners AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 11-6 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 24 Which of the following is true about the corporate form of business but is not true for a proprietorship or partnership? A It is a separate economic entity from its owners B Investment in a corporation's stock is less risky than investing in bonds C It is easier for individuals to become owners in a corporation by buying small amounts of stock than it is to own a proprietorship or partnership share D A corporation is easier to form than a partnership AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 25 Which of the following statements is false? A Most small shareholders not attend the corporation's annual meeting so they cast their vote by proxy card B Corporations are created by application to a specific state not the federal government C Most large corporations are chartered out of Delaware since it has very favorable laws of incorporation D Corporations have a limited life AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 26 Which of the following represents the maximum shares of stock issuable to the public? A Authorized shares B Issued shares C Outstanding shares D Unissued shares AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 11-7 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 27 Which of the following represents the shares currently in the hands of investors? A Authorized shares B Issued shares C Outstanding shares D Unissued shares AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 28 Which of the following represents the shares sold in either an initial public offering or subsequent seasoned new issuances? A Authorized shares B Issued shares C Outstanding shares D Unissued shares AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 29 Which of the following about earnings per share is true? A It indicates the portion of earnings distributed to the owners as an immediate return on their investment B Many investors like to see earnings per share increase over time indicating improved earnings ability C When comparing the earnings per share of several companies it allows investors to determine the best investment based on the highest earnings per share D If earnings per share equals $5.00, then the maximum dividend payment would be $5.00 AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 11-8 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 30 Which of the following statements about earnings per share is true? A Increased net income would cause earnings per share to decrease B Issuance of more common shares would cause earnings per share to increase C Repurchase of treasury shares would cause earnings per share to decrease D None of the other answers is true AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 31 The par value of common stock is the A average market price of the stock during the period in which it is sold B ceiling (maximum) amount above which the stock may not be sold initially C nominal value per share established in the corporate charter D selling price of the stock at the date it was issued by the corporation AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 32 Depot Company has one class of capital stock issued It is A common stock B preferred stock, voting C preferred stock, noncumulative D common stock, nonvoting AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 11-9 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 33 If Hayes Corporation sells and issues 100 shares of its $1 par value common stock at $15 per share, the entry to record the sale will not include a A Debit to cash of $1,500 B Credit to capital in excess of par of $1,400 C Credit to common stock of $100 D Credit to retained earnings of $1,500 AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 34 Choose the correct definition for par value from the following: A The amount that a corporation must pay when it exercises its right to convert shares of stock B The equity of one share of outstanding stock in the issuing corporation's net assets as recorded in the corporation's accounts C An arbitrary value placed on a share of stock at the time the stock is authorized in the corporate charter D The costs of bringing a corporation into existence, such as legal fees, promoter's fees, and amounts paid to the state to secure a charter AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 35 Irish Corporation issued (sold) 10,000 shares of its no par common stock for $70 per share The bylaws established a stated value of $10 per share The transaction would increase common stock by A zero B $600,000 C $100,000 D $700,000 AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 11-10 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 91 Tractor Corporation was just formed The following accounts of Tractor Corporation, with code letters, are needed to record the transactions given below You are to indicate the appropriate journal entry for each transaction by entering the code letters and the correct amounts The transactions are independent unless otherwise stated 11-37 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity AACSB Tag: Analytic Difficulty: Medium L.O.: 11-38 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 92 HighRise Company reported the following amounts of contributed capital in the stockholders' equity accounts as of January 1, 2010: Indicate the journal entry required to record each of the following transactions by entering the letter code corresponding to each account to be debited and credited and the amount of each debit and credit The transactions are independent unless otherwise stated 11-39 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity AACSB Tag: Analytic Difficulty: Medium L.O.: 11-40 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 93 On January 1, 2008, the stockholders' equity section of Gibbons Corporation's balance sheet showed the following During the year, 2008, the accounts showed the following summarized transactions (assume they occurred in the order given): (1) Issued a 10% stock dividend; 1,000 shares issued when the market price was $12 (2) Purchased treasury stock (200 shares at $11) (3) Declared and paid a cash dividend of $19,800 (4) Net income, $30,000 The stockholders' equity section of the balance sheet at December 31, 2008, should report the following: 11-41 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity *$160,000 $19,800 – (1,000 shares $12) + $30,000 = $158,200 AACSB Tag: Analytic Difficulty: Hard L.O.: 11-42 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 94 On January 1, 2009, the accounts of Mac Corporation showed the following: During 2009, the following transactions occurred affecting stockholders' equity (in the order given): A Issued a 100% stock dividend when the market price was at $5 per share B Purchased treasury stock, 1,000 shares at a total cost of $8,000 C Declared and paid cash dividends, $15,000 D Net income for 2009, $25,000 Required: The stockholders' equity section of the balance sheet for the company must be prepared for the December 31, 2009 balance sheet It is given below with certain amounts missing Supply the missing amounts by entering them in the blanks (1) ($60,000/$2) = 30,000 shares 100% stock dividends = 60,000 shares (2) 60,000 shares $1 = $60,000 (3) $60,000 (4) $60,000 + $60,000 = $120,000 (5) $140,000 (stock dividend, 30,000 shares $1) (cash dividend, $15,000) + net income, $25,000 = $120,000 (6) Treasury stock, shares, 1,000 (7) $8,000 (cost) (8) $120,000 + $120,000 $8,000 = $232,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 11-43 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 95 In December 31, 2009, Brave Corporation reported the following on its balance sheet: Fill in all the blanks for the stockholders' equity section of the balance sheet AACSB Tag: Analytic Difficulty: Medium L.O.: 11-44 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 96 Lopez Corporation reported the following in its December 31, 2009, balance sheet: Fill in all the blanks for the stockholders' equity section of the balance sheet AACSB Tag: Analytic Difficulty: Medium L.O.: 11-45 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 97 During 2009, Sanders Corporation made the following journal entry to record the declaration and payment of a cash dividend: The total par values of common and preferred stock outstanding were $70,000 and $40,000, respectively No dividends were declared or paid during 2008 There are 1,000 shares of common treasury stock A If the preferred stock is noncumulative, calculate the current dividend rate on the preferred stock B If the preferred stock is cumulative, calculate the current dividend rate on the preferred stock A $40,000 Rate = $3,600; Rate = 9% B ($40,000 Rate) = $3,600 ($40,000 Rate) = $1,800 Rate = 4.5% or 9% [from part (A.]/2 = 4.5% AACSB Tag: Analytic Difficulty: Medium L.O.: 98 Wedge Corporation has the following capital stock outstanding: Common stock, par $1, 250,000 shares 8% preferred stock, par $100, 5,000 shares, cumulative, with years in arrears excluding the current year Cash dividends of $150,000 were declared and paid near the end of the current year A Calculate total dividends received by the preferred stockholders B Calculate total dividends received by the common stockholders A Preferred: (5,000 shares $100 8%) = $120,000 B Common: $150,000 $120,000 = $30,000 AACSB Tag: Analytic Difficulty: Medium L.O.: 11-46 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 99 Marlin, Inc., declared a cash dividend of $40,000 in 2009 when the following stocks were outstanding: No dividends were declared or paid during the prior year Compute the amount of cash that would be paid to each stockholder group under each of the following separate cases AACSB Tag: Analytic Difficulty: Medium L.O.: 11-47 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 100 Identify the effects on cash flow from financing activities of the following activities as increasing (+), decreasing ( ) or having no effect on financing cash flows: AACSB Tag: Analytic Difficulty: Hard L.O.: 11-48 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity Matching Questions 101 Match the items with the definitions Stock that may, at the option of the holder, be turned in for another security The difference between total shares issued and total shares authorized The difference between the issue price and par value Stock on which dividends in arrears must be paid prior to any current dividends Stock that has specified rights over common stock Stock that has been issued, repurchased, and is held by the corporation Convertible stock Treasury stock Preferred stock Capital in excess of par value Unissued shares Cumulative stock AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 102 Match the terms with the descriptions below That portion of corporate capital required by statute to be retained in the business for protection of creditors Represents the total interests of all parties in the properties of the business It is the sum of the liabilities and stockholders' equity The total equity at any given time of the legal owners of the enterprise The investment made by the owners of the corporation Total assets Contributed capital Stockholders' equity Legal capital AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 11-49 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 103 Match the terms with the definitions below No par stock with an assigned "value" Stock with specified differences from the basic stock Stock that is limited to a specified dividend rate per year Stock having no minimum amount that must be paid in at first sale and issuance Authorized but unissued shares of stock The basic issue of stock; the residual equity Stock that has been issued, repurchased, and is held by the corporation Stock on which dividends in arrears must be paid before current dividends can be paid None of the answers None of the answers Preferred stock, noncumulative No par stock Common stock Preferred stock, cumulative No par, stated value stock Preferred stock AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 104 This question relates to stockholders' equity For each item listed, indicate its best description Preferred stock Retained earnings No par stock Contributed capital Legal capital Cumulative dividends not yet paid Treasury stock Common stock Charter 10 By source None of the answers Represents the residual equity and is voting stock Specified by state law The basic concept followed in accounting and reporting stockholders' equity Distinguished by special equity provisions Does not create capital in excess of par value The legal document authorizing a corporation The corporation's own stock; issued, repurchased, and still held Cumulative net income less cumulative dividends declared Dividends in arrears 10 AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 11-50 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 011: Reporting and Interpreting Owner's Equity 105 Match the type of business with their characteristics below Partnership and sole proprietorship Partnership and sole proprietorship Corporation Corporation Uses a dividends declared account Has only one owner Issues stock certificates Uses owner capital accounts Involves more than one owner but has no state charter Has a board of directors Requires a state charter Uses retained earnings account Uses a profit ratio to allocate earnings among the owners 10 Uses withdrawal accounts or drawing accounts Partnership Corporation Corporation Sole proprietorship 10 Corporation Partnership AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup A 11-51 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e ... L.O.: 11- 2 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit... L.O.: 11- 3 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit... L.O.: 11- 4 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit