Q: A corporation issues 10,000 shares of $5 par value common stock for $12 per share. What is the correct journal entry to record this transaction?

$ \begin{align*} \text{Cash} &\quad 120,000 \\ \text{Common Stock} &\quad 50,000 \\ \text{Paid-in Capital in Excess of Par} &\quad 70,000 \end{align*} $

Q: A company reacquires 5,000 shares of its own stock at $20 per share. How is this transaction recorded?

$ \begin{align*} \text{Treasury Stock} &\quad 100,000 \\ \text{Cash} &\quad 100,000 \end{align*} $

Q: A company declares a $100,000 cash dividend on June 1. What is the correct journal entry on the declaration date?

$ \begin{align*} \text{Retained Earnings} &\quad 100,000 \\ \text{Dividends Payable} &\quad 100,000 \end{align*} $

Q: A company issues 2,000 shares of $1 par value common stock for legal services valued at $30,000. What is the correct journal entry?

$ \begin{align*} \text{Legal Expense} &\quad 30,000 \\ \text{Common Stock} &\quad 2,000 \\ \text{Paid-in Capital in Excess of Par} &\quad 28,000 \end{align*} $

Question 1

Which of the following is NOT an advantage of the corporate form of business organization?

Accepted Answer

Double taxation of distributed profits

Question 2

A corporation issues 10,000 shares of $5 par value common stock for $12 per share. What is the correct journal entry to record this transaction?

Accepted Answer

$
\begin{align*}
	ext{Cash} &\quad 120,000 \
	ext{Common Stock} &\quad 50,000 \
	ext{Paid-in Capital in Excess of Par} &\quad 70,000 
\end{align*}
$

Question 3

Which of the following best describes the preemptive right of a common stockholder?

Accepted Answer

The right to maintain one’s proportionate ownership in the corporation when new shares are issued

Question 4

A company reacquires 5,000 shares of its own stock at $20 per share. How is this transaction recorded?

Accepted Answer

$
\begin{align*}
	ext{Treasury Stock} &\quad 100,000 \
	ext{Cash} &\quad 100,000 
\end{align*}
$

Question 5

Which of the following statements about treasury stock is TRUE?

Accepted Answer

Treasury stock is a contra equity account with a debit balance

Question 6

A company declares a $100,000 cash dividend on June 1. What is the correct journal entry on the declaration date?

Accepted Answer

$
\begin{align*}
	ext{Retained Earnings} &\quad 100,000 \
	ext{Dividends Payable} &\quad 100,000 
\end{align*}
$

Question 7

Which of the following is NOT a basic right of common stockholders?

Accepted Answer

The right to receive a fixed dividend each year

Question 8

A company issues 2,000 shares of $1 par value common stock for legal services valued at $30,000. What is the correct journal entry?

Accepted Answer

$
\begin{align*}
	ext{Legal Expense} &\quad 30,000 \
	ext{Common Stock} &\quad 2,000 \
	ext{Paid-in Capital in Excess of Par} &\quad 28,000 
\end{align*}
$

Question 9

Which of the following best describes the effect of a stock split?

Accepted Answer

Increases the number of shares and decreases the par value per share

Question 10

A company has 100,000 shares of $1 par value common stock outstanding. It declares a 10% stock dividend when the market price is $15 per share. What is the total amount transferred from retained earnings?

Accepted Answer

$150,000

Question 11

Which of the following statements about preferred stock is TRUE?

Accepted Answer

Preferred stockholders receive dividends before common stockholders

Question 12

If a company has 1,000,000 shares issued, 100,000 shares of treasury stock, and 900,000 shares outstanding, how many shares are authorized if the charter allows for 2,000,000 shares?

Accepted Answer

2,000,000

Question 13

Which of the following is a reason a company might repurchase its own stock as treasury stock?

Accepted Answer

To increase earnings per share (EPS)

Question 14

A company declares a $200,000 dividend. It has 10,000 shares of $100 par, 6% cumulative preferred stock outstanding and 50,000 shares of common stock. Last year, the company did not pay any dividends. How much will common stockholders receive this year?

Accepted Answer

$80,000

Question 15

Which of the following transactions does NOT affect total stockholders’ equity?

Accepted Answer

A stock split

Question 16

Which of the following is the correct order for reporting stockholders’ equity accounts on the balance sheet?

Accepted Answer

Preferred stock, Common stock, Additional paid-in capital, Retained earnings

Question 17

Which of the following statements about the resale of treasury stock is TRUE?

Accepted Answer

There is never a gain or loss recognized on the resale of treasury stock

Question 18

A company’s retained earnings at the beginning of the year were $500,000. During the year, it reported net income of $120,000 and declared dividends of $30,000. What is the ending balance of retained earnings?

Accepted Answer

$590,000

Question 19

Which of the following is NOT a financing activity related to stockholders’ equity on the statement of cash flows?

Accepted Answer

Payment of interest on long-term debt

Question 20

A company issues 1,000 shares of $1 par value preferred stock at $25 per share. What is the amount credited to Paid-in Capital in Excess of Par—Preferred?

Accepted Answer

$24,000

Stockholders’ Equity: Financial Accounting Chapter 10 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards