Q: Which of the following is the correct formula for calculating Earnings Per Share (EPS)?

$$\text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Shares Outstanding}}$$

Q: Which of the following is the correct formula for Dividend Yield?

$$\text{Dividend Yield} = \frac{\text{Dividends per Share}}{\text{Market Price per Share}}$$

Question 1

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

Accepted Answer

The right to receive a fixed interest payment

Question 2

A corporation issues 10,000 shares of $$1 par value common stock for 15 $$per share. What is the correct journal entry to record this transaction?

Accepted Answer

Debit Cash $$150,000; Credit Common Stock 10$$,000; Credit Paid-in Capital in Excess of Par $140,000

Question 3

Which of the following best describes the effect of purchasing treasury stock?

Accepted Answer

It decreases both assets and equity

Question 4

A company declares a $50,000 cash dividend on June 19. What is the correct journal entry on the declaration date?

Accepted Answer

Debit Retained Earnings $$50,000; Credit Dividends Payable 50$$,000

Question 5

Which of the following statements about stock splits is TRUE?

Accepted Answer

A stock split decreases the market price per share and increases the number of shares outstanding

Question 6

A company issues 5,000 shares of $100 par value, 5% preferred stock. What is the annual preferred dividend?

Accepted Answer

$25,000

Question 7

Which of the following is the correct formula for calculating Earnings Per Share (EPS)?

Accepted Answer

$$	ext{EPS} = \frac{	ext{Net Income} - 	ext{Preferred Dividends}}{	ext{Weighted Average Shares Outstanding}}$$

Question 8

If a company issues common stock for a building and equipment, at what value should the assets and stock be recorded?

Accepted Answer

At the fair market value of the assets received or the stock issued, whichever is more clearly determinable

Question 9

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

Accepted Answer

To increase earnings per share (EPS)

Question 10

A company has 1,000,000 shares of $1 par value common stock authorized, 800,000 shares issued, and 700,000 shares outstanding. How many shares are held as treasury stock?

Accepted Answer

100,000

Question 11

Which of the following best describes the effect of a small stock dividend (less than or equal to 25%)?

Accepted Answer

It decreases retained earnings and increases common stock and additional paid-in capital

Question 12

Which of the following is the correct formula for Dividend Yield?

Accepted Answer

$$	ext{Dividend Yield} = \frac{	ext{Dividends per Share}}{	ext{Market Price per Share}}$$

Question 13

Which of the following is TRUE regarding the reporting of treasury stock on the balance sheet?

Accepted Answer

It is reported as a deduction from total stockholders’ equity

Question 14

A company declares a 10% stock dividend when the market price is $$30 per share and the par value is 1 $$per share. The company has 1,000,000 shares outstanding. What is the total amount transferred from retained earnings?

Accepted Answer

$$1,000,000 	imes 10\% 	imes \30$$ = \$$3,000,000$$

Question 15

Which of the following is NOT a characteristic of preferred stock?

Accepted Answer

Preferred stockholders have voting rights equal to common stockholders

Question 16

Which of the following transactions is classified as a financing activity on the statement of cash flows?

Accepted Answer

Issuing common stock for cash

Question 17

A company has net income of $$500,000, preferred dividends of 50$$,000, and 200,000 weighted average shares of common stock outstanding. What is the EPS?

Accepted Answer

$$\frac{500,000 - 50,000}{200,000} = 2.25$$

Question 18

Which of the following is a key advantage of the corporate form of business?

Accepted Answer

Separation of ownership and management

Question 19

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

Stockholders’ Equity: Structure, Transactions, and Financial Statement Presentation

Study Guide - Practice Questions

Study Guide - Flashcards