Q: Which of the following best describes the accounting equation as it relates to the balance sheet?

$$ \text{Assets} = \text{Liabilities} + \text{Equity} $$

Q: A company has cumulative preferred stock with a $$100 par value, 6% dividend rate, and 7,000 shares outstanding. If the company did not pay dividends for two years and declares 252$$,000 in dividends this year, how much will common shareholders receive?

$$252,000 - (3 \times 7,000 \times 100 \times 0.06) = 252$$,000 - $$126,000 = 126$$,000$

Question 1

Which of the following best describes the accounting equation as it relates to the balance sheet?

Accepted Answer

$$ 	ext{Assets} = 	ext{Liabilities} + 	ext{Equity} $$

Question 2

A company issues 5,000 shares of $$1 par value common stock for 10 $$per share. What is the correct journal entry for this transaction?

Accepted Answer

Dr. Cash $$50,000; Cr. Common Stock 5$$,000; Cr. Paid-in Capital in Excess of Par $45,000

Question 3

Which of the following is NOT a component of stockholders’ equity?

Accepted Answer

Accounts Receivable

Question 4

A company declares a cash dividend of $0.50 per share on 5,000 outstanding shares. What is the journal entry on the declaration date?

Accepted Answer

Dr. Retained Earnings $$2,500; Cr. Dividend Payable 2$$,500

Question 5

If a company reacquires 1,000 shares of its own stock at $8 per share, how does this affect the equity section?

Accepted Answer

Treasury Stock increases by $8,000, reducing total equity

Question 6

Which of the following statements about preferred stock is TRUE?

Accepted Answer

Preferred stockholders are paid dividends before common stockholders

Question 7

A company issues 100 shares of no par value common stock to employees as compensation when the market value is $20 per share. What is the correct journal entry?

Accepted Answer

Dr. Compensation Expense $$2,000; Cr. Common Stock 2$$,000

Question 8

Which of the following best describes 'Accumulated Other Comprehensive Income' (AOCI)?

Accepted Answer

Cumulative net OCI over the life of the company reported on the balance sheet

Question 9

If a company has 30,000 shares issued, 500 shares in treasury, and 29,500 shares outstanding, how many shares are authorized if the authorized shares are not given?

Accepted Answer

Cannot be determined from the information provided

Question 10

A company has cumulative preferred stock with a $$100 par value, 6% dividend rate, and 7,000 shares outstanding. If the company did not pay dividends for two years and declares 252$$,000 in dividends this year, how much will common shareholders receive?

Accepted Answer

$$252,000 - (3 	imes 7,000 	imes 100 	imes 0.06) = 252$$,000 - $$126,000 = 126$$,000$

Question 11

Which of the following is a reason a company might repurchase its own shares?

Accepted Answer

To increase earnings per share (EPS)

Question 12

What is the effect of declaring and paying a cash dividend on the accounting equation?

Accepted Answer

Assets and equity decrease

Question 13

Which of the following is true regarding par value of common stock?

Accepted Answer

It is a nominal value with little-to-no relationship to market value

Question 14

A company issues 1,000 shares of $$100 par value preferred stock for 102 $$per share. What is the correct journal entry?

Accepted Answer

Dr. Cash $$102,000; Cr. Preferred Stock 100$$,000; Cr. Paid-in Capital in Excess of Par $2,000

Question 15

Which of the following is NOT included in Other Comprehensive Income (OCI)?

Accepted Answer

Net income from operations

Question 16

If a company has $$300,000 in common stock at 10 $$par, $$185,000 in paid-in capital in excess of par (common), 10$$,000 in preferred stock at $$100 par, 5$$,000 in paid-in capital in excess of par (preferred), $$10,000 in treasury stock, and 95$$,000 in retained earnings, what is total stockholders’ equity?

Accepted Answer

$$300,000 + 185$$,000 + $$10,000 + 5$$,000 - $$10,000 + 95$$,000 = $$585,000$$

Question 17

Which of the following best describes the difference between issued shares and outstanding shares?

Accepted Answer

Outstanding shares = Issued shares - Treasury shares

Question 18

A company has 478 million issued shares, 24 million treasury shares, and 5,000 million authorized shares. How many shares are outstanding?

Accepted Answer

$$478 - 24 = 454$$ million shares

Stockholders’ Equity: Structure, Transactions, and Analysis

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