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Exam 11: Stockholders Equity

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Question 41

Multiple Choice

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The journal entry to record the transaction will consist of a debit to Cash for $600,000 and a credit (or credits) to:

A) Preferred Shares for $600,000.
B) Preferred Shares for $500,000 and Additional Paid-In Capital for $100,000.
C) Preferred Shares for $500,000 and Retained Earnings for $100,000.
D) Investment in Fonthouse Shares for $600,000.

E) B) and C)
F) A) and D)

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Question 42

Multiple Choice

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On February 16,a company declares a 34'dividend to be paid on April 5 to shareholders of record on March 9.There are 2 million shares of common shares outstanding and 100,000 shares of treasury shares.What accounting entries does the company make on April 5?

A) A debit to Dividends Payable and a credit to Cash for $714,000.
B) A debit to Dividends Declared and a credit to Dividends Payable for $680,000.
C) A debit to Dividends Payable and a credit to Cash for $646,000.
D) A debit to Dividends Declared and a credit to Dividends Payable for $646,000.

E) C) and D)
F) A) and B)

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Question 43

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Groucho,Harpo,and Chico go into partnership on January 1,2007.Groucho contributes $90,000,Harpo $70,000,and Chico $40,000 to a business called Marx Brothers' Partnership.On a monthly basis,each partner is allocated income and is allowed to receive cash from the business in proportion to the capital they provided.Groucho receives $2,700 cash per month. a.Prepare the journal entry for the initial investment. b.Prepare the journal entry for the monthly distribution. c.Prepare the journal entry for the allocation of an annual net income of $84,000.For purposes of this journal entry,assume sales were $116,000 and that all expenses (totalling $32,000)were recorded in a single account called operating expenses. d.Prepare the journal entry for the closing of the drawings accounts. e.Prepare a Statement of Partners' Equity (assume no additional investments made).

The owner's salary is frequently the largest expense of a sole proprietorship. BT: Comprehension

Match the term and the definition.Not all definitions will be used. _____ Treasury shares _____ Cash dividend _____ IPO _____ Preferred shares _____ Diluted EPS _____ Outstanding shares _____ EPS _____ Stock dividend _____ Residual claim _____ ROE A.When a company first starts selling shares to the public. B.A measure of the return on individual shareholders' purchases of shares. C.The additional shares of stock a company can issue beyond what are already issued. D.Earnings per share that reflects treasury and preferred shares. E.This payment raises shareholders' equity. F.Net income divided by average shareholders' equity. G.The shares of stock held by shareholders. H.Shares of stock that pay a fixed dividend rate but have no voting rights. I.Also known as income per output; net income divided by units sold. J.Shares of companies with high EPS and ROE: they tend to be expensive. K.Net income divided by the average number of outstanding common shares. L.Stock that allows holders to be listed among creditors. M.This dividend does not reduce shareholders' equity. N.The shares of stock repurchased by the issuing company. O.Earnings per share that reflects obligations involving potential new stock issuances. P.Shareholders' entitlement to remaining assets after creditors are repaid. Q.This payment lowers shareholders' equity.

A lender may limit the ability of a company to pay future dividends in order to ensure that loan proceeds are used for purposes that will increase the company's profits and ability to repay the loans.Which of the following statements is true in this regard?

A corporation's charter establishes the market value of the company's shares. BT: Comprehension

A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.Of the 3 million shares bought back,the company cancels 2 million and holds 1 million.The number of issued shares after these transactions are:

A cumulative dividend preference means that:

A major advantage of debt financing is that interest expense is tax deductible. BT: Knowledge

In its most basic form,the earnings per share ratio is calculated as:

Under IFRS preferred shares are classified as a liability if:

When a company repurchases its shares or pays a dividend,it raises shareholders' equity. BT: Comprehension

Under IFRS changes in capital accounts are disclosed in the notes to the financial statements. BT: Knowledge

Company Z has 8 million shares of common shares authorized with a par value of $1 and a market price of $72.There are 4 million outstanding shares.Prepare the journal entry and show the effect on assets,liabilities and shareholders' equity if the company declares and distributes a 10% stock dividend.

The date of record for a dividend is the date on which the company:

Preferred shareholders can anticipate receiving an annual dividend of:

Which of the following statements about stock dividends is true?

A company issues 100,000 shares of preferred shares for $40 a share.The stock has a fixed annual dividend rate of $0.15 per share.Preferred shareholders can anticipate receiving a dividend of:

In which of the following way is the presentation of changes in shareholders' equity account treated under IFRS?