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Multiple Choice

25. The par value of a stock
a. is legally significant.
b. reflects the most recent market price.
c. is selected by the SEC.
d. is indicative of the worth of the stock.

26. The authorized stock of a corporation
a. only reflects the initial capital needs of the company.
b. is indicated in its by-laws.
c. is indicated in its charter.
d. must be recorded in a formal accounting entry.

27. If common stock is issued for an amount greater than par value, the excess should be credited to
a. Cash.
b. Retained Earnings.
c. Paid-in Capital in Excess of Par Value.
d. Legal Capital.

28. Paid-In Capital in Excess of Stated Value
a. is credited when no-par stock does not have a stated value.
b. is reported as part of paid-in capital on the balance sheet.
c. represents the amount of legal capital.
d. normally has a debit balance.

29. Treasury stock should be reported in the financial statements of a corporation as
a. an investment.
b. a liability.
c. a deduction from total paid-in capital.
d. a deduction from total paid-in capital and retained earnings.

30. Sims Company originally issued 2,000 shares of $10 par value common stock for $60,000 ($30 per share). Sims subsequently purchases 200 shares of treasury stock for $27 per share and sells the 200 shares of treasury stock for $29 per share. In the entry to record the sale, there will be a
a. credit to Common Stock for $5,400.
b. credit to Treasury Stock for $2,000.
c. debit to Paid-In Capital from Treasury Stock of $6,000.
d. credit to Paid-In Capital from Treasury Stock for $400.

31. Dividends in arrears on cumulative preferred stock
a. are considered to be a non-current liability.
b. are considered to be a current liability.
c. only occur when preferred dividends have been declared.
d. should be disclosed in the notes to the financial statements.

32. Which one of the following is not necessary in order for a corporation to pay a cash dividend?
a. Adequate cash
b. Approval of stockholders
c. Declaration of dividends by the board of directors
d. Retained earnings

33. Under the corporate form of business organization
a. a stockholder is personally liable for the debts of the corporation.
b. stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
c. the corporation's life is stipulated in its charter.
d. stockholders wishing to sell their corporation shares must get the approval of other stockholders.

34. The board of directors represents the interests of
a. stockholders.
b. management.
c. creditors.
d. the government.

35. Ed Stone has invested $400,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Stone stand to lose?
a. Up to his total investment of $400,000.
b. Zero.
c. The $400,000 plus any personal assets the creditors demand.
d. $200,000.

36. The Ewing Company purchases 1,000 shares of its common stock for $20,000. The $20,000 amount should be debited to
a. an asset account.
b. Treasury Stock.
c. Common Stock.
d. Retained Earnings.

37. Retained earnings
a. is unique to the corporate form of business.
b. is an optional account in the partnership form of business.
c. reflects cash paid in by shareholders to date.
d. is closed at the end of the year.

38 If Vickers Company issues 1,000 shares of $5 par value common stock for $70,000,
a. Common Stock will be credited for $70,000.
b. Paid-In Capital in Excess of Par Value will be credited for $5,000.
c. Paid-In Capital in Excess of Par Value will be credited for $65,000.
d. Cash will be debited for $65,000.

39. When preferred stock is cumulative, preferred dividends not declared in a period are
a. considered a liability.
b. called dividends in arrears.
c. distributions of earnings.
d. never paid.

40. Each of the following is reported for common stock except the
a. par value.
b. shares issued.
c. shares outstanding.
d. liquidation value.

41. The book value per share
a. is usually a close approximation of the market price per share.
b. is the same as the par value per share.
c. may be useful in determining the trend of a stockholder's per share equity in a corporation.
d. always falls within the annual range of a company's market value per share.

42. Theolonius Inc. purchased 1,000 shares of treasury stock for $12 per share. This transaction
a. decreases common stock authorized by 1,000 shares.
b. decreases common stock issued by 1,000 shares.
c. decreases common stock outstanding by 1,000 share.
d. has no effect on the number of shares of common stock outstanding.

43. The statement of cash flows
a. must be prepared on a daily basis.
b. summarizes the operating, financing, and investing activities of an entity.
c. is another name for the income statement.
d. is a special section of the income statement.

44 . If a company reports a net loss, it
a. may still have a net increase in cash.
b. will not be able to pay cash dividends.
c. will not be able to get a loan.
d. will not be able to make capital expenditures.

45. If accounts receivable have increased during the period,
a. revenues on an accrual basis are less than revenues on a cash basis.
b. revenues on an accrual basis are greater than revenues on a cash basis.
c. revenues on an accrual basis are the same as revenues on a cash basis.
d. expenses on an accrual basis are greater than expenses on a cash basis.

46. Which one of the following affects cash during a period?
a. Recording depreciation expense
b. Declaration of a cash dividend
c. Write-off of an uncollectible account receivable
d. Payment of an accounts payable

47. Which one of the following is not a characteristic generally evaluated in analyzing financial statements?
a. Liquidity
b. Profitability
c. Marketability
d. Solvency

48. Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis
b. Circular analysis
c. Vertical analysis
d. Ratio analysis

49. Assume the following sales data for a company:
2004 $1,200,000
2003 1,020,000
2002 840,000
2001 600,000

If 2001 is the base year, what is the percentage increase in sales from 2001 to 2003?
a. 100%
b. 160%
c. 70%
d. 62.5%

Solution Summary

The solution explains various multiple choice questions relating to stockholders equity

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