Introduction to Financial Accounting International 8th Edition By Curtis L Norton Gary A Porter – Test Bank

Chapter 11: Stockholders’ Equity

MULTIPLE CHOICE

1. Use the incomplete stockholders’ equity section of Tokin Company’s balance sheet as of December 31, 2012, to answer the following question.

Common stock, $7 par, 100,000 shares authorized $700,000
Additional paid-in capital–common 160,000
Retained earnings ?
Treasury stock (2,000 shares at cost) (16,000)
Total stockholders’ equity 974,000

What is the amount of Tokin’s retained earnings?
a. $130,000
b. $ 98,000
c. $860,000
d. $114,000

ANS: A
$974,000 (Total stockholders’ equity) + $16,000 (Treasury stock) = $990,000
$990,000 – $700,000 (Common stock) – $160,000 (Additional paid-in capital) = $130,000 (Retained earnings)

PTS: 1 DIF: Difficulty: Moderate REF: pp. 556-560
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Analysis

2. Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital?
a. The payment of dividends is at the discretion of the board of directors.
b. The payment of interest on bonds payable is required by law.
c. Interest accrues, whereas dividends do not accrue.
d. The declaration of dividends reduces the amount of income taxes the corporation must pay.

ANS: D PTS: 1 DIF: Difficulty: Moderate
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Communication
STA: AICPA: FN-Reporting | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Comprehension

3. Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital?
a. The issuance of stock decreases several important financial ratios.
b. Issuing bonds dilutes the voting power of the stockholders.
c. Corporations are not required to return the investment to the stockholders.
d. Investors expect to earn a higher rate of return on stocks than bonds.

ANS: B PTS: 1 DIF: Difficulty: Moderate
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Comprehension

4. If Llama Company has paid out more in dividends than it has had in net income, over the lifetime of the company, then the balances in the Stockholders’ Equity should show:
a. a debit balance in the Retained Earnings account.
b. a credit balance in the Retained Earnings account.
c. a debit balance in the Common Stock account.
d. a credit balance in the Common Stock account.

ANS: A PTS: 1 DIF: Difficulty: Moderate
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Application

5. Dali Company has 15,000 shares of stock authorized at January 1. Dali issues 4,500 shares to the stockholders during the year and then the company repurchases 1,500 shares as treasury stock. Based on this information, how many shares are outstanding at December 31?
a. 15,000
b. 18,000
c. 4,500
d. 3,000

ANS: D PTS: 1 DIF: Difficulty: Moderate
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Analysis

6. Venture Enterprises’ accountant determined the following:

Common stock, $0.01 par value $50,000

Where would this item be reported on Venture’s financial statements?
a. In the Stockholders’ Equity section of the balance sheet
b. In the Treasury Stock section of the balance sheet
c. On the statement of retained earnings
d. On both the balance sheet and statement of retained earnings

ANS: A PTS: 1 DIF: Difficulty: Easy
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Communication
STA: AICPA: FN-Reporting | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Analysis

7. Which of the following is an account in stockholders’ equity?
a. Dividends Payable
b. Loss on Sale of Equipment
c. Retained Earnings
d. Net income

ANS: C PTS: 1 DIF: Difficulty: Easy
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Communication
STA: AICPA: FN-Reporting | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Comprehension

8. Which of the following statements is true with regard to contributed capital?
a. Preferred stock is stock that has been retired.
b. It is very unlikely corporations may have more than one class of stock outstanding.
c. The outstanding number of shares is the maximum number of shares that can be issued by a corporation.
d. The shares that are in the hands of the stockholders are said to be outstanding.

ANS: D PTS: 1 DIF: Difficulty: Easy
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Communication
STA: AICPA: FN-Reporting | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Comprehension

9. Authorized stock represents the
a. maximum number of shares that can be issued.
b. number of shares that have been sold.
c. number of shares that are currently held by stockholders.
d. number of shares that have been repurchased by the corporation.

ANS: A PTS: 1 DIF: Difficulty: Easy
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Communication
STA: AICPA: FN-Reporting | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Knowledge

10. With regard to a corporation’s stock, par value is
a. the current market price of the stock.
b. an arbitrary amount that exists to fulfill legal requirements.
c. the amount at which the stock has been repurchased.
d. the amount at which treasury stock can be sold.

ANS: B PTS: 1 DIF: Difficulty: Easy
REF: pp. 556-560 OBJ: LO: 11-01 NAT: BUSPROG: Communication
STA: AICPA: FN-Reporting | ACBSP: APC-20-Accounting for Corporations
KEY: Bloom’s: Knowledge