ACC 304 Week 10 Quiz – Strayer NEW
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Week 10 Quiz 7: Chapter 15
STOCKHOLDERS’ EQUITY
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. A
corporation is incorporated in only one state regardless of the number of
states in which it operates.
2. The
preemptive right allows stockholders the right to vote for directors of the
company.
3. Common
stock is the residual corporate interest that bears the ultimate risks of loss.
4. Earned
capital consists of additional paid-in capital and retained earnings.
5. True
no-par stock should be carried in the accounts at issue price without any
additional paid-in capital reported.
6. Companies
allocate the proceeds received from a lump-sum sale of securities based on the
securities’ par values.
7. Companies
should record stock issued for services or noncash property at either the fair
value of the stock issued or the fair value of the consideration received.
8. Treasury
stock is a company’s own stock that has been reacquired and retired.
9. The
cost method records all transactions in treasury shares at their cost and
reports the treasury stock as a deduction from capital stock.
10. When
a corporation sells treasury stock below its cost, it usually debits the
difference between cost and selling price to Paid-in Capital from Treasury
Stock.
11. Participating
preferred stock requires that if a company fails to pay a dividend in any year,
it must make it up in a later year before paying any common dividends.
12. Callable
preferred stock permits the corporation at its option to redeem the outstanding
preferred shares at stipulated prices.
13. The
laws of some states require that corporations restrict their legal capital from
distribution to stockholders.
14. The
SEC requires companies to disclose their dividend policy in their annual
report.
15. All
dividends, except for liquidating dividends, reduce the total stockholders’
equity of a corporation.
16. Dividends
payable in assets of the corporation other than cash are called property
dividends or dividends in kind.
17. When
a stock dividend is less than 20-25 percent of the common stock outstanding, a
company is required to transfer the fair value of the stock issued from
retained earnings.
18. Stock
splits and large stock dividends have the same effect on a company’s retained
earnings and total stockholders’ equity.
19. The
rate of return on common stock equity is computed by dividing net income by the
average common stockholders’ equity.
20. The
payout ratio is determined by dividing cash dividends paid to common
stockholders by net income available to common stockholders.
True-False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. The residual interest in a corporation belongs to the
a. management.
b. creditors.
c. common stockholders.
d. preferred stockholders.
22. The pre-emptive right of a common stockholder is the right to
a. share proportionately in corporate assets
upon liquidation.
b. share proportionately in any new issues of
stock of the same class.
c. receive cash dividends before they are
distributed to preferred stockholders.
d. exclude preferred stockholders from voting
rights.
23. The pre-emptive right enables a stockholder to
a. share proportionately in any new issues of
stock of the same class.
b. receive cash dividends before other classes
of stock without the pre-emptive right.
c. sell capital stock back to the corporation at
the option of the stockholder.
d. receive the same amount of dividends on a
percentage basis as the preferred stockholders.
S24. In
a corporate form of business organization, legal capital is best defined as
a. the amount of capital the state of
incorporation allows the company to accumulate over its existence.
b. the par value of all capital stock issued.
c. the amount of capital the federal government
allows a corporation to generate.
d. the total capital raised by a corporation
within the limits set by the Securities and Exchange Commission.
S25. Stockholders
of a business enterprise are said to be the residual owners. The term residual
owner means that shareholders
a. are entitled to a dividend every year in
which the business earns a profit.
b. have the rights to specific assets of the
business.
c. bear the ultimate risks and uncertainties and
receive the benefits of enterprise ownership.
d. can negotiate individual contracts on behalf
of the enterprise.
26. Total stockholders' equity represents
a. a claim to specific assets contributed by the
owners.
b. the maximum amount that can be borrowed by
the enterprise.
c. a claim against a portion of the total assets
of an enterprise.
d. only the amount of earnings that have been
retained in the business.
27. A primary source of stockholders' equity is
a. income retained by the corporation.
b. appropriated retained earnings.
c. contributions by stockholders.
d. both income retained by the corporation and contributions by stockholders.
28. Stockholders' equity is generally classified into two major
categories:
a. contributed capital and appropriated capital.
b. appropriated capital and retained earnings.
c. retained earnings and unappropriated capital.
d. earned capital and contributed capital.
29. The accounting problem in a lump sum issuance is the allocation
of proceeds between the classes of securities. An acceptable method of
allocation is the
a. pro forma method.
b. proportional method.
c. incremental method.
d. either the proportional method or the
incremental method.
30. When a corporation issues its capital stock in payment for
services, the least appropriate basis
for recording the transaction is the
a. market value of the services received.
b. par value of the shares issued.
c. market value of the shares issued.
d. Any of these provides an appropriate basis
for recording the transaction.
31. Direct costs incurred to sell stock such as underwriting costs
should be accounted for as
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