ACC 556 WEEK 8 CHAPTER 11

Question 1
A stockholder has the right to vote in the election of the board of directors.
True
False
Question 2
The following selected amounts are available for Thomas Company.
Retained earnings (beginning) $2,500
Net loss 200
Cash dividends declared 200
Stock dividends declared 200

What is its ending Retained Earnings balance?

$2,200.

$2,300.

$1,900.

$2,100.
Question 3
The board of directors of Benson Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August 15, 2014, to stockholders of record on July 31, 2014. The effects of the journal entry to record the payment of the dividend on August 15, 2014, are to

decrease stockholders’ equity and decrease liabilities.

decrease liabilities and decrease assets.

increase stockholders’ equity and increase liabilities.

increase stockholders’ equity and decrease assets.
Question 4
Which of the following statements reflects the transferability of ownership rights in a corporation?

If a stockholder decides to transfer ownership, he must transfer all of his shares.

A stockholder may dispose of part or all of his shares.

A stockholder must obtain permission of the board of directors before selling shares.

A stockholder must obtain permission from at least three other stockholders before selling shares.
Question 5
Holden Packaging Corporation began business in 2014 by issuing 80,000 shares of $5 par common stock for $8 per share and 20,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2014 balance sheet, Holden Packaging would report

Common Stock of $800,000.

Common Stock of $400,000.

Common Stock of $640,000.

Paid-In Capital of $600,000.
Question 6
Cash dividends are not a liability of the corporation until they are declared by the board of directors.
True
False
Question 7
All of the following statements about preferred stock are true except

preferred stock will have a paid-in capital account that is separate from other stock.

preferred stock is presented first on the stockholder’s equity section.

preferred stock can be either par value or no-par value.

there can be only one class of preferred stock.
Question 8
If a stockholder cannot attend a stockholders’ meeting, he may delegate his voting rights by means of a(n)

absentee ballot.

proxy.

certified letter.

telegram.
Question 9
Which of the following is not a right or preference associated with preferred stock?

The right to vote.

First claim to dividends.

Preference to corporate assets in case of liquidation.

To receive dividends in arrears before common stockholders receive dividends.
Question 10
Herman Corporation had net income of $120,000 and paid dividends of $24,000 to common stockholders and $20,000 to preferred stockholders in 2014. Herman Corporation’s common stockholders’ equity at the beginning and end of 2014 was $450,000 and $550,000, respectively. Herman Corporation’s payout ratio for 2014 is

5%.

20%.

17%.

10%.
Question 11
Which of the following statements is not true about a 2-for-1 split?

Par value per share is reduced to half of what it was before the split.

Total contributed capital increases.

The market price probably will decrease.

A stockholder with ten shares before the split owns twenty shares after the split.
Question 12
In the stockholders’ equity section of the balance sheet

Common Stock Dividends Distributable will be classified as part of additional paid-in capital.

Common Stock Dividends Distributable will appear in its own subsection of the stockholders’ equity.

Additional Paid-in Capital appears under the sub-section paid-in capital.

Dividends in Arrears will appear as a restriction of retained earnings.
Question 13
A detailed stockholders’ equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record.
True
False
Question 14
If Norben Company issues 4,000 shares of $5 par value common stock for $140,000, the account

Common Stock will be credited for $140,000.

Paid-in Capital in Excess of Par Value will be credited for $20,000.

Paid-in Capital in Excess of Par Value will be credited for $120,000.

Cash will be debited for $120,000.
Question 15
Match the items below by entering the appropriate code letter in the space provided.

The chief accounting officer.

A debit balance in retained earnings.

Measures the percentage of earnings distributed in the form of dividends to common stockholders.

A pro rata distribution of the corporation’s own stock to stockholders.

The date the board of directors formally declares a dividend.

Enables stockholders to maintain their same percentage ownership when new shares are issued.

The amount assigned to each share of stock in the corporate charter.

The amount that must be retained in the business for the protection of creditors.

Corporation’s own stock that has been reacquired by the corporation but not retired.

Preferred stockholders have a right to receive current and unpaid prior-year dividends before common stockholders receive any dividends.
A. Deficit
B. Cumulative feature
C. Payout ratio
D. Preemptive right
E. Stock dividend
F. Controller
G. Declaration date
H. Par value
I. Treasury stock
J. Legal capital

Question 16
Which of the following statements is true regarding corporate performance ratios?

A high payout ratio may indicate that a company is retaining earnings for future growth investments.

As a company grows larger, it is easy to sustain a high return on common stockholder’s equity.

Return on common stockholder’s equity is often higher under bond financing rather than common stock financing.

Companies low growth rates are characterized by low payout ratios.
Question 17
A corporation is not an entity that is separate and distinct from its owners.
True
False
Question 18
The acquisition of treasury stock by a corporation increases total assets and total stockholders’ equity.
True
False