Bakersfield College

ACG 2021

True/False Questions

1)Mandatorily redeemable preferred stock is reported as a liability.

 

 

 

 

2. Noncash assets received as consideration for the issue of stock are always valued based on the fair value of the stock.

 

 

 

 

3. Treasury stock transactions never increase retained earnings or net income.

 

 

 

 

4. Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth.

 

 

 

 

5. Paid-in capital must consist solely of amounts invested by shareholders.

 

                    

 

 

6. Restrictions on retained earnings must be disclosed in the body of the balance sheet.

 

 

 

 

7. Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions.

 

 

 

 

8. Dividends in arrears on cumulative preferred stock are liabilities to be paid at a later date.

 

 

 

 

9. Cash dividends become a binding liability as of the record date.

 

 

 

 

10. Under GAAP, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the property is different from its book value on the declaration date.

 

 

 

 

11. Stock dividends cause a reduction in retained earnings, but they never reduce total shareholders' equity.

 

 

 

 

Multiple Choice Questions

 

12. The net assets of a corporation are equal to:
    1. Contributed capital.
    2. Retained earnings.
    3. Shareholders' equity.
    4. None of the above.

 

 

 

 

13. Two of the three primary account classifications within shareholders' equity are:
    1. Preferred stock and retained earnings.
    2. The par value of common stock and retained earnings.
    3. Paid-in capital and retained earnings.
    4. Preferred and common stock.

 

 

 

 

14. Details of each class of stock must be reported:
    1. On the face of the balance sheet only.
    2. In disclosure notes only.
    3. On the face of the balance sheet or in disclosure notes.
    4. On the face of the balance sheet and in disclosure notes.

 

 

 

 

15. In terms of business volume, the dominant form of business organization is the:
    1. Partnership.
    2. Corporation.
    3. Limited liability company.

1. 4. Proprietorship.

 

 

 

 

16. The corporate charter sometimes is known as (a):
    1. Articles of incorporation.
    2. Statement of organization.
    3. By-laws.
    4. Registration statement.

 

 

 

 

17. Corporations are formed in accordance with:
    1. The Model Business Corporation Act.
    2. Federal statutes.
    3. The laws of individual states.
    4. Federal trade commission regulations.

 

 

 

 

18. Outstanding common stock is:
    1. Stock that is performing well on the New York Stock Exchange.
    2. Stock that has been authorized by the state for issue.
    3. Stock held in the corporate treasury.
    4. Stock in the hands of shareholders.

 

 

 

 

19. Issued stock refers to the number of shares:
    1. Outstanding plus treasury shares.
    2. Shares issued for cash.
    3. In the hands of shareholders.
    4. That may be issued under state law.

 

 

 

 

20. The Model Business Corporation Act:
    1. Uses the words "common" and "preferred" in describing distinguishing characteristics of stock.
    2. Defines legal capital as the amount of net assets not available for distribution to shareholders.
    3. Provides guidance for choosing an appropriate par value for new issues of stock.
    4. Has affected the laws of most states.

 

 

 

 

21. When preferred stock carries a redemption privilege, the shareholders may:
    1. Purchase new shares as they become available.
    2. Exchange their preferred shares for common shares.
    3. Surrender the preferred shares for a specified amount of cash.
    4. Purchase treasury shares ahead of common shareholders.

 

 

 

 

22. The common stock account in a company's balance sheet is measured as:
    1. The number of common shares outstanding multiplied by the stock's par value per share.
    2. The number of common shares outstanding multiplied by the stock's current market value per share.
    3. The number of common shares issued multiplied by the stock's par value per share.
    4. None of these answer choices is correct.

 

 

 

 

Use the following to answer questions 23–26:

 

The following partial information is taken from the comparative balance sheet of Levi Corporation:

 

Shareholders’ equity                                     12/31/2016        12/31/2015

Common stock, $5 par value; 20 million shares authorized; 15 million

shares issued and 9 million shares outstanding at 12/31/2016; and

          million shares issued and

          shares outstanding at 12/31/2015.

Additional paid-in capital on common stock

 

$75 million           $45 million

 

 

 

520 million           392 million

Retained earnings                                         197 million           157 million Treasury common stock, at cost, 6

million shares at 12/31/2016 and 4

million shares at 12/31/2015

 

(72 million)          (50 million)

Total shareholders’ equity                         $720 million        $544 million

 

23. How many of Levi's common shares were outstanding on 12/31/2015?
    1. 14 million.
    2. 9 million.
    3. 5 million.
    4. None of these answer choices is correct.

 

 

 

 

24. What was the average price (rounded to the nearest dollar) of the additional shares issued by Levi in 2016?
    1. $5 per share.
    2. $26 per share.
    3. $39 per share.
    4. Cannot be determined from the given information.

 

 

 

 

25. What was the average price of the additional treasury shares purchased by Levi during 2016?
    1. $11 per share.
    2. $12 per share.
    3. $12.50 per share.
    4. None of these answer choices is correct.

 

 

 

 

26. What was the amount of net income earned by Levi during 2016?

a.     $0.

2. $40 million.

3. $62 million.
4. Cannot be determined from the given information.

 

 

 

 

27. Roberto Corporation was organized on January 1, 2016. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2016, Roberto had the following transactions relating to shareholders' equity:

 

Issued 10,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000.

Paid dividends of $50,000.

Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).

 

What is total shareholders' equity at the end of 2016? a.         $270,000.

b.     $300,000.

c.     $250,000.

d.     $200,000.

 

 

 

                

 

 

28. Heidi Aurora Imports issued shares of the company’s Class B stock. Heidi Aurora Imports should report the stock in the company’s statement of financial position:
    1. Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.
    2. As equity unless the shares are mandatorily redeemable.
    3. As equity unless the shares are redeemable at the option of the issuer.
    4. Among liabilities unless the shares are mandatorily redeemable.

 

 

 

29. The changes in account balances for Elder Company for 2016 are as follows: Assets                                                                        $480,000 debit

Common stock                                           250,000 credit

Liabilities                                                       160,000 credit

Paid-in capital—excess of par                30,000 credit

 

Assuming the only changes in retained earnings in 2016 were for net income and a $50,000 dividend, what was net income for 2016?

a.     $40,000.

b.     $60,000.

c.     $70,000.

d.     $90,000.