Louisiana State University, Shreveport

ACCT 701

MULTIPLE CHOICE QUESTIONS

1)Which of the following statements is not true about a 2-for-1 stock split?

1. 1. The market value of the stock will probably decrease.
   2. A stockholder with 5 shares before the split owns 10 shares after the split.
   3. Par value per share is reduced to half of what it was before the split.
   4. Total paid-in capital increases.

 

 

2.Green, Inc. had 200,000 shares of common stock outstanding before a stock split occurred and 600,000 shares outstanding after the stock split. The stock split was

1. 5. 2-for-6.
   6. 6-for-1.
   7. 1-for-6.
   8. 3-for-1.

 

3. If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to
   1. decrease total assets and total stockholders’ equity.
   2. increase stockholders’ equity and to decrease total liabilities.
   3. decrease total retained earnings and increase total liabilities.
   4. reduce the amount of retained earnings available for dividend declarations.

 

4. When retained earnings are restricted, total retained earnings
   1. are unaffected.
   2. increase.
   3. decrease.
   4. may increase or decrease.

 

5. The following selected amounts are available for Thomas Company. Retained earnings (beginning)                                                                          $3,500

Net loss                                                                                                 200

Cash dividends declared                                                                200

Stock dividends declared                                                               200

What is its ending Retained Earnings balance? a. $3,200.

b. $3,300.

c.   $2,900.

d. $3,100.

6. Hutchinson Company had retained earnings of $18,000 on the balance sheet but disclosed in the footnotes that $2,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends? a. $15,000.

b. $16,000.

c.   $18,000.

d. $13,000.

 

7. All of the following statements regarding retained earnings are true except
   1. retained earnings represents a claim on cash.
   2. a debit balance in Retained Earnings indicates a deficit.
   3. some companies may restrict availability of retained earnings for dividends.
   4. retained earnings is net income that a company retains in a business.

 

8. What is the total stockholders’ equity based on the following account balances? Common Stock                                                                                                                  $2,300,000

Paid-In Capital in Excess of Par                                                   120,000

Retained Earnings                                                                           570,000

Treasury Stock                                                                                     60,000

a. $2,690,000.

b. $2,930,000.

c.   $3,050,000.

d. $2,180,000.

 

9. What is the total stockholders’ equity based on the following account balances? Common Stock                                                          $950,000

Paid-In Capital in Excess of Par                                                     50,000

Retained Earnings                                                                           175,000

Treasury Stock                                                                                     25,000

a. $1,000,000.

b. $975,000.

c. $1,150,000.

d. $800,000.

10. What is the total stockholders’ equity based on the following account balances? Common Stock                                                                                                                  $1,800,000

Paid-In Capital in Excess of Par                                                   100,000

Retained Earnings                                                                           360,000

Treasury Stock                                                                                     60,000

a. $1,900,000.

b. $2,320,000.

c.   $2,260,000.

d. $2,200,000.

 

11. Nance Corporation’s December 31, 2017 balance sheet showed the following: 6% preferred stoc$20 par value, cumulative,

30,000 shares authorized; 20,000 shares issued                                                   $ 400,000 Common stoc$10 par value, 3,000,000 shares authorized;

1,950,000 shares issued, 1,920,000 shares outstanding	19,500,000
Paid-in capital in excess of par value – preferred stock	60,000
Paid-in capital in excess of par value – common stock	28,000,000
Retained earnings	9,650,000
Treasury stock (30,000 shares)	630,000

Nance’s total paid-in capital was a. $47,960,000.

b. $48,590,000.

c.   $47,330,000.

d. $28,060,000.

 

12. Nance Corporation’s December 31, 2017 balance sheet showed the following: 6% preferred stoc$20 par value, cumulative,

30,000 shares authorized; 20,000 shares issued                                                   $ 400,000 Common stoc$10 par value, 3,000,000 shares authorized;

1,950,000 shares issued, 1,920,000 shares outstanding                                                                                                                                                               19,500,000 Paid-in capital in excess of par value – preferred stock                                                                                                                                                                                                                  60,000

Paid-in capital in excess of par value – common stock                                                     28,000,000

Retained earnings                                                                                                                              9,650,000

Treasury stock (30,000 shares)                                                                                                   630,000

Nance declared and paid a $85,000 cash dividend on December 15, 2017. If the company’s dividends in arrears prior to that date were $24,000, Nance’s common stockholders received

a. $61,000.

b. $48,000.

c.   $37,000.

d. no dividend.

13. Nance Corporation’s December 31, 2017 balance sheet showed the following: 6% preferred stoc$20 par value, cumulative,

30,000 shares authorized; 20,000 shares issued Common stoc$10 par value, 3,000,000 shares authorized;	$	400,000
1,950,000 shares issued, 1,920,000 shares outstanding	19,500,000
Paid-in capital in excess of par value – preferred stock	60,000
Paid-in capital in excess of par value – common stock	28,000,000
Retained earnings	9,650,000
Treasury stock (30,000 shares) Nance’s total stockholders’ equity was a. $58,240,000. b. $47,330,000. c. $57,610. d. $56,980,000.	630,000

 

14. Danley Corporation began business by issuing 200,000 shares of $5 par value common stock for $24 per share. During its first year, the corporation sustained a net loss of

$40,000. The year-end balance sheet would show

1. 1. Common Stock of $1,000,000.
   2. Common Stock of $4,800,000.
   3. total paid-in capital of $4,760,000.
   4. total paid-in capital of $3,800,000.

 

15. Racer Corporation’s December 31, 2017 balance sheet showed the following: 6% preferred stoc$20 par value, cumulative,

40,000 shares authorized; 25,000 shares issued	$       500,000
Common stoc$10 par value, 4,000,000 shares authorized;
2,600,000 shares issued, 2,560,000 shares outstanding	26,000,000
Paid-in capital in excess of par value – preferred stock	80,000
Paid-in capital in excess of par value – common stock	37,000,000
Retained earnings	12,200,000
Treasury stock (40,000 shares)	840,000

Racer’s total paid-in capital was a. $63,580,000.

b. $64,420,000.

c.   $62,740,000.

d. $36,080,000.

 

16. Racer Corporation’s December 31, 2017 balance sheet showed the following: 6% preferred stoc$20 par value, cumulative,

40,000 shares authorized; 25,000 shares issued                                                                                                                                         $ 500,000 Common stoc$10 par value, 4,000,000 shares authorized;

2,600,000 shares issued, 2,560,000 shares outstanding                                                                                                                                                               26,000,000 Paid-in capital in excess of par value – preferred stock                                                                                                                                                                                                                  80,000

Paid-in capital in excess of par value – common stock                                                     37,000,000

Retained earnings                                                                                                                           12,200,000

Treasury stock (30,000 shares)                                                                                                   840,000

Racer declared and paid a $100,000 cash dividend on December 15, 2017. If the company’s dividends in arrears prior to that date were $30,000, Racer’s common stockholders received

a. $70,000.

b. $60,000.

c.   $40,000.

d. no dividend.

 

17. Racer Corporation’s December 31, 2017 balance sheet showed the following: 6% preferred stoc$20 par value, cumulative,

40,000 shares authorized; 25,000 shares issued	$       500,000
Common stoc$10 par value, 4,000,000 shares authorized;
2,600,000 shares issued, 2,560,000 shares outstanding	26,000,000
Paid-in capital in excess of par value – preferred stock	80,000
Paid-in capital in excess of par value – common stock	37,000,000
Retained earnings	12,200,000
Treasury stock (30,000 shares)	840,000
Racer’s total stockholders’ equity was

a. $76,620,000.

b. $63,580,000.

c.   $75,780,000.

d. $74,940,000.

 

18. Cerner Corporation began business by issuing 300,000 shares of $5 par value common stock for $24 per share. During its first year, the corporation sustained a net loss of

$50,000. The year-end balance sheet would show

1. 1. Common Stock of $1,500,000.
   2. Common Stock of $7,200,000.
   3. total paid-in capital of $7,140,000.
   4. total paid-in capital of $5,700,000.

 

 

 

19. All of the following are normally found in a corporation’s stockholders’ equity section

except

1. 1. dividends in arrears.
   2. common stock.
   3. paid-in capital.
   4. retained earnings.

 

 

20. Information that is not generally reported for each class of stock on the balance sheet is
    1. the market value.
    2. the par value.
    3. shares authorized.
    4. shares issue

 

 

21. The return on common stockholders’ equity is computed by dividing net income
    1. by ending common stockholders’ equity.
    2. by average common stockholders’ equity.
    3. less preferred dividends by ending common stockholders’ equity.
    4. less preferred dividends by average common stockholders’ equity.

 

22. Ferman Corporation had net income of $140,000 and paid dividends of $40,000 to common stockholders and $20,000 to preferred stockholders in 2017. Ferman Corporation’s common stockholders’ equity at the beginning and end of 2017 was

$870,000 and $1,130,000, respectively. Ferman Corporation’s return on common stockholders’ equity was

a. 14%.

b. 12%.

c.   9%.

d. 8%.

23. Ferman Corporation had net income of $140,000 and paid dividends of $40,000 to common stockholders and $20,000 to preferred stockholders in 2017. Ferman Corporation’s common stockholders’ equity at the beginning and end of 2017 was

$870,000 and $1,130,000, respectively. Ferman Corporation’s payout ratio for 2017 was a. 4.0%.

b. 42.9%.

c.   28.6%.

d. 14.3%.

24. Herman Corporation had net income of $100,000 and paid dividends of $25,000 to common stockholders and $20,000 to preferred stockholders in 2017. Herman Corporation’s common stockholders’ equity at the beginning and end of 2017s was

$450,000 and $550,000, respectively. Herman Corporation’s return on common stockholders’ equity is

a. 20.0%.

b. 16.0%.

c.   15.0%.

d. 11.0%.

25. Herman Corporation had net income of $100,000 and paid dividends of $25,000 to common stockholders and $20,000 to preferred stockholders in 2017. Herman Corporation’s common stockholders’ equity at the beginning and end of 2017 was

$450,000 and $550,000, respectively. Herman Corporation’s payout ratio for 2017 is a. 45%.

b. 25%.

c.   20%.

d. 5%.

26. From the information below, compute the payout ratio for Kevin’s Trailers. Net Income                                                                     $250

Cash Dividends (common)                                                              40

Retained Earnings                                                                             500

Stock Dividends (common)                                                             10

a. 20%.

b. 16%.

c.   8%.

d. 4%.

 

27. The following information pertains to Benedict Company. Assume that all balance sheet amounts represent average balance figures.

Total assets                                                                                      $300,000

Stockholders’ equity—common                                               150,000

Total stockholders’ equity                                                            200,000

Sales revenue                                                                                   100,000

Net income                                                                                           25,000

Number of shares of common stock                                             6,000

Common dividends                                                                              5,000

Preferred dividends                                                                             7,000

What is the payout ratio for Benedict? a. 48%

b. 20%

c.   28%

d. 5%

 

The following information pertains to Benedict Company. amounts represent average balance figures.	Assume that all balance sheet
Total assets	$300,000
Stockholders’ equity—common	150,000
Total stockholders’ equity	200,000
Sales revenue	100,000
Net income	25,000
Number of shares of common stock	6,000
Common dividends	5,000
Preferred dividends	7,000

What is the return on common stockholders’ equity ratio for Benedict? a. 16.7%

b. 12.0%

c.   13.3%

d. 9.0%

 

29. The following information pertains to Marsh Company. Assume that all balance sheet amounts represent average balance figures.

Total asset	$400,000
Stockholders’ equity—common	200,000
Total stockholders’ equity	280,000
Sales revenue	120,000
Net income	30,000
Number of shares of common stock	8,000
Common dividends	6,000
Preferred dividends	4,000

What is Marsh’s payout ratio? a. 33.3%.

b. 20.0%.

c.   13.3%.

d. 5.0%.

 

30. The following information pertains to Marsh Company. Assume that all balance sheet amounts represent average balance figures.

Total asset	$400,000
Stockholders’ equity—common	200,000
Total stockholders’ equity	280,000
Sales	120,000
Net income	30,000
Number of shares of common stock	8,000
Common dividends	6,000
Preferred dividends	4,000

What is Marsh’s return on common stockholders’ equity? a. 15%.

b. 13.0%.

c.   10.0%.

d. 9.3%.

 

 

31.  On January 1, Hamblin Corporation had 120,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a

1. credit to Stock Dividends for $36,000.
2. credit to Cash for $156,000.
3. credit to Common Stock Dividends Distributable for $120,000.
4. debit to Common Stock Dividends Distributable for $120,000.

32. On January 1, Hamblin Corporation had 120,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a

1. credit to Cash for $120,000.
2. debit to Common Stock Dividends Distributable for $120,000.
3. credit to Paid-in Capital in Excess of Par Value for $36,000.
4. debit to Stock Dividends for $36,000.

 

33. On January 1, Ripken Corporation had 80,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a

1. debit to Stock Dividends for $104,000.
2. credit to Cash for $104,000.
3. credit to Common Stock Dividends Distributable for $104,000.
4. credit to Common Stock Dividends Distributable for $24,000.

 

34. On January 1, Ripken Corporation had 80,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a

1. credit to Common Stock for $80,000.
2. debit to Common Stock Dividends Distributable for $104,000.
3. credit to Paid-in Capital in Excess of Par Value for $24,000.
4. debit to Stock Dividends for $24,000.

 

35.        If a corporation declares a 10% stock dividend on its common stocthe account to be debited on the date of declaration is

1. Common Stock Dividends Distributable.
2. Common Stock.
3. Paid-in Capital in Excess of Par.
4. Stock Dividends.

 

36. Which one of the following events would not require a journal entry on a corporation’s books?
    1. 2-for-1 stock split.
    2. 100% stock dividend.
    3. 2% stock dividend.
    4. $1 per share cash dividen