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Exam 11: Stockholders Equity

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Question 1

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Net earnings available to common shareholders is calculated by deducting preferred dividends from net earnings.

A) True
B) False

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True

Question 2

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A stock dividend usually causes a transfer of retained earnings to share capital, but not a decrease in the assets of the issuing corporation.

A) True
B) False

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Question 3

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A major advantage that a corporation has over a proprietorship or partnership is that it allows individuals to participate in ownership by purchasing small amounts of shares.

What are the advantages of issuing corporate bonds instead of issuing common shares to raise needed funds?

The authorized shares of a corporation

If common shares are reacquired at a price less than their average cost, the difference is credited to contributed surplus.

What are the advantages of issuing common shares instead of issuing corporate bonds to raise needed funds?

Wide World Corporation issued a 3-for-2 stock split (i.e., three new shares in exchange for each two old shares turned in) of its common shares which had a market value of $100 before the split. What dollar amount of retained earnings should be transferred to the common share account?

Match the definitions with the items.

Dividends in arrears are liabilities of the corporation.

Which one of the following events would not require a journal entry on a corporation's books?

Which of the following statements is true?

For accounting purposes, the most important section of the articles of incorporation is the description of

On which of the following dates should the dividends payable account be recorded in the company records for a stock dividend?

An additional contributed surplus account under shareholders' equity is the result of:

The issue of common shares affects both share capital and retained earnings.

The statement of financial position of Warner Company showed the following data about its common shares: authorized shares, 100,000; outstanding shares, 55,000; and issued shares 60,000. What was the number of treasury shares?

A company can control the market value of its shares.

At the end of 20X3, Bush Corporation reported a $40,000 balance in its common share account (stated value $5 per share). The treasury share account showed $720 (cost $6 per share). No dividends were paid during the first two years. During 20X3 the company declared and paid a cash dividend at $1.50 per share. The total amount of the 20X3 cash dividend was $_______.

Which of the following represents the shares currently in the hands of investors?