CHAPTER18

1.Thenetassetsofacorporationareequalto:
C.Shareholders'equity.
2.Twoofthethreeprimaryaccountclassificationswithinshareholders'equityare:
A.Preferredstockandretainedearnings.
B.Theparvalueofcommonstockandretainedearnings.
C.Paidincapitalandretainedearnings.
D.Preferredandcommonstock.
3.Detailsofeachclassofstockmustbereported:
A.Onthefaceofthebalancesheetonly.
B.Indisclosurenotesonly.
C.Onthefaceofthebalancesheetorindisclosurenotes.
D.Onthefaceofthebalancesheetandindisclosurenotes.
4.Intermsofbusinessvolume,thedominantformofbusinessorganizationisthe:
B.Corporation.
5.Thecorporatechartersometimesisknownas(a):
A.Articlesofincorporation.
6. Corporationsareformedinaccordancewith:
A.TheModelBusinessCorporationAct.
B.Federalstatutes.
C.Thelawsofindividualstates.
D.Federaltradecommissionregulations.
7.Outstandingcommonstockis:
D.Stockinthehandsofshareholders.
8.Issuedstockreferstothenumberofshares:
A.Outstandingplustreasuryshares.
9.TheModelBusinessCorporationAct:
D.Hasaffectedthelawsofmoststates.
10.Whenpreferredstockcarriesaredemptionprivilege,theshareholdersmay:
A.Purchasenewsharesastheybecomeavailable.
B.Exchangetheirpreferredsharesforcommonshares.
C.Surrenderthepreferredsharesforaspecifiedamountofcash.
D.Purchasetreasurysharesaheadofcommonshareholders.
11.Thecommonstockaccountinacompany'sbalancesheetismeasuredas:
C.Thenumberofcommonsharesissuedmultipliedbythestock'sparvalue
pershare.

12.RobertoCorporationwasorganizedonJanuary1,2013.Thefirmwasauthorized
toissue100,000sharesof$5parcommonstock.During2013,Robertohadthe
followingtransactionsrelatingtoshareholders'equity:
Issued10,000sharesofcommonstockat$7pershare.
Issued20,000sharesofcommonstockat$8pershare.
Reportedanetincomeof$100,000.
Paiddividendsof$50,000.
Purchased3,000sharesoftreasurystockat$10(partofthe20,000sharesissuedat
$8).
Whatistotalshareholders'equityattheendof2013?
A.$270,000.
B.$300,000.
C.$250,000.
D.$200,000.
13.HeidiAuroraImportsissuedsharesofthecompany'sClassBstock.Heidi
AuroraImportsshouldreportthestockinthecompany'sstatementoffinancial
position:
A.Amongliabilitiesifthesharesaremandatorilyredeemableorredeemableatthe
optionoftheshareholder.
B.Asequityunlessthesharesaremandatorilyredeemable.
C.Asequityunlessthesharesareredeemableattheoptionoftheissuer.
D.Amongliabilitiesunlessthesharesaremandatorilyredeemable.
14.Accumulatedothercomprehensiveincome:
A.isaliability.
B.mightincludepriorservicecostfrompensionplanamendments.
C.includesaccumulatedpensionexpense.
D.isreportedintheincomestatement.
15.Astatementofcomprehensiveincomedoesnotinclude:
A.Netincome.
B.Lossesresultingfromthereturnonpensionassetsexceedingexpectations.
C.LossesfromchangesinestimatesregardingthePBO.
D.Priorservicecost.
16.Accumulatedothercomprehensiveincomeisreported:
A.Inthebalancesheetasanasset.
B.Inthebalancesheetasaliability.
C.Inthebalancesheetasacomponentofshareholders'equity.
D.Inthestatementofcomprehensiveincome.
17.Astatementofcomprehensiveincomedoesnotinclude:
B.Gainsandlossesonunsoldheldtomaturitysecurities.
18.Characteristicsofthecorporateformthathaveledtothegrowthofthisformof
businessownershipincludeallofthefollowingexcept:
B.Lowgovernmentregulation.

19.Thepreemptiverightreferstotheshareholder'srightto:
A.Maintainaproportionalownershipinterestinthecorporation.
B.Voteformembersoftheboardofdirectors.
C.Receiveashareofdividends.
D.Shareinprofitsproportionallywithallotherstockholders.
20.Commonshareholdersusuallyhaveallofthefollowingrightsexcept:
A.Toshareintheprofits.
B.Toshareinassetsuponliquidation.
C.Toelectaboardofdirectors.
D.Toparticipateinthedaytodayoperations.
21.Theparvalueofsharesissuedisnormallyrecordedinthe:
A.Paidincapitalinexcessofparaccount.
B.Commonstockaccount.
C.Retainedearningsaccount.
D.Appropriatedretainedearningsaccount.
22.Authorizedcommonstockreferstothetotalnumberofshares:
A.Outstanding.
B.Issued.
C.Issuedandoutstanding.
D.Thatcanbeissued.
23.Theparvalueofcommonstockrepresents:
A.Thearbitrarydollaramountassignedtoashareofstock.
B.Theliquidationvalueofashare.
C.Thebookvalueofashareofstock.
D.Theamountreceivedwhenthestockwasissued.
24.Whenstocktradedonanactiveexchangeisissuedforamachine:
A.Noentryisrecordeduntilrestrictionsarelifted.
B.Anassetisrecordedforthefairvalueofthestock.
C.Anassetisrecordedfortheappraisedvalueofthemachine.
D.Paidincapitalisincreasedbytheappraisedvalueofthemachine.
25.Paidincapitalinexcessofparisreported:
A.Asareductionofshareholders'equity.
B.Asanoncurrentasset.
C.Asanoncurrentliability.
D.Asanincreaseinshareholders'equity.
26.Shareissuecostsrefertothecostsofobtainingthelegal,promotional,and
accountingservicesnecessarytoeffectthesaleofshares.Thecostsreducethenet
cashproceedsfromsellingthesharesandthuspaidincapitalexcessofpar,and
are:
A.Notrecordedseparately.

B.Recordedasanasset.
C.Recordedasaliability.
D.Amortizedovertime.
27.Whenstockisissuedinexchangeforproperty,thebestevidenceoffairvalue
mightbeanyofthefollowingexcept:
A.Theappraisedvalueofthepropertyreceived.
B.Thesellingpriceofthestockinarecenttransaction.
C.Thepriceofthestockquotedonthestockexchange.
D.Theaveragebookvalueofoutstandingstock.
28.Whenmorethanonesecurityissoldforasinglepriceandthetotalsellingprice
isnotequaltothesumofthemarketprices,thecashreceivedisallocatedbetween
thesecuritiesbasedon:
A.Relativebookvalues.
B.Parvalues.
C.Relativemarketvalues.
D.Theearningspershare.
29.Theownersofacorporationareitsshareholders.Ifacorporationhasonlyone
classofshares,theytypicallyarelabeledcommonshares.Eachofthefollowingare
ownershiprightsheldbycommonshareholders,unlessspecificallywithheldby
agreement,except:
A.Therighttovoteonpolicyissues.
B.Therighttoshareinprofitswhendividendsaredeclared(inproportiontothe
percentageofsharesownedbytheshareholder).
C.Therighttodividendsequaltoastatedratetimeparvalue(ifdividendsare
paid).
D.Therighttoshareinthedistributionofanyassetsremainingatliquidationafter
otherclaimsaresatisfied.
30.Theshareholders'equityofGreenCorporationincludes$200,000of$1par
commonstockand$400,000parvalueof6%cumulativepreferredstock.Theboard
ofdirectorsofGreendeclaredcashdividendsof$50,000in2013afterpaying
$20,000cashdividendsineachof2012and2011.Whatistheamountofdividends
commonshareholderswillreceivein2013?
A.$18,000.
31.Theshareholders'equityofRedCorporationincludes$200,000of$1par
commonstockand$400,000parvalueof6%cumulativepreferredstock.Theboard
ofdirectorsofReddeclaredcashdividendsof$50,000in2013afterpaying$20,000
cashdividendsin2012and$40,000in2011.Whatistheamountofdividends
commonshareholderswillreceivein2013?
B.$22,000.
32.RickCo.had30millionsharesof$1parcommonstockoutstandingatJanuary
1,2013.InOctober2013,RickCo.'sBoardofDirectorsdeclaredanddistributeda
1%commonstockdividendwhenthemarketvalueofitscommonstockwas$60
pershare.Inrecordingthistransaction,Rickwould:

A.Debitretainedearningsfor$18million.
B.Creditpaidincapitalexcessofparfor$18million.
C.Creditcommonstockfor$18million.
D.Noneoftheaboveiscorrect.
33.Whichofthefollowingtransactionsdecreasesretainedearnings?
A.Apropertydividend.
B.Astockdividend.
C.Acashdividend.
D.Alloftheabovearecorrect.
34.PoodleCorporationwasorganizedonJanuary3,2013.Thefirmwasauthorized
toissue100,000sharesof$5parcommonstock.During2013,Poodlehadthe
followingtransactionsrelatingtoshareholders'equity:
Issued30,000sharesofcommonstockat$7pershare.
Issued20,000sharesofcommonstockat$8pershare.
Reportedanetincomeof$100,000.
Paiddividendsof$50,000.
Whatistotalpaidincapitalattheendof2013?
B.$370,000.

35.OlssonCorporationreceivedacheckfromitsunderwritersfor$72million.This
wasfortheissueofonemillionofits$5parstockthattheunderwritersexpectto
sellfor$72pershare.Whichisthecorrectentrytorecordtheissueofthestock?
D.Cash,CommonStock,PaidinCapital
36.Montgomery&Co.,awellestablishedlawfirm,provided500hoursofitstime
toFinkCorporationinexchangefor1,000sharesofFink's$5parcommonstock.
Montgomery'susualbillingrateis$700perhour,andFink'sstockhasabookvalue
of$250pershare.BywhatamountwillFink'spaidincapitalexcessofpar
increaseforthistransaction?
A.$345,000.
37.In2011,Winn,Inc.,issued$1parvaluecommonstockfor$35pershare.No
othercommonstocktransactionsoccurreduntilJuly31,2013,whenWinnacquired
someoftheissuedsharesfor$30pershareandretiredthem.Whichofthefollowing
statementscorrectlystatesaneffectofthisacquisitionandretirement?
B.Additionalpaidincapitalisdecreased.
38.Treasurysharesaremostoftenreportedas:
A.Areductionoftotalshareholders'equity.

39.Coy,Inc.,initiallyissued200,000sharesof$1parvaluestockfor$1,000,000in
2011.In2012,thecompanyrepurchased20,000sharesfor$200,000.In2013,
10,000oftherepurchasedshareswereresoldfor$160,000.Initsbalancesheet
datedDecember31,2013,Coy,Inc.'streasurystockaccountshowsabalanceof:
C.$100,000.

40.Whentreasurysharesaresoldatapriceabovecost:
D.Paidincapitalisincreased.
41.Whentreasurysharesareresoldatapricebelowcost:
A.Paidincapitaland/orretainedearningsisreduced.
42.Whentreasurystockispurchasedforanamountgreaterthanitsparvalue,what
istheeffectontotalshareholders'equity?
B.Decrease.
43.Whenpreferredstockispurchasedbytheissuingcorporationatapricebelow
theoriginalissuepriceandthestockisretired,thetransaction:
D.Increasespaidincapitalsharerepurchase.
44.Retainedearningsrepresent:
A.Earnedcapital.
45.Retainedearningsrepresentacompany's:
A.Undistributednetincome.
46.Theretainedearningsbalancereportedinthebalancesheettypicallyisnot
affectedby:
D.Restrictions.
47.BoxerCompanyowned20,000sharesofKingCompanythatwerepurchasedin
2011for$500,000.OnMay1,2013,Boxerdeclaredapropertydividendof1share
ofKingforevery10sharesofBoxerstock.Onthatdate,therewere50,000shares
ofBoxerstockoutstanding.ThemarketvalueoftheKingstockwas$30pershare
onthedateofdeclarationand$32pershareonthedateofdistribution.Byhow
muchisretainedearningsreducedbythepropertydividend?
B.$150,000.(500,000/10)x$30=$150,000
48.OnOctober1,2013,ChiefCorporationdeclaredandissueda10%stock
dividend.Beforethisdate,Chiefhad80,000sharesof$5parcommonstock
outstanding.ThemarketvalueofChiefCorporationonthedateofdeclarationwas
$10pershare.Asaresultofthisdividend,Chief'sretainedearningswill:
A.Decreaseby$80,000.
49.Preferredstockiscalledpreferredbecauseitusuallyhastwopreferences.These
preferencesrelateto:
D.Assetsatliquidationanddividends.
50.Whendividendsaredeclaredinonefiscalyearandpaidinthenextfiscalyear,
theliabilityforthedividendshouldberecordedasofthe:
A.Datethedividendisdeclared.
51.Anydividendthatisconsideredtobealiquidatingdividendwill:
B.Reducepaidincapital.

52.OnJune1,2013,BlueCo.distributedtoitscommonstockholders200,000
outstandingcommonsharesofitsinvestmentinRed,Inc.,anunrelatedparty.The
carryingamountonBlue'sbooksofRed's$1parcommonstockwas$2pershare.
Immediatelyafterthedeclaration,themarketpriceofRed'sstockwas$2.50per
share.InitsincomestatementfortheyearendedJune30,2013,whatamountshould
Bluereportasgainbeforeincometaxesondisposalofthestock?
B.$100,000.Propertydividendsarerecordedatthefairvalueoftheproperty
distributed,withanygainorlossbeingrecognizedinthecurrentperiod.$2.502.00=
$.50x200,000=$100,000.
53.Whichofthefollowingstatementsistruewhendividendsarenotdeclaredor
paidoncumulativepreferredstock?
A.Theshareholdersmustbeallowedtoconverttheirsharestocommonstock.
B.Theunpaiddividendsareaccruedasaliability.
C.Theunpaiddividendsarereportedinanotetothefinancialstatements.
D.Theunpaiddividendsaccrueinterestuntilpaid.
54.Preferredsharesthatareparticipatingmay:
D.Receiveadditionaldividendsbeyondthestatedamount.
55.Whenapropertydividendisdeclared,thereductioninretainedearningsisfor:
D.Thefairvalueofthepropertyonthedateofdeclaration.
56.Whenapropertydividendisdeclared,thepropertytobedistributedshouldbe
revaluedtofairvalueasofthe:
C.Dateofdeclaration.
57.Atthebeginningof2011,EmilyCorporationissued10,000sharesof$100par,
5%,cumulative,preferredstockfor$110pershare.Nodividendshavebeenpaidto
preferredorcommonshareholders.Whatamountofdividendswillapreferred
shareholderowning100sharesreceivein2013ifEmilypays$1,000,000in
dividends?
B.$1,500...100x5%x100sharesx3years.
58.PugCorporationhas10,000sharesof$10parcommonstockoutstandingand
20,000sharesof$100par,6%noncumulative,nonparticipatingpreferredstock
outstanding.Dividendshavenotbeenpaidforthepasttwoyears.Thisyear,a
$150,000dividendwillbepaid.Whatarethedividendspershareforpreferredand
common,respectively?
B.$6;$3.Preferred:$6persharex20,000=$120,000;$120,000/20,000shares=$6
pershare
Common:($150,000$120,000)/10,000=$3pershare
59.BeagleCorporationhas20,000sharesof$10parcommonstockoutstandingand
10,000sharesof$100par,6%cumulative,nonparticipatingpreferredstock
outstanding.Dividendshavenotbeenpaidforthepasttwoyears.Thisyear,a

$300,000dividendwillbepaid.Whatarethedividendspersharepayableto
preferredandcommon,respectively?
B.$18;$6.Preferred:$6x3x10,000=$180,000
Common:($300,000$180,000)/20,000=$6
60.LucidCompanydeclaredapropertydividendof20,000sharesof$1parPolk
Companycommonstock.ThePolkstockwaspurchasedfor$5pershare.Market
valuewas$10pershareonthedeclarationdateand$11pershareonthedistribution
date.Whatistheamountofthedividend?
B.$200,000...20,000x$10=$200,000
61.Thedeclarationandissuanceofastockdividendonsharesofcommonstock:
A.Hasnoeffectonassets,liabilities,ortotalshareholders'equity.
62.Stocksplitsareissuedprimarilyto:
D.Induceadeclineinmarketvaluepershare.
63.Asmallstockdividendisdefinedasonethatis:
D.Lessthan25%.
64.Whenacompanyissuesastockdividend,whichofthefollowingwouldbe
affected?
A.Earningspershare.
65.RCo.hasoutstanding100millionshares,$1parcommonstock,sellingfor$8
pershare.Aftera1for4reversestocksplit:
A.Rwouldhave25millionshares,$4parpershare.
66.FCo.declaresa5%stockdividend.Ifthemarketpriceatdeclarationis$12per
share,ashareholderwith110shareslikelywouldreceive:
C.Fiveadditionalsharesand$6incash.
67.Whichofthetermsorphraseslistedbelowismoreassociatedwithfinancial
statementspreparedinaccordancewithU.S.GAAPthanwithInternational
FinancialReportingStandards?
A.Accumulatedothercomprehensiveincome.
68.HeidiAuroraImportsappliesInternationalFinancialReportingStandards.The
companyissuedsharesofthecompany'sClassBstock.HeidiAuroraImports
shouldreportthestockinthecompany'sstatementoffinancialposition:
A.Amongliabilitiesifthesharesaremandatorilyredeemableorredeemableatthe
optionoftheshareholder.

118.TheshareholdersequityofTruCorpincludes$600,000of$1parcommonstockand$1,200,000of6%
cumulativepreferredstock.TheboardofdirectorsofTrudeclaredcashdividendsof$150,000in2011after
paying$60,000cashdividendsineachof2010and2009.
Whatistheamountofdividendscommonshareholderswillreceivein2011?
150,000(70,00012,00012000)=54,000
119.HScorporation
70000(360006000)=28,000
vibiarrear1year