Q&A Hero

Q: A company invests $10,000 at 7% compounded annually. At the end of the second year, the company should have $11,400 in the fund.

Q: Compound interest means that interest in a second period is based on the total amount borrowed plus the interest accrued in the first period.

Q: A basic present value concept is that cash paid or received in the future is worth more than the same amount of cash received today.

Q: A basic present value concept is that cash paid or received in the future is worth less than the same amount of cash today.

Q: Mortgage bonds are backed only by the good faith and credit of the issuing company.

Q: Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrowers assets identified in the mortgage.

Q: The carrying value of a long-term note is computed as the present value of all remaining future payments, discounted using the market rate at the time of issuance.

Q: Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

Q: Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Q: An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

Q: A bond's par value is not necessarily the same as its market value.

Q: Owners of coupon bonds are not required to pay tax on the interest earned.

Q: Callable bonds reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

Q: Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Q: Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Q: Debentures always have specific assets of the issuing company pledged as collateral.

Q: Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date.

Q: The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Q: A corporation reported net income of $3,730,000 and paid preferred cash dividends of $100,000 during the current year. There were 600,000 weighted-average shares of common stock outstanding and the market price per common share was $88.33 at year-end. Calculate the company's price-earnings ratio.

Q: A company reported $990,000 in net income for the current year. Total weighted-average number of common shares outstanding are 150,000 shares, and the year-end market price is $79.20 per common share. Calculate the company's price earnings ratio.

Q: A company reported net income of $850,000 for the current year. The year-end market price per common share was $12 and there were 425,000 weighted-average shares of common stock outstanding. Calculate the company's price-earnings ratio.

Q: A company's stock is selling for $67.20 per share and its earnings per share is $3.50 for the current year. Calculate the price-earnings ratio.

Q: A corporation had current year net income of $2,375,000. It paid preferred dividends of $80,000 cash and had 500,000 weighted-average shares of common stock outstanding. Calculate the corporation's earnings per share.

Q: Marble Corporation had the following balances in its stockholders' equity accounts at December 31, 2013: Common Stock, $10 par, 50,000 shares authorized, 20,000 shares issued . $200,000 Paid-in Capital in Excess of Par Value, Common 250,000 Retained Earnings .. 500,000 Treasury Stock, 1,000 shares (20,000) Total stockholders' equity .. $930,000 The following transactions occurred during 2014: February 3 Sold and issued 3,000 shares of common stock for $22 per share. May 10 Declared a $0.50 per share dividend on common stock. October 12 Sold 500 shares of the treasury stock for $20 per share. December 31 Net income for the year was determined to be $75,000. Based on the above information, prepare a statement of stockholders' equity for 2014. Use the form below. Marble Corporation Statement of Stockholders Equity December 31, 2014 Common Stock Paid-in Capital in Excess of Par Value, Common Retained Earnings Treasury Stock Total Equity Balance, December 31, 2013 $200,000 $250,000 $500,000 $(20,000) $930,000 Balance, December 31, 2014

Q: Dawls Corporation reported stockholders' equity on December 31 of the prior year as follows: Common stock, $5 par value, 1,000,000 shares authorized, 500,000 shares issued. $2,500,000 Paid-in capital in excess of par, common stock... 1,000,000 Retained earnings. 3,000,000 The following selected transactions occurred during the current year: Feb. 15 The board of directors declared a 5% stock dividend to stockholders of record on March 1, payable March 20. The stock was selling for $8 per share. Mar. 9 Distributed the stock dividend. May 1 A cash dividend of $0.30 per share was declared by the board of directors to stockholders of record on May 20, payable June 1. June 1 Paid the cash dividend. Aug. 20 The board decided to split the stock 4-for-1, effective on September 1. Sept. 1 Stock split 4-for-1. Dec. 31 Earned a net income of $800,000 for the current year. Prepare a statement of retained earnings as of December 31 of the current year.

Q: Explain where each of the following items should appear in the financial statements of a corporation: (1) The accounting department discovered that an entry was made last year to Prepaid Insurance instead of to Insurance Expense. The after-tax effect of the charge to Prepaid Insurance was $11,000. (2) The company grants five of its employees the option to purchase 100 shares of its $5 par value common stock at its current market price of $20 per share anytime with the next five years. None of the employees exercised the options in the current year.

Q: Given the following information about a corporation's current year activities, compute the retained earnings for the current year. Retained earnings, December 31 (prior year) $250,000 Cost of goods sold $90,000 Other operating expenses $54,000 Cash dividends $30,800 Correction of understatement of net income in prior period (inventory error) $23,000 Stock dividends $20,000 Net income $36,000

Q: A corporation received its charter and began business this year. The company is authorized to issue 50,000 shares of $100 par, 10%, noncumulative, nonparticipating preferred stock, and 500,000 shares of no-par common stock. The following selected transactions occurred during this year: Apr. 5 Issued 250 shares of preferred stock for $104 cash per share. June 15 Exchanged 750 shares of common stock for $15,000 in legal services incurred in the organization of the company. Prepare journal entries to record these transactions.

Q: What is treasury stock? How is the purchase and sale of treasury stock recorded?

Q: Explain the difference between a large stock dividend and a small stock dividend. In addition, explain how to record these two types of stock dividends.

Q: What is a stock split? How is a stock split different from a stock dividend?

Q: Explain how to compute book value per share and discuss how it can be used to analyze the financial condition of a corporation.

Q: Explain how to compute dividend yield and discuss how it is used in analysis of a company's financial condition.

Q: Explain how to calculate the price-earnings ratio and describe how it is used in analysis of a company's financial condition and performance.

Q: What is a corporation? Identify the key advantages and disadvantages of corporations.

Q: A company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the payment of the dividend is: A. Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500. B. Debit Common Dividends Payable $104,500; credit Cash $104,500. C. Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100. D. Debit Common Dividends Payable $100,100; credit Cash $100,100. E. Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.

Q: A company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the dividend declaration is: A. Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500. B. Debit Common Dividends Payable $104,500; credit Cash $104,500. C. Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100. D. Debit Common Dividends Payable $100,100; credit Cash $100,100. E. Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.

Q: All of the following regarding accounting for Treasury Stock under U.S. GAAP and IRFS is true except: A. U. S. GAAP applies the principle that companies do not record gains or losses on transactions involving their own stock. B. Only gains are recognized on retirements of treasury stock under IFRS. C. IFRS applies the principle that companies do not record gains or losses on transactions involving their own stock. D. Gains are not recognized on retirements of treasury stock under U. S. GAAP. E. A companys assets and equity are always reduced by the amount paid for the retiring stock.

Q: Prior to June 1, a company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on June 1 for $5,000. On July 1, it reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on August 2? A. $5,050. B. $2,600. C. $100. D. $50. E. $0.

Q: The following data has been collected about a company's stockholders' equity accounts: Common stock $10 par value 20,000 shares authorized and 10,000 shares issued, 1,000 shares in treasury................................................................................ $100,000 Paid-in capital in excess of par value, common stock................................................................................ 50,000 Retained earnings................................................................................ 25,000 Treasury stock................................................................................ 11,500 The treasury shares were all purchased at the same price. The cost per share of the treasury stock is: A. $1.15. B. $1.28. C. $11.50. D. $10.50. E. $10.00.

Q: Corporations often buy back their own stock: A. To avoid a hostile take-over. B. To have shares available for a merger or acquisition. C. To have shares available for employee compensation. D. To maintain market value for the company stock. E. All of the options are reasons for corporations buying back their own stock.

Q: The following data were reported by a corporation: Authorized shares .... 20,000 Issued shares .... 15,000 Treasury shares .... 3,000 The number of outstanding shares is: A. 12,000. B. 15,000. C. 17,000. D. 20,000. E. 23,000.

Q: Treasury stock is classified as: A. An asset account. B. A contra asset account. C. A revenue account. D. A contra equity account. E. A liability account.

Q: Stock that was reacquired and is still held by the issuing corporation is called: A. Capital stock. B. Treasury stock. C. Redeemed stock. D. Preferred stock. E. Callable stock.

Q: A company issued 7% preferred stock with a $100 par value. This means that: A. Preferred shareholders have a guaranteed dividend. B. The amount of the potential dividend is $7 per year per preferred share. C. Preferred shareholders are entitled to 7% of the annual income. D. The market price per share will approximate $100 per share. E. Only 7% of the total paid-in capital can be preferred stock.

Q: A dividend preference for preferred stock means that: A. Preferred stockholders are allocated their dividends before dividends are allocated to common shareholders. B. Preferred shareholders are guaranteed dividends. C. Dividends are paid quarterly. D. Preferred stockholders prefer dividends more than common stockholders. E. Dividends must be declared on preferred stock.

Q: Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as: A. Participating preferred stock. B. Callable preferred stock. C. Cumulative preferred stock. D. Convertible preferred stock. E. Noncumulative preferred stock.

Q: A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating preferred stock and 10,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is: A. $1,000. B. $1,250. C. $2,250. D. $3,500. E. $4,500.

Q: Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as follows: A. $8,000 preferred; $22,000 common. B. $16,000 preferred; $14,000 common. C. $7,500 preferred; $22,500 common. D. $15,000 preferred; $15,000 common. E. $0 preferred; $30,000 common.

Q: Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called: A. Cumulative preferred stock. B. Callable preferred stock. C. Participating preferred stock. D. Convertible preferred stock. E. Preferential preferred stock.

Q: Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called: A. Financial leverage. B. Discount on stock. C. Premium on stock. D. Preemptive right. E. Capital gain.

Q: Preferred stock that the issuing corporation at its option may retire by paying a specified amount to the preferred stockholders is called: A. Convertible preferred stock. B. Callable preferred stock. C. Premium stock. D. Cumulative preferred stock. E. Participating preferred stock.

Q: Preferred stock which confers no right to prior periods unpaid dividends if they were not declared is called: A. Noncumulative preferred stock. B. Participating preferred stock. C. Callable preferred stock. D. Cumulative preferred stock. E. Convertible preferred stock.

Q: A corporation had 10,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 3,000 shares. At the time of the stock dividend, the market value per share was $12. The entry to record this dividend is: A. Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $36,000. B. Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $30,000; credit Paid-In Capital in Excess of Par Value, Common Stock $6,000. C. Debit Common Stock Dividend Distributable $36,000; credit Retained Earnings $36,000. D. Debit Retained Earnings $30,000; credit Common Stock Dividend Distributable $30,000. E. No entry is needed.

Q: A corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record this dividend is: A. Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $135,000. B. Debit Retained Earnings $135,000; credit Cash $135,000. C. Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $100,000; credit Paid-In Capital in Excess of Par Value, Common Stock $35,000. D. Debit Retained Earnings $100,000; credit Common Stock Dividend Distributable $100,000. E. No entry is made until the stock is issued.

Q: A stock dividend transfers: A. Contributed capital to retained earnings. B. Retained earnings to contributed capital. C. Retained earnings to assets. D. Contributed capital to assets. E. Assets to contributed capital.

Q: All of the following statements regarding stock dividends are true except: A. Directors can use stock dividends to keep the market price of the stock affordable. B. Stock dividends provide evidence of management's confidence that the company is doing well. C. Stock dividends do not reduce assets or equity. D. Stock dividends decrease the number of shares outstanding. E. Stock dividends transfer a portion of equity from retained earnings to contributed capital.

Q: On September 1, a corporation had 50,000 shares of $5 par value common stock, and $1,000,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. The general journal entry to record this transaction is: A. Debit Retained Earnings $750,000; credit Common Stock Split Distributable $750,000. B. Debit Retained Earnings $750,000; credit Common Stock $750,000. C. Debit Retained Earnings $250,000; credit Common Stock $250,000. D. Debit Retained Earnings $250,000; credit Stock Split Payable $250,000. E. No entry is made for this transaction.

Q: A stock dividend: A. Is not a liability on the balance sheet. B. Does not reduce a corporation's assets and stockholders' equity. C. Transfers a portion of equity from retained earnings to contributed capital. D. Does not affect total equity, but does affect the components of equity. E. All of the options are correct.

Q: A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a: A. Stock dividend. B. Stock subscription. C. Premium on stock. D. Discount on stock. E. Treasury stock.

Q: A company declared a $0.50 per share cash dividend. The company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common stock outstanding. The journal entry to record the dividend declaration is: A. Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000. B. Debit Common Dividends Payable $4,000; credit Cash $4,000. C. Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500. D. Debit Common Dividends Payable $4,500; credit Cash $4,500. E. Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.

Q: A company's board of directors votes to declare a cash dividend of $.75 per share. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is: A. $10,250. B. $14,625. C. $ 7,125. D. $ 7,500. E. $11,250.

Q: A liability for dividends exists: A. When cumulative preferred stock is sold. B. On the date of declaration. C. On the date of record. D. On the date of payment. E. For dividends in arrears on cumulative preferred stock.

Q: A liquidating dividend is: A. Only declared when a corporation closes down. B. A return of a portion of the capital contributed by stockholders. C. Not allowed under federal law. D. Only paid in assets other than cash. E. Only paid in shares of stock.

Q: The date the directors vote to pay a dividend is called the: A. Date of stockholders' meeting. B. Date of declaration. C. Date of record. D. Date of payment. E. Liquidating date.

Q: A premium on common stock: A. Is the amount paid in excess of par by purchasers of newly issued stock. B. Is the difference between par value and issue price when the amount paid is below par. C. Represents profit from issuing stock. D. Represents capital gain on sale of stock. E. Is prohibited in most states.

Q: A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000. The entry to record this exchange is: A. Debit Land $60,000; credit Common Stock $50,000; credit Paid-In Capital in Excess of Par Value, Common Stock $10,000. B. Debit Land $60,000; credit Common Stock $60,000. C. Debit Land $50,000; credit Common Stock $50,000. D. Debit Common Stock $50,000; debit Paid-In Capital in Excess of Par Value, Common Stock $10,000; credit Land $60,000. E. Debit Common Stock $60,000; credit Land $60,000.

Q: A corporation issued 300 shares of its $5 par value common stock in payment of a $1,800 charge from its accountant for assistance in filing its charter with the state. The entry to record this transaction will include: A. A $1,800 credit to Common Stock. B. A $1,500 debit to Organization Expenses. C. A $300 credit to Paid-in Capital in Excess of Par Value, Common Stock. D. A $1,800 debit to Legal Expenses. E. A $1,800 credit to Cash.

Q: A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that has a market value of $84,000. The entry to record this transaction would include: A. A debit to Common Stock for $60,000. B. A debit to Land for $60,000. C. A credit to Land for $60,000. D. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $24,000. E. A credit to Common Stock for $84,000.

Q: A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include: A. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $42,000. B. A debit to Cash for $140,000. C. A credit to Common Stock for $182,000. D. A credit to Common Stock for $140,000. E. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000.

Q: The Discount on Common Stock account reflects: A. The difference between the par value of stock and its issue price when it is issued at a price below par value. B. One share's portion of the issued corporation's net assets recorded in its accounts. C. The difference between the par value of the stock and the amount paid-in by stockholders when the amount paid-in is more than par value. D. An amount of assets defined by state law that stockholders must invest and leave invested in a corporation. E. The amount a corporation must pay in addition to dividends in arrears if and when it exercises its right to retire a share of callable preferred stock.

Q: A company has 500 shares of $50 par value preferred stock outstanding, and the call price of its preferred stock is $60 per share. It also has 20,000 shares of common stock outstanding, and the total value of its stockholders' equity is $680,000. The company's book value per common share equals: A. $31.71. B. $32.50. C. $32.75. D. $33.17. E. $60.00.

Q: A company has 1,000 shares of $100 par preferred stock. It also has 25,000 shares of common stock outstanding, and its total stockholders' equity equals $500,000. The book value per common share is: A. $ 15.38. B. $ 16.00. C. $ 19.96. D. $ 20.00. E. $100.00.

Q: A company has 40,000 shares of common stock outstanding. The stockholders' equity applicable to common shares is $470,000, and the par value per common share is $10. The book value per share is: A. $ 0.09. B. $ 1.75. C. $10.00. D. $11.75. E. $47.50.

Q: Book value per common share is computed by: A. Multiplying the number of common shares outstanding times the market price per common share. B. Dividing total assets by the number of shares outstanding. C. Dividing stockholders' equity applicable to common shares by the number of common shares outstanding. D. Multiplying the number of common shares outstanding by par value per share. E. Dividing the number of common shares outstanding by stockholders' equity applicable to common shares.

Q: Book value per share: A. Reflects the value per share if a company is liquidated at balance sheet amounts. B. Is assets divided by equity. C. Is assets divided by the number of common shares outstanding. D. Measures the worth of assets. E. Is equal to par value per share.

Q: A company paid $0.75 in cash dividends per share. Its earnings per share is $3.50, and its market price per share is $37.50. Its dividend yield equals: A. 4.7%. B. 2.0%. C. 9.3%. D. 21.4%. E. 46.7%.

Q: A company paid $0.48 in cash dividends per share. Its earnings per share is $4.20 and its market price per share is $30.00. Its dividend yield equals: A. 1.60%. B. 6.25%. C. 8.75%. D. 11.43%. E. 14.00%.

Q: Dividend yield is the percent of cash dividends paid to common shareholders relative to the: A. Common stock's market value. B. Earnings per share. C. Investors' purchase price of the stock. D. Amount of retained earnings. E. Amount of cash.

Q: Stocks that pay relatively large cash dividends on a regular basis are called: A. Small capital stocks. B. Mid capital stocks. C. Growth stocks. D. Large capital stocks. E. Income stocks.