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Exam 10: Stockholders Equity

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Question 1

True/False

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Authorized stock is the number of shares that have been sold to investors. Authorized stock is the total number of shares available to sell, stated in the company's articles of incorporation. Issued stock is the number of shares that have been sold to investors.

A) True
B) False

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Question 2

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We calculate earnings per share as net income divided by the average shares outstanding during the period.

A) True
B) False

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Question 3

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What would be the impact on the accounting equation when a company purchases treasury stock?

Which of the following statements about treasury stock transactions is true?

California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2011. All remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay dividends of $100,000 in 2012. Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

Advantages of the corporate form of business include which of the following? I. Double taxation II. Ability to raise capital III. Lack of mutual agency IV. More paperwork V. Limited liability

Rugby Rocks, Inc. had a Retained Earnings balance of $12,000 at December 31, 2010. The company had an average income of $7,500 over the next 3 years, and an ending Retained Earnings balance of $15,000 at December 31, 2013. What was the total amount of dividends paid over the last three years?

Panhandle Corporation was organized on January 3, 2012. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2012, Panhandle had the following transactions relating to shareholders' equity: Issued 30,000 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. What is total paid-in capital at the end of 2012?

Earnings per share is useful in comparing earnings performance across companies. Earnings per share is useful in comparing earnings performance for the same company over time. Earnings per share cannot be used to compare across companies because of differences in the number of shares outstanding among companies.

The par value of common stock represents:

We calculate the PE ratio as the stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis.

Diane's Designs has two classes of stock authorized: 8%, $10 par preferred and $1 par value common. The following transactions affect stockholders' equity during 2012, its first year of operations: January 1 $\quad$$\quad$ Issue 200,000 shares of common stock for $\$ 15$ per share. February 6 $\quad$$\quad$ Issue 1,000 shares of preferred stock for $\$ 11$ per share. October 10 $\quad$$\quad$ Repurchase 10,000 shares of its own common stock for $18 per share. November 12 $\quad$ Reissue 5,000 shares of treasury stock at $\$ 20$ per share. Record each of these transactions.

Which of the following is TRUE regarding the accounting for treasury stock?

When we reissue treasury stock, we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital.

Both cash dividends and stock dividends:

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

The financial statements of Heatwave Athletic Wear include the following selected data ($ in millions): Sales, $22,502; Net income $875; Beginning stockholders' equity $3,567; Ending stockholders' equity, $4,102. Calculate the return on equity.

Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following except:

Indicate whether each of the following transactions increases (+), decreases (-), or has no effect (NE) on total assets, total liabilities, and total stockholders' equity.

Total assets, total liabilities, and total stockholders' equity do not change as a result of a stock dividend.