Ifr 2 Chapter 18 Mc

Front 1

Paid-in capital must consist solely of amounts invested by shareholders.

Back 1

False

Front 2

Investments in corporate stock typically are more marketable than investments in other forms of businesses.

Back 2

True

Front 3

Stock dividends are subject to double taxation.

Back 3

False

Front 4

The primary reason for the existence of hybrid organizations, such as S corporations, relates to income tax statutes and legal liability issues.

Back 4

True

Front 5

The preemptive right generally is very important to purchasers of common stock

Back 5

False

Front 6

All stock must be classified and reported as either common or preferred.

Back 6

False

Front 7

Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions

Back 7

True

Front 8

Dividends in arrears on cumulative preferred stock are reported as current liabilities.

Back 8

False

Front 9

Receivables from share purchase contracts are reported as current and noncurrent assets depending upon the terms of the underlying note.

Back 9

False

Front 10

Noncash assets received as consideration for the sale of stock always are valued based on the fair market value of the stock.

Back 10

False

Front 11

When more than one security is sold for a single price, the allocation of the proceeds is determined the same as any other situation when more than one item is associated with a single purchase or selling price.

Back 11

True

Front 12

A retirement of shares repurchased for a price greater than par value will always cause a reduction in total paid-in capital and sometimes retained earnings as well.

Back 12

True

Front 13

Treasury stock transactions never increase retained earnings or net income.

Back 13

True

Front 14

Restrictions on retained earnings must be disclosed in the body of the balance sheet.

Back 14

False

Front 15

Cash dividends become a binding liability as of the record date.

Back 15

False

Front 16

Under GAAP, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the property is different from its carrying value on the declaration date.

Back 16

True

Front 17

Stock dividends may cause a reduction in retained earnings, but they never reduce total shareholders' equity

Back 17

True

Front 18

Reverse stock splits usually are motivated by a desire of a corporation to decrease the market price of its stock

Back 18

False

Front 19

The return on shareholders' equity will be greater than the earnings-price ratio if a stock's book value per share is less than its market value per share.

Back 19

True

Front 20

An increase in a stock's market price will cause an increase in its earnings-price ratio if earnings per share remain unchanged.

Back 20

False

Front 21

Retained earnings represent:
a. Earned capital.
b. Cash.
c. Assets.
d. Net assets.

Back 21

a. Earned capital

Front 22

The two primary components of shareholders' equity are:
a. Preferred stock and retained earnings.
b. The par value of common stock plus retained earnings.
c. Paid-in capital and retained earnings.
d. Preferred and common stock.

Back 22

c. Paid-in capital and retained earnings

Front 23

Unrealized pension cost is included among shareholders' equity as:
a. Future earnings.
b. An addition to paid-in capital.
c. A restriction of retained earnings.
d. A contra account.

Back 23

d. A contra account

Front 24

Details of each class of stock must be reported:
a. On the face of the balance sheet only.
b. In disclosure notes only.
c. On the face of the balance sheet or in disclosure notes.
d. On the face of the balance sheet and in disclosure notes.

Back 24

c. On the face of the balance sheet or in disclosure notes

Front 25

The preemptive right refers to the shareholder's right to:
a. Maintain a proportional ownership interest in the corporation.
b. Vote for members of the board of directors.
c. Receive a share of dividends.
d. Share in profits proportionally with all other stockholders

Back 25

a. Maintain a proportional ownership interest in the corporation

Front 26

Common shareholders usually have all of the following rights except:
a. To share in the profits.
b. To share in assets upon liquidation.
c. To elect a board of directors.
d. To participate in the day-to-day operations.

Back 26

d. To participate in the day-to-day operations

Front 27

Corporations are formed in accordance with:
a. The Model Business Corporation Act.
b. Federal statutes.
c. The laws of individual states.
d. Federal trade commission regulations.

Back 27

c. The laws of individual states

Front 28

Preferred stock is called preferred because it usually has two preferences. These preferences relate to:
a. Dividends and voting rights.
b. Par value and dividends.
c. The preemptive right and voting rights.
d. Assets at liquidation and dividends.

Back 28

d. Assets at liquidation and dividends

Front 29

Authorized capital stock refers to the total number of shares:
a. Outstanding.
b. Issued.
c. Issued and outstanding.
d. That can be issued.

Back 29

d. That can be issued

Front 30

The par value of common stock represents:
a. The arbitrary dollar amount assigned to a share of stock.
b. The liquidation value of a share.
c. The book value of a share of stock.
d. The amount received when the stock was sold.

Back 30

a. The arbitrary dollar amount assigned to a share of stock

Front 31

Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock?
a. The shareholders must be allowed to convert their shares to common stock.
b. The unpaid dividends are accrued as a liability.
c. The unpaid dividends are reported in a note to the financial statements.
d. The unpaid dividends accrue interest until paid.

Back 31

c. The unpaid dividends are reported in a note to the financial statements

Front 32

Preferred shares that are participating may:
a. Vote for the board of directors.
b. Be exchanged for common stock.
c. Receive extra cash during corporate liquidation.
d. Receive additional dividends beyond the stated amount.

Back 32

d. Receive additional dividends beyond the stated amount

Front 33

When preferred stock carries a redemption privilege, the shareholders may:
a. Purchase new shares as they become available.
b. Exchange their preferred shares for common shares.
c. Surrender the preferred shares for a specified amount of cash.
d. Purchase treasury shares ahead of common shareholders.

Back 33

c. Surrender the preferred shares for a specified amount of cash

Front 34

When treasury shares accounted for under the cost method are sold at a price above cost:
a. A gain account is credited.
b. A loss is reported.
c. A revenue account is credited.
d. Additional paid-in capital is increased.

Back 34

d. Additional paid-in capital is increased

Front 35

When treasury shares accounted for under the cost method are sold at a price below cost:
a. Additional paid-in capital and/or retained earnings is reduced.
b. Additional paid-in capital and/or retained earnings is increased.
c. Retained earnings is always reduced.
d. A loss is taken on the income statement.

Back 35

a. Additional paid-in capital and/or retained earnings is reduced

Front 36

When stock is issued in exchange for property, the best evidence of market value might be any of the following except:
a. The appraised value of the property received.
b. The selling price of the stock in a recent transaction.
c. The price of the stock quoted on the stock exchange.
d. The average book value of outstanding stock.

Back 36

d. The average book value of outstanding stock

Front 37

When stock is sold under a stock subscription:
a. No entry is recorded until the shares are fully paid for.
b. An assets is recorded for the receivable from share purchase contract.
c. A credit is made to common stock upon receipt of the subscription.
d. A debit is made to paid-in capital - excess of par.

Back 37

c. A credit is made to common stock upon receipt of the subscription

Front 38

The SEC requires that a receivable from a share purchase contract be reported:
a. As a reduction of paid-in capital.
b. As a current asset.
c. As a noncurrent asset.
d. As an increase in shareholders' equity.

Back 38

a. As a reduction of paid-in capital

Front 39

When more than one security is sold for a single price and the total selling price is not equal to the sum of the market prices, the cash received is allocated between the securities based on:
a. Relative book values.
b. Par values.
c. Relative market values.
d. The earnings per share.

Back 39

c. Relative market values

Front 40

The retained earnings balance reported on the balance sheet typically is not affected by:
a. Net income.
b. A prior period adjustment.
c. Dividends paid.
d. Restrictions.

Back 40

d. Restrictions

Front 41

When dividends are declared in one fiscal year and paid in the next fiscal year, the liability for the dividend should be recorded as of the:
a. Date the dividend is declared.
b. Last day of the fiscal year.
c. Date of record.
d. Date of payment.

Back 41

a. Date the dividend is declared

Front 42

Any dividend that is considered to be a liquidating dividend will:
a. Reduce retained earnings.
b. Reduce additional paid-in capital.
c. Increase additional paid-in capital.
d. Reduce the common stock account.

Back 42

b. Reduce additional paid-in capital

Front 43

The declaration and issuance of a common stock dividend:
a. Has no effect on assets, liabilities, or total shareholders' equity.
b. Decreases total shareholders' equity and increases common stock.
c. Decreases assets and decreases total shareholders' equity.
d. Does not change retained earnings or paid-in capital.

Back 43

a. Has no effect on assets, liabilities, or total shareholders' equity

Front 44

A small stock dividend is defined as one that is:
a. Less than or equal to 25%.
b. Less than 20%.
c. Less than or equal to 20%.
d. Less than 25%.

Back 44

d. Less than 25%