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Exam 11: Reporting and Interpreting Stockholders Equity

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Question 121

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Use the information above to answer the following question.What was the amount of Retained Earnings reported in the balance sheet on December 31,2010?

A) $184,000
B) $2,000
C) $71,000
D) $51,500

E) A) and B)
F) A) and C)

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Question 122

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A major advantage of debt financing is that interest expense is tax deductible.

A) True
B) False

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Question 123

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A corporate charter specifies that the company may issue up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.The current number of shares of treasury stock after these transactions have been accounted for is:

An increase in EPS is an indicator of:

Treasury stock:

Delta Inc.had 1,000,000 shares of $4 par value common stock authorized.On December 31,2015,there were 400,000 shares issued and outstanding.The market value of its common stock on that date was $100 per share.On January 5,2016,the board of directors declared a stock dividend. Required: Part a.Assume that you have 100 shares of Delta Inc.common stock.Determine how many shares will you have after a 100% stock dividend. Part b.Briefly explain the how a 100% stock dividend affects the stockholders' equity accounts and the total resources of the company.(Do not quantify the impacts or prepare a journal entry.) Part c.Assume instead that the board declared a 10% stock dividend.Briefly explain how that 10% stock dividend affects the stockholders' equity accounts and the total resources of the company.(Do not quantify the impacts or prepare a journal entry.) Part d.Identify three possible explanations for the declaration of a stock dividend.

Seasoned new issues are:

Hopkins,Inc.has 1,000 shares of common stock and 1,000 shares of preferred stock outstanding.The preferred stock has a cumulative dividend preference.Both classes of stock have a par value of $10.The preferred stock has a dividend rate of 6 percent.Hopkins failed to pay a dividend during the prior year.During the current year,the board of directors declares dividends totaling $2,000.Accordingly,the company will distribute dividends in the amount of:

Double Vision,Inc.had 10,000 shares issued and outstanding of its $1 par value common stock.At December 31,Common Stock equaled $10,000,Retained Earnings equaled $20,000 and Total stockholders' equity equaled $50,000 prior to a 2-for-1 stock split.As a result of a 2-for-1 stock split:

You form a partnership with your best friend.You have contributed 65% of the capital and can claim 65% of the net income.At the end of the first year,you discover that your partner has run up $40,000 in debt using the business' credit card.The maximum you could be liable for is:

Which of the following statements would not explain why a company may want to repurchase its stock?

A stock dividend:

If a company's P/E ratio suddenly decreases:

With regards to the Dividends Payable and Dividends accounts,one of the closing entries required at year end,includes a:

Treasure This,Inc.had total assets of $100,000,total liabilities of $60,000 and stockholders' equity of $40,000 before repurchasing 1,000 shares of its $1 par value common stock for $5 per share.After this repurchase,total assets equal _____,total liabilities equal ______ and stockholders' equity equals ______:

A corporation does not have a legal obligation to pay dividends.

The number of shares outstanding equals the number of shares:

Advantages of equity financing over debt financing include that:

Groucho,Harpo,and Chico go into partnership on January 1,2015.Groucho contributes $90,000,Harpo $70,000,and Chico $40,000 to a business called Marx Brothers' Partnership.On a monthly basis,each partner is allocated income and is allowed to receive cash from the business in proportion to the capital they provided.Assume that Groucho receives $2,700 cash per month. Required: Part a.Prepare the journal entry for the initial investment. Part b.Determine the monthly distribution amounts for each of the three partners. Part c.Prepare the journal entry that would be made in one month for the monthly distribution. Part d.Prepare the journal entry for the allocation of an annual net income of $84,000.For purposes of this journal entry,assume Sales Revenue totaled $116,000 and that all expenses,totaling $32,000,were recorded in a single account called Operating Expenses. Part e.Prepare the journal entry to close the Drawings accounts at the end of the year. Part f.Prepare a Statement of Partners' Equity (assume no additional investments made).

Typically,a profitable company that pays relatively high dividends: