TRUE-FALSE—Conceptual

1. A corporation is incorporated in only one state regardless of the number of states in which
it operates. T

2. The preemptive right allows stockholders the right to vote for directors of the company. F

3. Common stock is the residual corporate interest that bears the ultimate risks of loss. T

4. Earned capital consists of additional paid-in capital and retained earnings. F

5. True no-par stock should be carried in the accounts at issue price without any additional
paid-in capital reported. T

6. Companies allocate the proceeds received from a lump-sum sale of securities based on
the securities’ par values. F

7. Companies should record stock issued for services or noncash property at either the fair
value of the stock issued or the fair value of the consideration received. T

8. Treasury stock is a company’s own stock that has been reacquired and retired. F

9. The cost method records all transactions in treasury shares at their cost and reports the
treasury stock as a deduction from capital stock. F

10. When a corporation sells treasury stock below its cost, it usually debits the difference
between cost and selling price to Paid-in Capital from Treasury Stock. T

11. Participating preferred stock requires that if a company fails to pay a dividend in any year,
it must make it up in a later year before paying any common dividends. F

12. Callable preferred stock permits the corporation at its option to redeem the outstanding
preferred shares at stipulated prices. T

13. The laws of some states require that corporations restrict their legal capital from
distribution to stockholders. T

14. The SEC requires companies to disclose their dividend policy in their annual report. F

15. All dividends, except for liquidating dividends, reduce the total stockholders’ equity of a
corporation. F

16. Dividends payable in assets of the corporation other than cash are called property
dividends or dividends in kind. T

17. When a stock dividend is less than 20-25 percent of the common stock outstanding, a
company is required to transfer the fair value of the stock issued from retained earnings.
T

18. Stock splits and large stock dividends have the same effect on a company’s retained
earnings and total stockholders’ equity. F
15 - 2 Test Bank for Intermediate Accounting, Thirteenth Edition

19. The rate of return on common stock equity is computed by dividing net income by the
average common stockholders’ equity. F

20. The payout ratio is determined by dividing cash dividends paid to common stockholders
by net income available to common stockholders. T

21. The residual interest in a corporation belongs to the

c. common stockholders.

22. The pre-emptive right of a common stockholder is the right to

b. share proportionately in any new issues of stock of the same class.

23. The pre-emptive right enables a stockholder to

a. share proportionately in any new issues of stock of the same class.
S
24. In a corporate form of business organization, legal capital is best defined as
b. the par value of all capital stock issued.
S
25. Stockholders of a business enterprise are said to be the residual owners. The term
residual owner means that shareholders
c. bear the ultimate risks and uncertainties and receive the benefits of enterprise
ownership.

26. Total stockholders' equity represents

c. a claim against a portion of the total assets of an enterprise.

27. A primary source of stockholders' equity is

d. both income retained by the corporation and contributions by stockholders.

28. Stockholders' equity is generally classified into two major categories:

d. earned capital and contributed capital.

29. The accounting problem in a lump sum issuance is the allocation of proceeds between the
classes of securities. An acceptable method of allocation is the
d. either the proportional method or the incremental method.

30. When a corporation issues its capital stock in payment for services, the least appropriate
basis for recording the transaction is the
b. par value of the shares issued.

31. Direct costs incurred to sell stock such as underwriting costs should be accounted for as
1. a reduction of additional paid-in capital.
2. an expense of the period in which the stock is issued.
3. an intangible asset.
a. 1

32. A "secret reserve" will be created if

b. a capital expenditure is charged to expense.
P
33. Which of the following represents the total number of shares that a corporation may issue
under the terms of its charter?
 Stockholders’ Equity 15 - 3

a. authorized shares
S
34. Stock that has a fixed per-share amount printed on each stock certificate is called
b. fixed value stock.
S
35. Which of the following is not a legal restriction related to profit distributions by a
corporation?
d. Dividends must be in full agreement with the capital stock contracts as to
preferences and participation.
S
36. In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of
its $10 par common stock for $15 per share. On July 1, 2010, Finley Corporation
reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of
these treasury shares
a. decreased total stockholders' equity.
P
37. Treasury shares are
d. issued but not outstanding shares.

38. When treasury stock is purchased for more than the par value of the stock and the cost
method is used to account for treasury stock, what account(s) should be debited?
c. Treasury stock for the purchase price.
39. “Gains" on sales of treasury stock (using the cost method) should be credited to
a. paid-in capital from treasury stock.

40. Porter Corp. purchased its own par value stock on January 1, 2010 for $20,000 and
debited the treasury stock account for the purchase price. The stock was subsequently
sold for $12,000. The $8,000 difference between the cost and sales price should be
recorded as a deduction from
a. additional paid-in capital to the extent that previous net "gains" from sales of
the same class of stock are included therein; otherwise, from retained earnings.

41. How should a "gain" from the sale of treasury stock be reflected when using the cost
method of recording treasury stock transactions?
b. As paid-in capital from treasury stock transactions.

42. Which of the following best describes a possible result of treasury stock transactions by a
corporation?
c. May decrease but not increase retained earnings.

43. Which of the following features of preferred stock makes the security more like debt than
an equity instrument?
c. Redeemable

44. The cumulative feature of preferred stock

b. requires that dividends not paid in any year must be made up in a later year
before dividends are distributed to common shareholders.
P
45. According to the FASB, redeemable preferred stock should be
b. included as a liability.
S
46. Cumulative preferred dividends in arrears should be shown in a corporation's balance
sheet as
15 - 4 Test Bank for Intermediate Accounting, Thirteenth Edition

c. a footnote.

47. At the date of the financial statements, common stock shares issued would exceed
common stock shares outstanding as a result of the
c. purchase of treasury stock.

48. An entry is not made on the

b. date of record.

49. Cash dividends are paid on the basis of the number of shares
c. outstanding.

50. Which of the following statements about property dividends is not true?
c. The accounting for a property dividend should be based on the carrying value
(book value) of the nonmonetary assets transferred.

51. Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December
31, 2010, Houser distributed these shares of stock as a dividend to its stockholders. This
is an example of a
a. property dividend.

52. A dividend which is a return to stockholders of a portion of their original investments is a

a. liquidating dividend.

53. A mining company declared a liquidating dividend. The journal entry to record the
declaration must include a debit to
b. a paid-in capital account.

54. If management wishes to "capitalize" part of the earnings, it may issue a

b. stock dividend.

55. Which dividends do not reduce stockholders' equity?

b. Stock dividends

56. The declaration and issuance of a stock dividend larger than 25% of the shares previously
outstanding
b. decreases retained earnings but does not change total stockholders' equity.

57. Quirk Corporation issued a 100% stock dividend of its common stock which had a par
value of $10 before and after the dividend. At what amount should retained earnings be
capitalized for the additional shares issued?
b. Par value

58. The issuer of a 5% common stock dividend to common stockholders preferably should
transfer from retained earnings to contributed capital an amount equal to the
a. market value of the shares issued.
59. At the date of declaration of a small common stock dividend, the entry should not include
a. a credit to Common Stock Dividend Payable.

60. The balance in Common Stock Dividend Distributable should be reported as a(n)
b. addition to capital stock.
 Stockholders’ Equity 15 - 5

61. A feature common to both stock splits and stock dividends is

b. that there is no effect on total stockholders' equity.

62. What effect does the issuance of a 2-for-1 stock split have on each of the following?
Par Value per Share Retained Earnings
c. Decrease No effect

63. Which one of the following disclosures should be made in the equity section of the
balance sheet, rather than in the notes to the financial statements?
b. Liquidation preferences

64. The rate of return on common stock equity is calculated by dividing

a. net income less preferred dividends by average common stockholders’ equity.

65. The payout ratio can be calculated by dividing

b. cash dividends by net income less preferred dividends.

66. Younger Company has outstanding both common stock and nonparticipating, non-
cumulative preferred stock. The liquidation value of the preferred is equal to its par value.
The book value per share of the common stock is unaffected by
c. the payment of a previously declared cash dividend on the common stock.
P
67. Assume common stock is the only class of stock outstanding in the Manley Corporation.
Total stockholders' equity divided by the number of common stock shares outstanding is
called
a. book value per share.

*68. Dividends are not paid on

c. treasury common stock.

*69. Noncumulative preferred dividends in arrears

a. are not paid or disclosed.

*70. How should cumulative preferred dividends in arrears be shown in a corporation's

statement of financial position?
a. Note disclosure
Presented below is information related to Hale Corporation:
Common Stock, $1 par $4,300,000
Paid-in Capital in Excess of Par—Common Stock 550,000
Preferred 8 1/2% Stock, $50 par 2,000,000
Paid-in Capital in Excess of Par—Preferred Stock 400,000
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000

71. The total stockholders' equity of Hale Corporation is

a. $8,600,000.

72. The total paid-in capital (cash collected) related to the common stock is
b. $4,850,000.
15 - 6 Test Bank for Intermediate Accounting, Thirteenth Edition

73. Manning Company issued 10,000 shares of its $5 par value common stock having a
market value of $25 per share and 15,000 shares of its $15 par value preferred stock
having a market value of $20 per share for a lump sum of $480,000. How much of the
proceeds would be allocated to the common stock?
b. $218,182

74. Norton Company issues 4,000 shares of its $5 par value common stock having a market
value of $25 per share and 6,000 shares of its $15 par value preferred stock having a
market value of $20 per share for a lump sum of $192,000. What amount of the proceeds
should be allocated to the preferred stock?
c. $104,727

75. Berry Corporation has 50,000 shares of $10 par common stock authorized. The following
transactions took place during 2010, the first year of the corporation’s existence:
Sold 5,000 shares of common stock for $18 per share.
Issued 5,000 shares of common stock in exchange for a patent valued at $100,000.
At the end of the Berry’s first year, total paid-in capital amounted to
d. $190,000.
76. Glavine Company issues 6,000 shares of its $5 par value common stock having a market
value of $25 per share and 9,000 shares of its $15 par value preferred stock having a
market value of $20 per share for a lump sum of $288,000. The proceeds allocated to the
common stock is
b. $130,909

77. Wheeler Company issued 5,000 shares of its $5 par value common stock having a market
value of $25 per share and 7,500 shares of its $15 par value preferred stock having a
market value of $20 per share for a lump sum of $240,000. The proceeds allocated to the
preferred stock is
c. $130,909

78. Pember Corporation started business in 2005 by issuing 200,000 shares of $20 par
common stock for $36 each. In 2010, 20,000 of these shares were purchased for $52 per
share by Pember Corporation and held as treasury stock. On June 15, 2011, these 20,000
shares were exchanged for a piece of property that had an assessed value of $810,000.
Perber’s stock is actively traded and had a market price of $60 on June 15, 2011. The
cost method is used to account for treasury stock. The amount of paid-in capital from
treasury stock transactions resulting from the above events would be
d. $160,000.

79. On September 1, 2010, Valdez Company reacquired 12,000 shares of its $10 par value
common stock for $15 per share. Valdez uses the cost method to account for treasury
stock. The journal entry to record the reacquisition of the stock should debit
d. Treasury Stock for $180,000.

80. Gannon Company acquired 6,000 shares of its own common stock at $20 per share on
February 5, 2010, and sold 3,000 of these shares at $27 per share on August 9, 2011.
The market value of Gannon's common stock was $24 per share at December 31, 2010,
and $25 per share at December 31, 2011. The cost method is used to record treasury
stock transactions. What account(s) should Gannon credit in 2011 to record the sale of
3,000 shares?
b. Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $21,000.
 Stockholders’ Equity 15 - 7

81. Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. Long acquired
8,000 shares of its own common stock at $15 per share. Three months later Long sold
4,000 of these shares at $19 per share. If the cost method is used to record treasury stock
transactions, to record the sale of the 4,000 treasury shares, Long should credit
c. Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $16,000.

82. An analysis of stockholders' equity of Hahn Corporation as of January 1, 2010, is as

follows:
Common stock, par value $20; authorized 100,000 shares;
issued and outstanding 90,000 shares $1,800,000
Paid-in capital in excess of par 900,000
Retained earnings 760,000
Total $3,460,000
Hahn uses the cost method of accounting for treasury stock and during 2010 entered into
the following transactions:
Acquired 2,500 shares of its stock for $75,000.
Sold 2,000 treasury shares at $35 per share.
Sold the remaining treasury shares at $20 per share.
Assuming no other equity transactions occurred during 2010, what should Hahn report at
December 31, 2010, as total additional paid-in capital?
c. $905,000

83. Percy Corporation was organized on January 1, 2010, with an authorization of 1,200,000
shares of common stock with a par value of $6 per share. During 2010, the corporation
had the following capital transactions:
January 5 issued 675,000 shares @ $10 per share
July 28 purchased 90,000 shares @ $11 per share
December 31 sold the 90,000 shares held in treasury @ $18 per share
Percy used the cost method to record the purchase and reissuance of the treasury
shares. What is the total amount of additional paid-in capital as of December 31, 2010?
d. $3,330,000.

84. Sosa Co.'s stockholders' equity at January 1, 2010 is as follows:

Common stock, $10 par value; authorized 300,000 shares;
Outstanding 225,000 shares $2,250,000
Paid-in capital in excess of par 900,000
Retained earnings 2,190,000
Total $5,340,000
During 2010, Sosa had the following stock transactions:
Acquired 6,000 shares of its stock for $270,000.
Sold 3,600 treasury shares at $50 a share.
Sold the remaining treasury shares at $41 per share.
No other stock transactions occurred during 2010. Assuming Sosa uses the cost method
to record treasury stock transactions, the total amount of all additional paid-in capital
accounts at December 31, 2010 is
c. $908,400.
15 - 8 Test Bank for Intermediate Accounting, Thirteenth Edition

85. Presented below is the stockholders' equity section of Oaks Corporation at December 31,
2010:
Common stock, par value $20; authorized 75,000 shares;
issued and outstanding 45,000 shares $ 900,000
Paid-in capital in excess of par value 250,000
Retained earnings 500,000
$1,650,000
During 2011, the following transactions occurred relating to stockholders' equity:
3,000 shares were reacquired at $28 per share.
3,000 shares were reacquired at $35 per share.
1,800 shares of treasury stock were sold at $30 per share.
For the year ended December 31, 2011, Oaks reported net income of $450,000.
Assuming Oaks accounts for treasury stock under the cost method, what should it report
as total stockholders' equity on its December 31, 2011, balance sheet?
a. $1,965,000.

86. On December 1, 2010, Abel Corporation exchanged 20,000 shares of its $10 par value
common stock held in treasury for a used machine. The treasury shares were acquired by
Abel at a cost of $40 per share, and are accounted for under the cost method. On the date
of the exchange, the common stock had a market value of $55 per share (the shares were
originally issued at $30 per share). As a result of this exchange, Abel's total stockholders'
equity will increase by
c. $1,100,000.

87. Luther Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2011, and
December 31, 2010. The board of directors declared and paid a $5,000 dividend in 2010.
In 2011, $24,000 of dividends are declared and paid. What are the dividends received by
the preferred stockholders in 2011?
c. $ 7,000

88. Anders, Inc., has 5,000 shares of 5%, $100 par value, cumulative preferred stock and
20,000 shares of $1 par value common stock outstanding at December 31, 2011. There
were no dividends declared in 2009. The board of directors declares and pays a $45,000
dividend in 2010 and in 2011. What is the amount of dividends received by the common
stockholders in 2011?
a. $15,000
89. Colson Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 7%, $100
par value cumulative preferred stock outstanding. It is one year in arrears on its preferred
stock. How much cash will Colson distribute to the common stockholders?
a. $76,000.
90. Pierson Corporation owned 10,000 shares of Hunter Corporation. These shares were
purchased in 2007 for $90,000. On November 15, 2011, Pierson declared a property
dividend of one share of Hunter for every ten shares of Pierson held by a stockholder. On
that date, when the market price of Hunter was $14 per share, there were 90,000 shares
of Pierson outstanding. What gain and net reduction in retained earnings would result
from this property dividend?
Gain Net Reduction in
Retained Earnings
 Stockholders’ Equity 15 - 9

c. $45,000 $ 81,000
91. Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were
purchased in 2007 for $270,000. On November 15, 2011, Stinson declared a property
dividend of one share of Matile for every ten shares of Stinson held by a stockholder. On
that date, when the market price of Matile was $14 per share, there were 270,000 shares
of Stinson outstanding. What gain and net reduction in retained earnings would result from
this property dividend?
Gain Net Reduction in
Retained Earnings
d. $135,000 $243,000

92. Winger Corporation owned 900,000 shares of Fegan Corporation stock. On December 31,
2010, when Winger's account "Investment in Common Stock of Fegan Corporation" had a
carrying value of $5 per share, Winger distributed these shares to its stockholders as a
dividend. Winger originally paid $8 for each share. Fegan has 3,000,000 shares issued
and outstanding, which are traded on a national stock exchange. The quoted market price
for a Fegan share was $7 on the declaration date and $9 on the distribution date.
What would be the reduction in Winger's stockholders' equity as a result of the above
transactions?
b. $4,500,000.

93. Gibbs Corporation owned 20,000 shares of Oliver Corporation’s $5 par value common
stock. These shares were purchased in 2007 for $180,000. On September 15, 2011,
Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs
held by a stockholder. On that date, when the market price of Oliver was $14 per share,
there were 180,000 shares of Gibbs outstanding. What NET reduction in retained
earnings would result from this property dividend?
d. $162,000

94. Melvern’s Corporation has an investment in 5,000 shares of Wallace Company common
stock with a cost of $218,000. These shares are used in a property dividend to
stockholders of Melvern’s. The property dividend is declared on May 25 and scheduled to
be distributed on July 31 to stockholders of record on June 15. The market value per
share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net
effect of this property dividend on retained earnings is a reduction of
d. $218,000.

95. Hernandez Company has 350,000 shares of $10 par value common stock outstanding.
During the year, Hernandez declared a 10% stock dividend when the market price of the
stock was $30 per share. Four months later Hernandez declared a $.50 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by
a. $1,242,500.

96. On June 30, 2010, when Ermler Co.'s stock was selling at $65 per share, its capital
accounts were as follows:
Capital stock (par value $50; 60,000 shares issued) $3,000,000
Premium on capital stock 600,000
Retained earnings 4,200,000
15 - 10 Test Bank for Intermediate Accounting, Thirteenth Edition

If a 100% stock dividend were declared and distributed, capital stock would be
c. $6,000,000.

97. The stockholders' equity section of Gunkel Corporation as of December 31, 2010, was as
follows:
Common stock, par value $2; authorized 20,000 shares;
issued and outstanding 10,000 shares $ 20,000
Paid-in capital in excess of par 30,000
Retained earnings 75,000
$125,000
On March 1, 2011, the board of directors declared a 15% stock dividend, and accordingly
1,500 additional shares were issued. On March 1, 2011, the fair market value of the stock
was $6 per share. For the two months ended February 28, 2011, Gunkel sustained a net
loss of $10,000.
What amount should Gunkel report as retained earnings as of March 1, 2011?
a. $56,000.
98. The stockholders' equity of Howell Company at July 31, 2010 is presented below:
Common stock, par value $20, authorized 400,000 shares;
issued and outstanding 160,000 shares $3,200,000
Paid-in capital in excess of par 160,000
Retained earnings 650,000
$4,010,000
On August 1, 2010, the board of directors of Howell declared a 15% stock dividend on
common stock, to be distributed on September 15th. The market price of Howell's
common stock was $35 on August 1, 2010, and $38 on September 15, 2010. What is the
amount of the debit to retained earnings as a result of the declaration and distribution of
this stock dividend?
b. $840,000.

99. On January 1, 2010, Dodd, Inc., declared a 10% stock dividend on its common stock
when the market value of the common stock was $20 per share. Stockholders' equity
before the stock dividend was declared consisted of:
Common stock, $10 par value, authorized 200,000 shares;
issued and outstanding 120,000 shares $1,200,000
Additional paid-in capital on common stock 150,000
Retained earnings 700,000
Total stockholders' equity $2,050,000
What was the effect on Dodd’s retained earnings as a result of the above transaction?
b. $240,000 decrease

100. On January 1, 2010, Culver Corporation had 110,000 shares of its $5 par value common
stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held
in the treasury. On December 1, when the market price of the stock was $8, the
corporation declared a 10% stock dividend to be issued to stockholders of record on
December 16, 2010. What was the impact of the 10% stock dividend on the balance of the
retained earnings account?
b. $80,000 decrease
101. At the beginning of 2011, Flaherty Company had retained earnings of $200,000. During
the year Flaherty reported net income of $100,000, sold treasury stock at a “gain” of
 Stockholders’ Equity 15 - 11

$36,000, declared a cash dividend of $60,000, and declared and issued a small stock
dividend of 3,000 shares ($10 par value) when the market value of the stock was $20 per
share. The amount of retained earnings available for dividends at the end of 2011 was
a. $180,000.

102. Masterson Company has 420,000 shares of $10 par value common stock outstanding.
During the year Masterson declared a 5% stock dividend when the market price of the
stock was $36 per share. Three months later Masterson declared a $.60 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by
a. $1,020,600

Questions 103 and 104 are based on the following information.

Layne Corporation had the following information in its financial statements for the years ended
2010 and 2011:
Cash dividends for the year 2011 $ 8,000
Net income for the year ended 2011 93,000
Market price of stock, 12/31/10 10
Market price of stock, 12/31/11 12
Common stockholders’ equity, 12/31/10 1,600,000
Common stockholders’ equity, 12/31/11 1,800,000
Outstanding shares, 12/31/11 150,000
Preferred dividends for the year ended 2011 15,000

103. What is the payout ratio for Layne Corporation for the year ended 2011?
c. 10.3%
104. What is the book value per share for Layne Corporation for the year ended 2011?
a. $12.00
105. At the beginning of 2011, Hamilton Company had retained earnings of $150,000. During
the year Hamilton reported net income of $75,000, sold treasury stock at a “gain” of
$27,000, declared a cash dividend of $45,000, and declared and issued a small stock
dividend of 1,500 shares ($10 par value) when the market value of the stock was $30 per
share. The amount of retained earnings available for dividends at the end of 2011 was:
d. $135,000.

106. Mingenback Company has 560,000 shares of $10 par value common stock outstanding.
During the year Mingenback declared a 5% stock dividend when the market price of the
stock was $48 per share. Two months later Mingenback declared a $.60 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by:
d. $1,696,800.

Questions 107 and 108 are based on the following information.

Sealy Corporation had the following information in its financial statements for the years ended
2010 and 2011:
Cash dividends for the year 2011 $ 5,000
Net income for the year ended 2011 72,000
Market price of stock, 12/31/10 10
15 - 12 Test Bank for Intermediate Accounting, Thirteenth Edition

Market price of stock, 12/31/11 12

Common stockholders’ equity, 12/31/10 1,000,000
Common stockholders’ equity, 12/31/11 1,200,000
Outstanding shares, 12/31/11 100,000
Preferred dividends for the year ended 2011 10,000

107. What is the rate of return on common stock equity for Sealy Corporation for the year
ended 2011?
c. 5.6%
108. What is the price-earnings ratio for Sealy Corporation for the year ended 2011?
c. 19.4
109. Mays, Inc. had net income for 2010 of $2,120,000 and earnings per share on common
stock of $5. Included in the net income was $300,000 of bond interest expense related to
its long-term debt. The income tax rate for 2010 was 30%. Dividends on preferred stock
were $400,000. The payout ratio on common stock was 25%. What were the dividends on
common stock in 2010?
a. $430,000.

110. Presented below is information related to Orender, Inc.:

December 31,
2011 2010
Common stock $ 75,000 $ 60,000
4% Preferred stock 350,000 350,000
Retained earnings (includes net income for current year) 90,000 75,000
Net income for year 30,000 32,000
What is Orender’s rate of return on common stock equity for 2011?
b. 10.7%

Use the following information for questions 111 and 112.

The following data are provided:

December 31,
2011 2010
10% Cumulative preferred stock, $50 par $100,000 $100,000
Common stock, $10 par 120,000 90,000
Additional paid-in capital 80,000 65,000
Retained earnings (includes current year net income) 240,000 215,000
Net income 90,000
Additional information:
On May 1, 2011, 3,000 shares of common stock were issued. The preferred dividends were not
declared during 2011. The market price of the common stock was $50 at December 31, 2011.

111. The rate of return on common stock equity for 2011 is

c. 80 ÷ 400.

112. The book value per share of common stock at 12/31/11 is

a. 430 ÷ 12.
Use the following information for questions 113 and 114.
 Stockholders’ Equity 15 - 13

Turner Corporation had the following information in its financial statements for the year ended
2010 and 2011:
Cash dividends for the year 2011 $ 15,000
Net income for the year ended 2011 124,000
Market price of stock, 12/31/11 24
Common stockholders’ equity, 12/31/10 2,200,000
Common stockholders’ equity, 12/31/11 2,400,000
Outstanding shares, 12/31/11 120,000
Preferred dividends for the year ended 2011 30,000

113. What is the payout ratio for Turner Corporation for the year ended 2011?
b. 16.0%

114. What is the book value per share for Turner Corporation for the year ended 2011?
b. $20.00

Use the following information for questions 115 through 117.

Written, Inc. has outstanding 300,000 shares of $2 par common stock and 60,000 shares of no-
par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and
nonparticipating. Dividends have been paid in every year except the past two years and the
current year.

*115. Assuming that $150,000 will be distributed as a dividend in the current year, how much
will the common stockholders receive?
b. $78,000.

*116. Assuming that $63,000 will be distributed as a dividend in the current year, how much will
the preferred stockholders receive?
d. $63,000.

*117. Assuming that $183,000 will be distributed, and the preferred stock is also participating,
how much will the common stockholders receive?
b. $90,000.

*118. Yoder, Inc. has 50,000 shares of $10 par value common stock and 25,000 shares of $10
par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the
preferred stock are one year in arrears. Assuming that Yoder wishes to distribute
$135,000 as dividends, the common stockholders will receive
c. $80,000.

*119. Mann Co. has outstanding 50,000 shares of 8% preferred stock with a $10 par value and
125,000 shares of $3 par value common stock. Dividends have been paid every year
except last year and the current year. If the preferred stock is cumulative and
nonparticipating and $250,000 is distributed, the common stockholders will receive
b. $170,000.

120. A corporation was organized in January 2007 with authorized capital of $10 par value
common stock. On February 1, 2010, shares were issued at par for cash. On March 1,
15 - 14 Test Bank for Intermediate Accounting, Thirteenth Edition

2010, the corporation's attorney accepted 7,000 shares of common stock in settlement for
legal services with a fair value of $90,000. Additional paid-in capital would increase on
February 1, 2010 March 1, 2010
d. No Yes
121. On July 1, 2010, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000
shares of its $10 par convertible preferred stock for a lump sum of $125,000. At this date
Nall's common stock was selling for $24 per share and the convertible preferred stock for
$18 per share. The amount of the proceeds allocated to Nall's preferred stock should be
b. $75,000.

122. Horton Co. was organized on January 2, 2010, with 500,000 authorized shares of $10 par
value common stock. During 2010, Horton had the following capital transactions:
January 5—issued 375,000 shares at $14 per share.
July 27—purchased 25,000 shares at $11 per share.
November 25—sold 15,000 shares of treasury stock at $13 per share.
Horton used the cost method to record the purchase of the treasury shares. What would
be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2010?
c. $30,000.

123. In 2010, Hobbs Corp. acquired 9,000 shares of its own $1 par value common stock at $18
per share. In 2011, Hobbs issued 4,000 of these shares at $25 per share. Hobbs uses the
cost method to account for its treasury stock transactions. What accounts and what
amounts should Hobbs credit in 2011 to record the issuance of the 4,000 shares?
Treasury Additional Retained Common
Stock Paid-in Capital Earnings Stock
b. $72,000 $28,000

124. At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common
stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its
common stock at a price of $16 per share and accounted for them by the cost method.
Subsequently, these shares were reissued at a price of $12 per share. There have been
no other issuances or acquisitions of its own common stock. What effect does the
reissuance of the stock have on the following accounts?
Retained Earnings Additional Paid-in Capital
c. Decrease No effect

125. Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2007 for $240,000. On
December 15, 2010, Farmer declared a property dividend of all of its Eaton Corp. shares
on the basis of one share of Eaton for every 10 shares of Farmer common stock held by
its stockholders. The property dividend was distributed on January 15, 2011. On the
declaration date, the aggregate market price of the Eaton shares held by Farmer was
$400,000. The entry to record the declaration of the dividend would include a debit to
Retained Earnings of
d. $400,000.

126. A corporation declared a dividend, a portion of which was liquidating. How would this
distribution affect each of the following?
Additional
Paid-in Capital Retained Earnings
 Stockholders’ Equity 15 - 15

b. Decrease Decrease

127. On May 1, 2010, Ziek Corp. declared and issued a 10% common stock dividend. Prior to
this dividend, Ziek had 100,000 shares of $1 par value common stock issued and
outstanding. The fair value of Ziek 's common stock was $20 per share on May 1, 2010.
As a result of this stock dividend, Ziek's total stockholders' equity
d. did not change.

128. How would the declaration and subsequent issuance of a 10% stock dividend by the
issuer affect each of the following when the market value of the shares exceeds the par
value of the stock?
Additional
Common Stock Paid-in Capital
d. Increase Increase
129. On December 31, 2010, the stockholders' equity section of Arndt, Inc., was as follows:
Common stock, par value $10; authorized 30,000 shares;
issued and outstanding 9,000 shares $ 90,000
Additional paid-in capital 116,000
Retained earnings 174,000
Total stockholders' equity $380,000
On March 31, 2011, Arndt declared a 10% stock dividend, and accordingly 900 additional
shares were issued, when the fair market value of the stock was $18 per share. For the
three months ended March 31, 2011, Arndt sustained a net loss of $32,000. The balance
of Arndt’s retained earnings as of March 31, 2011, should be
a. $125,800.

*130. At December 31, 2010 and 2011, Plank Corp. had outstanding 2,000 shares of $100 par
value 8% cumulative preferred stock and 10,000 shares of $10 par value common stock.
At December 31, 2010, dividends in arrears on the preferred stock were $8,000. Cash
dividends declared in 2011 totaled $30,000. What amounts were payable on each class of
stock?
Preferred Stock Common Stock
c. $24,000 $6,000