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Exam 11: Reporting and Interpreting Owners Equity

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Question 51

Multiple Choice

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Which of the following is true about a sole proprietorship?

A) The capital account is used to record only the investments of the owner.
B) The drawing account records distribution of assets to the proprietor.
C) A sole proprietorship is a separate legal entity from the owner.
D) A sole proprietorship is subject to income tax.

E) C) and D)
F) None of the above

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Question 52

Multiple Choice

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Cornhusker Corporation plans to raise $10 million cash on January 1, 2014, by issuing either bonds payable (8% interest rate) or cumulative preferred stock (8% dividend rate) . How would the annual interest amount on the bonds or annual preferred dividend amount (if paid) affect the net income for the year ended December 31, 2014?

A) Net income would be reduced by the annual interest on the bonds and by the annual preferred stock dividends.
B) Net income would be reduced by the annual interest on the bonds but not by the annual preferred stock dividends.
C) Net income would not be reduced by either the annual interest on the bonds or the annual preferred stock dividends.
D) Net income would be reduced by the annual preferred dividends but not by the annual interest on the bonds.

E) A) and C)
F) A) and D)

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Question 53

Multiple Choice

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A stock dividend:

Prepare journal entries, with account titles only and without dollar amounts, for each of the following DJ Partnership transactions: 1. D and J each contribute cash into the partnership in exchange for capital. 2. D makes a cash withdrawal from the partnership. 3. Partnership net income is allocated to the partners' capital accounts. 4. D's drawing account is closed.

Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $50 per share when they were repurchased at a cost of $47 per share and have a $1 par value?

The declaration and payment of a cash dividend on common stock results in a reduction of the issuing corporation's total stockholders' equity.

Which of the following statements is not correct?

When a company acquires treasury stock, assets and stockholders' equity both decrease.

The declaration of a stock dividend by a corporation's board of directors creates a liability on the declaration date.

Which of the following represents the number of shares currently owned by investors?

Which of the following statements about earnings per share is correct?

On January 1, 2014, the accounts of Mac Corporation showed the following: $\begin{array}{lr}\text { Common stock, par } \$ 1 \text {, authorized } 100,000 \text { shares } & ? \\\text { Capital in excess of par (at } \$ 2 \text { per share) } & 60,000 \\\text { Retained earnings } & 140,000\end{array}$ During 2014, the following transactions occurred which affected stockholders' equity (in the order given): A. Issued a $100 \%$ stock dividend when the market price was at $\$ 5$ per share. B. Purchased treasury stock, 1,000 shares, at a total cost of $\$ 8,000$ . C. Declared and paid cash dividends, $\$ 15,000$ . D. Net income for $2014 , \$ 25,000$ . Required: The stockholders' equity section of the balance sheet for the company must be prepared for the December 31, 2014 balance sheet. The format is given below with certain amounts missing. Supply the missing amounts by entering them in the blanks.

Shares which a corporation has the ability to issue, as documented in its charter in the state where incorporated, are outstanding shares of stock.

When a company pays its previously declared cash dividend, an investing cash outflow is reported.

A company's assets and liabilities both decrease when a previously declared cash dividend is paid.

There would be 100,000 shares of common stock outstanding when the number of shares authorized was 150,000, issued shares totaled 120,000, and 20,000 shares were being held in the treasury.

Preferred stockholders do not have voting rights but do have a preference with respect to dividend payments.

Which of the following journal entries is correct when no-par common stock is initially issued for cash? A. Cash $\quad$ Common stock B. Cash $\quad$ Common stock $\quad$ Capital in excess of par C. Cash $\quad$ Common stock $\quad$ Retained earnings D. Cash $\quad$ Common stock $\quad$ Gain on sale of stock

Which of the following statements is correct?

Assume the following capital structure: Preferred stock, 6%, $50 par value, 1,000 shares issued and outstanding with dividends in arrears for three prior years (2011-2013) . Common stock, $100 par value, 2,000 shares issued and outstanding. Total dividends declared and paid in 2014 were $50,000. How much of the 2014 dividend will be paid to the common stockholders assuming the preferred stock is cumulative?