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Exam 10: Stockholders Equity

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Question 1

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When treasury stock is resold 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.

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

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Question 2

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Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?

A) Dividend payments can be deducted for income tax purposes but interest payments cannot.
B) Expansion is accomplished without surrendering ownership control.
C) The risk of going bankrupt is less.

D) A) and C)
E) All of the above

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Question 3

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In the event a corporation is dissolved,common stockholders receive preference over preferred stockholders in the distribution of assets.Preferred stockholders receive preference over common stockholders in the distribution of assets in the event the corporation is dissolved.

When shares of another corporation are purchased,what is the effect on total stockholders' equity?

If a company purchases shares of another company,it records this transaction as treasury stock.If a company purchases shares of another company,it records this transaction as an investment and not as treasury stock.

Cumulative preferred stock means that dividends accumulate interest during the year.Cumulative preferred stock means shares receive priority for future dividends,if dividends are not paid in a given year.

California Adventures issues 5,000 shares of 8%,$100 par value preferred stock at the beginning of 2017.All remaining shares are common stock.The company was not able to pay dividends in 2017,but plans to pay dividends of $100,000 in 2018.Assuming the preferred stock is noncumulative,how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?

The par value of common stock represents:

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

The correct order from the smallest number of shares to the largest number of shares is:

Which of the following stages of equity financing comes first in the traditional order of progression?

Clothing Emporium was organized on January 1,2018.The firm was authorized to issue 100,000 shares of $5 par value common stock.During 2018,Clothing Emporium 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 the total stockholders' equity at the end of 2018?

We usually record preferred stock as equity and report it in the stockholders' equity section of the balance sheet just above common stock.

Outstanding common stock specifically refers to:

The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the

Earnings per share (EPS)

The balance of Retained Earning at the end of the year represents:

When a company issues 25,000 shares of $1 par value common stock for $10 per share,the journal entry for this issuance would include:

Which of the following is a disadvantage of an S Corporation?

The statement of stockholders' equity shows: