Principles of Accounting, Volume 1: Financial Accounting

# Multiple Choice

1.

LO 14.1Which of the following is not a characteristic that sets preferred stock apart from common stock?

1. voting rights
2. dividend payments
3. transferability
4. ownership
2.

LO 14.1Issued stock is defined as stock that ________.

1. is available for sale
2. that is held by the corporation
3. has been sold to investors
4. has no voting rights
3.

LO 14.1Your friend is considering incorporating and asks for advice. Which of the following is not a major concern?

1. colors for the logo
2. which state in which to incorporate
3. number of shares of stock to authorize
4. selection of the corporation name
4.

LO 14.1Par value of a stock refers to the ________.

1. issue price of a stock
2. value assigned by the incorporation documents
3. maximum selling price of a stock
4. dividend to be paid by the corporation
5.

LO 14.1Which of the following is not one of the five primary responsibilities of the Securities and Exchange Commission (the SEC)?

1. inform and protect investors
2. regulate securities law
3. facilitate capital formation
4. assure that dividends are paid by corporations
6.

LO 14.1When a C corporation has only one class of stock it is referred to as ________.

1. stated value stock
2. par value stock
3. common stock
4. preferred stock
7.

LO 14.1The number of shares that a corporation’s incorporation documents allows it to sell is referred to as ________.

1. issued stock
2. outstanding stock
3. common stock
4. authorized stock
8.

LO 14.2The total amount of cash and other assets received by a corporation from the stockholders in exchange for the shares is ________.

1. always equal to par value
2. referred to as retained earnings
3. always below its stated value
4. referred to as paid-in capital
9.

LO 14.2Stock can be issued for all except which of the following?

1. accounts payable
2. state income tax payments
3. property such as a delivery truck
4. services provided to the corporation such as legal fees
10.

LO 14.3A company issued 40 shares of $1 par value common stock for$5,000. The journal entry to record the transaction would include which of the following?

1. debit of $4,000 to common stock 2. credit of$20,000 to common stock
3. credit of $40 to common stock 4. debit of$20,000 to common stock
11.

LO 14.3A company issued 30 shares of $.50 par value common stock for$12,000. The credit to additional paid-in capital would be ________.

1. $11,985 2.$12,000
3. $15 4.$10,150
12.

LO 14.3A corporation issued 100 shares of $100 par value preferred stock for$150 per share. The resulting journal entry would include which of the following?

1. a credit to common stock
2. a credit to cash
3. a debit to paid-in capital in excess of preferred stock
4. a debit to cash
13.

LO 14.3The date the board of directors votes to declare and pay a cash dividend is called the:

1. date of stockholder’s meeting
2. date of payment
3. date of declaration
4. date of liquidation
14.

LO 14.3Which of the following is true of a stock dividend?

1. It is a liability.
2. The decision to issue a stock dividend resides with shareholders.
3. It does not affect total equity but transfers amounts between equity components.
4. It creates a cash reserve for shareholders.
15.

LO 14.4Stockholders’ equity consists of which of the following?

1. bonds payable
2. retained earnings and accounts receivable
3. retained earnings and paid-in capital
4. discounts and premiums on bond payable
16.

LO 14.4Retained earnings is accurately described by all except which of the following statements?

1. Retained earnings is the primary component of a company’s earned capital.
2. Dividends declared are added to retained earnings.
3. Net income is added to retained earnings.
4. Net losses are accumulated in the retained earnings account.
17.

LO 14.4If a company’s board of directors designates a portion of earnings for a particular purpose due to legal or contractual obligations, they are designated as ________.

1. retained earnings payable
2. appropriated retained earnings
3. cumulative retained earnings
4. restricted retained earnings
18.

LO 14.4Corrections of errors that occurred on a previous period’s financial statements are called ________.

1. restrictions
2. deficits
4. restatements
19.

LO 14.4Owner’s equity represents which of the following?

1. the amount of funding the company has from issuing bonds
2. the sum of the retained earnings and accounts receivable account balances
3. the total of retained earnings plus paid-in capital
4. the business owner’s/owners’ share of the company, also known as net worth or net assets
20.

LO 14.5Which of the following is a measurement of earnings that represents the profit before interest, taxes, depreciation and amortization are subtracted?

1. net income
2. retained earnings
3. EBITDA
4. EPS
21.

LO 14.5Which of the following measures the portion of a corporation’s profit allocated to each outstanding share of common stock?

1. retained earnings
2. EPS
3. EBITDA
4. NOPAT
22.

LO 14.5The measurement of earnings concept that consists of a company’s profit from operations after taxed are subtracted is ________.

1. ROI
2. EPS
3. EBITDA
4. NOPAT
23.

LO 14.5The correct formula for the calculation of earnings per share is ________.

1. (Net income + Preferred dividends) / Weighted average common shares outstanding
2. Net income / Weighted average common shares outstanding
3. (Net income – Preferred dividends) / Weighted average common shares outstanding
4. (Net income – Preferred dividends) / Treasury shares outstanding
24.

LO 14.5Most analysts believe which of the following is true about EPS?

1. Consistent improvement in EPS year after year is the indication of continuous improvement in the company’s earning power.
2. Consistent improvement in EPS year after year is the indication of continuous decline in the company’s earning power.
3. Consistent improvement in EPS year after year is the indication of fraud within the company.
4. Consistent improvement in EPS year after year is the indication that the company will never suffer a year of net loss rather than net income.
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