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Exam 11: Reporting and Interpreting Stockholders Equity

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Question 41

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Preferred stock differs from common stock in that preferred stock:

A) has more voting power and, as such, greater control over the management of the company.
B) is less risky because preferred stockholders are paid dividends before common stockholders.
C) pays a tax-free dividend.
D) has no preemptive rights or residual claims.

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

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Question 42

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Phelps, Inc., had assets of $67,646 and liabilities of $15,466 at the close of 2010 with 10,718 shares of outstanding common stock. Net income for 2010 was $7,829. At the end of 2011, assets were $79,571, liabilities were $18,551, and the company had 10,771 shares of outstanding stock trading at a price of $10 per share. Net income for 2011 was $9,993. a) Calculate EPS for 2011. b) Calculate ROE for 2011. c) Calculate the Price/Earnings Ratio for 2011.

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a) EPS = Net income/Average number of ou...

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Question 43

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The XYZ Corporation sells 1 million shares of $2 par value common stock, for $17 per share. One year later, the corporation repurchases 100,000 shares at a market price of $14 a share. One year after that, it reissues the 100,000 shares at a market price of $22 a share. For each transaction, prepare the journal entry and show the effect on assets, liabilities and stockholders' equity.

A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The company declares $300,000 in total dividends for the year. Which of the following is true if the preferred stockholders have a cumulative dividend preference?

A stock dividend transfers:

A corporate charter specifies that the company may sell 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:

A company declared a $0.80 per share cash dividend. The company has 100,000 shares authorized, 45,000 shares issued, and 42,000 shares of common stock outstanding. What is the journal entry to record the dividend declaration?

Company Z has 8 million shares of common stock authorized with a par value of $1 and a market price of $72. There are 4 million outstanding shares and 1 million shares held in treasury stock. Prepare the journal entry and show the effect on assets, liabilities and stockholders' equity if the company declares and distributes a 10% stock dividend. Do the same for a 100% stock dividend. Compare the two to determine whether a 100% stock dividend is the same as a 10% dividend, except that it is 10 times larger.

The market price of a share of common stock at the time of issuance was $19.50, while the market price of a preferred share of stock at the time of issuance was $32. The company paid $12.50 for its treasury stock. Fill in the missing stockholders' equity information below.

Which of the following statements is NOT true about when Cash dividends can be paid?

A 100 percent stock dividend is the same as a 2-1 stock split.

The journal entry to record the transaction will consist of a debit to Cash for $600,000 and a credit (or credits) to:

Special rights often granted to preferred stockholders include a preference for receiving dividends and for the distribution of assets if the corporation is liquidated.

If the company pays a $15,000 dividend, and the preferred stock is noncumulative, what is the amount the common stockholders will receive?

A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The company declares $300,000 in total dividends for the year. Which of the following is true if the preferred stockholders only have a current dividend preference?

A company issues 500,000 shares of preferred stock for $30 a share. The stock has a fixed annual dividend rate of 5% and a par value of $9 per share. The current price of the preferred stock is $32 a share. Preferred stockholders can anticipate receiving a per share annual dividend of:

The price-earnings ratio reveals information about the stock market's expectations for a company' future growth in earnings.

A company sells 1 million shares of common stock with a par value of $0.02 for $15 a share. To record the transaction, the company would:

On September 1, a corporation with 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings issues a 2-for-1 stock split. The market price of the stock on that date is $12 per share. Which of the following statements is true concerning this stock split?

A stock dividend decreases the market price of the company's stock.