Chapter 11 Investment power point PDF

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It is the professor’s lecture notes, and I also made some notes on it....

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Chapter 11 Practice Questions 1. A corporation has the following account balances: Common stock, $1 par value, $60,000; Paid-in Capital in Excess of Par, $1,300,000. Based on this information, the a. legal capital is $1,360,000. b. number of shares issued are 60,000. c. number of shares outstanding are 1,360,000. d. average price per share issued is $22.50. 2. If Vickers Company issues 5,000 shares of $5 par value common stock for $175,000, a. Common Stock will be credited for $175,000. b. Paid-In Capital in Excess of Par will be credited for $25,000. c. Paid-In Capital in Excess of Par will be credited for $150,000. d. Cash will be debited for $150,000. 3. Barton Company is a publicly held corporation whose $1 par value stock is actively traded at $31 per share. The company issued 3,000 shares of stock to acquire land recently advertised at $100,000. When recording this transaction, Barton Company will a. debit Land for $100,000. b. credit Common Stock for $93,000. c. debit Land for $93,000. d. credit Paid-In Capital in Excess of Par for $93,000. 4. Crain Company issued 2,000 shares of its $5 par value common stock in payment of its attorneys bill of $30,000. The bill was for services performed in helping the company incorporate. Crain should record this transaction by debiting a. Legal Expense for $10,000. b. Legal Expense for $30,000. c. Organization Expense for $10,000. d. Organization Expense for $30,000. 5. New Corp. issues 2,000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, credits are made to a. Common Stock $20,000 and Paid-in Capital in Excess of Stated Value $12,000. b. Common Stock $32,000. c. Common Stock $20,000 and Paid-in Capital in Excess of Par $12,000. d. Common Stock $20,000 and Retained Earnings $12,000. 6. Carson Packaging Corporation began business in 2018 by issuing 30,000 shares of $3 par common stock for $8 per share and 12,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $12. On its December 31, 2018 balance sheet, Carson Packaging would report a. Common Stock of $360,000. b. Common Stock of $90,000. c. Common Stock of $240,000. d. Paid-In Capital of $90,000

7. Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock outstanding at December 31, 2018. No dividends have been paid on this stock for 2017 or 2018. Dividends in arrears at December 31, 2018 total a. $0. b. $500. c. $5,000. d. $10,000. 8. Era Company has 3,000 shares of 6%, $100 par non-cumulative preferred stock outstanding at December 31, 2018. No dividends have been paid on this stock for 2017 or 2018. Dividends in arrears at December 31, 2018 total a. $0. b. $1,800. c. $18,000. d. $36,000. 9. Ranier Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ranier issues 5,000 shares of preferred stock for land with an asking price of $575,000 and a market value of $550,000, which of the following would be the journal entry for Ranier to record? a. Land 500,000 Preferred Stock 500,000 b. Land 550,000 Preferred Stock 550,000 c. Land 575,000 Preferred Stock 500,000 Paid-in Capital in Excess of Par-Preferred 75,000 d. Land 550,000 Preferred Stock 500,000 Paid-in Capital Excess of Par-Preferred 50,000 10. Lakeland, Inc. has 25,000 shares of 6%, $100 par value, noncumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $250,000 dividend in 2018. What is the amount of dividends received by the common stockholders in 2018? a. $0 b. $150,000 c. $250,000 d. $100,000 11. Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $80 per share. The entry to record the transaction will consist of a debit to Cash for $800,000 and a credit or credits to a. Preferred Stock for $800,000. b. Preferred Stock for $500,000 and Paid-in Capital in Excess of Par Preferred Stock for $300,000. c. Preferred Stock for $300,000 and Paid-in Capital from Preferred Stock for $500,000. d. Paid-in Capital from Preferred Stock for $800,000.

12. Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 e ae. I e cde e ec, e eec  e aacn above will be reported a. entirely within the capital stock section. b. entirely within the additional paid-in capital section. c. under both the capital stock and additional paid-in capital sections. d. entirely under the retained earnings section. 13. Dividends in arrears on cumulative preferred stock a. ae   cde e  e balance sheet. b. must be paid before common stockholders can receive a dividend. c. should be recorded as a current liability until they are paid. d. enable the preferred stockholders to share equally in corporate earnings with the common stockholders. 14. The Northern Corporation issues 7,000 shares of $100 par value preferred stock for cash at $120 per share. The entry to record the transaction will consist of a debit to Cash for $840,000 and a credit or credits to a. Preferred Stock for $840,000. b. Paid-in Capital from Preferred Stock for $840,000. c. Preferred Stock for $700,000 and Retained Earnings for $140,000. d. Preferred Stock for $700,000 and Paid-in Capital in Excess of Par Preferred Stock for $140,000. 15. Vega Corporation Decebe 31, 2018 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 10,000 shares authorized; 7,500 shares issued $ 150,000 Common stock, $10 par value, 1,000,000 shares authorized; 975,000 shares issued, 960,000 shares outstanding 9,750,000 Paid-in capital in excess of parpreferred stock 30,000 Paid-in capital in excess of parcommon stock 13,500,000 Retained earnings 3,750,000 Treasury stock (15,000 shares) 315,000 Vega declared and paid a $58,000 cash dividend on December 15, 2018. If the ca dded  aea   a dae ee $10,000, Vea c stockholders received a. $48,000. b. $22,000. c. $36,000. d. no dividend. 16. Salon Company originally issued 4,000 shares of $10 par value common stock for $120,000 ($30 per share). Salon subsequently purchases 400 shares of treasury stock for $27 per share and resells the 400 shares of treasury stock for $29 per share. In the entry to record the sale of the treasury stock, there will be a a. credit to Common Stock for $10,800. b. credit to Treasury Stock for $4,000. c. debit to Paid-In Capital in Excess of Par of $12,000. d. credit to Paid-In Capital from Treasury Stock for $800.

17. A corporation purchases 30,000 shares of its own $15 par common stock for $30 per ae, ecd  a c. Wa  be e eec  a cde e? a. Increase by $450,000 b. Decrease by $900,000 c. Increase by $900,000 d. Decrease by $450,000 18. Ramos Corporation sold 400 shares of treasury stock for $45 per share. The cost for the shares was $35. The entry to record the sale will include a a. credit to Gain on Sale of Treasury Stock for $14,000. b. credit to Paid-in Capital from Treasury Stock for $4,000. c. debit to Paid-in Capital in Excess of Par for $4,000. d. credit to Treasury Stock for $18,000. 19. The effect of the declaration of a cash dividend by the board of directors is to Increase a. Stockholders equity b. Assets c. Liabilities d. Liabilities

Decrease Assets Liabilities Stockholders equity Assets

20. The cumulative effect of the declaration and payment of a cash dividend on a companys financial statements is to a. decrease total liabilities and stockholders equity. b. increase total expenses and total liabilities. c. increase total assets and stockholders equity. d. decrease total assets and stockholders equity. 21. Xeris, Inc. has 1,000 shares of 6%, $10 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2018. What is the annual dividend on the preferred stock? a. $6 per share b. $600 in total c. $6,000 in total d. $.06 per share 22. Win, Inc. has 10,000 shares of 7%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2018. If the board of directors declares a $70,000 dividend, the a. preferred shareholders will receive 1/10th of what the common shareholders will receive. b. preferred shareholders will receive the entire $70,000. c. $70,000 will be held as restricted retained earnings and paid out at some future date. d. preferred shareholders will receive $35,000 and the common shareholders will receive $35,000.

23. Township, Inc. has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2017, and December 31, 2018. The board of directors declared and paid a $50,000 dividend in 2017. In 2018, $110,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2018? a. b. c. d.

Preferred $0 $50,000 $55,000 $70,000

Common $110,000 $60,000 $55,000 $40,000

23. Outstanding stock of the Zone Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par noncumulative preferred stock. In 2017, Zone declared and paid dividends of $2,000. In 2018, Zone declared and paid dividends of $6,000. How much of the 2018 dividend was distributed to preferred shareholders? a. $2,000 b. $4,000 c. $3,000 d. None of these answers are correct 24. Arm, Inc., has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2018. If the board of directors declares a $200,000 dividend, the a. preferred stockholders will receive 1/10th of what the common stockholders will receive. b. preferred stockholders will receive the entire $200,000. c. $50,000 will be held as restricted retained earnings and paid out at some future date. d. preferred stockholders will receive $50,000 and the common stockholders will receive $150,000. 25. Last 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, 2018, and December 31, 2017. The board of directors declared and paid a $4,000 dividend in 2017. In 2018, $24,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2018? a. $16,000 b. $12,000 c. $8,000 d. $6,000

26. Land Inc. has retained earnings of $800,000 ad a cde e  $2,000,000. It has 300,000 shares of $5 par value common stock outstanding, which is currently selling for $30 per share. If Land declares a 10% stock dividend on its common stock: a. net income will decrease by $150,000. b. eaed ea  deceae b $150,000 ad a cde e  increase by $150,000. c. eaed ea  deceae b $900,000 ad a cde e  increase by $900,000. d. retained earnings will decrease by $900,000 and total paid-in capital will increase by $900,000. 27. When stock dividends are distributed, a. Common Stock Dividends Distributable is decreased. b. Retained Earnings is decreased. c. Paid-in Capital in Excess of Par is debited if it is a small stock dividend. d. no entry is necessary if it is a large stock dividend. 28. Identify the effect the declaration and distribution of a stock dividend has on the par value per share. a. b. c. d.

Par Value per Share Increase Decrease Increase or decrease No effect

29. Which of the following show the proper effect of a stock split and a stock dividend? Item a. Total paid-in capital b. Total retained earnings c. Total par value (common) d. Par value per share

Stock Split Increase Decrease Decrease Decrease

Stock Dividend Increase Decrease Increase No change

30. On January 1, Collins Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 10% stock dividend. Market value of the stock was $15/share. As a result of this event, a. C Pad-in Capital in Excess of Par account increased $400,000. b. C a cde e a aeced. c. C Sc Dded acc ceaed $1,200,000. d. All of these answers are correct. 31. Stock dividends and stock splits have the following effects on retained earnings: a. b. c. d.

Stock Splits Increase No change Decrease No change

Stock Dividends No change Decrease Decrease No change

32. On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a a. credit to Common Stock for $80,000. b. debit to Common Stock Dividends Distributable for $120,000. c. credit to Paid-in Capital in Excess of Par for $40,000. d. debit to Stock Dividends for $40,000. 33. On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a a. credit to Stock Dividends for $18,000. b. credit to Cash for $78,000. c. credit to Common Stock Dividends Distributable for $60,000. d. debit to Common Stock Dividends Distributable for $60,000. 34. Saint, Inc. declares a 15% common stock dividend when it has 30,000 shares of $10 par value common stock outstanding. If the market value of $24 per share is used, the amounts debited to Stock Dividends and credited to Paid-in Capital in Excess of Par are: Paid-in Capital in Stock Dividends Excess of Par a. $45,000 $0 b. $108,000 $63,000 c. $108,000 $45,000 d. $45,000 $63,000 35. Car and Auto Sisters had retained earnings of $18,000 on the balance sheet but disclosed in the footnotes that $3,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends? a. $14,000 b. $15,000 c. $18,000 d. $12,000 36. Kong Inc. reported net income of $298,000 during 2018 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. Common stockholders equity was $1,200,000 on January 1, 2018, and $1,600,000 on December 31, 2018. The companys return on common stockholders equity for 2018 is: a. 17.4% b. 17.0% c. 15.1% d. 21.3%

37. King Corporation had net income of $260,000 and paid dividends of $40,000 to common stockholders and $10,000 to preferred stockholders in 2018. King Corporations common stockholders equity at the beginning and end of 2018 was $870,000 and $1,130,000, respectively. There are 100,000 weighted-average shares of common stock outstanding. King Corporations return on common stockholders equity was a. 18.6%. b. 25%. c. 21%. d. 22.1%. 38. The balance in retained earnings on January 1, 2018, for Booker Inc., was $625,000. During the year, the corporation paid cash dividends of $70,000 and distributed a stock dividend of $25,000. Net income for 2018 was $120,000. Instructions Prepare the retained earnings statement for 2018. BOOKER INC. Retained Earnings Statement For the Year Ended December 31, 2018 Balance, January 1 as reported Add: Net income

$625,000 120,000 745,000

Less: Cash dividends Stock dividend Balance, December 31

$70,000 25,000

95,000 $650,000

39. Sleep Corporation was organized on January 1, 2017. During its first year, the corporation issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends: 2017 2018 2019

$ 6,000 $30,000 $60,000

Instructions (a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 4% and not cumulative. (b) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 6% and cumulative. (c) Journalize the declaration of the cash dividend at December 31, 2019 using the assumption of part (b).

(a) 2017 2018 2019

Preferred $ 6,000 8,000 8,000

Common $ -022,000 52,000

Total $ 6,000 30,000 60,000

2017 2018 2019

Preferred $ 6,000 18,000 12,000

Common $ -012,000 48,000

Total $ 6,000 30,000 60,000

(b)

(c)

Cash Dividends ........................................................................... Preferred Dividends Payable .............................................. Common Dividends Payable ...............................................

60,000 12,000 48,000

40. On January 1, 2018, Ralph Corporation had $2,000,000 of $10 par value common stock outstanding that was issued at par and retained earnings of $1,000,000. The company issued 200,000 shares of common stock at $12 per share on July 1. On December 15, the board of directors declared a 15% stock dividend to stockholders of record on December 31, 2018, payable on January 15, 2019. The market value of Ralph Corporation stock was $14 per share on December 15 and $16 per share on December 31. Net income for 2018 was $500,000. Instructions (1) Journalize the issuance of stock on July 1 and the declaration of the stock dividend on December 15. (2) Prepare the stockholders equity section of the balance sheet for Ralph Corporation at December 31, 2018. (1) July

1 Cash ............................................................................. 2,400,000 Common Stock .................................................. 2,000,000 Paid-in Capital in Excess of Par ......................... 400,000

Dec. 15 Stock Dividends (60,000 × $14/sh)................................ 840,000 Common Stock Dividends Distributable ............. 600,000 Paid-in Capital in Excess of Par ......................... 240,000 ($2,000,000 ÷ $10 = 200,000 + 200,000 = 400,000 shares × .15 = 60,000 shares) (2) Stockholders equity Paid-in capital Capital stock Common stock, $10 par value, 400,000 shares issued and outstanding $4,000,000 Common stock dividends distributable 600,000 Total capital stock 4,600,000 Additional paid-in capital in excess of par 640,000 Total paid-in capital 5,240,000 Retained earnings 660,000 Total stockholders equity $5,900,000

41. The following information is available for Matlin Inc.: Beginning retained earnings Cash dividends declared Net income for 2018 Stock dividend declared

$570,000 60,000 120,000 35,000

Instructions Based on the preceding information, prepare a retained earnings statement for 2018. MATLIN INC. Retained Earnings Statement For the Year Ended December 31, 2018 Beginning balance Add: Net income Less: Cash dividends Stock dividends Ending balance

$570,000 120,000 690,000 $60,000 35,000

95,000 $595,000

42. On January 1, 2018, Catlin Corporation had Retained Earnings of $448,000. During the year, Catlin had the following selected transactions: 1. Declared stock dividends of $50,000. 2. Declared cash dividends of $80,000. 3. A 2 for 1 stock split involving the issuance of 200,000 shares of $5 par value common stock for 100,000 shares of $10 par value common stock. 4. Suffered a net loss of $60,000. Instructions Prepare a retained earnings statement for the year. CATLIN CORPORATION Retained Earnings Statement For the Year Ended December 31, 2018 Balance, January 1, as reported.......................................................... Less: Net loss ................................................................................... Less: Cash dividends .........