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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 outstanding shares after these transactions have been accounted for is:


A) 8 million shares.
B) 20 million shares.
C) 10 million shares.
D) 9 million shares.

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

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Which of the following is true about reissuing treasury stock?


A) If treasury stock is sold at a higher price than the stock's cost when the company reacquired it,a gain will be recognized.
B) If treasury stock is sold at a higher price than the stock's par value,a gain will be recognized.
C) If the treasury stock is sold at a lower price than the amount of the original issuance,a loss will be recognized.
D) A gain or loss on the reissuance of treasury stock is never recognized.

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

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On the date a dividend is declared,the company:


A) debits Dividends Declared and credits Dividends Payable for the amount of the dividend.
B) debits Dividend Expense and credits Cash for the dividend amount.
C) debits Dividends Payable and credits Cash for the dividend amount.
D) establishes who will receive the dividend payment.

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

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Which of the following statements regarding a stock split is true?


A) A stock split decreases retained earnings.
B) Stock splits do not require a journal entry.
C) Stock splits are the same as stock dividends.
D) Stock splits increase the par value per share.

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

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As of November 29,it appears that Notel will report earnings per share (EPS) of $1.15 for the quarter ended November 30.Which of the following events would cause this EPS number to decrease,assuming the event occurs the morning of November 30?


A) The company pays a supplier for inventory bought on account.
B) The company declares,but does not pay,a cash dividend.
C) The company purchases 10 shares of common stock in another company.
D) The company reissues the treasury stock it holds.

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

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One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce retained earnings.

A) True
B) False

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Treasury stock is a corporation's own stock that has been issued and subsequently repurchased by the corporation.

A) True
B) False

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Which of the following statements regarding issued and outstanding stock is true?


A) Outstanding stock includes all stock issued by a corporation.
B) Issued stock equals the sum of outstanding stock and treasury stock.
C) Issued stock is equal to authorized stock.
D) Outstanding stock includes stock in the hands of investors,as well as treasury stock in the hands of the corporation.

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

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Use the information above to answer the following question.The Price/Earnings Ratio is approximately:


A) 2.00.
B) 2.50.
C) 2.84.
D) 12.50.

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

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Use the information above to answer the following question.The journal entry to record the transaction will consist of a debit to Cash for $600,000 and a credit (or credits) to:


A) Preferred Stock for $600,000.
B) Preferred Stock for $20,000 and Additional Paid-In Capital for $580,000.
C) Preferred Stock for $20,000 and Retained Earnings for $580,000.
D) Retained Earnings for $600,000.

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

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Which of the following statements is true?


A) Stock splits and stock dividends both reduce the market price of a share,but only stock splits reduce the par value of a share.
B) Stock splits and stock dividends both reduce the market price of a share and the par value of a share.
C) Stock splits and stock dividends both reduce the market price of a share,but only stock dividends reduce the par value of a share.
D) Stock splits and stock dividends both reduce the market price of a share and reduce retained earnings.

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

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Jackson and O'Neill open a partnership that produces gates.Jackson provides $30,000 of capital while O'Neill contributes $90,000 of capital;they agree to split net income by the same proportion.The partnership's net income is $80,000 for the first year.They did not draw any income out of the business or add any additional capital during the first year.At the end of the year,the partners' equity is:


A) $70,000 for Jackson and $130,000 for O'Neill for a total of $200,000.
B) $200,000 minus income tax expense for the partnership.
C) $200,000 minus the income tax paid by each partner.
D) $50,000 for Jackson and $150,000 for O'Neill for a total of $200,000.

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

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Which of the following statements regarding business forms is true?


A) A sole proprietorship is an unincorporated business owned by one person.
B) All partnerships are owned by two people.
C) A corporation is not a legal entity.
D) An LLC (limited liability company) has the same tax treatment as a corporation.

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

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Contributed capital is 30,000,retained earnings is 65,000,treasury stock is 18,000,and common stock is 10,000.What is the total stockholders' equity?


A) $113,000
B) $77,000
C) $123,000
D) $87,000

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

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If a company's P/E ratio suddenly decreases:


A) you should sell the stock as soon as possible.
B) you should buy more of the stock to increase your average gain.
C) the company probably announced higher earnings forecasts.
D) the market must have reacted to some bad news that is expected to affect the company in the future.

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

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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) Preferred stockholders will receive the entire $300,000,and they must also be paid $20,000 before the end of the current accounting period.Common stockholders will receive nothing.
B) Preferred stockholders will receive $24,000 or 8% of the total dividends.Common stockholders will receive the remaining $276,000.
C) Preferred stockholders will receive the entire $300,000,and they must also be paid $20,000 sometime in the future before common stockholders will receive anything.
D) Preferred stockholders will receive the entire $300,000,but will receive nothing more relating to this dividend declaration.Common stockholders will receive nothing.

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

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Holders of common stock receive certain benefits,such as a residual claim,which:


A) is the right of stockholders to be paid back their investment before anyone else if the company ceases operation.
B) is the right to oversee management of the company.
C) is the right to share in any remaining assets after creditors have been paid off,should the company cease operations.
D) is the continuing right to receive a share of the company's profits in the form of dividends.

E) None of the above
F) A) and B)

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If a company's Earnings per Share and Return on Equity rise:


A) it could mean that net income is rising or it could mean that the number of outstanding shares is falling.The first is sustainable;the second cannot be continued indefinitely.
B) it means that the company is becoming more profitable and stockholders will see greater returns.
C) it means that the company's tax liability will rise in the future and cause a decline in profitability.
D) it could mean that net income is rising or it could mean that the number of outstanding shares is falling.In either case,stockholders can expect greater future returns indefinitely.

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

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A cumulative dividend preference means that:


A) preferred stockholders are paid dividends before common stockholders are paid dividends for the current year only.
B) unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends.
C) preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation.
D) unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period.

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

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On the payment date for a dividend,the company:


A) debits Dividends Declared and credits Dividends Payable for the amount of the dividend.
B) debits Dividend Expense and credits Cash for the dividend amount.
C) debits Dividends Payable and credits Cash for the dividend amount.
D) establishes who will receive the dividend payment.

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

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