ACCT 202 - EXAM 1

(T/F) Issued shares of stock less (minus) outstanding shares equal treasury stock

True

(T/F) The cumulative feature of stock only applies to preferred stock

True

(T/F) Dividends in arrears are NOT considered a liability because NO obligation exists until the dividend is declared by the stockholders

False

(T/F) Three important dates relating to cash dividends are: date of declaration, date of record, and date of payment

True

Treasury stock represents:
a) Shares of ownership in the United States Treasury Department

b) Restricted stock.
c) Shares previously owned by investors but repurchased by the corporation
d) Authorized shares that have never been issued
e) A current asset

c) Shares previously owned by investors but repurchased by corporation

Par value:
a) Represents what a share of stock is worth
b) Represents the original selling price for a share of stock

c) Is the legal capital established for a share of stock
d) Is established for a share of stock after it is issued

c) Is the legal capital established for a share of stock

Preferred stock would LEAST likely have which characteristics?
a) The right of the holder to vote at stockholders’ meetings
b) The right of the corporation to redeem or retire stock
c) Preference as to assets upon liquidation of the corporation
d) Preference as to dividends

a) The right of the holder to vote at stockholders’ meetings

If 6,000 shares of $10 par value of common stock, currently trading at $16, are exchanged for land advertised for $84,000, then…

Land 96,000
C/S 60,000
PIC excess C/S 36,000

a debit to land for 96,000

(T/F) The adjusted trial balance and comparative balance sheets are used to prepare the statement of cash flows

False
The three items needed for a statement of cash flows are:
1. Comparative Balance Sheets

2. Current Income Statement

3. Additional Information

(T/F) Noncash transactions are reported in the body of the statement of cash flows

False
An example of a noncash transaction is land acquisition by issuing common stock

(T/F) An increase in equipment will increase net cash provided by operating activities

False
This would be an outflow of cash to investing activities

(T/F) Cash outflows to purchase property, plant, and equipment would be reported in the investing section of the statement of cash flows

True

Cash inflows from investing activities include
a) sale of common stock
b) purchase of equipment
c) sale of land
d) issuance of long-term debt

c) sale of land

Operating activities do NOT include cash
a) inflows from revenue
b) inflows from sale of equipment
c) outflows for income taxes
d) outflows for wages

b) inflows from sale of equipment

Which of the following would decrease net cash provided by operating activities?
a) Decrease in short-term notes payable
b) Depreciation expense
c) Decrease in inventory
d) Loss on sale of equipment

a) Decrease in short-term notes payable

Noncash investing and financing activities
a) may represent significant investing and financing activities
b) do not involve cash receipts or cash payments
c) are disclosed on a separate schedule
d) all of the above

d) all of the above

If Net Income is $57,000, Accounts Receivable decreased by $4,000, and Accounts Payable increased by $8,000, cash provided by Operating Activities would be:
a) $53,000
b) $69,000
c) $57,000
d) $66,000

b) $69,000

Net Income $57,000
Decrease in AR —> Decrease in CA —> Add $4,000
Increase in AR —> Increase in CL —> Add $8,000
Total —> $69,000

In States Company, Treasury Stock increase $20,000 fro a cash purchase, and Retained Earnings increased $80,000 as a result of net income of $120,000 and cash dividends paid of $40,000. Net cash used by financing activities is:
a) $20,000
b) $40,000
c) $120,000
d) $60,000

d) $60,000
(20,000) + (40,000) = (60,000)

A company had outstanding 80,000 shares of $10 par value common stock. During the period a 10% stock dividend was declared and distributed. The market value was $25 a share. As a result of this stock dividend, retained earnings should increase (decrease) by
a) $0

b) $(80,000)

c) $(200,000)

d) $80,000

c) $(200,000)

Stock Dividend 200,000
CS Dividend Distributable 80,000
PIC in Excess - CS 120,000
CS Dividend Distributable 80,000
CS 80,000

A company purchases 1,500 shares of its $25 par value stock at $35 per share. It then reissues 500 shares at $40 per share. The entry upon reissue of the stock would include a credit to
a) Cash for $2,500
b) Treasury Stock for $2,500
c) Retained Earnings for $2,500
d) Paid-in Capital from Treasury Stock for $2,500

d) Paid-in Capital from Treasury Stock for $2,500

Treasury Stock 52,000
Cash 52,000

Cash 20,000
Treasury Stock 17,500
PIC from TS 2,500

Which of the following is true regarding corporations?
a) Corporate characters are issued by the federal government
b) The president and various vice presidents are elected by the stockholders
c) Ownership is difficult to transfer
d) A corporation is a separate legal entity that may sue and be sued as if it were a person
e) Unlimited personal liability for business debts

d) A corporation is a separate legal entity that may sue and be sued as if it were a person

A corporation issued 400 shares of $10 par value common stock in payment of a $4,500 bill from its attorney for assistance in filing the initial charter for the corporation. The entry to record this transaction will include:
a) a $4,000 debit to legal expense
b) a $4,500 credit to organizational expense
c) a $4,500 credit to common stock

d) a $4,000 debit to organization expense
e) a $4,000 credit to common stock

e) a $4,000 credit to common stock

A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that is currently advertised for sale at $84,000. The stock is currently trading for $16 per share. The entry to record this transaction would include:
a) a debit to land for $96,000
b) a debit to Common stock for $60,000
c) a credit to Paid-in capital in excess of par for $24,000
d) a credit to common stock for $96,000
e) a debit to land for $84,000

e) a debit to land for $84,000

A corporation’s legal capital can be defined as the total par value of the shares:
a) authorized
b) that are owned by the corporation
c) that are noncumulative
d) issued
e) outstanding

d) issued

When no-par stock is issued:
a) there is no legal capital created because there is no par or stated value
b) the transaction usually involves only an exchange for noncash assets or services, since the stock have no value assigned
c) there is a credit to a liability account for the difference between the price paid by the stockholders and the fair value of the stock
d) the entire amount received is created to the Paid-in capital in excess of par account
e) the entire amount is credited to the Common stock account

e) the entire amount is credited to the Common stock account

The costs of bringing a corporation into existence, including legal fees, promoter fees, and amounts paid to the state are called:
a) Organizational costs
b) Legal capital
c) Prepaid fees
d) Paid-in capital
e) Par value

a) Organizational costs

A corporation sold 14,000 shares of its $10 par value common stock for $13 per share. The entry to record this transaction would include:
a) a debit to Cash for $140,000
b) a credit to Paid-in capital in excess of par for $182,000
c) a debit to Paid-in capital in excess of par for $42,000
d) a credit to Common stock for $140,000
e) a credit to Common stock for $182,000

d) a credit to Common stock for $140,000

Owners of preferred stock do not have:
a) Preference to assets at liquidation
b) The right to sell their stock
c) Preference to dividends
d) Voting rights
e) Ownership rights to assets of the corporation

d) Voting rights

A corporation reacquired 600 shares of its $10 par value common stock in February for $35,000 cash. The journal entry to record this transaction would include:
a) a debit to Treasury stock for $35,000
b) a credit to Common stock for $6,000
c) a credit to Paid-in capital in excess for par for $29,000
d) there is no journal entry required for this transaction
e) a debit to Cash for $35,000

a) a debit to Treasury stock for $35,000

Treasury stock represents:
a) shares of ownership in the United States Treasury Department
b) authorized shares which have never been issued
c) a current asset
d) restricted stock
e) shares previously owned by investors but which have been repurchased by the corporation

e) shares previously owned by investors but which have been repurchased by the corporation