29. The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

a. pro forma method.

b. proportional method.

c. incremental method.

d. either the proportional method or the incremental method.

30. When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

a. market value of the services received.

b. par value of the shares issued.

c. market value of the shares issued.

d. Any of these provides an appropriate basis for recording the transaction.

^S34. When common stock is sold by a corporation a journal entry is prepared which includes a debit to cash and a credit to the common stock account. If the debit to cash is greater than the credit to the common stock account then it can be assumed that:

a. the common stock is worth more than its current market value.

b. a gain on the sale of stock is a part of the transaction.

c. the common stock was sold at a discount

d. the par or stated value of the common stock is less than the per share price investors were willing to pay.

^S35. The general rule to be applied when stock is issued for services or property other than cash is that the property or services be recorded at:

a. the fair market value of the stock issued.

a. the fair market value of the noncash consideration received.

c. either the fair market value of the stock issued or the fair market value of the noncash consideration received, whichever is more clearly determinable.

d. a value that clearly reflects the intentions of the parties entering into the transaction and provides a relevant basis for recording.

36. In January 2020, Castro Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2020, Castro Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

a. decreased total stockholders' equity.

b. increased total stockholders' equity.

c. did not change total stockholders' equity.

d. decreased the number of issued shares.

37. Treasury shares are

a. shares held as an investment by the treasurer of the corporation.

b. shares held as an investment of the corporation.

c. issued and outstanding shares.

d. issued but not outstanding shares.

38. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value.

b. Paid-in capital in excess of par for the purchase price.

c. Treasury stock for the purchase price.

d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

41. How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

a. As ordinary earnings shown on the income statement.

b. As paid-in capital from treasury stock transactions.

c. As an increase in the amount shown for common stock.

d. As an extraordinary item shown on the income statement.

42. Which of the following best describes a possible result of treasury stock transactions by a corporation?

a. May increase but not decrease retained earnings.

b. May increase net income if the cost method is used.

c. May decrease but not increase retained earnings.

d. May decrease but not increase net income.

44. The cumulative feature of preferred stock

a. limits the amount of cumulative dividends to the par value of the preferred stock.

b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.

d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

47. At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

a. declaration of a stock split.

b. declaration of a stock dividend.

c. purchase of treasury stock.

d. payment in full of subscribed stock.

48. An entry is not made on the

a. date of declaration.

b. date of record.

c. date of payment.

d. An entry is made on all of these dates.

49. Cash dividends are paid on the basis of the number of shares

a. authorized.

b. issued.

c. outstanding.

d. outstanding less the number of treasury shares.

50. Which of the following statements about property dividends is not true?

a. A property dividend is usually in the form of securities of other companies.

b. A property dividend is also called a dividend in kind.

c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

d. All of these statements are true.

51. Farmer Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2020, Farmer distributed these shares of stock as a dividend to its stockholders. This is an example of a

a. property dividend.

b. stock dividend.

c. liquidating dividend.

d. cash dividend.

52. A dividend which is a return to stockholders of a portion of their original investments is a

a. liquidating dividend.

b. property dividend.

c. liability dividend.

d. participating dividend.

53. A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

a. Treasury Stock.

b. a paid-in capital account.

c. Accumulated Depletion.

d. Accumulated Depreciation.

54. If management wishes to "capitalize" part of the earnings, it may issue a

a. cash dividend.

b. stock dividend.

c. property dividend.

d. liquidating dividend.

55. Which dividends do not reduce stockholders' equity?

a. Cash dividends

b. Stock dividends

c. Property dividends

d. Liquidating dividends

56. The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

a. increases common stock outstanding and increases total stockholders' equity.

b. decreases retained earnings but does not change total stockholders' equity.

c. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity.

d. increases retained earnings and increases total stockholders' equity.

58. The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the

a. market value of the shares issued.

b. book value of the shares issued.

c. minimum legal requirements.

d. par or stated value of the shares issued.

59. At the date of declaration of a small common stock dividend, the entry should not include

a. a credit to Common Stock.

b. a credit to Paid-in Capital in Excess of Par.

c. a debit to Retained Earnings.

d. All of these are acceptable.

60. The balance in Common Stock Dividend Distributable should be reported as a(n)

a. deduction from common stock issued.

b. addition to capital stock.

c. current liability.

d. contra current asset.

61. A feature common to both stock splits and stock dividends is

a. a transfer to earned capital of a corporation.

b. that there is no effect on total stockholders' equity.

c. an increase in total liabilities of a corporation.

d. a reduction in the contributed capital of a corporation.

62. What effect does the issuance of a 2-for-1 stock split have on each of the following?

Par Value per Share Retained Earnings

a. No effect No effect

b. Increase No effect

c. Decrease No effect

d. Decrease Decrease

*68. Dividends are not paid on

a. noncumulative preferred stock.

b. nonparticipating preferred stock.

c. treasury common stock.

d. Dividends are paid on all of these.

Multiple Choice—Computational

Use the following information for questions 71 and 72.

Presented below is information related to Edis Corporation:

Common Stock, $1 par $4,300,000

Paid-in Capital in Excess of Par—Common Stock 550,000

Preferred 8 1/2% Stock, $50 par 2,000,000

Paid-in Capital in Excess of Par—Preferred Stock 400,000

Retained Earnings 1,500,000

Treasury Common Stock (at cost) 150,000

71. The total stockholders' equity of Edis Corporation is

a. $8,600,000.

b. $8,750,000.

c. $7,100,000.

d. $7,250,000.

72. The total paid-in capital (cash collected) related to the common stock is

a. $4,300,000.

b. $4,850,000.

c. $5,250,000.

d. $4,700,000.

73. Bleeker Company issued 10,000 shares of its $5 par value common stock having a market value of $25 per share and 15,000 shares of its $15 par value preferred stock having a market value of $20 per share for a lump sum of $480,000. How much of the proceeds would be allocated to the common stock?

a. $50,000

b. $218,182

c. $250,000

d. $255,000

75. Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2020, the first year of the corporation’s existence:

Sold 5,000 shares of common stock for $18 per share.

Issued 5,000 shares of common stock in exchange for a patent valued at $100,000.

At the end of the Berry’s first year, total paid-in capital amounted to

a. $40,000.

b. $90,000.

c. $100,000.

d. $190,000.

77. On September 1, 2020, Zelner Company reacquired 12,000 shares of its $10 par value common stock for $15 per share. Zelner uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit

a. Treasury Stock for $120,000.

b. Common Stock for $120,000.

c. Common Stock for $120,000 and Paid-in Capital in Excess of Par for $60,000.

d. Treasury Stock for $180,000.

79. King Co. issued 100,000 shares of $10 par common stock for $1,200,000. King acquired 8,000 shares of its own common stock at $15 per share. Three months later King sold 4,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 4,000 treasury shares, King should credit

a. Treasury Stock for $76,000.

b. Treasury Stock for $40,000 and Paid-in Capital from Treasury Stock for $36,000.

c. Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $16,000.

d. Treasury Stock for $60,000 and Paid-in Capital in Excess of Par for $16,000.

85. Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2019:

Common stock, par value $20; authorized 75,000 shares;

issued and outstanding 45,000 shares $ 900,000

Paid-in capital in excess of par value 350,000

Retained earnings 300,000

$1,550,000

During 2020, the following transactions occurred relating to stockholders' equity:

3,000 shares were reacquired at $28 per share.

3,000 shares were reacquired at $35 per share.

1,800 shares of treasury stock (the ones purchased at $28 per share) were sold at $30 per share.

For the year ended December 31, 2020, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2020, balance sheet?

a. $1,865,000.

b. $1,861,400.

c. $1,857,800.

d. $1,415,000.

89. Colson Inc. declared a $240,000 cash dividend. It currently has 9,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders?

a. $114,000.

b. $126,000.

c. $177,000.

d. None.

95. Hernandez Company has 560,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by

a. $1,988,000.

b. $ 840,000.

c. $ 308,000.

d. $ 280,000.

96. On June 30, 2020, when Ermler Co.'s stock was selling at $65 per share, its capital accounts were as

follows:

Capital stock (par value $50; 80,000 shares issued) $4,000,000

Paid-in Capital in Excess of Par—Common Stock 600,000

Retained earnings 4,200,000

If a 100% stock dividend were declared and distributed, capital stock would be

a. $4,000,000.

b. $4,600,000.

c. $8,000,000.

d. $8,800,000.

100. On January 1, 2020, Culver Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $8, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 2020. What was the impact of the 15% stock dividend on the balance of the retained earnings account?

a. $750,000 decrease

b. $120,000 decrease

c. $132,000 decrease

d. No effect

*104. Lott Co. has outstanding 50,000 shares of 8% preferred stock with a $10 par value and 125,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and $250,000 is distributed, the common stockholders will receive

a. $0.

b. $170,000.

c. $210,000.

d. $250,000.

Multiple Choice—CPA Adapted

105. A corporation was organized in January 2015 with authorized capital of $10 par value common stock. On February 1, 2020, shares were issued at par for cash. On March 1, 2020, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on

February 1, 2020 March 1, 2020

a. Yes No

b. Yes Yes

c. No No

d. No Yes

107. Norton Co. was organized on January 2, 2020, with 500,000 authorized shares of $10 par value common stock. During 2020, Norton had the following capital transactions:

January 5—issued 375,000 shares at $14 per share.

July 27—purchased 25,000 shares at $11 per share.

November 25—sold 15,000 shares of treasury stock at $13 per share.

Norton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2020?

a. $0.

b. $15,000.

c. $30,000.

d. $45,000.

112. On May 1, 2020, Kent Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Kent's common stock was $20 per share on May 1, 2020. As a result of this stock dividend, Kent's total stockholders' equity

a. increased by $200,000.

b. decreased by $200,000.

c. decreased by $10,000.

d. did not change.

124. At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. Paid-in Capital – T/S prior to the reissue has a balance of $20,000. What effect does the reissuance of the stock have on the following accounts?

Retained Earnings Paid-in Capital – T/S

a. Decrease Decrease

b. No effect Decrease

c. Decrease No effect

d. No effect No effect

128. How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the fair value of the shares exceeds the par value of the stock?

Additional

Common Stock Paid-in Capital

a. No effect No effect

b. No effect Increase

c. Increase No effect

d. Increase Increase

*130. At December 31, 2019 and 2020, Plank Corp. had outstanding 4,000 shares of $100 par value 8% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, 2019, dividends in arrears on the preferred stock were $16,000. Cash dividends declared in 2020 totaled $60,000. What amounts were payable on each class of stock?

Preferred Stock Common Stock

a. $32,000 $28,000

b. $44,000 $16,000

c. $48,000 $12,000

d. $60,000 $0

Knowt