Stockholders Equity MCQ

The Southern company issued 5,000 shares of its P10 par value common stock. These shares were issued
at a price of P25 per share. The correct journal entry to record this transaction is:

a. Cash P125,000 Dr; Common stock P125,000 Cr.

b. Cash P50,000 Dr; Common stock P50,000 Cr.
c. Common stock P50,000 Dr; Additional paid-in capital - common stock P75,000 Dr; Cash P125,000
Cr.
d. Cash P125,000 Dr; Common stock P50,000 Cr; Additional paid-in capital - common stock P75,000
Cr.

The following information has been extracted from the balance sheet of Washington Corporation as on
December 31, 2017:

 Number of shares of common stock authorized: 200,000 shares

 Number of shares of common stock issued and outstanding: 80,000 shares
 Par value per share: P10
 On January 1, 2018, the board of directors proposed a 7-for-5 stock split which was approved.

The 7-for-5 stock split would change the number of shares issued and outstanding into:

a. 80,000
b. 280,000
c. 32,000
d. 112,000

The ASA Company repurchased its own shares of common stock. The relevant information is given
below:

 Number of shares repurchased: 5,000 shares

 Par value per share: P10
 The price at which shares were repurchased: P20 per share

Based on the above information, the journal entry to record the repurchase of 5,000 shares under cost
method would be:

a. Treasury stock 50,000 Dr; Cash 50,000 Cr.

b. Treasury stock 100,000 Dr; Cash 100,000 Cr.
c. Common stock 50,000 Dr; Cash 50,000 Cr.
d. Common stock 100,000 Dr; Cash 100,000 Cr.

The following information has been extracted from the balance sheet of Dondon Corporation as on
December 31, 2017:

 Total stockholders’ equity: P25,000,000

 Preferred stock (issued and outstanding): P15,000,000
  Average No. of shares of common stock outstanding: 2,000,000 shares

On the basis of above information, the book value per share of common stock is:

P10.00
P15.00
P5.00
P12.50

Par value of a stock is:

a. the value of the stock.

b. the recommended selling price of the stock.
c. an arbitrary amount stated on the face of the stock.
d. the actual selling price of the stock.

Retained earnings represents:

a. the amount of liquid assets that are available to the stockholders.

b. the amount received in excess of the par value of the stock.
c. the amount of net income earned by the company not paid out as dividends.
d. a decrease in stockholders' equity.

A stock is presented on the balance sheet as P50 par, 8% preferred stock. What is the dividend for the
stock?

a. P4
b. P8
c. P32
d. None of the answers are correct.

Stock that allows a firm to eliminate a class of stock by paying the stockholders a specified amount is
known as:

a. cumulative stock.
b. participating stock.
c. convertible stock.
d. callable stock.

Yuri Company issues 1,000 shares of P1 par value common stock for P5 per share. This transaction would
result in an:

a. increase in Common Stock for P5,000.

b. increase in Cash for P1,000.
c. increase in Additional Paid-In Capital--Common for P5,000.
d. increase in Common Stock for P1,000.

When stock is issued for cash, the amount of its par value should:

a. be reported in the additional paid-in capital account.

b. be reported in the stock account.
 c. be reported in the cash account.
d. not be reported.

Which of the following statements is not true regarding treasury stock?

a. It must have been issued to stockholders at some point.

b. It must have been repurchased from the stockholders.
c. It must be retired rather than held for some purpose.
d. It must be the corporation's own stock.

When a company reissues treasury stock at more than its cost, it should report a(n):

a. gain.
b. loss.
c. increase in retained earnings.
d. increase in stockholders' equity.

On October 24, 2001, the Globe Company declared P10,000 of dividends. On that date, the company had
outstanding: 10,000 shares of P1 par value common stock and 2,000 shares of 5%, P10 par value
preferred stock. No dividends were paid in 2016 or 2017.

If the preferred stock is cumulative, the dividends paid to each class of stock would be:

a. Preferred: P1,000, Common: P9,000

b. Preferred: P2,000, Common: P8,000
c. Preferred: P3,000, Common: P7,000
d. Preferred: P10,000, Common: - 0 -

On October 24, 2018, the Globe Company declared P10,000 of dividends. On that date, the company had
outstanding: 10,000 shares of P1 par value common stock and 2,000 shares of 5%, P10 par value
preferred stock. No dividends were paid in 2016 or 2017.

If the preferred stock is noncumulative, the dividends paid to each class of stock would be:

a. Preferred: P1,000, Common: P9,000

b. Preferred: P2,000, Common: P8,000
c. Preferred: P3,000, Common: P7,000
d. Preferred: P10,000, Common: - 0 -

When a company declares a small stock dividend (less than 20-25%), Retained Earnings should be:

a. decreased for par value of the stock.

b. decreased for the market value of the stock.
c. increased for the par value of the stock.
d. increased for the market value of the stock.

The difference between a stock dividend and a stock split is that a:

 a. stock dividend makes the stock more accessible to a wider range of investors.
b. stock split reduces the par value per share of the stock.
c. stock dividend increases the number of shares.
d. stock split reduces the market price per share of stock.

Element Company issues a 3-for-1 stock split. Which of the following is true?

a. The number of shares authorized is unchanged.

b. The par value of the stock is tripled.
c. The number of shares issued is unchanged.
d. The number of shares outstanding is tripled.

Which of the following is not reported on the statement of stockholders' equity?

a. Par value of capital stock

b. Dividends
c. Number of shares issued of capital stock
d. Increase in paid-in capital

Comprehensive income is:

a. the same as net income.

b. Beginning Equity + Net Income - Dividends.
c. Beginning Capital Stock + Stock Issued.
d. the total change in net assets from all sources except investments by owners and
distributions to owners.

Which of the following is a more meaningful measure of the value of a stock to those financial statement
users who are interested in buying or selling shares of stock?

a. Par value per share of the stock

b. Stated value per share of the stock
c. Book value per share of the stock
d. Market value per share of the stock

The market value of the stock depends on:

a. a corporation's earnings.
b. economic factors.
c. a corporation's liquidity.
d. All of the answers are correct.
Stockholders’ Equity Long Quiz

MCQ – Read and understand the question / statement carefully. Write the letter of your choice in an
answer sheet. NO ERASURES ALLOWED.

If preferred stockholders have the opportunity to receive more than the stated dividend percentage, the
stock is described as cummulative preferred stock.
True b. False

Dividends in arrears occur only on participating preferred stock.

True b. False

Dividends in arrears are reported in the financial statements in the liability section of the balance sheet.
True b. False

If a preferred stock can be exchanged for a stated number of common shares, it is referred to as
convertible preferred stock.
True b. False

The book value per share of preferred stock is its call price plus any dividends in arrears.
True b. False

Earnings per share means earnings per share of preferred and common stock.
True b. False

A debit balance in Retained Earnings will appear in stockholders' equity as deficit.

True b. False

The directors and management of a corporation declares the dividends.

True b. False

When a small stock dividend is declared, the maret value of the new shares is transferred from Retained
Earnings to paid-in capital accounts.
True b. False

A person who purchases common stock of a corporation is known as:

preferred stockholder
creditor
bond holder
common stockholder

A person who purchases preferred stock of a corporation is known as:

preferred owner
preferred creditor
preferred stockholder
preferred investor

Which of the following statements is not true about preferred stock?

The rate of dividend is usually fixed
Stockholders always have a voting right
Stockholders' usually have a preference as to assets upon liquidation of the corporation
Stockholders' usually have a preference as to dividends

Who is known as the real owner of the corporation?

The creditors
The preferred stockholders
The common stockholders
The board of directors

According to current standards, mandatorily redeemable preferred stock is required to be reported as:
liability
equity
asset
none of the above

The shares of common and preferred stock that have been issued and outstanding are reported in which
section of balance sheet?
Fixes assets section
Stockholders' equity section
Current assets
Liabilities section

Any unpaid dividend is carried forward to the future periods for which type of stock?
Common stock
Cumulative preferred stock
Non-cumulative preferred stock
All of the above

The STEX company issued 5,000 shares of its P10 par value common stock. These shares were issued at a
price of P25 per share. The correct journal entry to record this transaction is:
Cash P125,000 Dr; Common stock P125,000 Cr.
Cash P50,000 Dr; Common stock P50,000 Cr.
Common stock P50,000 Dr; Additional paid-in capital - common stock P75,000 Dr; Cash P125,000 Cr.
Cash P125,000 Dr; Common stock P50,000 Cr; Additional paid-in capital - common stock P75,000 Cr.

Which of the following is not affected as a result of stock split?

Number of shares outstanding
Par value per share
Market value per share
Par value of total shares outstanding

The following information has been extracted from the balance sheet of Nanoi Corporation as on
December 31, 2017:
Number of shares of common stock authorized: 200,000 shares
Number of shares of common stock issued and outstanding: 80,000 shares
Par value per share: P10
On January 1, 2018, the board of directors proposed a 7-for-5 stock split which was approved.

The 7-for-5 stock split would increase the number of shares issued and outstanding by:

80,000
280,000
32,000
112,000

To start a corporation, it is necessary to file an application at SEC. The legal document that the SEC
approves is the By-Laws.
True b. False

One of the advantages of the corporation form of business as opposed to a partnership form is the ease of
transferring it’s assets.
True b. False

Shares of stock that have been issued and have not been reacquired by the issuing corporation are called
authorized shares.
True b. False

If a corporation has issued only one type of stock, the stock issuance will not be approved by SEC.
True b. False

The type of stock that gets its dividend before the common stock gets its dividend is called preferred
stock.
True b. False
The holders of preferred and common stock can elect the corporation's board of directors.
True b. False

The dividend on preferred stock is often expressed as a percentage. To calculate the annual dividend on
preferred stock, you multiply the percentage times the number of shares of the preferred stock.
True b. False

If a corporation issues 10% Preferred Stock P100 Par on a day when the financial markets demand 9%,
this corporation's 10% Preferred Stock will sell for less than its par value.
True b. False

If a common stock does not have a par value or a stated value, the entire proceeds from issuing the stock
is credited to common stock account.
True b. False

Stockholder's equity is subdivided into two major sections: paid in capital and additional paid in capital.
True b. False

Which of the following cannot be a component of stockholders’ equity section of the balance sheet?
Additional paid-in capital
Treasury stock
Long term loan
Retained earnings

Sometime companies buyback their own shares which are known as:
holding stock
acquired stock
common stock
treasury stock

Which of the following is not true about treasury stock?

Shares held as treasury stock are not entitled to dividends
Shares held as treasury stock are not entitled to assets upon liquidation
Shares held as treasury stock include shares that has been retired or cancelled
Shares held as treasury stock has no voting right

The book value per share of common stock is equal to?

Total assets/No. of shares of common stock outstanding
Net income/No. of shares of common stock outstanding
(Stockholders' equity - Preferred stock)/No. of shares of common stock outstanding
Stockholders' equity/No. of shares of preferred stock outstanding
Which of the following factors will NOT affect the market price of preferred stock?
Rate of dividend
Rate of interest on debt securities
Features of preferred stock
None of the above

Treasury stock is a(n)

asset account
liability account
contra equity account
none of the above

The following information has been extracted from the balance sheet of Papa Corporation as on
December 31, 2017:
Total stockholders’ equity: P25,000,000
Preferred stock (issued and outstanding): P5,000,000
Average No. of shares of common stock outstanding: 2,000,000 shares

On the basis of above information, the book value per share of common stock is:

P10.00
P15.00
P2.50
P12.50

Dividends in arrears on cumulative preferred stock are disclosed as:

short-term liabilities
long-term liabilities
notes to the balance sheet
deduction from stockholders' equity

Which of the following statements is not true about common stock of a large, publicly owned
corporation?
The shares may be transferred from one stockholder to another
Stockholders have voting rights in the election of the board of directors
Stock holders have cumulative right to receive dividends
After issuance, the market value of the stock is unrelated to its par value

The net income of a corporation is closed to the retained earnings account.

True b. False

Dividends declared by a corporation reduce the paid in capital account section of stockholders' equity.
True b. False
Dividends appear as an expense on the corporation's income statement.
True b. False

If the board of directors does not declare the regular quarterly divided on its common stock, the
corporation's liabilities will include the omitted dividend.
True b. False

The declaration date is the date on which the corporation records a liability for its quarterly dividend.
True b. False

The record date determines which stockholders will receive a declared dividend.
True b. False

If a corporation declares a small stock dividend, the account that will be reduced by a debit entry is
additional paid in capital.
True b. False

A stockholder will have the same number of shares after a 3-for-2 stock split or after a 50% stock
dividend.
True b. False

A corporation's own shares of stock that have been reacquired from its stockholders but have not been
retired are called treasury stock.
True b. False

The account, Treasury Stock, will have either a zero balance or a credit balance.
True b. False

If a share of treasury stock is sold for more than its cost, the difference is credited to paid in capital from
treasury stock.
True b. False

Treasury stock sales can result in a loss on the corporation's income statement.
True b. False