SUBMISSION DATE: 11th November 2022

PART 1: MULTIPLE CHOICE QUESTIONS:

1. Which of the following is not a major advantage of a corporate form of organization?
a. Separate legal existence.
b. Continuous life.
c. Government regulations.
d. Transferable ownership rights
2. A major disadvantage of a corporation is:
a. limited liability of stockholders.
b. additional taxes.
c. transferable ownership rights.
d. separate legal existence.
3. Costs incurred in the formation of a corporation:
a. do not include legal fees.
b. are expensed as incurred.
c. are recorded as an asset.
d. provide future benefits whose amounts and timing are easily determined
4. Entries for cash dividends are required on the:
a. declaration date and the payment date.
b. record date and the payment date.
c. declaration date, record date, and payment date.
d. declaration date and the record date.
5. Preferred stock may have priority over common stock EXCEPT in:
a. dividends.
b. assets in the event of liquidation.
c. cumulative dividend features.
d. voting.
6. Encore Inc. declared an $80,000 cash dividend. It currently has 3,000 shares of 7%, $100 par value
cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash
will Encore distribute to the common stockholders?
a. $38,000. (c) $59,000.
b. (b) $42,000. (d) None

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7. Which of the following statements about a 3-for-1 stock split is true?
a. It will triple the market price of the stock.
b. It will triple the amount of total stockholders’ equity.
c. It will have no effect on total stockholders’ equity.
d. It requires the company to distribute cash.
8. Raptor Inc. has retained earnings of $500,000 and total stockholders’ equity of $2,000,000. It has 100,000
shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Raptor
declares a 10% stock dividend on its common stock:
a. net income will decrease by $80,000.
b. retained earnings will decrease by $80,000 and total stockholders’ equity will increase by $80,000.
c. retained earnings will decrease by $300,000 and total stockholders’ equity will increase by $300,000.
d. retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.
9. In the stockholders’ equity section, Common Stock Dividends Distributable is reported as a(n):
a. deduction from total paid-in capital and retained earnings.
b. addition to additional paid-in capital.
c. deduction from retained earnings.
d. addition to capital stock
10. The return on common stockholders’ equity is defined as:
a. net income divided by total assets.
b. cash dividends divided by average common stockholders’ equity.
c. income available to common stockholders divided by average common stockholders’ equity.
d. None of these is correct
11. Katie Inc. reported net income of $186,000 during 2017 and paid dividends of $26,000 on common stock.
It also has 10,000 shares of 6%, $100 par value, noncumulative preferred stock outstanding and paid
dividends of $60,000 on preferred stock. Common stockholders’ equity was $1,200,000 on January 1,
2017, and $1,600,000 on December 31, 2017. The company’s return on common stockholders’ equity for
2017 is:
a. 10% c. 7.1%
b. 9% d. 13.3%
12. During 2017, Talon Inc. had sales revenue $376,000, gross profit $176,000, operating expenses $66,000,
cash dividends $30,000, other expenses and losses $20,000. Its corporate tax rate is 30%. What was
Talon’s income tax expense for the year?
a. $18,000. (c) $112,800.

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 b. $52,800. (d) $27,000
13. Total stockholders’ equity (in the absence of treasury stock) equals:
a. Total paid-in capital + Retained earnings.
b. Paid-in capital + Capital stock + Retained earnings.
c. Capital stock + Additional paid-in capital - Retained earnings.
d. Common stock + Retained earnings
14. The account Retained Earnings is:
a. a subdivision of paid-in capital.
b. net income retained in the corporation.
c. reported as an expense in the income statement.
d. closed to capital stock.
15. Which of the following is NOT reported under additional paid-in capital?
a. Paid-in capital in excess of par.
b. Common stock.
c. Paid-in capital in excess of stated value.
d. Paid-in capital from treasury stock.
16. Which of the following statements is FALSE?
a. Ownership of common stock gives the owner a voting right.
b. The stockholders’ equity section begins with paid-in capital.
c. The authorization of capital stock does not result in a formal accounting entry.
d. Legal capital per share applies to par value stock but not to no-par value stock.
17. In the stockholders’ equity section of the balance sheet, common stock:
a. is listed before preferred stock.
b. is added to total capital stock.
c. is part of paid-in capital.
d. is part of additional paid-in capital.
18. In the stockholders’ equity section, the cost of treasury stock is deducted from:
a. total paid-in capital and retained earnings.
b. retained earnings.
c. total stockholders’ equity.
d. common stock in paid-in capital. Paid-in capital in excess of par.

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 19. The income statement for Nadeen, Inc. shows income before income taxes $700,000, income tax expense
$210,000, and net income $490,000. If Nadeen has 100,000 shares of common stock outstanding
throughout the year, earnings per share is:
a. $7.00.
b. $2.10.
c. $4.90.
d. No correct answer is given.
20. Lucroy Corporation issues 100 shares of $10 par value preferred stock at $12 per share. In recording the
transaction, credits are made to:
a. Preferred Stock $1,200.
b. Preferred Stock $1,000 and Retained Earnings $200.
c. Preferred Stock $1,000 and Paid-in Capital in Excess of Preferred Value $200.
d. Preferred Stock $1,000 and Paid-in Capital in Excess of Par — Preferred Stock $200

PART 2 REVIEW QUESTIONS:

1. On May 10, Jack Corporation issues 2,000 shares of $10 par value common stock for cash at $18 per
share. Journalize the issuance of the stock.
2. Lei Inc.’s $10 par value common stock is actively traded at a market price of $15 per share. Lei issues
5,000 shares to purchase land advertised for sale at $85,000. Journalize the issuance of the stock in
acquiring the land.
3. Garb Inc. issues 5,000 shares of $100 par value preferred stock for cash at $130 per share. Journalize the
issuance of the preferred stock.
4. On July 1, Raney Corporation purchases 500 shares of its $5 par value common stock for the treasury at
a cash price of $9 per share. On September 1, it sells 300 shares of the treasury stock for cash at $11 per
share. Journalize the two treasury stock transactions.
5. Pine Corporation has the following accounts at December 31: Common Stock, $10 par, 5,000 shares
issued, $50,000; Paid-in Capital in Excess of Par—Common Stock $30,000; Retained Earnings $45,000;
and Treasury Stock, 500 shares, $11,000. Prepare the stockholders’ equity section of the balance sheet.
6. Beauty Island Corporation began operations on April 1 by issuing 60,000 shares of $5 par value common
stock for cash at $13 per share. On April 19, it issued 2,000 shares of common stock to attorneys in
settlement of their bill of $27,500 for organization costs. In addition, Beauty Island issued 1,000 shares of

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 $1 par value preferred stock for $6 cash per share. Journalize the issuance of the common and preferred
shares.
7. Quay Co. had the following transactions during the current period.
• Mar. 2 Issued 5,000 shares of $5 par value common stock to attorneys in payment of a bill for
$30,000 for services performed in helping the company to incorporate.
• June 12 Issued 60,000 shares of $5 par value common stock for cash of $375,000.
• July 11 Issued 1,000 shares of $100 par value preferred stock for cash at $110 per share.
• Nov. 28 Purchased 2,000 shares of treasury stock for $80,000.
Journalize the transactions.
8. The following stockholders’ equity accounts, arranged alphabetically, are in the ledger of Google
Corporation at December 31, 2017: Prepare the stockholders’ equity section of the balance sheet at
December 31, 2017.

9. The stockholders’ equity section of Haley Corporation at December 31 is as follows:

Instructions: From a review of the stockholders’ equity section, as chief accountant, write a
memo to the president of the company answering the following questions.
a. How many shares of common stock are outstanding?
b. Assuming there is a stated value, what is the stated value of the common stock?
c. What is the par value of the preferred stock?

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10. Herr Corporation has 3,000 shares of 7%, $100 par value preferred stock outstanding at December
31, 2017. At December 31, 2017, the company declared a $105,000 cash dividend. Determine the
dividend paid to preferred stockholders and common stockholders under each of the following scenarios.
• The preferred stock is noncumulative, and the company has not missed any dividends in
previous years.
• The preferred stock is noncumulative, and the company did not pay a dividend in each of the
two previous years.
• The preferred stock is cumulative, and the company did not pay a dividend in each of the two
previous years.
11. Jurgens Company has had 4 years of net income. Due to this success, the market price of its 400,000
shares of $3 par value common stock has increased from $12 per share to $46. During this period,
paid-in capital remained the same at $2,800,000. Retained earnings increased from $1,800,000 to
$12,000,000.
President E. Rife is considering either a 15% stock dividend or a 2-for-1 stock split.
He asks you to show the before-and after effects of each option on
a. retained earnings and
b. total stockholders’ equity