First Midterm Review-Winter 2005

First Midterm Review-Winter 2005 - Problem 1 Multiple...

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Problem 1 – Multiple Choice First Midterm Winter 2005 1. Stockholders’ equity represents: a. The amount invested in the corporation by the stockholders. b. The amount earned by the company since incorporation. c. The amount owed the stockholders in a liquidation. d. The stockholders residual interest in the net assets of the corporation . 2. Common stock: a. Has a guaranteed dividend amount. b. Has voting rights . c. Receives dividends before preferred stockholders. d. Always has a par value. 3. Preferred stock: a. Has a guaranteed dividend amount. b. Has voting rights. c. Receives dividends before common stockholders. d. Always has a par value. 5. Cash received from the issuance of stock must be separated into par value and paid-in capital in excess of par because a. The paid-in capital in excess of par is taxable. b. The par value determines the legal capital of a company, in most states . c. It is required by the FASB. d. It is required by the IRS. 6. Retained Earnings is a. Original investments by owners. b. Legal capital of the company c. Cash available for dividends. d. Accumulated net income of a firm less dividends or other distributions to owners . 7. A liability for a cash dividend exists at the: a. End of the year. b. Date of declaration c. Date of record d. Date of payment 8. On March 1, 2004, Linus Corp. was formed by issuing 100,000 shares of $1 par value common stock at $5 a share and 20,000 shares of $100 par value preferred stock at $101 per share. If Linus earned $35,000 in its first year of operations, the December 31, 2004 balance sheet would show the following balances: Common Stock Preferred Stock Paid-in Capital Excess of Par a. $100,000 $2,000,000 $400,000 b. $ 100,000 $2,000,000 $420,000 c. $500,000 $2,000,000 $20,000 d. $500,000 $2,000,000 $35,000 Answer : Paid-in Capital Excess of Par = ($5 - $1) * 100,000 + ($101 - $100) * 20,000 = $420,000 1
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9. How would the declaration of a 5% stock dividend affect the following items: Retained Earnings Total Stockholders’ Equity a. Decrease Decrease b. Decrease No effect c. No effect Increase d. No effect No effect 10. The primary reason for a stock split is to a. Increase the stock price b. Reduce the stock price c. Increase retained earnings. d. Decrease retained earnings 11. Why would a company issue a 100% stock dividend instead of a 2 for 1 stock split: a. It will have a greater impact of the stock price. b. The SEC prefers stock dividends to stock splits. c. The want to reduce their retained earnings . d. It is easier. 12. Dean, Inc. has $2,000,000 of notes payable due June 15, 2005. On February 20, 2005, Dean signed an agreement to borrow up to 80% of the inventory value on a long-term basis to pay off the note. During 2004, inventory had ranged from $2,000,000 to $2,400,000. In its December 31, 2004 balance sheet which was issued on March 1, 2005, Dean should show: Short-Term Obligations Long-term Obligations a. $2,000,000 $0 b. $400,000 $1,600,000 c. $80,000 $1,920,000
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This note was uploaded on 11/28/2009 for the course BUSINESS acct 3211 taught by Professor Lin during the Winter '09 term at Calhoun Community College.

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First Midterm Review-Winter 2005 - Problem 1 Multiple...

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