1. Total stockholders' equity represents
a. a claim to specific assets contributed by the owners.
b. the maximum amount that can be borrowed by the enterprise.
c. a claim against a portion of the total assets of an enterprise.
d. only the amount of earnings that have been retained in the business.
2. In law, capital is considered that portion of stockholders' equity that is required by statute to be
retained in the business for protection of creditors.
Legal capital is
a. stated capital.
b. par value of all capital stock issued.
c. stated value of all no-par stock issued.
d. all of these.
3. 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.
4. 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.
5. Wilson Corp. purchased its own par value stock on January 1, 1998 for $20,000 and debited the
treasury stock account for the purchase price.
The stock was subsequently sold for $12,000.
The $8,000 difference between the cost and sales price should be recorded as a
a. additional paid-in capital to the extent that previous net "gains" from sales or retirements of the
same class of stock are included therein; otherwise, from retained earnings.
b. additional paid-in capital without regard as to whether or not there have been previous net
"gains" from sales or retirements of the same class of stock included therein.
c. retained earnings.
d. net income.
6. Various features and restrictions are often attached to preferred stock.
Which of the following
combinations of features are MOST typical of preferred stock with primarily debt characteristics
rather than equity characteristics?
a. noncumulative, participating, nonredeemable, voting
b. cumulative, participating, redeemable, voting
c. cumulative, nonparticipating, redeemable, non-voting
d. noncumulative, nonparticipating, nonredeemable, non-voting
7. Jett Co. had issued 100,000 shares of $10 par common stock for $1,200,000. Jett acquired 8,000
shares of its own common stock at $15 per share. Three months later Jett 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, Jett should credit