SISTEMA UNIVERSITARIO ANA G.MÉNDEZ PROGRAMA AHORA ACCO 111- Accounting Principles Professor: Norban Aponte Camacho, MBA. Exam #3 Name: ______________________________ Date: _________________ True (T) or False (F) (20 points) A corporation can be organized for the purpose of making a profit or it may be not-for-profit. If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation As soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified A 3-for-1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock. Retained earnings represents the amount of cash available for dividends When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock becomes legal capital. The stockholders' equity section of a corporation's balance sheet consists of (1) paid-in capital, (2) retained earnings, and (3) drawings. A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings. results in a Loss on Sale of Treasury Stock being recognized on the income statement. A correction in income of a prior period involves either a debit or credit to the Retained Earnings account. The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity. Earnings per share is calculated by dividing net income by the weighted average number of shares of preferred stock and common stock outstanding. Treasury stock purchased for $25 per share that is reissued at $20 per share. Earnings per share is reported only for common stock. . Treasury Stock is debited at the price paid to reacquire the shares. The cash proceeds from issuing par value stock may be equal to or greater than. but not less than par value. Treasury stock is a contra stockholders' equity account. Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts. Dividends in arrears on cumulative preferred stock are considered a Under the cost method. liability. and the same amount is credited to Treasury Stock when the shares are sold. Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders' equity section. b. controller. c. state and federal. The officer who is generally responsible for maintaining the cash position of the corporation is the a. treasurer. Limited liability of owners Separate legal existence Continuous life d. b.II Select the best answer (20 points) 1. Which one of the following would not be considered an advantage of the corporate form of organization? a. profit and not-for-profit. d. . Stockholders of a corporation directly elect the president of the corporation. publicly held and privately held. a. d. Government regulation 4. c. The two ways that a corporation can be classified by purpose are a. general and limited. 3. c. 5. c. all of the employees of the corporation. d. b. 2. controller. president. the board of directors. the treasurer of the corporation. vice-president. b. The chief accounting officer in a company is known as the a. c. b. b. payment date. Stockholders' equity Assets Assets Liabilities Liabilities Liabilities Stockholders' equity Assets 9. The effect of the declaration of a cash dividend by the board of directors is to Increase Decrease a. treasurer. The date on which a cash dividend becomes a binding legal obligation is on the a. Adequate cash Approval of stockholders Declaration of dividends by the board of directors d. . Retained earnings 7. c. declaration date. c. last day of the fiscal year-end. 8. expense account. d. cashier. b. d. c. stockholders' equity account.b. b. Common Stock Dividends Distributable is classified as a(n) asset account. internal auditor. 6. c. d. date of record. Which one of the following is not necessary in order for a corporation to pay a cash dividend? a. a. 11.000. b. solitary stock.390. Additional taxes Government regulations Limited liability of stockholders Separation of ownership and management 12. Paid-in Capital in Excess of Par. the account to be debited on the date of declaration is a.d. If a corporation declares a 10% stock dividend on its common stock. average price per share issued is $3. d. b. If a corporation has only one class of stock. d. liability account. d. b. number of shares outstanding are 1. legal capital is $1. c. Based on this information. c. b. preferred stock.000. Retained Earnings. the a. it is referred to as classless stock. number of shares issued are 40. 13.000. Common Stock. a.350. Common Stock Dividends Distributable. c. $40.390. 10. Paid-in Capital in Excess of Par Value.48. . $1. Which of the following statements is not considered a disadvantage of the corporate form of organization? a. $1 par value.000. A corporation has the following account balances: Common stock.000. c. d. common stock. credit Paid-In Capital in Excess of Par Value for $53. Cash will be debited for $120. c. The company issued 2. If a stockholder receives a dividend that reduces retained earnings by the fair market value of the stock. 18.000 shares of stock to acquire land recently advertised at $55. 2 for 1 stock split 100% stock dividend 2% stock dividend $1 per share cash dividend 17. a.14. b. Which one of the following events would not require a formal journal entry on a corporation's books? a. debit Land for $44. b. d.000.000. c. cash dividend. b. When recording this transaction. c.000 shares of $5 par value common stock for $140. small stock dividend.000 16. Paid-In Capital in Excess of Par Value will be credited for $20. Dailey Company will a. Common Stock will be credited for $140.Dailey Company is a publicly held corporation whose $1 par value stock is actively traded at $22 per share. Paid-In Capital in Excess of Par Value will be credited for $120. contingent dividend. d. 15.000.000. d. d. the stockholder has received a a.000. If Vickers Company issues 4. large stock dividend.000. b.000. Which of the following statements regarding the date of a cash dividend declaration is not accurate? . c.000. credit Common Stock for $44. debit Land for $55.000. 000 and Retained Earnings $8. issues 2.000 shares of $10 par value common stock at $14 per share.a. A liability account must be increased 19. d.000. The dividend can be rescinded once it has been declared. 2010: Common stock. d.000. par $10 (authorized 15. b.000 10. 20. b. New Corp. c.960 9. 15. credits are made to a.000 and Paid-in Capital in Excess of Stated Value $8.000 14. binding obligation. The board of directors formally authorizes the cash dividend. b. Common Stock $20.000. The following data is available for BOX Corporation at December 31. Common Stock $20.000. c.000 shares} $100. how many shares of common stock are outstanding? a.960 . Common Stock $20. When the transaction is recorded.000 Treasury Stock (at cost $15 per share) 600 Based on the data. The corporation is committed to a legal.000 and Paid-in Capital in Excess of Par Value $8. d. Common Stock $28. c. 000 shares of common stock at $32 per share.500. .000 shares of Ankiel Corporation's common stock at $26 per share to be held in the treasury.000 $4. Nov. 400.700. the following stock transactions occurred: Jan.000 shares authorized. 5 Reissued 9. 18 Issued 50. 2009.000 Total stockholders' equity During 2010.200. 20 Purchased 25.III Problems ( 60 points ) The stockholders' equity section of Ankiel Corporation's balance sheet at December 31. Aug.000 issued and outstanding Paid-in capital in excess of par $2.000 Total paid-in capital 3.000 Retained earnings 600. $10 par value.000 1.000 shares of treasury stock for $28 per share.300. appears below: Stockholders' equity Paid-in capital Common stock. Instructions ( 20 points) (a)Prepare the journal entries to record the above stock transactions. 250. 000 shares of $5 par value common stock.(b) Prepare the stockholders' equity section of the balance sheet for Ankiel Corporation at December 31. . its first year of operation. Horner Corporation is authorized to issue 1.000. the company has the following stock transactions.000 and that no dividends were declared. 2. 2010. Assume that net income for the year was $100. During 2010. 000 shares of the treasury stock at $11 per share. Neely declares and distributes a 15% stock dividend when the market value of the stock is $14 per share. 2010. 30 Attorneys for the company accepted 500 shares of common stock as payment for legal services rendered in helping the company incorporate.000 shares of common stock for the treasury at $9 per share. Sold 11.Jan. 15 1 Paid the state $2.000 Total stockholders¶ equity On November 1. Instructions ( 15 points ) Journalize the transactions for Horner Corporation. $10 par value $600. Neely Corporation¶s stockholders¶ equity section is as follows: Common stock.000. Jan.000 shares of stock for land. July 2 Issued 100. 5 Dec. Jan. Sept. .000 $980. 3. On November 1.000 Paid-in capital in excess of par value Retained earnings 200. 6 Purchased 15. Instructions ( 15 points ) Indicate the balances in the stockholders¶ equity accounts after the stock dividend has been distributed. Issued 500. The land had an asking price of $900.000 180.000 shares of stock at $6 per share. The stock is currently selling on a national exchange at $8 per share.000. The legal services are estimated to have a value of $7.000 for incorporation fees. 000 $30. assuming the preferred stock dividend is 6% and cumulative. 2011 using the assumption of part (b).000 $70.000 shares of $5 par value preferred stock and 400. 2009. During its first year.4 Derek Corporation was organized on January 1. At December 31. (b) Show the allocation of dividends to each class of stock. .000 Instructions ( 10 points) (a)Show the allocation of dividends to each class of stock.000 shares of $1 par value common stock. (c)Journalize the declaration of the cash dividend at December 31. the corporation issued 40. assuming the preferred stock dividend is 5% and not cumulative. the company declared the following cash dividends: 2009 2010 2011 $ 8.