Question :
Multiple Choice Questions
1.A corporation issued common stock instead of debt : 1253521
Multiple Choice Questions
1.A corporation issued common stock instead of debt to finance the purchase of non-depreciable property. Which statement is true?
a.Ownership by existing shareholders will be diluted.
b.The company’s debt/equity ratio will be higher.
c.Income tax expense will be lower because expenses increase.
d.Net income will be lower.
2.Which one of the following is a result of a company issuing common stock instead of debt to finance the purchase of property?
a.Leverage will be more effective.
b.The company will probably experience cash flow problems.
c.It will have a lower debt/equity ratio.
d.It will report a lower net income.
3.What is the effect of a corporation appropriating retained earnings for the cost of treasury stock purchased?
a.Contributed capital is overstated.
b.A portion of retained earnings is restricted from the payment of dividends.
c.Owner’s equity is reduced by the amount of the appropriation.
d.Income is overstated.
4.Information related to Lamar Co. for the years ending December 31, 2010 and 2009 follows:
12-31-10
12-31-09
Common stock
$120,000
$80,000
Retained earnings at year end (after closing)
100,000
70,000
Dividends declared for 2010 totaled $20,000. How much was generated through operations?
a. $30,000
b. $50,000
c. $10,000
d. $70,000
5.A corporation generated assets by issuing equity securities and through profitable operations. Which effects likely occurred?
a.Common stock and retained earnings increased.
b.Common stock increased and retained earnings stayed the same.
c.Retained earnings increased, and there was no effect on common stock.
Liabilities and common stock increased.
6.Which one of the following is a valid reason for a stock split?
a. To increase ownership percentages of individual shareholders
b. To adjust the market price of the shares to a level where more individuals can afford to invest in the stock
c. To increase reported net income during subsequent accounting periods
d. To increase the book value per share of common stock
7.Which one of the following transactions cause a decrease to retained earnings?
a. Selling treasury stock
b. Incurring net income for the period
c. Declaring a stock dividend
d. Paying a cash dividend that was previously declared
8.On which date would you make no journal entry?
a. Date of declaration of cash dividend
b. Date of record of cash dividend
c. Date of payment of cash dividend
d. Date of declaring a stock dividend
9.Baker Company has 200,000 shares of common stock outstanding. The company declares a stock dividend of 58,000 shares. According to GAAP, this dividend should be treated as:
a. a small stock dividend.
b. a prior period adjustment.
c. a large stock dividend.
d. a purchase of treasury stock.
10.Cash dividends are paid based on the number of shares which are
a. authorized.
b. issued.
c. outstanding.
d. outstanding minus the number of treasury shares.
