Question : 161. Shown below the stockholders’ equity section of Powell’s balance sheet : 1229388

 

161. Shown below is the stockholders’ equity section of Powell’s balance sheet at December 31, 2009:
  
In 2010, the following events occurred:
Powell issued 2,500 shares of $2 par common stock as payment for legal services. Although Powell’s stock is not traded on any exchange, the agreed-upon value of the legal services is $80,000.
Powell issued 4,500 shares of 6% cumulative preferred stock, $100 par value, for $106 per share.
The board of directors declared a dividend of $1.25 per share on the common stock.
Powell’s net income for 2007 was $675,000.
Instructions
Complete in good form the stockholders’ equity section of a balance sheet prepared for Powell at December 31, 2010.
 

Multiple Choice Questions
 

162. When a business is organized as a corporation, which of the following statements is true? 
A. Stockholders are liable for the debts of the business only in proportion to their percentage ownership of capital stock.
B. Stockholders do not have to pay personal income taxes on dividends received, because the corporation is subject to income taxes on its earnings.
C. Fluctuations in the market value of outstanding shares of capital stock do not affect the amount of stockholders’ equity shown in the balance sheet.
D. Each stockholder has the right to bind the corporation to contracts and to make other managerial decisions.

 

163. Western Moving Corporation was organized with authorization to issue 100,000 shares of $1 par value common stock. Forty thousand shares were issued to Tom Morgan, the company’s founder, at a price of $5 per share. No other shares have yet been issued. Which of the following statements is true? 
A. Morgan owns 40 percent of the stockholders’ equity of the corporation.
B. The corporation should recognize a $160,000 gain on the issuance of these shares.
C. If the balance sheet includes retained earnings of $50,000, total paid-in capital amounts to $250,000.
D In the balance sheet, the Additional Paid-in Capital account will have a $160,000 balance, regardless of the profits earned or losses incurred since the corporation was organized.

 

164. Which of the following is not a characteristic of the common stock of a large, publicly owned corporation? 
A. The shares may be transferred from one investor to another without disrupting the continuity of business operations.
B. Voting rights in the election of the board of directors.
C. A cumulative right to receive dividends.
D. After issuance, the market value of the stock is unrelated to its par value.

 

165. Tri-State Electric is a profitable utility company that has increased its dividend to common stockholders every year for 42 consecutive years. Which of the following is least likely to affect the market price of the company’s preferred stock by a significant amount? 
A. A decrease in long-term interest rates.
B. An increase in long-term interest rates.
C. The board of directors announces its intention to increase common stock dividends in the current year.
D. Whether or not the preferred stock carries a conversion privilege.

 

166. The following information is taken from the balance sheet and related disclosures of Maxwell, Inc.:
  
Which of the following statements is (are) true? (Fr this question, more than one answer may be correct.) 
A. The preferred dividends in arrears amount to $120,000 and should appear as a liability in the corporate balance sheet.
B. The book value per share of common stock is $35.
C. The stockholders’ equity section of the balance sheet should include a deficit (negative amount in retained earnings) of $700,000.
D. The company has paid no dividend on its common stock during the past two years.

 

167. On December 10, 2010, Smitty Corporation reacquired 2,000 shares of its own $5 par value common stock at a price of $60 per share. In 2011, 500 of the treasury shares are reissued at a price of $70 per share. Which of the following statements is correct? 
A. The treasury stock purchased is recorded at cost and is shown in Smitty’s December 31, 2010 balance sheet as an asset.
B. The two treasury stock transactions result in an overall net reduction in Smitty’s stockholders’ equity of $85,000.
C. Smitty recognizes a gain of $10 per share on the reissuance of the 500 treasury shares in 2011.
D. Smitty’s stockholders’ equity was increased by $110,000 when the treasury stock was acquired.

 

 

 

 

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