Question

1.Boris Corporation issued 25,000 shares of $10 par value common stock at $30 per share. As a result of this transaction, Boris Corporation’s: A. Paid in Capital in Excess of Par Value increased by $250,000 B. Paid in Capital in Excess of Par Value increased by $750,000 C. Common Stock increased by $250,000 D. Common Stock increased by $750,000

2.Karin, Inc. has 5,000 shares of 6%, $200 par value, cumulative preferred stock and 100,000 shares of $2 par value common stock outstanding. There were no dividends declared in 2015. The board of directors declared and paid dividends of $100,000 each in 2016 and 2017.

What is the amount of dividends received by the common stockholders in 2017?

	A.	$80,000
	B.	$40,000
	C.	$20,000
	D.	$60,000

3.

The stockholders equity section of Prancer Company showed the following:

Common Stock--$20 par value, 60,000 shares issued and outstanding	$1,200,000
Contributed Capital in excess of par value, common stock	3,600,000
Retained Earnings	3,200,000

Prancer declared a 10% stock dividend on a day when the market value of the stock was $60 per share. The stock dividend will:

	A.	Increase Common Stock by $360,000
	B.	Decrease Retained Earnings by $240,000
	C.	Increase Paid-in capital in excess of par value, Common Stock by $240,000
	D.	Increase Paid-in capital in excess of par value, Common Stock by $360,000

4.

Stockholders' equity represents the current market value of a company.

True

False

5.

The cumulative feature on preferred stock means that regular dividends to preferred stockholders omitted in past years must be paid in addition to the current year's dividend before any dividend distribution may be made to common stockholders.

True

False

6.

A statement of retained earnings will disclose the amount of net income (or loss) for the accounting period.

True

False

Answer 1

1.

Boris Corporation issued 25,000 shares of $10 par value common stock at $30 per share.

As a result of this transaction, Boris Corporation’s Common Stock increased by $250,000.

Correct option is (c)

Paid in Capital in Excess of Par Value increased by = $500,000

2.

Karin, Inc. has 5,000 shares of 6%, $200 par value, cumulative preferred stock.

Hence, annual dividend on preferred stock = 5,000 x 200 x 6%

= $60,000

No dividend was declared in 2015.

Hence, dividend payable on preferred stock in 2016 = 60,000 (accrued for 2015) + 60,000 (for 2016)

= $120,000

Dividend paid in 2016 = $100,000

Hence, dividend in arrears on preferred stock in 2016 = 120,000 - 100,000

= $20,000

Hence, dividend payable on preferred stock in 2017 = 20,000 (accrued for 2016) + 60,000 (for 2017)

= $80,000

Dividend paid in 2017= $100,000

Hence, dividend paid on common stock in 2017 = 100,000 - 80,000

= $20,000

Correct option is (c)

3.

Prancer declared a 10% stock dividend on a day when the market value of the stock was $60 per share. The stock dividend will increase Paid-in capital in excess of par value, Common Stock by $240,000  

Correct option is (c)

10% stock dividend = 60,000 x 10%

= 6,000 shares

Common stock will increase by = Stock dividend shares x Par value of 1 share

= 6,000 x 20

= $120,000

Paid-in capital in excess of par value, Common Stock will increase by = 6,000 x 40

= $240,000

4.

Stockholders' equity represents the current market value of a company.

The given statement is false.

Current market value is not reflected in the balance sheet.

Stockholders' equity represents total claims of the stockholders

5.

The cumulative feature on preferred stock means that regular dividends to preferred stockholders omitted in past years must be paid in addition to the current year's dividend before any dividend distribution may be made to common stockholders.

The given statement is true.

Accrued dividends on preferred stock are paid first and then if dividends are available, these are paid to common stockholders.

6.

A statement of retained earnings will disclose the amount of net income (or loss) for the accounting period.

The given statement is false.

net income (or loss) for the accounting period is reflected by the income statement.