Question

Q4 . Jackson corporation's balance sheet showed the following amounts: current liabilities, $2,800; bonds payable, $6,000; lease obligations, $2300. Total stockholder's equity was $7,500. The debt to equity ratios is:

a) 0..67

b) 1.11 <-- this is wrong

c) 1.22

d)1.44

e) 1.67

Q5 Axle Corporation's balance sheet showed the following amounts: total assets, $240,000, current liabilities, $45,000; total liabilities, $90,000. The debt to equity ratio is:

a) 0.44 <-- this is wrong

b) 0.55

c) 0.60

d) 1.25

e)1.60

Q8 As a result of a stock split,

a) Stockholder's equity is increased.

b) The stockholder have a higher proportionate ownership of the company.

c) The par value of the stock is changed in reverse proportion as the stock split.

d) the market price of the outstanding stock is increasing because a split is evidence of a profitable company. <-- this is wrong

Q10 When the board of directors approves a dividend be paid to its shareholders in 30 days, the company should:

a) decrease net income by recording dividends expense and decrease cash

b) decrease net income by recording dividend expense and increase dividends payable.

c) Decrease retained earnings and decrease cash. <--- wrong answer

d) Decrease retained earning and increase dividends payable

I provided 4 questions sorry, but I really need the help on these 4. I appreciate the time helping me. Have a nice day.

Answer 1

Solution for Question No. 1

Dear Student first you need to understand the concept of DEBT - Equity Ratio.

This ratio means how much outsider's fund are invested in the entity in comparison to insders fund.

Hence Debt-Equity Ratio =   Total Debt (Liabilities)  

Total Equity

= 2800+6000+2300  

7500

= 1.48( approx)

I know this is not included in your option but this is how this ratio is calculated. Many Organisations take Long Term Liabilities only while Calculation the above Ratio. In that case your answer will be = 8300/7500

= 1.11 ( Assuming Lease obligation is a long term liability)

Solution for Question No. 2

Debt-Equity Ratio =   Total Debt (Liabilities)  

Total Equity

Total Equity = Total Asset - Total Outsiders Liability

= 2,40,000-90,000

=1,50,0000

Hence Debt Equity Ratio = 90,000/150000

= 0.60 ( C from the given answer)

Solution of Question No. 3

c) The par value of the stock is changed in reverse proportion as the stock split

Reason: After Stock Split No of shares held by Shareholders gets doubled hence PAR Value per share gets reduced by 50%.

Suppose i have 10 shares @10 per share Par Value = 100 Nominal Value ( 10X10)

After Stock Split I will have 20 share and Nominal Value i.e, 100 will remain same

hence PAR Value per share Will becoem 100/20 = Rs. 5 per share.

Solution of Question No. 4

d) Decrease retained earning and increase dividends payable

Reason : Diviend is always paid from retained earning after it is approved from the shareholders.

Hence it is reduced from Retained earnings and Divident is current liability, hence It is added to current liability subsequent to approval as " Divident payable" .