Question

Question 15

Amos Company acquired land in exchange for 10,000 shares of its $10 par common stock. The fair market value of the land is NOT determinable, but the stock is widely traded and was selling for $25 per share when exchanged for the land. At what amount should the land be recorded by Amos Company?

Select one:

a. $150,000

b. $250,000

c. $350,000

d. $100,000

Question 16

A corporation purchases 10,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity?

Select one:

a. increase, $200,000

b. increase, $350,000

c. decrease, $200,000

d. decrease, $350,000

Question 17

Which of the following is NOT a prerequisite to paying a cash dividend?

Select one:

a. formal action by the board of directors

b. market value in excess of par value per share

c. sufficient cash

d. sufficient retained earnings

Question 18

The liability for a dividend is recorded on which of the following dates?

Select one:

a. the date of record

b. the date of payment

c. the date of announcement

d. the date of declaration

Question 19

Tom owns 2,000 shares of common stock in Phillips, Inc. These shares represent a 5% interest in the company. If Phillips issues a 10% stock dividend (a) how many shares will Phillips own after the dividend, and (b) what percentage ownership will he have in the company?

Select one:

a. 2200 shares; 5% ownership

b. 2200 shares; 5.5% ownership

c. 2100; 5% ownership

d. 2100; 5.5% ownership

Question 20

What is the effect of a stock dividend on the Balance Sheet?

Select one:

a. Decrease total assets and decrease total stockholders’ equity

b. Decrease total assets and total increase stockholders’ equity

c. Increase total liabilities and decrease total stockholders’ equity

d. No effect on total assets, total liabilities or total stockholders’ equity

Answer 1

15. As the stock was traded at $25 at the time of exchange of land hence the land will be recorded in the accounts at $250,00 (10000 shares @ $25 per share)

B is the correct answer.

16. As the corporation is buying it's own share @. $35 per share hence the share capital will decrease by $250,00 (10000 shares @ $20 per share) and the Reserves will decrease by $150,000 ( 10000 shares @ $15 premium). So the total decrease in stackholders eqyuity will be $350,000.

D is the correct answer.

17. Market value in excess of par value is not and pre-requisite for paying a cash dividend hence b is the correct answer.

18. Dividend is recorded when it is declared hence option d is correct.

19. As Tom is holding 2000 shares and after stock dividend he will receive 200 shares as dividend. His total shares will be 2200 share. Now as the total share capital of Philip is 40000 shares before stock dividend and after stock dividend of 10% it will be 44000. Now Tom is holding 2200 shares which will be 5% of 44000 shares hence. Tom has now 2200 shares with 5% ownership.

Option A is correct.  

20. If the company is paying stock dividend, in that case of the stockholders equity will be get affected but it will also have nill effect because one account will increase and another will decresae. To issue a stock dividend common stock will be credited and reserves will be debited. In this case only stockholders equity will get effected but as both are in stockholders equity hence there will be nil effect overall in stockholder's equity.

D is the correct answer.

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