Retained earnings are occasionally restricted

FIN 534 Quiz 3

Question 1

Which one of the following is not an ownership right of a stockholder in a corporation?

To share in assets upon liquidation.

To share in corporate earnings.

To declare dividends on the common stock.

To vote in the election of directors.

Question 2

A corporation has the following account balances: Common stock, $1 par value, $30,000; Paid-in Capital in Excess of Par Value, $1,350,000. Based on this information, the

average price per share issued is $4.60.

number of shares outstanding are 1,380,000.

number of shares issued are 30,000.

legal capital is $1,380,000.

Question 3

If stock is issued for a noncash asset, the asset should be recorded on the books of the corporation at

fair market value.

a nominal amount.

cost.

zero.

Question 4

Which of the following represents the largest number of common shares?

Outstanding shares

Treasury shares

Issued shares

Authorized shares

Question 5

A corporation purchases 20,000 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?

Increase by $400,000

Increase by $700,000

Decrease by $700,000

Decrease by $400,000

Question 6

The acquisition of treasury stock by a corporation

has no effect on total assets and total stockholders' equity.

requires that a gain or loss be recognized on the income statement.

increases its total assets and total stockholders' equity.

decreases its total assets and total stockholders' equity.

Question 7

Which of the following is not a right or preference associated with preferred stock?

First claim to dividends.

Preference to corporate assets in case of liquidation.

The right to vote.

To receive dividends in arrears before common stockholders receive dividends.

Question 8

If preferred stock is cumulative, the

preferred dividends not declared in a given year are called dividends in arrears.

preferred shareholders and the common shareholders receive equal dividends.

preferred shareholders and the common shareholders receive the same total dollar amount of dividends.

common shareholders will share in the preferred dividends.

Question 9

When common stock is issued for services or non-cash assets, cost should be

either the fair market value of the consideration given up or the consideration received, whichever is more clearly evident.

the book value of the common stock issued.

only the fair market value of the consideration given up.

only the fair market value of the consideration received.

Question 10

Common Stock Dividends Distributable is classified as a(n)

asset account.

stockholders' equity account.

expense account.

liability account.

Question 11

Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:

Total Assets Total Liabilities Total Stockholders' Equity

Increase Decrease No change

Decrease No change Increase

No change Increase Decrease

Decrease Increase Decrease

Question 12

Which of the following show the proper effect of a stock split and a stock dividend?

Item Stock Split Stock Dividend

Total paid-in capital Increase Increase

Total retained earnings Decrease Decrease

Total par value (common) Decrease Increase

Par value per share Decrease No change

Question 13

Restricting retained earnings for the cost of treasury stock purchased is a

legal restriction.

contractual restriction.

stock restriction.

voluntary restriction.

Question 14

Retained earnings are occasionally restricted

to set aside cash for dividends.

due to contractual loan restrictions.

to keep the legal capital associated with paid-in capital intact.

if preferred dividends are in arrears

Question 15

Prior period adjustments

may only decrease retained earnings.

do not affect retained earnings.

may only increase retained earnings.

may either increase or decrease retained earnings.