Choose the Correct Option for Accounting in Stockholder Equity Flashcards

S25. Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholdersa. are entitled to a dividend every year in which the business earns a profit.b. have the rights to specific assets of the business.c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.d. can negotiate individual contracts on behalf of the enterprise.

26. Total stockholders' equity representsa. a claim to specific assets contributed by the owners.b. the maximum amount that can be borrowed by the enterprise.c. a claim against a portion of the total assets of an enterprise.d. only the amount of earnings that have been retained in the business.

27. A primary source of stockholders' equity isa. income retained by the corporation.b. appropriated retained earnings.c. contributions by stockholders.d. both income retained by the corporation and contributions by stockholders.

28. Stockholders' equity is generally classified into two major categories:a. contributed capital and appropriated capital.b. appropriated capital and retained earnings.c. retained earnings and unappropriated capital.d. earned capital and contributed capital.

29. The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is thea. pro forma method.b. proportional method.c. incremental method.d. either the proportional method or the incremental method.

30. When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is thea. market value of the services received.b. par value of the shares issued.c. market value of the shares issued.d. Any of these provides an appropriate basis for recording the transaction.

31. Direct costs incurred to sell stock such as underwriting costs should be accounted for as1. a reduction of additional paid-in capital.2. an expense of the period in which the stock is issued.3. an intangible asset.a. 1b. 2c. 3d. 1 or 3

32. A "secret reserve" will be created ifa. inadequate depreciation is charged to income.b. a capital expenditure is charged to expense.c. liabilities are understated.d. stockholders' equity is overstated.

P33. Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?a. authorized sharesb. issued sharesc. unissued sharesd. outstanding shares

S34. Stock that has a fixed per-share amount printed on each stock certificate is calleda. stated value stock.b. fixed value stock.c. uniform value stock.d. par value stock.

S35. Which of the following is not a legal restriction related to profit distributions by a corporation?a. The amount distributed to owners must be in compliance with the state laws governing corporations.b. The amount distributed in any one year can never exceed the net income reported for that year.c. Profit distributions must be formally approved by the board of directors.d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.

S36. In January 2012, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury sharesa. decreased total stockholders' equity.b. increased total stockholders' equity.c. did not change total stockholders' equity.d. decreased the number of issued shares.

P37. Treasury shares area. shares held as an investment by the treasurer of the corporation.b. shares held as an investment of the corporation.c. issued and outstanding shares.d. issued but not outstanding shares.

38. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value.b. Paid-in capital in excess of par for the purchase price.c. Treasury stock for the purchase price.d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

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39. “Gains" on sales of treasury stock (using the cost method) should be credited toa. paid-in capital from treasury stock.b. capital stock.c. retained earnings.d. other income.