Multiple-Choice Questions 1. As a result of a stock split, a. An entry must be made showing

Question:

Multiple-Choice Questions

1. As a result of a stock split,

a. An entry must be made showing the effect on stockholders' equity.

b. The market price of the outstanding stock is increasing because a split is evidence of a profitable company.

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

d. The stockholders have a higher proportionate ownership of the company.

2. The balance of the $0.50 par value common stock account for Patriot Company was $60,000 before its recent 3-for-1 stock split. The market price of the stock was $30 per share before the stock split. What occurred as a result of the stock split?

a. The balance in the retained earnings account decreased.

b. The balance in the common stock account was reduced to $20,000.

c. The market price of the stock was not affected.

d. The market price of the stock dropped to approximately $10 per share.

3. When a company declares a 3-for-1 stock split, the number of outstanding shares:

a. Is tripled compared to the number of shares that were outstanding prior to the split.

b. Stays the same, but the number of issued shares triples.

c. Is tripled, while the number of issued shares is reduced to one-third of the original issued shares.

d. Is reduced, and the number of issued shares is tripled.

4. Shea Company has 20,000 shares of 5 percent, $40 par value, cumulative preferred stock. In 2008, no dividends were declared on preferred stock.

In 2009, Shea had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If they have $150,000 available for dividends in 2009, how much could it pay to the common stockholders?

a. $70,000

b. $110,000

c. $130,000

d. $150,000

5. Comprehensive income is:

a. Considered an appropriation of retained earnings when reported in the stockholders' equity section of the balance sheet.

b. The result of all events and transactions that affect income during the accounting period that are reported on the income statement.

c. Reporting all items that are not under management's control on the statement of retained earnings.

d. An all-inclusive approach to income that includes transactions that affect stockholders' equity with the exception of those transactions that affect owners.

6. FASB's concept of comprehensive income:

a. Excludes transactions that involve the payment of dividends.

b. Requires that all transactions must be shown on the income statement.

c. Has a primary drawback because it allows management to manipulate the income figure to a certain extent.

d. Allows items that are not necessarily under management's control, such as natural disasters, to be shown as an adjustment of retained earnings.

7. Garner Corporation issued $100,000 in common stock dividends in 2008.

Its net income for 2008 was $200,000. What is Garner's dividend payout ratio?

a. 0.5

b. 2

c. 1

d. 5

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