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business
introductory financial accounting

Questions and Answers of Introductory Financial Accounting

Which of the following statements is true?a. Many companies prefer the indirect method because it is easier and less costly to prepare.b. Cash flow from operating activities must be prepared using
Which of the following is true?a. A decrease in cash may result from an increase in liabilitiesb. An increase in cash may result from a decrease in stockholders’ equityc. An increase in cash may
Which of the following is an example of a cash outflow from a financing activity?a. Payment of interest on a note payableb. Payment of cash dividends to stockholdersc. Payment of wages to employeesd.
Which of the following is an example of a cash inflow from an operating activity?a. Collection of an account receivable from a credit saleb. Collection of cash relating to a note receivablec. Sale of
Which of the following would be classified as a cash outflow from an operating activity?a. Purchase of an investmentb. Payment of goods purchased from suppliersc. Payment of dividendsd. Purchase of
Which of the following is not a use of the statement of cash flows?a. Aids in the prediction of future cash flowb. Helps estimate the amount of funds that will be needed from creditors or
Why do companies often use a spreadsheet to prepare the statement of cash flows?Multiple-Choice Exercises
What projections would you make regarding inflows and outflows in the near future?
What are the trends in inflows and outflows?
Are debt and equity likely to be available as sources of cash in the near future?
Has Slater matched the time commitments of its cash inflows and outflows?
What have been the major uses of cash?
What cash sources has Slater employed?
What questions might an investor or creditor raise concerning Jester’s cash flows from financing activities?
What questions might an investor or creditor raise concerning Jester’s cash flows from investing activities?
What questions might an investor or creditor raise concerning Jester’s cash flows from operating activities?
(Appendix 11B) Use a spreadsheet to prepare the statement of cash flows.
(Appendix 11A) Prepare the cash flows from operating activities section of a statement of cash flows using the direct method.
Analyze information contained in the statement of cash flows.
Prepare the cash flows from financing activities section of a statement of cash flows.
Prepare the cash flows from investing activities section of a statement of cash flows.
Prepare the cash flows from operating activities section of a statement of cash flows using the indirect method.
Understand the relationship between changes in cash and the changes in the balance sheet accounts.
Identify and classify business activities that produce cash inflows and outflows.
Explain the purpose of a statement of cash flows.
Describe the different elements of stockholders’equity and prepare the stockholders’ equity section of the balance sheet.
Distinguish between the different forms of equity and describe their use in raising capital.
Record the issuance of capital stock.
Account for the distribution of assets to stockholders.
Describe the accounting issues related to retained earnings and accumulated other comprehensive income.
Analyze stockholder payout and profitability ratios using information contained in the stockholders’ equity section.
Are dividends in arrears reported among the liabilities of the dividend-paying firm?If not, how are they reported, and why?Multiple-Choice Exercises
Which of the following is not a direct nor indirect component of stockholders’ equity?a. dividends payableb. loss on sale of equipmentc. retained earningsd. net income
Which of the following statements is true with regard to contributed capital?a. Preferred stock is stock that has been retired.b. It is very unlikely corporations may have more than one class of
Authorized stock represents the:a. maximum number of shares that can be issued.b. number of shares that have been sold.c. number of shares that are currently held by stockholders.d. number of shares
Harvey Corporation shows the following in the stockholders’ equity section of its balance sheet: The par value of its common stock is $0.50 and the total balance in the common stock account is
With regard to preferred stock,a. its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments.b. no dividends are expected by the
Murphy Parts Shop began business on January 1, 2007. The corporate charter authorized issuance of 10,000 shares of $2 par value common stock and 4,000 shares of $8 par value, 6 percent cumulative
Marx Company began business on January 1, 2007. The corporate charter authorized issuance of 5,000 shares of $1 par value common stock, and 4,000 shares of $8 par value, 6 percent cumulative
A company would repurchase its own stock for all of the following reasons except:a. it needs the stock for employee bonuses.b. it wishes to make an investment in its own stock.c. it wishes to prevent
When a company purchases treasury stock, which of the following statements is true?a. Treasury stock is considered to be an asset because cash is paid for the stock.b. The cost of the treasury stock
If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is:a. treated as a gain on the sale.b. treated as a loss on the sale.c. an increase in
When a company wishes to purchase and retire its own stock, the company must:a. decrease the stock account balances by the original issue price.b. record a gain or loss depending on the difference
Which of the following should be considered when a company decides to declare a cash dividend on common stock?a. the retained earnings balance onlyb. the amount of authorized shares of common stockc.
When a company declares a cash dividend, which of the following is true?a. Stockholders’ equity is increased.b. Liabilities are increased.c. Assets are decreased.d. Assets are increased.
What is the effect of a stock dividend on stockholders’ equity?a. Stockholders’ equity is decreased.b. Retained earnings is increased.c. Additional paid-in capital is decreased.d. Total
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
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.
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
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
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
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
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. 0.5b. 2c. 1d. 5 Cornerstone Exercises
ISSUANCE OF STOCK Ramsden Corporation shows the following information in the stockholders’ equity section of its balance sheet: The par value of common stock is $2.00 and the total balance in the
CONTRIBUTED CAPITAL Stahl Company was incorporated as a new business on January 1, 2007. The company is authorized to issue 20,000 shares of $5 par value common stock and 10,000 shares of 6 percent,
PREPARATION OF STOCKHOLDERS’ EQUITY SECTION Refer to the information provided in Cornerstone Exercise 10-23.Required:Prepare the stockholders’ equity section of the balance sheet for Stahl
COMMON STOCK vs. PREFERRED STOCK Corporations issue two general types of capital stock—common and preferred.Required:Describe the major differences between common and preferred stock.Cornerstone
RECORDING THE SALE OF COMMON AND PREFERRED STOCK Donahue Corporation is authorized by its charter from the state of Illinois to issue 750 shares of preferred stock with a 7 percent dividend rate and
RECORDING THE SALE OF COMMON STOCK Des Peres Company issues 450 shares of common stock (par value $0.01) for $32 per share on June 30, 2009.Required:Provide the necessary journal entry to record this
DISTRIBUTION TO STOCKHOLDERS Owners invest in corporations through the purchase of stock.Required:Describe two ways that corporations distribute assets to stockholders. Discuss their relative
ACCOUNTING FOR TREASURY STOCK On February 1, 2009, Wild Bill Corporation repurchases 650 shares of its outstanding common stock for $9 per share. On March 1, 2009, Wild Bill sells 150 shares of
ACCOUNTING FOR TREASURY STOCK On January 1, 2009, Tommyboy Corporation repurchases 12,000 shares of its outstanding common stock for $26 per share. On May 1, 2009, Tommyboy sells 9,500 shares of
TREASURY STOCK A company purchases 2,000 shares of treasury stock for $5 per share.Required:How will this transaction affect stockholders’ equity?Cornerstone Exercise
TREASURY STOCK Refer to the information in Cornerstone Exercise 10-31.Required:What is the appropriate journal entry to record the transaction?Cornerstone Exercise
CASH DIVIDENDS King Tut Corporation has issued 7,000 shares of common stock, all of the same class;3,800 shares are outstanding and 3,200 shares are held as treasury stock. On December 1, 2009, King
DECLARATION OF CASH DIVIDEND A corporation declared a cash dividend of $50,000 on December 31, 2009.Required:What is the appropriate journal entry to record this declaration?Cornerstone Exercise
STOCK SPLIT Toy World reported the following information:Common stock, $1 par, 200,000 shares authorized, 100,000 shares issued and outstanding.Required:What is the typical effect of a 2-for-1 stock
STOCK DIVIDEND Bowman Corporation reported the following information:Common stock, $3 par, 10,000 shares authorized, 5,000 shares issued and outstanding.Required:What is the appropriate journal entry
PREFERRED AND COMMON STOCK DIVIDENDS Yossarian Corporation has a single class of common stock and a single class of cumulative preferred stock. The cumulative preferred stock requires the corporation
PREFERRED STOCK DIVIDENDS Seashell Corporation has 10,000 shares outstanding of 10 percent, $20 par value, cumulative preferred stock. In 2007 and 2008, no dividends were declared on preferred
RETAINED EARNINGS Titanic Corporation’s net income for the year ended December 31, 2007, is $235,000.On June 30, 2007, a cash dividend was declared for all common stockholders in the amount of
RETAINED EARNINGS Refer to the information provided in Cornerstone Exercise 10-39. Assume that on July 31, 2007, Titanic discovered that 2006 depreciation was overstated by $50,000.Required:Provide
STOCKHOLDER PAYOUT RATIOS The following information pertains to Milo Minderbender Corporation:Net income $46,000 Dividends per common share $1.50 Common shares 1,000 Purchases of treasury stock
STOCKHOLDER PROFITABILITY RATIOS The following information pertains to Montague Corporation:Net income $55,000 Average common equity $1,500,000 Preferred dividends $7,500 Average common shares
ISSUING COMMON STOCK Thoman Products, Inc., sold 21,250 shares of common stock to stockholders at the time of its incorporation. Thoman received $24.40 per share for the stock.Required:. Assume that
ISSUING AND REPURCHASING STOCK Redbird, Inc., had the following transactions related to its common and preferred stock:January 15 Sold 50,000 shares of $0.50 par common stock for $12 per share. Sold
PREPARE THE STOCKHOLDERS’ EQUITY SECTION Renee Corporation has the following stockholders’ equity information:$10 Par Common $50 Par Preferred Paid-in capital in excess of par $ 750,000 $ 30,000
PREPARE THE STOCKHOLDERS’ EQUITY SECTION Wildcat Drilling has the following accounts on its trial balance.Debit Credit Retained earnings 1,500,000 Cash 125,000 Paid-in capital in excess of
ACCOUNTING FOR SHARES Kress Products’ corporate charter authorizes the firm to sell 800,000 shares of$10 par common stock. At the beginning of 2009, Kress had sold 243,000 shares and had reacquired
TREASURY STOCK TRANSACTIONS Dennison Service Corporation had no treasury stock at the beginning of 2009. During January 2009, Dennison purchased 7,600 shares of treasury stock at $21 per share. In
CASH DIVIDENDS ON COMMON STOCK Berkwild Company is authorized to issue 1,000,000 shares of common stock. At the beginning of 2009, Berkwild had 338,000 issued and outstanding shares. On July 2, 2009,
STOCK DIVIDENDS Crystal Corporation has the following information regarding its common stock:Its common stock is $20 par, with 300,000 shares authorized, 132,000 shares issued, and 130,600 shares
STOCK DIVIDENDS AND STOCK SPLITS The balance sheet of Castle Corporation includes the following equity section:Capital stock:Common stock, $2 par, 50,000 shares authorized, 30,000 shares issued and
PREFERRED DIVIDENDS Nathan Products’ equity includes 10.8 percent, $100 par preferred stock. There are 100,000 shares authorized and 20,000 shares outstanding. Assume that Nathan Products declares
CUMULATIVE PREFERRED DIVIDENDS Capital stock of Barr Company includes:Capital stock:Common stock, $10 par, 150,000 shares outstanding $1,500,000 Preferred stock, 12 percent cumulative, $100 par,
RETAINED EARNINGS Gibson Products had beginning retained earnings of $1,000,000. During the year Gibson paid $50,000 of cash dividends to preferred shareholders and $25,000 of cash dividends to
RESTRICTIONS ON RETAINED EARNINGS At December 31, 2008, Longfellow Clothing had $107,300 of retained earnings, all unrestricted. During 2009, Longfellow earned net income of $39,500 and declared and
RATIO ANALYSIS Consider the following information from Priceline.com.Stock price $43.61/share Avg. common shares Common dividends $0 outstanding 38,650,000 Dividends per common share $0/share
STOCKHOLDERS’ EQUITY TERMINOLOGY A list of terms and a list of definitions or examples are presented below. Make a list of the numbers 1 through 12 and match the letter of the most directly related
PRESENTATION OF STOCKHOLDERS’ EQUITY Yeager Corporation was organized in January 2009. During 2009, Yeager engaged in the following stockholders’ equity activities:a. Secured approval for a
TREASURY STOCK TRANSACTIONS Hansen, Inc., engaged in the following transactions during the current year:a. Purchased 4,000 shares of its own $20 par common stock for $26 per share on January 14.b.
STATEMENT OF STOCKHOLDERS’ EQUITY At the end of 2009, Jeffco, Inc., had the following equity accounts and balances:Common stock, $20 par $410,000 Paid-in capital in excess of par, common stock
COMMON DIVIDENDS Papke Payroll Service began 2009 with 1,000,000 authorized and 225,000 issued and outstanding $10 par common shares. During 2009, Papke entered into the following transactions:a.
STOCK DIVIDENDS AND STOCK SPLITS Lance Products’ balance sheet includes total assets of $320,000 and the following equity account balances at December 31, 2009:Capital stock:Common stock, $5 par,
PREFERRED DIVIDENDS Magic Conglomerates had the following preferred stock outstanding at the end of a recent year:$25 par, 10 percent 6,000 shares$40 par, 8 percent, cumulative 11,000 shares$50 par,
RATIO ANALYSIS Consider the following information taken from the stockholders’ equity section:(dollar amount in thousands)2010 2009 Preferred stock $ 1,000 $ 1,000 Common stock, 334,328,193 and
PRESENTATION OF STOCKHOLDERS’ EQUITY Steven’s Restorations was organized in January 2008. During 2008, Steven’s engaged in the following stockholders’ equity activities:a. Secured approval
ISSUING COMMON AND PREFERRED STOCK Tom Smith, a biochemistry professor, organized Biointernational, Inc., earlier this year.The firm will manufacture antibiotics using gene splicing technology.
TREASURY STOCK TRANSACTIONS Bentonite Adhesives, Inc., engaged in the following transactions during the current year:a. Purchased 5,000 shares of its own $15 par common stock for $17 per share on
STATEMENT OF STOCKHOLDERS’ EQUITY At the end of 2009, Stanley Utilities, Inc., had the following equity accounts and balances:Common stock, $10 par $200,000 Paid-in capital in excess of par, common

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