Multiple Choice: Capital Stock Select the correct answer for each of the following:

Which of the following statements about capital stock is true?

a. A company is prohibited by law from repurchasing its own stock unless it retires the entire issue and cancels the shares.

b. Common stock is typically callable, while preferred stock is not.

c. Preferred stock is not considered to represent the true residual ownership interest of a corporation.

d. Both a and b are correct.

The capital stock account in the balance sheet includes:

a. The par or stated value of the shares issued.

b. The dates at which the shares were issued.

c. The names of all major shareholders.

d. The mandatory dividend rate for common shares.

Treasury stock:

a. Is usually reported as a deduction from total stockholders’ equity.

b. Is usually reported at cost.

c. Reflects a reduction in the margin of safety afforded creditors.

d. All of the above.

When a corporation retires capital stock and pays less than the amount for which it was issued, the difference is reported as:

a. Additional paid-in capital.

b. A gain on the retirement of stock.

c. A special increase in retained earnings.

d. None of the above.

When a company issues capital stock with a par or stated value, which accounts are usually affected?

a. Only the capital stock account.

b. The capital stock account and additional paid-in capital.

c. The capital stock account and retained earnings.

d. The capital stock account and a gain on the issuance of capital stock.