On the date of dividend declaration, which of the following entries is recorded?

• Debit Dividends; Credit Cash.
• No entry is recorded.
• Debit Dividends; Credit Dividends Payable.
• Debit Dividends Payable; Credit Cash.

The advantages of a corporation compared to a sole proprietorship or partnership include:

• Lower total taxes.
• The ability of stockholders to make operating decisions for their company.
• Less paper work.
• Limited liability.

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

• The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time.
• The stockholders' equity section is more detailed than the statement of stockholders' equity.
• The stockholders' equity section shows activity over a period of time, whereas the statement of stockholders' equity is at a point in time.
• There are no differences between them.

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. The company then resells 400 of these shares for $20 per share. Which of the following is recorded at the time of the resale?

• Credit Treasury Stock for $8,000.
• Credit Common Stock for $400.
• Credit Additional Paid-In Capital for $1,600.
• Credit Common Stock for $8,000.

Suppose a company declares a dividend of $0.50 per share. At the time of declaration, the company has 100,000 shares issued and 90,000 shares outstanding. On the declaration date, Dividends would be recorded for

• $45,000.
• $0.
• $50,000.
• $95,000.

At the beginning of 20X1, a company issues 100,000 shares of 4%, $10 par value, cumulative preferred stock. All remaining shares outstanding are common stock. The company does not pay any dividends in 20X1, but pays dividends of $100,000 at the end of 20X2. How much of the dividend will be paid to common stockholders in 20X2?

• $80,000.
• $60,000.
• $100,000.
• $20,000.

Preferred stock

• Is always recorded as part of stockholders' equity.
• Is always recorded as a liability.
• Can have features of both liabilities and stockholders' equity.
• Is not included in either liabilities or stockholders' equity.

The disadvantages of a corporation compared to a sole proprietorship or partnership include:

• The ability to transfer ownership.
• The ability to raise capital.
• Limited liability.
• Double taxation.

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

• Debit Common Stock for $32,000.
• Debit Treasury Stock for $2,000.
• Debit Common Stock for $30,000.
• Debit Treasury Stock for $32,000.

Declaring a cash dividend has what effect on total stockholders' equity?

• A decrease in total stockholders' equity.
• No effect on total stockholders' equity.
• An increase in total stockholders' equity.
• Cannot be determined from the given information.

When treasury stock is resold, total stockholders' equity:

• Decreases.
• Does not change.
• Increases.
• The effect depends on the relationship between the purchase price and resale price.

In its first three years of operations, a company has net income of $2,000; $5,000; and $8,000. It also pays dividends of $1,000 in the second year, and $3,000 in the third year. What is the balance of Retained Earnings at the end of the third year?

• $4,000.
• $15,000.
• $11,000.
• $5,000.

The correct order from the largest number of shares to the smallest number of shares is:

• Authorized, issued, and outstanding.
• Issued, outstanding, and authorized.
• Outstanding, issued, and authorized.
• Issued, authorized, and outstanding.

Cash dividends are initially recorded on which date?

• Balance sheet date.
• Date of declaration.
• Date of record.
• Date of payment.

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Additional Paid-in Capital for:

• $1,800,000.
• $1,600,000.
• $1,700,000.
• $100,000.

Which of the following shows activity over a period of time?

• Both the stockholders' equity section in the balance sheet and the statement of stockholders' equity.
• Statement of stockholders' equity.
• Stockholders' equity section in the balance sheet.
• Neither the stockholders' equity section in the balance sheet or the statement of stockholders' equity.

Which of the following stages of equity financing would come last for most public companies?

• Investment by the founders of the business.
• Initial public offering.
• Outside investment by "angel" investors and venture capital firms.
• Investment by friends and family.

A company resells 10,000 shares of treasury stock for $22 per share. The stock was purchased in a previous year for $18 per share. By how much would net income be affected by the sale of this treasury stock?

• $220,000.
• There would be no effect on net income from the sale of treasury stock.
• $180,000.
• $40,000.

Retained earnings represents:

• All net income, less all dividends, since the company began operations.
• Amount of cash available for paying dividends.
• Total assets minus total liabilities.
• Net income minus dividends for the current year.

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Common Stock for:

• $1,700,000.
• $1,800,000.
• $100,000.
• $1,600,000.

If a company issues par-value stock, the amount credited to common stock will be:

• The total market value of all the shares issued.
• The par value per share times the number of shares issued.
• The amount the board of directors chooses to assign to the shares.
• The difference between the market and the par value per share times the total number of shares issued.

Petite Fashions issued 500,000 of its 2 million shares of authorized common stock. At the end of the accounting period, 450,000 shares are outstanding. How many shares of treasury stock does Petite Fashions have?

• 1.5 million shares.
• 50,000 shares.
• 0 shares.
• 450,000 shares.

A company issues 100,000 shares of 5%, $10 par value preferred stock for $17 per share. The entry to record this transaction would include:

• A credit to Preferred Stock for $1,000,000.
• A credit to Additional-Paid in Capital for $1,700,000.
• A credit to Preferred Stock for $1,700,000.
• A debit to Additional-Paid in Capital for $700,000.

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

• Dividends and voting rights.
• Dividends and distribution of assets if the corporation is dissolved.
• Par value and dividends.
• The preemptive right and voting rights.

Earnings per share measures:

• Net income earned per share of common stock.
• Net income earned per share of common and preferred stock.
• Cash earned per share of common and preferred stock.
• Cash earned per share of common stock.

Cash dividends are based on the number of shares:

• Issued.
• Authorized.
• Authorized and issued.
• Outstanding.

The statement of stockholders' equity:

• Lists the balances of each asset and each liability, and reports the difference as stockholders' equity.
• Lists the balance of each revenue and each expense, and reports the difference as net income.
• All of the other answers are correct.
• Summarizes the changes in the balance in each stockholders' equity account over a period of time.

Common shareholders usually have all of the following rights except:

• To participate in the day-to-day operations.
• To share in the distribution of assets.
• To elect board of directors.
• To receive dividends when declared.

Treasury stock is recorded as:

• An increase in stockholders' equity.
• A liability.
• A decrease in stockholders' equity.
• An asset.

An accumulated deficit is:

• A credit balance in retained earnings.
• A credit balance in stockholders' equity.
• A debit balance in retained earnings.
• A debit balance in stockholders' equity.