1. Two corporations are organized at approximately the same time and engaged in competing business. One issued $80 par common stock and the other issued $1 par common stock. Do the par designations provide any indication as to which stock is preferable as an investment? Explain.
2. A stockbroker advises a client to "buy preferred stock. With that type of stock you will never have to worry about losing dividends." Is the broker correct.
3. A corporation with both preferred stock and common stock outstanding has a substantial credit balance in its retained earnings account at the beginning of the current fiscal year. Although net income for the current year is sufficient to pay the preferred dividend of $150,000 each quarter and a common dividend of $90,000 each quarter, the board of directors declares dividends only on the preferred stock. Suggest possible reasons for passing the dividends on the common stock.
4. An owner of 2,500 shares of Simmons Company common stock receives a stock dividend of 50 shares. What is the effect of the stock dividend on the stockholder's proportionate interest (equity) in the corporation?
5. An owner of 2,500 shares of Simmons Company common stock receives a stock dividend of 50 shares. How does the total equity of 2,550 shares compare with the total equity of the 2,500 shares before the stock dividend?
6. Where should a declared but unpaid cash dividend be reported on the financial statements? Explain.
7. Where should a declared but unissued stock dividend be reported on the financial statements? Explain.
8. Explain what is meant by a stock split, and identify its primary purpose.
9. A corporation reacquires 50,000 shares of its own $10 par common stock for $3,000,000, recording it at cost. Show the journal entry and explain the effect that this transaction has on revenue and expense for the period.
10. A corporation reacquires 50,000 shares of its own $10 par common stock for $3,000,000, recording it at cost. Explain the effect that this transaction has on stockholders' equity.
11. Treasury stock purchased for $3,000,000, recorded at cost, is resold for $3,750,000. Show the journal entry and explain the effect that this transaction has on revenue and expense for the period.
12. Treasury stock purchased for $3,000,000, recorded at cost, is resold for $3,750,000. Explain the effect that this transaction has on stockholders' equity.
13. Identify and explain the three classifications of restrictions of retained earnings, and how such restrictions are normally reported on the financial statements.
14. Describe what is meant by a prior period adjustment, and give 2 examples.
15. Indicate how a prior period adjustment should be reported on the financial statements presented only for the current period.
16. Describe what is meant by a corporation and the characteristics of a corporation.
17. Describe the differences between a public and private corporations.
18. Stockholders are said to have limited liability. Explain.
19. Explain what is meant by the statement that a corporation is a separate legal entity. What responsibility does this involve?
20. List and explain the advantages of a corporation.
21. List and explain the disadvantages of a corporation.
22. Describe the articles of incorporation and explain how a company receives the articles.
23. List and describe the two main sources of stockholders' equity.
24. What is the main source of paid-in capital? Explain.
25. Explain the following terms related to shares of stock: authorized, issued, and outstanding.
26. Identify the two classes of stock and explain the differences.
27. Explain what is meant by the statement that dividends are in arrears.
28. Explain what is meant when stock is issued at a premium. Explain what is meant when stock is issued at a discount.
29. Identify the conditions that must exist in order to issue a cash dividend.
30. Identify and explain the three dates associated with the announcement of a dividend.
31. Define what is meant by treasury stock and state the reasons for the purchase of treasury stock.
32. There are two methods used to account for treasury stock, the textbook presents the cost method. Describe the cost method.