CH 11

Chapter 11
Corporations: Organization, Stock Transactions, and Dividends

OBJECTIVES
Obj 1 Describe the nature of the corporate form of organization.

Obj 2 Describe and illustrate the characteristics of stock, classes of stock and entries for
issuing stock.
Obj 3 Journalize the entries for cash dividends and stock dividends.
Obj 4 Journalize the entries for treasury stock transactions.
Obj 5 Journalize and illustrate the reporting of stockholders’ equity.
Obj 6 Describe the effect of stock splits on corporate financial statements.
QUESTION GRID
True/False
No. Objective Difficulty No. Objective Difficulty No. Objective Difficulty
1 11-01 Easy 26 11-02 Easy 51 11-04 Easy
2 11-01 Easy 27 11-02 Easy 52 11-04 Easy
3 11-01 Easy 28 11-02 Easy 53 11-04 Easy
4 11-01 Easy 29 11-02 Easy 54 11-04 Easy
5 11-01 Easy 30 11-02 Easy 55 11-04 Easy
6 11-01 Easy 31 11-02 Easy 56 11-05 Easy
7 11-01 Easy 32 11-02 Easy 57 11-05 Easy
8 11-01 Easy 33 11-03 Easy 58 11-05 Easy
9 11-01 Easy 34 11-03 Easy 59 11-05 Easy
10 11-01 Easy 35 11-03 Difficult 60 11-05 Easy
11 11-01 Easy 36 11-03 Easy 61 11-05 Easy
12 11-02 Easy 37 11-03 Easy 62 11-05 Easy
11 11-02 Easy 38 11-03 Easy 63 11-06 Easy
14 11-02 Easy 39 11-03 Easy 64 11-06 Easy
15 11-02 Easy 40 11-03 Easy 65 11-06 Easy
16 11-02 Easy 41 11-03 Easy 66 11-06 Easy
17 11-02 Easy 42 11-03 Easy 67 11-06 Easy
18 11-02 Easy 43 11-03 Easy 68 11-06 Easy
19 11-02 Easy 44 11-03 Easy 69 11-06 Easy
20 11-02 Easy 45 11-03 Easy 70 11-06 Easy
21 11-02 Easy 46 11-03 Easy
22 11-02 Easy 47 11-03 Easy
23 11-02 Easy 48 11-04 Easy
24 11-02 Easy 49 11-04 Easy
25 11-02 Easy 50 11-04 Easy
Multiple Choice
540
541  Chapter 11/Corporations: Organization, Stock Transactions, and Dividends

1 11-01 Easy 32 11-02 Easy 63 11-05 Easy
2 11-01 Easy 33 11-02 Easy 64 11-05 Easy
3 11-01 Easy 34 11-02 Moderate 65 11-05 Easy
4 11-01 Easy 35 11-02 Easy 66 11-05 Easy
7 11-01 Easy 38 11-03 Easy 69 11-05 Easy
8 11-01 Easy 39 11-03 Easy 70 11-05 Easy
10 11-01 Easy 41 11-03 Easy 72 11-05 Easy
12 11-02 Easy 43 11-03 Easy 74 11-05 Easy
11 11-02 Easy 44 11-03 Easy 75 11-05 Moderate
14 11-02 Easy 45 11-03 Easy 76 11-05 Easy
17 11-02 Easy 48 11-03 Easy 79 11-06 Easy
19 11-02 Easy 50 11-03 Easy 81 11-06 Easy
20 11-02 Easy 51 11-03 Easy 82 11-06 Easy
21 11-02 Easy 52 11-04 Easy 83 11-06 Easy
22 11-02 Easy 53 11-04 Easy 84 11-06 Easy
23 11-02 Easy 54 11-04 Easy 85 11-06 Easy
28 11-02 Moderate 59 11-04 Easy 90 11-06 Moderate
30 11-02 Moderate 61 11-04 Easy
31 11-02 Easy 62 11-04 Easy
Exercise/Other
1 11-02 Moderate 8 11-02 Easy 15 11-05 Moderate
2 11-02 Easy 9 11-02 Easy 16 11-05 Easy
3 11-02 Easy 10 11-03 Easy 17 11-06 Easy
5 11-02 Easy 12 11-04 Easy 19 11-03, 06 Easy
6 11-02 Moderate 11 11-04 Easy
7 11-02 Moderate 14 11-04 Moderate
Problem
Chapter 11/Corporations: Organization, Stock Transactions, and Dividends  542
1 11-02 Moderate 5 11-02, 04 Moderate 9 11-04 Moderate

2 11-02 Moderate 6 11-02 Difficult 10 11-03, 06 Moderate
3 11-02 Moderate 7 11-02, 03 Difficult 11 11-03,04,06 Difficult
4 11-02, 04 Moderate 8 11-04 Moderate
Chapter 11—Corporations: Organization, Stock Transactions, and Dividends
TRUE/FALSE
1. Twenty percent of all businesses in the United States are corporations and they account for 80% of
the total business dollars generated.
ANS: F DIF: Easy OBJ: 11-01
NAT: AACSB Analytic | AICPA BB-Industry
2. The corporation was defined as a separate legal entity by Chief Justice Marshall during the twentieth
century.
NAT: AACSB Analytic | AICPA BB-Legal
3. A corporation is a separate entity for accounting purposes but not for legal purposes.
4. The financial loss that each stockholder in a corporation can incur is usually limited to the amount
invested by the stockholder.
ANS: T DIF: Easy OBJ: 11-01
NAT: AACSB Analytic | AICPA FN-Measurement
5. Under the Internal Revenue Code, corporations are required to pay federal income taxes.
6. Double taxation is a disadvantage of a corporation because the same party has to pay taxes twice on
the income.
7. The initial owners of stock of a newly formed corporation are called directors.
8. While some businesses have been granted charters under state laws, most businesses receive their
charters under federal laws.
9. By-laws are part of the business's charter or articles of incorporation.

10. Organizational expenses are classified as intangible assets on the balance sheet.
11. A corporation can be organized for the purpose of making a profit or it may be nonprofit.
12. The two main sources of stockholders' equity are investments contributed by stockholders and net
income retained in the business.
13. When no-par common stock with a stated value is issued for cash, the common stock account is
credited for an amount equal to the cash proceeds.
14. The par value of common stock must always be equal to its market value on the date the stock is
issued.
15. For accounting purposes, stated value is treated the same way as par value.
16. The issuance of common stock affects both paid-in capital and retained earnings.
17. The main source of paid-in-capital is from issuing stock.

18. Some corporations have stopped issuing stock certificates to stockholders.

19. The number of shares of outstanding stock is equal to the number of shares authorized minus the
number of shares issued.
20. The amount of capital paid in by the stockholders of the corporation is called legal capital.
21. If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the dividends per
share would be $4.
22. Although preferred stockholders have a greater chance of receiving a regular dividend, common
stockholders have a greater chance of receiving large dividends.
23. If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are reacquired, the
number of outstanding shares is 39,000.
24. Preferred stockholders must receive their current year dividends before the common stockholders
can receive any dividends.
25. If a corporation is liquidated, preferred stockholders are paid before the creditors and before the
common stockholders.
26. Paid-in capital may originate from real estate donated to the corporation.
27. The par value of stock is an arbitrary per share amount defined in many states as legal capital.
28. A large public corporation normally uses registrars and transfer agents to maintain records of the
stockholders.
29. When common stock is issued in exchange for land, the land should be recorded in the accounts at
the par amount of the stock issued.
30. When a corporation issues stock at a premium, it reports the premium as an other income item on the
income statement.
31. When no-par value stock does not have a stated value, the entire proceeds from the issuance of the
stock becomes legal capital in some states.
32. When no-par stock is issued, the Common Stock account is credited for the selling price of the stock
issued.
33. A large retained earnings account means that there is cash available to pay dividends.
34. When the board of director's declares a cash or stock dividend, this action decreases retained
earnings.
35. If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as treasury stock, a
cash dividend of $1 per share would amount to $14,000.
ANS: F DIF: Difficult OBJ: 11-03
36. Cash dividends are normally paid on shares of treasury stock.

37. The declaration of a cash dividend decreases a corporation's stockholders equity and decreases its
assets.
38. One of the prerequisites to paying a cash dividend is sufficient retained earnings.
39. Cash dividends become a liability to a corporation on the date of record.

40. If the market price per share is $25 and a stock dividend of 2,000 shares of $5 par common stock is
declared, the amount debited to the stock dividends account would be $10,000.
41. The declaration and issuance of a stock dividend does not affect the total amount of a corporation's
assets, liabilities, or stockholders' equity.
42. The declaration of a stock dividend decreases a corporation's stockholders' equity and increases its
liabilities.
43. Before a stock dividend can be declared or paid, there must be sufficient cash.
44. The day on which the board of directors of the corporation distributes a dividend is called the
declaration date.
45. The stock dividends distributable account is listed in the current liability section of the balance sheet.
46. When a stock dividend is declared, it becomes a liability.

47. A 10% stock dividend will increase the number of shares outstanding but the book value per share
will decrease.
48. The cost method of accounting for the purchase and sale of treasury stock is a commonly used
method..
49. Under the cost method, when treasury stock is purchased by the corporation, the par value and the
price at which the stock was originally issued are important.
50. If 100 shares of treasury stock were purchased for $50 per share and then sold at $60 per share,
$1,000 of income is reported in the income statement.
51. The paid-in capital from sale of treasury stock account is debited if the sales price of the treasury
stock sold is greater than its cost.
52. A sale of treasury stock may result in a decrease in paid-in-capital. All decreases should be charged
to the Paid-In-Capital from Sale of Treasury account.
53. Treasury Stock is listed in the stockholders' equity section on the balance sheet.
54. The cost of treasury stock is deducted from total paid-in capital and retained earnings in determining
total stockholders’ equity.
55. The journal entry to record the purchase of treasury stock will cause total stockholders’ equity to
decrease by the amount of the cost of the treasury stock.
56. The retained earnings statement may be combined with the income statement.
57. A prior-period adjustments should be reported as an adjustment to the retained earnings balance at
the beginning of the period in which the adjustment was made.
58. A difference between estimated and actual warranty expense is considered an error and would be
reported as a prior-period adjustment.
59. The amount of a corporation's retained earnings that has been restricted/appropriated should be
reported in the notes to the financial statements.
NAT: AACSB Analytic | AICPA FN-Reporting
60. A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific
purpose.
61. Prior-period adjustments are common in current accounting because of the complexity of the
financial reporting process.
62. If paid-in-capital in excess of par/preferred stock is $30,000, preferred stock is $200,000, paid-in-
capital in excess of par/common stock is $20,000, common stock is $525,000, and retained earnings
is $105,000 (deficit), the total stockholders' equity is $880,000.
63. The dividend yield indicates the rate of return to stockholders in terms of cash dividend distributions.
64. The dividend yield is computed by dividing dividends per share by earnings per share.
65. A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation issues a 5-
for-1 stock split, the number of shares outstanding after the split will be 40,000.
66. The primary purpose of a stock split is to reduce the number of shares outstanding in order to
encourage more investors to enter the market for the company's shares.
67. Since a stock split changes information of a business, this transaction needs to be recorded.
68. The reduction in the par or stated value of common stock, accompanied by the issuance of a
proportionate number of additional shares, is called a stock split.
69. A corporation has 12,000 shares of $20 par value stock outstanding that has a current market value
of $150. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to
approximately $50.
70. A stock split results in a transfer at market value from retained earnings to paid-in capital.
MULTIPLE CHOICE
1. Which of the following is not characteristic of a corporation?

a. The financial loss that a stockholder may suffer from owning stock in a public company is
limited.
b. Cash dividends paid by a corporation are deductible as expenses by the corporation.
c. A corporation can own property in its name.
d. Corporations are required to file federal income tax returns.
ANS: B DIF: Easy OBJ: 11-01
2. Characteristics of a corporation include

a. shareholders who are mutual agents
b. direct management by the shareholders (owners)
c. its inability to own property
d. shareholders who have limited liability
ANS: D DIF: Easy OBJ: 11-01
3. One of the main disadvantages of the corporate form is the

a. professional management
b. double taxation of dividends
c. charter
d. corporation must issue stock
4. A disadvantage of the corporate form of business entity is

a. mutual agency for stockholders
b. unlimited liability for stockholders
c. corporations are subject to more governmental regulations
d. the ease of transfer of ownership
ANS: C DIF: Easy OBJ: 11-01
5. Under the corporate form of business organization

a. ownership rights are easily transferred.
b. a stockholder is personally liable for the debts of the corporation.
c. stockholders’ acts can bind the corporation even though the stockholders have not been appointed
as agents of the corporation.
d. stockholders wishing to sell their corporation shares must get the approval of other stockholders.
ANS: A DIF: Easy OBJ: 11-01
6. Those most responsible for the major policy decisions of a corporation are the
a. management.
b. board of directors.
c. employees.
d. stockholders.
7. Which one of the following would not be considered an advantage of the corporate form of
organization?
a. Government regulation
b. Separate legal existence
c. Continuous life
d. Limited liability of stockholders
8. Which of the following is not true of a corporation?

a. It may enter into binding legal contracts in its own name.
b. It may sue and be sued.
c. The acts of its owners bind the corporation.
d. It may buy, own, and sell property.
9. The ability of a corporation to obtain capital is

a. less than a partnership.
b. about the same as a partnership.
c. restricted because of the limited life of the corporation.
d. enhanced because of limited liability and ease of share transferability.
10. Which of the following statements concerning taxation is accurate?

a. Corporations pay federal income taxes but not state income taxes.
b. Corporations pay federal and state income taxes.
c. Only the owners must pay taxes on corporate income.
d. Corporations pay income taxes but their owners do not.
11. Stockholders' equity

a. is usually equal to cash on hand
b. includes paid-in capital and liabilities
c. includes retained earnings and paid-in capital
d. is shown on the income statement
12. The two ways that a corporation can be classified by ownership are
a. stock and non-stock.
b. inside and outside.
c. majority and minority.
d. for profit or not-for-profit.
13. The state charter allows a corporation to issue only a certain number of shares of each class of stock.
This amount of stock is called
a. treasury stock
b. issued stock
c. outstanding stock
d. authorized stock
14. Which of the following is not a right possessed by common stockholders of a corporation?
a. the right to vote in the election of the board of directors
b. the right to receive a minimum amount of dividends
c. the right to sell their stock to anyone they choose
d. the right to share in assets upon liquidation
15. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume
that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the
number of shares outstanding?
a. 5,000
b. 35,000
c. 45,000
d. 55,000
16. The par value per share of common stock represents

a. the minimum selling price of the stock established by the articles of incorporation.
b. the minimum amount the stockholder will receive when the corporation is liquidated
c. an arbitrary amount established in the articles of incorporation
d. the amount of dividends per share to be received each year
17. The price at which a stock can be sold depends upon a number of factors. Which statement below is
not one of those factors?
a. the financial condition, earnings record, and dividend record of the corporation
b. investor expectations of the corporation's earning power
c. how high the par value
d. general business and economic conditions and prospects
18. Which of the following accounts below is reported in the paid-in capital/stockholders' equity section
of the corporate balance sheet?
a. Cash
b. Stock Dividends
c. Organizational Expenses
d. Preferred Stock
19. A corporation issues 2,000 shares of common stock for $ 32,000. The stock has a stated value of $10
per share. The journal entry to record the stock issuance would include a credit to Common Stock for
a. $20,000
b. $32,000
c. $12,000
d. $2,000
20. The excess of issue price over par of common stock is termed a(n)
a. discount
b. income
c. deficit
d. premium
21. The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in
payment of legal fees for organizing the corporation includes a credit to
a. Organizational Expenses
b. Goodwill
c. Common Stock
d. Cash
22. The entry to record the issuance of common stock at a price above par includes a debit to
a. Organizational Expenses
b. Common Stock
c. Cash
d. Paid-In Capital in Excess of Par-Common Stock
23. When common stock is issued in exchange for a noncash asset, the transaction should be recorded at
a. the par value of the stock issued
b. the fair market value of the stock
c. the fair market value of the asset acquired
d. the fair market value of the asset acquired or the fair market value of the stock, whichever can be
determined more objectively.
24. Hurd Company acquired a building valued at $160,000 for property tax purposes in exchange for
10,000 shares of its $5 par common stock. The stock is widely traded and selling for $15 per share.
At what amount should the building be recorded by Hurd Company?
a. $50,000
b. $150,000
c. $160,000
d. $200,000
that 50,000 shares were originally issued and10,000 were subsequently reacquired. What is the
number of shares outstanding?
a. 10,000
b. 40,000
c. 50,000
d. 60,000
26. Par value

a. is the monetary value assigned per share in the corporate charter.
b. represents what a share of stock is worth.
c. represents the original selling price for a share of stock.
d. is established for a share of stock after it is issued.
27. The authorized stock of a corporation

a. must be recorded in a formal accounting entry.
b. only reflects the initial capital needs of the company.
c. is indicated in its by-laws.
d. is indicated in its charter.
28. If Larger Company issues 1,000 shares of $5 par value common stock for $70,000, the account
a. Common Stock will be credited for $70,000.
b. Paid-in Capital in excess of Par Value will be credited for $5,000.
c. Paid-in Capital in excess of Par Value will be credited for $65,000.
d. Cash will be debited for $65,000.
ANS: C DIF: Moderate OBJ: 11-02
29. If common stock is issued for an amount greater than par value, the excess should be credited to
a. Retained Earnings.
b. Cash.
c. Legal Capital.
d. Paid-in Capital in Excess of Par Value.
30. The Snow Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 per
share. The entry to record the transaction will consist of a debit to Cash for $600,000 and a credit or
credits to
a. Preferred Stock for $600,000.
b. Preferred stock for $500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for
$100,000.
c. Preferred Stock for $500,000 and Retained Earnings for $100,000.
d. Paid-in Capital from Preferred Stock for $600,000.
ANS: B DIF: Moderate OBJ: 11-02
31. Alliance Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the
transaction is recorded, credits are made to:
a. Common Stock $14,000.
b. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.
c. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $4,000.
d. Common Stock $10,000 and Retained Earnings $4,000.
32. The journal entry to issue 1,000,000 shares of $5 par common stock for $7.00 per share on January
2nd would be:
a. Jan 2 Cash 7,000,000
Common Stock 5,000,000
Paid-In Capital in Excess of Par - C/S 2,000,000
b. Jan 2 Cash 5,000,000
c. Jan 2 Cash 5,000,000
d. Jan 2 Cash 1,000,000
Common Stock 1,000.000
33. New Corp. issues 1,000 shares of $10 par value common stock at $15 per share. When the
transaction is recorded, credits are made to:
a. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $5,000.
b. Common Stock $10,000 and Retained Earnings $5,000.
c. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $5,000.
d. Common Stock $15,000.
34. When Bunyan Corporation was formed on January 1, 20xx, the corporate charter provided for
100,000 share of $10 par value common stock. The following transaction was among those engaged
in by the corporation during its first month of operation: The corporation issued 8,000 shares of
stock at a price of $22.00 per share.
The entry to record the above transaction would include a

a. debit to Cash for $80,000
b. credit to Common Stock for $176,000
c. credit to Paid in Capital in Excess of Par- for $96,000
d. debit to Common Stock for $80,000
35. The journal entry to issue 1,000,000 shares of $5 par common stock for $6.25 per share on January
2nd would be:
a. Jan 2 Cash 6,250,000
b. Jan 2 Cash 5,000,000
c. Jan 2 Cash 5,000,000
d. Jan 2 Cash 1,000,000
amount of cash dividends to be paid if a $1 per share dividend is declared?
a. $50,000
b. $5,000
c. $100,000
d. $45,000
ANS: D DIF: Moderate OBJ: 11-03
amount of cash dividends to be paid if a $2 per share dividend is declared?
a. $80,000
b. $10,000
c. $70,000
d. $35,000
38. Which one of the following is not necessary in order for a corporation to pay a cash dividend?
a. Sufficient cash
b. Formal action of the board of directors
c. Declared dividends
d. Sufficient Retained earnings
39. The date on which a cash dividend becomes a binding legal obligation is on the
a. declaration date.
b. date of record.
c. payment date.
d. last day of the fiscal year end.
40. The cumulative effect of the declaration and payment of a cash dividend on a company’s financial
statements is to
a. decrease total liabilities and stockholders’ equity.
b. increase total expenses and total liabilities.
c. increase total assets and stockholders’ equity.
d. decrease total assets and stockholders’ equity.
41. Which of the following is the appropriate general journal entry to record the declaration of a cash
dividends?
a. Retained earnings
Cash
b. Cash Dividends payable
Cash
c. Paid-in capital
Cash Dividends payable
d. Cash Dividends
Cash Dividends Payable
42. Day Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1
par value common stock outstanding at December 31, 2006. What is the annual dividend on the
preferred stock?
a. $50 per share
b. $25,000 in total
c. $600 in total
d. $0.50 per share
43. Which of the following is not a prerequisite to paying a cash dividend?

a. formal action by the board of directors
b. market value in excess of par value per share
c. sufficient cash
d. sufficient retained earnings
44. The net effect to a corporation of the declaration and payment of a cash dividend is to
a. decrease assets and decrease stockholders' equity
b. decrease liabilities and decrease stockholders' equity
c. increase stockholders' equity and decrease liabilities
d. increase assets and increase stockholders' equity
45. The liability for a dividend is recorded on which of the following dates?
a. the date of record
b. the date of payment
c. the date of announcement
d. the date of declaration
46. When a stock dividend is declared, which of the following accounts is credited?
a. Common Sock
b. Dividend Payable
c. Stock Dividends Distributable
d. Retained Earnings
47. Cash dividends are usually not paid on which of the following?
a. class B common stock
b. preferred stock
c. treasury stock
d. class A common stock
48. A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8.
Subsequently, the company declared a 2% stock dividend on a date when the market price was $11 a
share. What is the amount transferred from the retained earnings account to paid-in capital accounts
as a result of the stock dividend?
a. $3,200
b. $6,400
c. $4,800
d. $8,800
share. The effect of the declaration and issuance of the stock dividend is to
a. decrease retained earnings, increase common stock, and increase paid-in capital
b. increase retained earnings, decrease common stock, and decrease paid-in capital
c. increase retained earnings, decrease common stock, and increase paid-in capital
d. decrease retained earnings, increase common stock, and decrease paid-in capital
ANS: A DIF: Moderate OBJ: 11-03
50. The entry to record the issuance of stock certificates for a common stock dividend that had been
declared would include a debit to
a. Common Stock
b. Paid-In Capital in Excess of Par-Common Stock
c. Stock Dividends Distributable
d. Cash
share. What is the amount transferred from the Retained Earnings account to Paid-in Capital
accounts as a result of the stock dividend?
a. $12,800
b. $19,200
c. $32,000
d. $48,800
52. treasury stock shares are

a. shares held by the U.S. Treasury Department
b. part of the total outstanding shares but not part of the total issued shares of a corporation
c. unissued shares that are held by the treasurer of the corporation
d. issued shares that are held by the treasurer of the corporation
53. Which statement below is not a reason for a corporation to buy back its own stock.
a. resale to employees
b. bonus to employees
c. for supporting the market price of the stock
d. to increase the shares outstanding
54. How is treasury stock shown on the balance sheet?

a. as an asset
b. as a decrease in stockholders' equity
c. as an increase in stockholders' equity
d. treasury stock is not shown on the balance sheet
55. On January 1, 20xx, Sunshine Corporation had 40,000 shares of $10 par value common stock issued
and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On
February 1, 20xx, Sunshine purchased 2,000 shares of treasury stock for $23 per share and later sold
the treasury shares for $21 per share on March 1, 20xx.
The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a
a. credit to Treasury Stock for $46,000.
b. debit to Treasury Stock for $46,000.
c. debit to a loss account for $6,000
d. credit to a gain account for $6,000.
56. On January 1, 20xx, Sunshine Corporation had 40,000 shares of $10 par value common stock issued
and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On
February 1, 20xx, Sunshine purchased 3,000 shares of treasury stock for $22 per share and later sold
the treasury shares for $24 per share on March 1, 20xx.
The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a
a. credit to Treasury Stock for $66,000.
b. debit to Treasury Stock for $66,000.
c. debit to a loss account for $6,000
d. credit to a gain account for $6,000.
57. The excess of sales price of treasury stock over its cost should be credited to
a. Treasury Stock Receivable
b. Premium on Capital Stock
c. Paid-In Capital from Sale of Treasury Stock
d. Income from Sale of Treasury Stock
58. Treasury stock which was purchased for $2,000 is sold for $2,500. As a result of these two
transactions combined
a. income will be increased by $500
b. stockholders' equity will be increased by $2,500
c. stockholders' equity will be increased by $500
d. stockholders' equity will not change
59. Treasury stock that had been purchased for $5,400 last month was reissued this month for $7,500.
The journal entry to record the reissuance would include a credit to
a. Treasury Stock for $7,500
b. Paid-In Capital from Treasury Stock for $7,500
c. Paid-In Capital in Excess of Par/Common for $2,100
d. Paid-In Capital from Treasury Stock for $2,100
60. A corporation purchased 1,000 shares of its $5 par common stock at $10 and subsequently sold 500
of the shares at $20. What is the amount of revenue realized from the sale?
a. $0
b. $5,000
c. $2,500
d. $10,000
61. A corporation purchases 10,000 shares of its own $10 par common stock for $25 per share, recording
it at cost. What will be the effect on total stockholders' equity?
a. increase, $100,000
b. increase, $250,000
c. decrease, $100,000
d. decrease, $250,000
62. The excess of cost over sales price of treasury stock should be debited to
a. Loss from Sale of Treasury Stock
b. Organizational Expenses
c. Gain from the sale of Treasury Stock
d. Paid-In Capital from Sale of Treasury Stock
63. In which section of the balance sheet would Treasury Stock be reported?
a. Fixed assets
b. Long-term liabilities
c. Stockholders' equity
d. Intangible assets
64. In which section of the financial statements would Paid-In Capital from Sale of Treasury Stock be
reported?
a. other expense on income statement
b. intangible asset on balance sheet
c. stockholders' equity on balance sheet
d. other income on income statement
65. What is the total stockholders' equity based on the following account balances?
Common Stock $400,000
Paid-In Capital in Excess of Par 40,000
Retained Earnings 190,000
Treasury Stock 20,000
a. $640,000
b. $630,000
c. $610,000
d. $650,000
66. What is the total stockholders' equity based on the following data?
Excess of Issue Price Over Par 375,000
Retained Earnings (deficit) 50,000
a. $1,100,000
b. $1,125,000
c. $1,175,000
d. $1,225,000
67. Which of the following is not classified as paid-in capital on the balance sheet?
a. common stock
b. common stock distributable
c. donated capital
d. treasury stock
68. All of the following are normally found in a corporation's stockholders' equity section except
a. Common Stock
b. Paid-In Capital in Excess of Par
c. Dividends in Arrears
d. Retained Earnings
69. Which of the following amounts should be disclosed in the stockholders' equity section of the
balance sheet?
a. the number of shares of common stock outstanding
b. the number of shares of common stock issued
c. the number of shares of common stock authorized
d. all of the above
70. Significant changes in stockholders' equity are reported in

a. income statement
b. retained earnings statement
c. statement of stockholders' equity
d. statement of cash flows
71. Retained earnings

a. is the same as contributed capital
b. cannot have a debit balance
c. changes are summarized in the retained earnings statement
d. over time will have a direct relationship with the amount of cash on hand if the corporation is
profitable
72. Which of the following would appear as a prior-period adjustment?

a. loss resulting from the sale of fixed assets
b. difference between the actual and estimated uncollectible accounts receivable
c. error in the computation of depreciation expense in the preceding year
d. loss from the restructuring of assets
73. A restriction/appropriation of retained earnings

a. decreases total assets
b. increases total retained earnings
c. decreases total retained earnings
d. has no effect on total retained earnings
74. Which of the following would result in a credit to retained earnings?

a. a net loss for the period
b. an understatement of an expense in a prior period
c. a stock split
d. an understatement of a revenue in the prior period
75. The Rand Corporation began the current year with a retained earnings balance of $25,000. During
the year, the company corrected an error made in the prior year, which was a failure to record
depreciation expense of $3,000 on equipment. Also, during the current year, the company earned net
income of $12,000 and declared cash dividends of $5,000. Compute the year end retained earnings
balance.
a. $29,000
b. $35,000
c. $39,000
d. $45,000
76. What is the total stockholders' equity based on the following data?
Excess of Issue Price Over Par 375,000
Retained Earnings (deficit) 40,000
a. $915,000
b. $875,000
c. $835,000
d. $540,000
77. If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant
expansion, the effect of this action is to
a. decrease total assets and total stockholders’ equity.
b. reduce the amount of retained earnings available for dividend declarations.
c. increase stockholders’ equity and to decrease total liabilities.
d. decrease total retained earnings and increase total liabilities.
78. Treasury stock should be reported in the financial statements of a corporation as a(n)
a. investment.
b. liability.
c. deduction from total paid-in capital.
d. deduction from total paid-in capital and retained earnings.
79. Investors who are most interested in the dividend yield are those who invest for
a. market price appreciation
b. current income flow
c. both market price appreciation and current income flow
d. neither market price appreciation or current income flow
80. Dividend yield is most often computed on

a. all common stock
b. all preferred stock
c. both common and preferred stock
d. only common stock sold above par
81. Based on the following information, calculate the dividend yield on common stock
Market price per share $40.00
Earnings per share 4.00
Dividends per share 1.00
Investor's cost per share 30.00
a. 0.075
b. 0.025
c. 0.133
d. 0.033
82. The following information is available for Derby Co.:

2006
Dividends per share of common stock $ 0.80
Market price per share of common stock 20.00
a. The dividend yield is 4%, which is of interest to investors seeking an increase in market price of
their stocks.
b. The dividend yield is 4%, which is of special interest to investors seeking current returns on their
investments.
c. The dividend yield is 25%, which is of interest to bondholders.
d. The dividend yield is 4 times the market price, which is important in solvency analysis.
83. The reduction of par or stated value of stock by issuance of a proportionate number of additional
shares is termed a
a. liquidating dividend
b. stock split
c. stock option
d. preferred dividend
84. A corporation has 40,000 shares of $25 par value stock outstanding. If the corporation issues a 4-for-
1 stock split, the number of shares outstanding after the split will be
a. 160,000 shares
b. 40,000 shares
c. 120,000 shares
d. 10,000 shares
85. When a corporation completes a 3-for-1 stock split

a. the ownership interest of current stockholders is decreased
b. the market price per share of the stock is decreased
c. the par value per share is decreased
d. b and c
approximately
a. $7
b. $112
c. $40
d. $640
87. The primary purpose of a stock split is to

a. increase paid-in capital
b. reduce the market price of the stock per share
c. increase the market price of the stock per share
d. increase retained earnings
88. Which of the following statements is not true about a 2-for-1 split?
a. Par value per share is reduced to half of what it was before the split.
b. Total contributed capital increases.
c. The market price will probably decrease.
d. A stockholder with ten shares before the split owns twenty shares after the split.
approximately:
a. $5
b. no changed
c. $60
d. $24
of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock will be:
a. $5
b. $60
c. unchanged
d. $24
of $120. If the corporation issues a 5-for-1 stock split, the number of shares outstanding will be:
a. 50,000
b. 10,000
c. 250,000
d. 25,000
EXERCISE/OTHER
1. A company had stock outstanding as follows during each of its first three years of operations: 2,500
shares of $10, $100 par, cumulative preferred stock and 50,000 shares of $10 par common stock. The
amounts distributed as dividends are presented below. Determine the total and per share dividends
for each class of stock for each year by completing the schedule.
Preferred Common
Year Dividends Total Per Share Total Per Share
1 $10,000 _________ _________ _________ _________
2 25,000 _________ _________ _________ _________
3 60,000 _________ _________ _________ _________
ANS:
Preferred Common
Year Dividends Total Per Share Total Per Share
1 $10,000 $10,000 $ 4.00 0 0
2 25,000 25,000 10.00 0 0
3 60,000 40,000 16.00 $20,000 $ .40
DIF: Moderate OBJ: 11-02

NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 11-1
2. On April 1, 10,000 shares of $5 par common stock were issued at $25, and on April 7, 5,000 shares
of $50 par preferred stock were issued at $103. Journalize the entries for April 1 and 7.
ANS:
Apr. 1 Cash 250,000
Common Stock 50,000
Paid-In Capital in Excess of Par-
Common Stock 200,000
7 Cash 515,000

Preferred Stock 250,000
DIF: Easy OBJ: 11-02

3. On May 10 a company issued for cash 1,500 shares of no-par common stock (with a stated value of
$2) at $12, and on May 15, it issued for cash 2,000 shares of $15 par preferred stock at $55.
Journalize the entries for May 10 and 15, assuming that the common stock is to be credited with the
stated value.
ANS:
May 10 Cash 18,000
Common Stock 3,000
Paid-In Capital in Excess of Stated
Value-Common Stock 15,000
15 Cash 110,000

4. On February 1 of the current year, Pace, Inc. issued 500 shares of $2 par common stock to an
attorney in return for preparing and filing the Articles of Incorporation. The value of the services is
$7,500. Journalize this transaction.
ANS:
Feb. 1 Organizational Expenses 7,500
Common Stock 1,000
Paid-In Capital in Excess of Par - Common Stock 6,500

5. On April 10, a company acquired land in exchange for 1,000 shares of $20 par common stock with a
current market price of $62. Journalize this transaction.
ANS:
Apr. 10 Land 62,000
Common Stock 20,000

6. Sanchez Company has 30,000 shares of 1% preferred stock of $100 par and 100,000 shares of $50
par common stock. The following amounts were distributed as dividends:
Year 1: $10,000
Year 2: 25,000
Year 3: 90,000
Determine the dividends per share for preferred and common stock for each year.
ANS:
Year 1 Year 2 Year 3
Amount distributed $10,000 $25,000 $90,000
Preferred dividend (30,000 shares) 10,000 25,000 30,000
Common dividend (100,000 shares) $ 0 $ 0 $60,000
Dividends per share:

Preferred stock $0.33 $0.83 $1.00
Common stock 0.00 0.00 0.60

7. Sanchez Company has 30,000 shares of 1% preferred stock of $100 par and 100,000 shares of $50
par common stock. The following amounts were distributed as dividends:
Year 1: $ 50,000
Year 2: 90,000
Year 3: 130,000
Determine the dividends per share for preferred and common stock for each year.
ANS:
Year 1 Year 2 Year 3
Amount distributed $50,000 $80,000 $130,000
Preferred dividend (30,000 shares) 30,000 30,000 30,000
Common dividend (100,000 shares) $20,000 $50,000 $100,000
Dividends per share:

Preferred stock $1.00 $1.00 1.00
Common stock .40 .50 1.00

8. A corporation, which had 15,000 shares of common stock outstanding, declared a 3-for-1 stock split.
(a) What will be the number of shares outstanding after the split?
(b) If the common stock had a market price of $240 per share before the stock split, what
would be an approximate market price per share after the split?
(c) Journalize the entry to record the stock split.
ANS:
(a) 45,000 shares
(b) $80 per share
(c) no entry

9. On May 1, 10,000 shares of $10 par common stock were issued at $30, and on May 7, 5,000 shares
of $50 par preferred stock were issued at $105. Journalize the entries for May 1 and May 7.
ANS:
May 1 Cash 300,000
7 Cash 525,000


10. The dates of importance in connection with a cash dividend of $50,000 on a corporation’s common
stock are January 15, February 15, and March 15. Journalize the entries required on each date.
ANS:
Jan. 15 Cash Dividends 50,000
Cash Dividends Payable 50,000
Feb. 15 No entry required
Mar. 15 Cash Dividends Payable 50,000

Cash 50,000

11. Vincent Corporation has 100,000 share of $100 par common stock outstanding. On June 30, Vincent
Corporation declared a 5% stock dividend to be issued July 30 to stockholders of record July 15. The
market price of the stock was $120 a share on June 30.
ANS:
June 30 Stock Dividends (100,000  5%  $120) 600,000
Stock Distributable (5,000  $100) 500,000
Paid-in Capital in Excess of Par—Common Stock 100,000

12. A corporation purchased for cash 5,000 shares of its own $10 par common stock at $35 a share. In
the following year, it sold 2,000 of the treasury shares at $37 a share for cash.
(a) Journalize the entries to record the purchase (treasury stock is recorded at cost).
(b) Journalize the entries to record the sale of the stock.
ANS:
(a)
Cash 175,000
(b)
Cash 74,000
Paid-In Capital from Sale of Treasury Stock 4,000

13. A corporation purchased for cash 5,000 shares of its own $10 par common stock at $25 a share. In
the following year, it sold 2,000 of the treasury shares at $28 a share for cash.
(a) Journalize the entries to record the purchase (treasury stock is recorded at cost).
(b) Journalize the entries to record the sale of the stock.
ANS:
(a)
Cash 125,000
(b)
Cash 56,000
Paid-In Capital from Sale of Treasury Stock 6,000

14. On June 5, Jump In Corporation reacquired 3,300 shares of it common stock at $45 per share. On
July 15, Jump In sold 2,000 of the reacquired shares at $48 per share. On August 30, Jump In sold
the remaining shares at $42 per share.
Journalize the transactions of June 5, July 15, and August 30.

ANS:
June 5 Treasury Stock (3,300  $45) 148,500
Cash 148,500
July 15 Cash (2,000  $48) 96,000

Treasury Stock (2,000  $45) 90,000
Paid-in Capital from Sale of
Treasury Stock {2,000  ($48-$45)] 6,000
August 30 Cash (1,300  $42) 54,600

Paid in Capital from Sale of
Treasury Stock [1,300  ($45-$42)] 3,900
Treasury Stock (1,300  $45) 58,500

15. Using the following accounts and balances, prepare the Stockholders’ Equity section of the balance
sheet. Fifty thousand shares of common stock are authorized, and 5,000 shares have been reacquired
Common Stock, $50 par $1,500,000

Paid-In Capital in Excess of Par 250,000
Paid in Capital from Sale of Treasure Stock 42,000
Retained Earnings 4,350,000
ANS:
Stockholders’ Equity
Paid-in capital
Common stock, $50 par
(50,000 shares authorized, 30,000 issued) $1,500,000
Excess of issue price over par 250,000 $1,750,000
From sale of treasure stock 42,000
Total paid-in capital $1,792,000
Retained earnings 4,350,000
Total $6,142,000
Deduct treasury stock
(5,000 shares at cost) 125,000
Total stockholders’ equity $6,017,000

16. High Seas Shipping Inc. reported the following results for the year ending April 30, 2008:
Retained earnings, May 1, 2007 $2,870,000
Net income 530,000
Cash Dividends declared 80,000
Stock dividends declared 120,000
Prepare a retained earnings statement for the fiscal year ended April 30, 2008.
ANS:
High Seas Shipping Inc.

Retained Earnings Statement
For the Year Ended April 30, 2008
Retained earnings, April 1, 2007 $2,870,000

Net income $530,000
Less dividends declared 200,000
Increase in retained earnings 330,000
Retained earnings, April 30, 2007 $2,540,000

17. Based on the following information, calculate the dividend yield on common stock:

ANS:
$3 ÷ $50 = 6%

18. Based on the following information, calculate the dividend yield on common stock:

ANS:
$2 ÷ $50 = 4%

19. Indicate whether the following actions would (+) increase, (-) decrease, or (0) not affect a company's
total assets, liabilities, and stockholders' equity.
Stockholders'
Assets Liabilities Equity
(1) Declaring a cash dividend _______ _______ _______
(2) Paying the cash dividend declared in (1) _______ _______ _______
(3) Declaring a stock dividend _______ _______ _______
(4) Issuing stock certificates for the stock
dividend declared in (3) _______ _______ _______
ANS:
Stockholders'
Assets Liabilities Equity
(1) Declaring a cash dividend 0 + -
(2) Paying the cash dividend declared in (1) - - 0
(3) Declaring a stock dividend 0 0 0
(4) Issuing stock certificates for the stock
dividend declared in (3) 0 0 0
DIF: Easy OBJ: 11-03 | 11-06

PROBLEM
1. A corporation was organized on January 30 of the current year, with an authorization of

20,000 shares of $4 preferred stock, $12 par, and 100,000 shares of $3 par common stock.
The following selected transactions were completed during the first year of operations:
Jan. 30 Issued 15,000 shares of common stock at $21 per share for cash.
31 Issued 1,100 shares of common stock at par to an attorney in payment of

legal fees for organizing the corporation.
Feb. 24 Issued 20,000 shares of common stock in exchange for land, buildings, and
equipment with fair market prices of $55,000 $120,000, and $45,000
respectively.
Mar. 15 Issued 2,000 shares of preferred stock at $54 for cash.

ANS:
Jan. 30 Cash 315,000

Common Stock 45,000
31 Organizational Expense 3,300

Common Stock 3,300
Feb. 24 Land 55,000

Buildings 120,000
Equipment 45,000
Common Stock 60,000
Paid-In Capital in Excess of Par-Common Stock 160,000
Mar. 15 Cash 108,000

Paid-In Capital in Excess of Par-Preferred Stock 84,000

2. Present entries to record the following:
(a) Issued 1,000 shares of $15 par common stock at $52 for cash.
(b) Issued 1,400 shares of common stock in exchange for equipment with a fair
market price of $21,000.
(c) Purchased 100 shares of treasury stock at $25.
(d) Sold 100 shares of treasury stock at $28.
ANS:
(a)
Cash 52,000
Common Stock 15,000
(b)
Equipment 21,000
Common Stock 21,000
(c)
Cash 2,500
(d)
Cash 2,800
Paid-In Capital from Sale of Treasury Stock 300

3. On April 10, Samson Corporation issued for cash 12,000 shares of no-par common stock at
$25. On May 5, Samson issued at par 1,000 shares of 4%, $50 par preferred stock for cash.
On May 25, Samson issued for cash 15,000 shares of 4%, $50 par preferred stock at $55.
Journalize the entries to record the April 10, May 5, and May 25 transactions.
ANS:
April 10 Cash 300,000
(12,000 ´ $25)
May 5 Cash 50,000

(1,000 ´ $50)
May 25 Cash 825,000

Paid-in Capital in Excess of Par 75,000
(15,000  $50)
NAT: AACSB Analytic | AICPA FN-Measurement
ANS:
(a)
Cash 50,000
Common Stock 10,000
(b)
Equipment 21,000
Common Stock 14,000
Paid-in Capital - Common Stock 7,000
(c)
Cash 2,500
(d)
Cash 2,800

DIF: Moderate OBJ: 11-02 | 11-04

ANS:
(a)
Cash 45,000
Common Stock 10,000
(b)
Equipment 60,000
Common Stock 14,000
Paid-in Capital in excess if Par - Common Stock 46,000
(c)
Cash 3,500
(d)
Cash 4,200

6. Mega Sales is authorized to issue 100,000 shares of $100 par, 2% preferred stock and
1,000,000 shares of $10 par common stock.
(a) On January 2nd Mega Sales issues 5,000 shares of preferred stock for $105 per
share and 65,000 shares of common stock at $10 per share. Journalize this
issuance.
(b) On January 25th Mega Sales issued 250 shares of preferred stock to a
CPA/Law firm for settlement of an invoice for incorporation services. The
invoice was for $30,000.00. Journalize this issuance.
(c) On January 31st Mega Sales issues 500 shares of common stock to See Our
Displays for fixtures. The fixtures have a fair market value of $6,500.00.
Journalize this issuance.
ANS:
(a) Jan 2nd Cash 1,175,000.00
Preferred Stock 500,000.00
Paid-in Capital in Excess of Par - 25,000.00
P/S
(b) Jan 25th Organizational Expense 30,000.00

Preferred Stock 25,000.00
P/S
(c) Jan 31st Fixtures 6,500.00

C/S
DIF: Difficult OBJ: 11-02

7. Wings Over San Diego is a publicly traded company with preferred and common stock
issued. As of January 1st it had 50,000 shares of $100 par, 2% preferred stock outstanding
and 250,000 shares of $10 par common stock outstanding.
(a) On January 31st the Board of Directors issues a requirement to purchase 5,000
shares of common stock at market price. The shares are purchased at a market
price of $22 per share. Journalize the purchase utilizing the cost concept.
(b) On March 15th Wings Over San Diego declares a dividend on preferred stock
of $2.00 per share. The date of record is March 25th and the date of payment is
March 31st. Journalize these events.
(c) On December 1st Wings Over San Diego declares a cash dividend on common
stock of $0.15 per share. The date of record is December 15th and the date of
payment is December 21st. Journalize these events.
(d) On December 27th the board orders that 2,500 shares of treasury stock be sold.
The sale price is $25 per share. Journalize this event.
ANS:
(a) Jan 31st Treasury Stock - C/S 110,000
Cash 110,000
(b) Mar 15th Cash Dividends - P/S 100,000

Mar 25th - date of record - no journal entry - “ownership day”
Mar 31st Cash Dividends Payable 100,000

Cash 100,000
(c) Dec 1st Cash Dividends - C/S 36,750

Note: While there are 250,000 shares of common stock issued, only 245,000 are outstanding due
to the 5,000 shares of C/S held in treasury.
Dec 15th - date of record - no journal entry - “ownership day”
Dec 21st Cash Dividends Payable 36,750

Cash 36,750
(d) Dec 27th Cash 62,500

Treasury Stock - C/S 55,000 (2,500  $22)
Paid-in Capital - T/S 7,500 (2,500  $3)
DIF: Difficult OBJ: 11-02 | 11-03
NAT: AACSB Analytic | AICPA FN-Measurement
8. A company has 10,000 shares of $10 par common stock outstanding. Present entries to
record the following:
(a) Purchased 1,000 shares of treasury stock at $11. The treasury stock is accounted for
by the cost method.
(b) Sold 500 shares of treasury stock at $15.
(c) Purchased equipment for $75,000, paying $25,000 in cash and issuing 4,000 shares
of common stock for the equipment.
ANS:
(a)
Cash 13,000
(b)
Cash 7,500
Paid-In Capital from Sale of
(c)
Equipment 75,000
Cash 25,000
Common Stock 40,000
(d)
Cash 5,500
Paid-In Capital from Sale 1,000
of Treasury Stock

9. A company has 10,000 shares of $10 par common stock outstanding. Present entries to
record the following:
(a) Purchased 1,000 shares of treasury stock at $15. The treasury stock is accounted for
by the cost method.
(b) Sold 500 shares of treasury stock at $16.
(c) Purchased equipment for $80,000, paying $25,000 in cash and issuing 4,000 shares
of common stock for the equipment.
ANS:
(a)
Cash 15,000
(b)
Cash 8,000
Paid-In Capital from Sale of
Treasury Stock 500
(c)
Equipment 80,000
Cash 25,000
Common Stock 40,000
(d)
Cash 7,000
Paid-in Capital from Sale of Treasury Stock 500

10. Journalize the following selected transactions completed during the current fiscal year:
Jan. 3 The board of directors reduced the par of common shares from $100 to $20.
This action increased the number of outstanding shares to 400,000.
22 Declared a dividend of $2.00 per share on the outstanding shares of common

stock.
Feb. 8 Paid the dividend declared on January 22.
Sep. 1 Declared a 5% stock dividend on the common stock outstanding (the fair
market value of the stock to be issued is $30).
Oct. 1 Issued the certificates for the common stock dividend declared on September
1.
ANS:
Jan. 3 No entry required
22 Cash Dividends 800,000

Feb. 8 Cash Dividends Payable 800,000

Cash 800,000
Sep. 1 Stock Dividends 600,000

Stock Dividends Distributable 400,000
Paid-In Capital in Excess of
Par-Common Stock 200,000
Oct. 1 Stock Dividends Distributable 400,000


11. Present entries to record the following selected transactions completed during the current
fiscal year:
Feb. 1 The board of directors reduced the par of common shares from $100 to $20.
This action increased the number of outstanding shares to 500,000.
11 Purchased 25,000 shares of own stock at $45, recording the treasury stock at
cost.
May 1 Declared a dividend of $3 per share on the outstanding shares of common

stock.
15 Paid the dividend declared on May 1.
Oct. 19 Declared a 2% stock dividend on the common stock outstanding (the fair
market value of the stock to be issued is $55).
Nov. 12 Issued the certificates for the common stock dividend declared on October 19.
ANS:
Feb. 1 No entry required
11 Treasury Stock 1,125,000

Cash 1,125,000
May 1 Cash Dividends 1,425,000

Cash Dividends Payable 1,425,000
15 Cash Dividends Payable 1,425,000

Cash 1,425,000
Oct. 19 Stock Dividends 522,500

Stock Dividends Distributable 190,000
Paid-In Capital in Excess of
Par-Common Stock 332,500
Nov. 12 Stock Dividends Distributable 190,000

DIF: Difficult OBJ: 11-03 | 11-04 | 11-06


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Chapter 11

Corporations: Organization, Stock Transactions, and Dividends

Obj 1 Describe the nature of the corporate form of organization.

No. Objective Difficulty No. Objective Difficulty No. Objective Difficulty

1 11-02 Moderate 5 11-02, 04 Moderate 9 11-04 Moderate

Chapter 11—Corporations: Organization, Stock Transactions, and Dividends

9. By-laws are part of the business's charter or articles of incorporation.

17. The main source of paid-in-capital is from issuing stock.

18. Some corporations have stopped issuing stock certificates to stockholders.

36. Cash dividends are normally paid on shares of treasury stock.

39. Cash dividends become a liability to a corporation on the date of record.

46. When a stock dividend is declared, it becomes a liability.

1. Which of the following is not characteristic of a corporation?

2. Characteristics of a corporation include

3. One of the main disadvantages of the corporate form is the

4. A disadvantage of the corporate form of business entity is

5. Under the corporate form of business organization

8. Which of the following is not true of a corporation?

9. The ability of a corporation to obtain capital is

10. Which of the following statements concerning taxation is accurate?

11. Stockholders' equity

16. The par value per share of common stock represents

26. Par value

27. The authorized stock of a corporation

The entry to record the above transaction would include a

43. Which of the following is not a prerequisite to paying a cash dividend?

52. treasury stock shares are

54. How is treasury stock shown on the balance sheet?

70. Significant changes in stockholders' equity are reported in

71. Retained earnings

72. Which of the following would appear as a prior-period adjustment?

73. A restriction/appropriation of retained earnings

74. Which of the following would result in a credit to retained earnings?

80. Dividend yield is most often computed on

82. The following information is available for Derby Co.:

85. When a corporation completes a 3-for-1 stock split

87. The primary purpose of a stock split is to

DIF: Moderate OBJ: 11-02

7 Cash 515,000

DIF: Easy OBJ: 11-02

DIF: Easy OBJ: 11-02

DIF: Easy OBJ: 11-02

DIF: Easy OBJ: 11-02

Dividends per share:

DIF: Moderate OBJ: 11-02

Dividends per share:

DIF: Moderate OBJ: 11-02

DIF: Easy OBJ: 11-02

7 Cash 525,000

DIF: Easy OBJ: 11-02

Feb. 15 No entry required

Mar. 15 Cash Dividends Payable 50,000

DIF: Easy OBJ: 11-03

DIF: Moderate OBJ: 11-03

DIF: Easy OBJ: 11-04

DIF: Easy OBJ: 11-04

Journalize the transactions of June 5, July 15, and August 30.

July 15 Cash (2,000  $48) 96,000

August 30 Cash (1,300  $42) 54,600