Financial Accounting: An Integrated Statements Approach, 2nd Edition

C. Stockholders’ Equity section.

D. Investments section.

4. A corporation has issued 25,000 shares of $100 par com-
   mon stock and holds 3,000 of these shares as treasury
   stock. If the corporation declares a $2 per share cash div-
   idend, what amount will be recorded as cash dividends?
   A. $22,000 C. $44,000
   B. $25,000 D. $50,000


5. A corporation declares a cash dividend of $2.40 per
   common share for the current year. The market price of
   common stock is $48 per share at the end of the year,
   while the book value (stockholders’ equity divided by
   shares outstanding) per share is $32 per share. The
   earnings per share is $4.00 for the current year.
   Determine the dividend yield and dividend payout
   ratio (in that order).
   A. 60%, 5% C. 5%, 60%
   B. 5%, 67% D. 7.5%, 60%

Chapter 11 Stockholders’ Equity: Capital Stock and Dividends 515

1. Describe the stockholders’ liability to creditors of a cor-
   poration.


2. Why is it said that the earnings of a corporation are sub-
   ject to double taxation? Discuss.


3. Why are most large businesses organized as corporations?


4. Of two corporations organized at approximately the same
   time and engaged in competing businesses, one issued


5. If a corporation has outstanding 1,000 shares of $9
   cumulative preferred stock of $100 par and dividends
   have been passed for the preceding three years, what
   is the amount of preferred dividends that must be
   declared in the current year before a dividend can be
   declared on common stock?
   A. $9,000 C. $36,000
   B. $27,000 D. $45,000


6. Paid-in capital for a corporation may arise from which
   of the following sources?
   A. Issuing cumulative preferred stock
   B. Declaring a stock dividend
   C. Selling the corporation’s treasury stock
   D. All of the above


7. If a corporation reacquires its own stock, the stock is
   listed on the balance sheet in the:
   A. Current Assets section.
   B. Long-Term Liabilities section.

$50 par common stock, and the other issued $1 par com-

mon stock. Do the par designations provide any indica-

tion as to which stock is preferable as an investment?

Explain.

5. a.Differentiate between common stock and preferred
   stock.
   b.Describe briefly cumulative preferred stock.

June 15 Cash Dividends Payable 21,250

Cash 21,250

Sept. 23 Cash 28,000

Treasury Stock 26,000

Paid-In Capital from Sale of Treasury Stock 2,000

Nov. 1 Retained Earnings 21,550

Cash Dividends Payable 21,550

(10,000$1) + [(40,000 1,500)$0.30]

1 Retained Earnings 57,750

Stock Dividends Distributable 38,500

Paid-In Capital in Excess of Par 19,250

(40,0001,500)5%$30

Dec. 1 Cash Dividends Payable 21,550

Stock Dividends Distributable 38,500

Cash 21,550

Common Stock 38,500

SELF-STUDY QUESTIONS Answers at end of chapter

DISCUSSION QUESTIONS