ch.13 Practice Questions

1. A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8.
Subsequently, the
company declared a 4% stock dividend on a date when the market price was $12 per 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
2. A corporation has 50,000 shares of $25 par stock outstanding. If the corporation issues a 3-for-1 stock split, the number
of shares outstanding after the split will be
a. 150,000 shares
b. 50,000 shares
c. 100,000 shares
d. 16,666 shares
3. 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
4. Which of the following is not a reason for a corporation to buy back its own stock?
a. resale to employees
b. bonus to employees
c. support the market price of the stock
d. increase the shares outstanding
5. 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.
6. Treasury stock that had been purchased for $5,600 last month was reissued this month for $8,500. The journal entry to
record the reissuance would include a credit to
a. Treasury Stock for $8,500
b. Paid-In Capital from Sale of Treasury Stock for $8,500
c. Paid-In Capital in Excess of Par—Common Stock for $2,900
d. Paid-In Capital from Sale of Treasury Stock for $2,900
7. 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
8. A corporation purchased 1,000 shares of its own $5 par common stock at $10 and subsequently sold 500 of the shares
at $20. What amount of revenue is realized from the sale?
a. $0
b. $5,000
c. $2,500
d. $10,000
9. A corporation purchases 10,000 shares of its own $10 par common stock for $35 per share, recording it at cost. What
will be the effect on total stockholders' equity?
a. increase by $100,000
b. increase by $350,000
c. decrease by $100,000
d. decrease by $350,000
10. On January 1, Vermont 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 per share. On February 1, Vermont purchased 3,750 shares of
treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1.
The journal entry to record the purchase of the treasury shares on February 1 would include a
a. credit to Treasury Stock for $90,000
b. debit to Treasury Stock for $90,000
c. debit to a loss account for $112,500
d. credit to a gain account for $112,500
11. What is the total stockholders' equity based on the following account balances?
Common Stock $375,000
Paid-In Capital in Excess of Par 90,000
Retained Earnings 190,000
Treasury Stock 15,000
a. $670,000
b. $655,000
c. $640,000
d. $565,000
12. 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. is equal to cash on hand
13. The two main sources of stockholders' equity are

a. investments by stockholders and net income retained in the business
b. investments by stockholders and dividends paid
c. net income retained in the business and dividends paid
d. investments by stockholders and purchases of assets
14. Earnings per share

a. is the net income per common share
b. must be reported by a public company
c. helps compare companies of different sizes
d. All of these choices
15. Oregon, Inc. reported net income of $105,000. During the current year, the company had 5,000 shares of $100 par,
5% preferred stock and 10,000 shares of $5 par common stock outstanding. Oregon's earnings per share is
a. $8.00
b. $18.00
c. $5.08
d. $5.00
16. When Wisconsin Corporation was formed on January 1, the corporate charter provided for 100,000 shares of $10 par
value common stock. During its first month of operation, the corporation issued 8,500 shares of stock at a price of $16
per share.
The entry to record the above transaction would include a
a. debit to Cash for $85,000
b. credit to Common Stock for $136,000
c. credit to Paid-In Capital in Excess of Par—Common Stock for $51,000
d. debit to Common Stock for $85,000
Subjective Short Answer
17. Prepare entries to record the following:

(a) Issued 1,000 shares of $10 par common stock at $59 for cash.
(b) Issued 1,400 shares of $10 par common stock in exchange for equipment with a fair
market price of $60,000.
(c) Purchased 100 shares of treasury stock at $32.
(d) Sold the 100 shares of treasury stock purchased in (c) at $42.
18. Prepare entries to record the following selected transactions completed during the current fiscal year:
Feb. 1 The board of directors declared a stock split that 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 the company's own stock at $44, recording the treasury
stock at cost.
May 1 Declared a dividend of $2.50 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.
19. 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 $1,250,000
Paid-In Capital from Sale of Treasury Stock 42,000
Retained Earnings 4,350,000
20. Using the following information, prepare the Stockholders’ equity section of the balance sheet. Seventy thousand
shares of common stock are authorized and 7,000 shares have been reacquired.
Common Stock, $75 par $4,725,000
Paid-In Capital from Sale of Treasury Stock 25,200
Retained Earnings 2,032,800
21. A company had the following stockholders' equity information available at year-end:
Issued 11,000 shares of $2 par common stock for $12 per share.
Issued 5,000 shares of $50 par, 6% preferred stock for $70 per share.
Purchased 1,000 shares of previously issued common stock for $15 per share.
Reported net income of $200,000.
Declared and paid the preferred stock dividend.
Calculate the earnings per share for the current year.

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ch.13 Practice Questions

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1. A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8.

3. The primary purpose of a stock split is to

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

12. Retained earnings

13. The two main sources of stockholders' equity are

14. Earnings per share

Subjective Short Answer

17. Prepare entries to record the following:

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