Chapter 19

1.As of December 31, 2006, Warner Corporation reported the following:
 
|Dividends payable |20,000 |
|Treasury stock |600,000 |
|Paid-in capital – share repurchase |20,000 |
|Other paid-in capital accounts |4,000,000 |
|Retained earnings|3,000,000 |


 
During 2007, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $1,500,000; and stock dividends declared were $500,000.
The 2007 sale of half of the treasury stock would: (Points: 6)
       [pic]Reduce income before tax by $60,000
       [pic]Reduce retained earnings by $60,000
       [pic]Increase total shareholders'equity by $300,000
       [pic]Decrease retained earnings by $40,000


2. When more than one security is sold for a single price and the total selling price is not equal to the sum of the market prices, the cash received is allocated between the securities based on: (Points: 6)
       [pic]Relative book values
       [pic]Par values
       [pic]Relative market values
       [pic]Theearnings per share


3. Montgomery & Co., a well established law firm, provided 500 hours of its time to Fink Corporation in exchange for 1,000 shares of Fink's $5 par common stock. Mitchell's usual billing rate is $700 per hour, and Fink's stock has a book value of $250 per share. By what amount will Fink's Paid-in capital – excess of par increase for this transaction? (Points: 6)
      [pic]$345,000
       [pic]$295,000
       [pic]$350,000
       [pic]$300,000





4. Three years ago, Emily Corporation issued 12,000 shares of $100 par, convertible, preferred stock for $105 per share. Each share of preferred can be converted into 4 shares of $1 par common stock. Half of the preferred shares were converted in the current year when the common stock was trading for $40 per share.How much will total paid-in capital increase as a result of the conversion? (Points: 6)
       [pic]$630,000
       [pic]$960,000
       [pic]$330,000
       [pic]$0.


5. When treasury shares are resold at a price below cost: (Points: 6)
       [pic]Paid-in capital and/or retained earnings is reduced
       [pic]Retained earnings is always reduced
       [pic]Paid-in capital and/orretained earnings is increased
       [pic]A loss is taken on the income statement


6. When treasury stock is purchased for an amount greater than its par value, what is the effect on total shareholders' equity? (Points: 6)
       [pic]Increase
       [pic]Decrease
       [pic]No effect
       [pic]Cannot tell from the given information


7. Boxer Company owned 20,000 shares of King Companythat were purchased in 2004 for $500,000. On May 1, 2006, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer stock outstanding. The market value of the King stock was $30 per share on the date of declaration and $32 per share on the date of distribution. By how much is retained earnings reduced by the propertydividend? (Points: 6)
       [pic]$0
       [pic]$150,000
       [pic]$160,000
       [pic]$300,000



8. On October 1, 2006, Chief Corporation declared and issued a 10% stock dividend. Prior to this date, Chief had 80,000 shares of $5 par common stock outstanding. The market value of Chief Corporation on the date of declaration was $10 per share. As a result of this dividend, Chief'sretained earnings will: (Points: 6)
       [pic]Decrease by $80,000
       [pic]Not change
       [pic]Decrease by $40,000
       [pic]Increase by $80,000


9. Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock? (Points: 6)
       [pic]The shareholders must be allowed to convert their shares to common stock.
       [pic]The unpaid...