Question

Acc 202

1.   Which of the following statements about par value is true?

1. 1. Directly tied to market value of stock
   2. Directly tied to issue price of stock
   3. Determines amount of dividends that will be paid on common stock
   4. Is a nominal, arbitrary amount applied to shares of stock; unrelated to actual stock value or price
2. When recording for issuance of stock, all of the following accurately describe this process except:
   1. Different classes of stock are recorded in separate stock accounts
   2. Par value is recorded separately from the premium on stock issuance
   3. Premium on stock issuance is recognized as income/profit
   4. Cash and total stockholder’s equity will both increase as a result of this transaction
3. Which of the following statements about treasury stock is not accurate?
   1. Treasury stock represents ownership in corporate capital
   2. A company may buy back shares of stock and hold them in treasury as a way to allow investors to gain some cash back from their investment
   3. A company may hold shares of stock in treasury to ensure enough shares of stock are not available for trade on the market to avoid a takeover
   4. A company may buy back shares of stock to decrease outstanding shares, thus increase earnings per share
4. Which of the following statements about cash dividends is inaccurate?
   1. Dividends are issued to common stockholders based on shares held
   2. Dividends are issued to preferred stockholders based on a fixed dividend rate
   3. Dividends are paid from contributed capital/stock accounts
   4. Dividends are paid from earned capital/retained earnings
5. Which of the following statements about stock dividends is inaccurate?
   1. Stock dividends will increase the number of issued and outstanding shares
   2. May dilute market value depending on the size of the stock dividend issued
   3. Size of stock dividend issued may require reporting at different values
   4. Will result in an overall decrease in stockholder’s equity
6. The characteristics of a corporate structure would not include:
   1. Owners are liable for business debt obligations
   2. Recognized as a separate legal entity of the state
   3. Earnings are subject to double taxation
   4. Owners are referred to as stockholders

Answer 1

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1.   Which of the following statements about par value is true?

d. Is a nominal, arbitrary amount applied to shares of stock; unrelated to actual stock value or price.

2. When recording for issuance of stock, all of the following accurately describe this process except:

c. Premium on stock issuance is recognized as income/profit.

Because it is not an income statement item but it is an equity item.

3. Which of the following statements about treasury stock is not accurate?

b. A company may buy back shares of stock and hold them in treasury as a way to allow investors to gain some cash back from their investment.

Because no dividend is to be paid on treasury stock.

4. Which of the following statements about cash dividends is inaccurate?

c. Dividends are paid from contributed capital/stock accounts.

Because Dividends are paid from earned capital/retained earnings.

5. Which of the following statements about stock dividends is inaccurate?

d. Will result in an overall decrease in stockholder’s equity.

Because stockholder’s equity either remains same.

6. The characteristics of a corporate structure would not include:

a. Owners are liable for business debt obligations

Because Owners are liable only to the extent amount contributed by them.