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Which of the following is not a characteristic of corporate ownership?


A) Stockholders have no liability for the debts of the corporation.
B) Ownership interests are freely transferable.
C) Shares of stock can be purchased in small increments.
D) Corporate earnings are distributed as interest payments.

E) A) and D)
F) None of the above

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Unpaid dividends on cumulative preferred stock are called dividends payable.

A) True
B) False

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Palomino Enterprises purchased 2,000 shares of its own stock at $8 a share.Later,it reissued the 2,000 shares for $20,000.The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n) :


A) $20,000 increase in stockholders' equity.
B) $20,000 decrease in stockholders' equity.
C) $16,000 increase in stockholders' equity.
D) $16,000 decrease in stockholders' equity.

E) A) and B)
F) A) and C)

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On February 16,Hawthorne Co.declares a $0.68 dividend to be paid on April 5.Hawthorne has 1,900,000 shares of common stock issued and outstanding.The entry recorded by the company on February 16 includes a debit to:


A) Dividends Payable and a credit to Cash for $1,360,000.
B) Dividends and a credit to Dividends Payable for $1,292,000.
C) Dividends Payable and a credit to Cash for $1,292,000.
D) Dividends and a credit to Dividends Payable for $1,360,000.

E) B) and D)
F) B) and C)

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At the end of the accounting period,but before closing entries are made,Doug,the proprietor of Pepper's Cafe,has a debit balance of $12,250 in his drawing account and a credit balance of $36,150 in his capital account.Which of the following statements is correct?


A) Doug's net income was $23,900.
B) During the closing process,Doug will debit the drawing account for $12,250 and credit the capital account for $12,250.
C) During the closing process,Doug will debit the capital account for $12,250 and credit the drawing account for $12,250.
D) Doug's Retained Earnings account was $23,900.

E) A) and B)
F) A) and C)

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Ross Island Co.issues 10,000 shares of no-par value preferred stock for cash at $120 per share.The journal entry to record the transaction will consist of a debit to Cash for $1,200,000 and a credit (or credits) to:


A) Preferred Stock for $1,200,000.
B) Preferred Stock for $40,000 and Additional Paid-in Capital for $1,160,000.
C) Preferred Stock for $40,000 and Retained Earnings for $1,160,000.
D) Retained Earnings for $1,200,000.

E) C) and D)
F) A) and D)

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Match each term with the appropriate definition.Not all definitions will be used. -Payment Date


A) The total number of shares currently owned by stockholders.
B) The amount above the par value of the stock that owners paid the issuer for the stock.
C) When employees of a company have the opportunity to buy a company's stock in the future at a fixed price.
D) The date on which a company determines who receives a dividend.
E) The date on which a liability is recorded for a dividend.
F) When a company sells issues of stock after its IPO.
G) When owners of the company contribute additional capital beyond what they paid for their stock.
H) When cash or stock dividends are issued according to the proportion of stock owned.
I) The date on which a company authorizes a dividend payment.
J) The date on which a company debits dividends payable and credits cash.
K) Dividends that have not had income tax withheld from them.
L) The total number of shares the company has sold,whether held by stockholders or by the company.
M) The accumulation of all the past dividends the company has not paid.
N) When cash or stock dividends are issued in an equal dollar or share amount per stockholder.

O) G) and L)
P) D) and N)

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Several years ago,Knox Industries issued 200,000 of its $2 par value stock for a total of $1,600,000.This is the only time that it has sold stock.This year it purchased 2,000 shares of its own stock for $20 a share.As a result of acquiring treasury stock:


A) its stockholders' equity decreases by $40,000.
B) it will recognize a loss of $40,000.
C) its common stock account decreases by $40,000.
D) its retained earnings decrease by $40,000.

E) A) and B)
F) None of the above

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Par value of a stock refers to the:


A) issue price of the stock.
B) value assigned to a share of stock in the corporate charter.
C) market value of the stock.
D) maximum selling price of the stock.

E) C) and D)
F) A) and B)

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A company issues 1 million shares of common stock with a par value of $0.02 for $15 a share.The entry to record this transaction includes a debit to Cash for:


A) $20,000 and a credit to Common Stock for $20,000.
B) $15,000,000 and a credit to Common Stock for $15,000,000.
C) $15,000,000,a credit to Common Stock for $20,000,and a credit to Additional Paid-in Capital for $14,980,000.
D) $20,000,a debit to Capital Receivable for $14,980,000,a credit to Common Stock for $20,000,and a credit to Additional Paid-in Capital for $14,980,000.

E) B) and D)
F) A) and D)

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All other things being equal,the higher the return on equity ratio,the better the financial performance of the company.

A) True
B) False

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Which of the following is an advantage of debt financing?


A) It does not have to be repaid.
B) Interest is discretionary.
C) Interest is tax deductible.
D) It reduces stockholder control.

E) A) and B)
F) A) and C)

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Which of the following statements about the benefits enjoyed by the owners of common stock is not correct?


A) Some classes of common stock can carry more votes than others.
B) Investors in a corporation are called stockholders.
C) Stockholders receive a share of the corporation's profits when distributed as dividends.
D) If the company ceases operations,stockholders share in any assets remaining before creditors have been paid.

E) B) and D)
F) C) and D)

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Stock options:


A) provide the holder with the option to purchase stock at a specified price during a specified period of time.
B) are stock dividends in which additional shares equal more than 20 to 25%.
C) provide a shareholder the option to authorize and receive dividends.
D) are a corporation's option to issue both preferred and common stock.

E) B) and C)
F) All of the above

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If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan,your ownership percentage:


A) remains the same because the company now has more assets.
B) falls from 2.5% to 2%.
C) remains the same because the company now has fewer liabilities.
D) increases because the company now has more stock outstanding.

E) B) and C)
F) C) and D)

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Nancy O'Rode,doing business as O'Rode Consulting,performs consulting services for companies that create online learning games for children.On January 1,2018,she started a sole proprietorship by placing $15,000 cash in a bank account opened for the business.Each month during the year,O'Rode withdrew $500 cash from the business for personal use.At December 31,2018,after the last withdrawal,the Drawings account reflected a debit balance of $6,000.During the year,the usual journal entries for the year,including adjusting and closing entries for the revenue and expense accounts,resulted in total revenue of $60,000,total expenses of $12,000,and net income of $48,000.(For purposes of the related journal entry,use the accounts "Consulting Revenue" and "Operating Expenses.") Part a. Prepare the journal entry to record the initial capital contribution. Part b. Prepare the journal entry to record one of the monthly withdrawals. Part c. Prepare the journal entry to close the net income to the N. O'Rode, Capital account. Part d. Prepare the journal entry to close the N. O'Rode, Drawings accounts at the end of the year. Part e. Prepare a Statement of Owner's Equity for the year ending December 31, 2018.

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Ferris Company reported the following on its balance sheet: total contributed capital of $186,000,treasury stock of $19,500 and total stockholder's equity of $237,500.Ferris had 1,000,000 authorized shares of its $0.01 par value common stock of which 200,000 were outstanding. What was the amount of additional paid-in capital reported in the balance sheet?


A) $184,000
B) $2,000
C) $71,000
D) $51,500

E) C) and D)
F) All of the above

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Salmon,Inc.issues 500,000 shares of preferred stock for $60 a share.The stock has a fixed annual dividend rate of 5% and a par value of $18 per share.The current price of the preferred stock is $64 a share.If sufficient dividends are declared,preferred stockholders can anticipate receiving annual dividends of:


A) $0.90 per share.
B) $3.00 per share.
C) $3.20 per share.
D) $2.10 per share.

E) C) and D)
F) None of the above

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For a business to be considered a corporation:


A) its stock must be sold in very large amounts.
B) it must be organized as a separate legal entity.
C) it must issue both common and preferred stock.
D) it must pay dividends.

E) All of the above
F) A) and D)

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A current dividend preference means that:


A) preferred stockholders are paid current dividends before common stockholders are paid dividends.
B) unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends.
C) preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation.
D) unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period.

E) A) and B)
F) None of the above

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