MGMT 200 Chapter 10 Exam
Questions and Answers
Preferred stock is least likely to have which of the following characteristics?
A. Preference as to dividends.
B. The right of the holder to vote at stockholders' meetings.
C. Preference as to assets upon liquidation of the corporation.
D. The right of the holder to convert to common stock. - Answer-B. The right of the
holder to vote at stockholders' meetings.
Kensal Green Corporation issued 500 shares of $100 par value preferred stock for $500
per share. What is true about the journal entry to record the issuance?
a. Credit Preferred Stock $50,000
b. Credit Cash $250,000
c. Credit Preferred Stock $250,000
d. Debit Additional Paid‐In Capital $200,000 - Answer-a. Credit Preferred Stock $50,000
Cash (500 shs. x $500) 250,000
Stock ($100 par value x 500 shs.) 50,000
Additional Paid‐in Capital (difference) 200,000
Dividends in arrears pertain to noncumulative preferred stock.
A. True
B. False - Answer-B. False
The Golden, Inc. issues 1,000 shares of 3%, $100 par value preferred stock at the
beginning of 2017. All remaining shares are common stock. Golden was not able to pay
dividends in 2017, but plans to pay dividends of $10,000 in 2018. Assuming the
preferred stock is noncumulative, how much of the $10,000 dividend will be paid to
preferred stockholders and how much will be paid to common stockholders in 2018?
a. $10,000 to preferred stockholders and $0 to common stockholders.
b. $6,000 to preferred stockholders and $4,000 to common stockholders
c. $3,000 to preferred stockholders and $7,000 to common stockholders.
d. none to preferred stockholders and $10,000 to common stockholders - Answer-c.
$3,000 to preferred stockholders and $7,000 to common stockholders.
$3 dividend/share x 1,000 shares = $3,000
Noncumulative Preferred Stock
, Preferred dividends from 2017 are lost = $0
Preferred dividends for 2018 (1,000 shares × $3 per share) = 3,000
Remaining dividends to common stockholders = 7,000
Total dividends available = $10,000
Sharon Textiles Corporation has 1,000 shares of 5%, $100 ($5 per share) par
cumulative preferred stock and 25,000 shares of common stock outstanding. Sharon
declared no dividends in 2016 and had no dividends in arrears prior to 2016. In 2017,
Sharon declares a total dividend of $30,000. How much of the dividends go to the
preferred stockholders?
A. $ ‐ 0 ‐
B. $15,000
C. $10,000
D. $20,000 - Answer-C. $10,000
2016 (1,000 shares x $5/share) $ 5,000
2017 (1,000 shares x $5/share) 5,000
Total preferred stock dividends $10,000
Remainder ($20,000) goes to common stockholders
San Bruno Corporation's stockholders' equity section shows the par value of its
common stock at $.25 and the balance in the common stock account of $50,000. Also,
the equity section reflects 15,000 shares of treasury stock. What is the number of
shares outstanding?
A. 215,000
B. 200,000
C. 50,000
D. 185,000 - Answer-D. 185,00
# of shares
Issued ($50,000/$.25) 200,000
Less treasury shares (15,000)
Outstanding shares 185,000
When a company purchases treasury shares at $10,000 and then sells the shares at
$8,000, the difference of $2,000
A. is recorded as a loss on the income statement.
B. reduces stockholders' equity.
C. increases stockholders' equity.
D. is recorded as a gain on the income statement. - Answer-B. reduces stockholders'
equity
According to generally accepted accounting principles, treasury stock usually should be
recorded at
A. market value.
Questions and Answers
Preferred stock is least likely to have which of the following characteristics?
A. Preference as to dividends.
B. The right of the holder to vote at stockholders' meetings.
C. Preference as to assets upon liquidation of the corporation.
D. The right of the holder to convert to common stock. - Answer-B. The right of the
holder to vote at stockholders' meetings.
Kensal Green Corporation issued 500 shares of $100 par value preferred stock for $500
per share. What is true about the journal entry to record the issuance?
a. Credit Preferred Stock $50,000
b. Credit Cash $250,000
c. Credit Preferred Stock $250,000
d. Debit Additional Paid‐In Capital $200,000 - Answer-a. Credit Preferred Stock $50,000
Cash (500 shs. x $500) 250,000
Stock ($100 par value x 500 shs.) 50,000
Additional Paid‐in Capital (difference) 200,000
Dividends in arrears pertain to noncumulative preferred stock.
A. True
B. False - Answer-B. False
The Golden, Inc. issues 1,000 shares of 3%, $100 par value preferred stock at the
beginning of 2017. All remaining shares are common stock. Golden was not able to pay
dividends in 2017, but plans to pay dividends of $10,000 in 2018. Assuming the
preferred stock is noncumulative, how much of the $10,000 dividend will be paid to
preferred stockholders and how much will be paid to common stockholders in 2018?
a. $10,000 to preferred stockholders and $0 to common stockholders.
b. $6,000 to preferred stockholders and $4,000 to common stockholders
c. $3,000 to preferred stockholders and $7,000 to common stockholders.
d. none to preferred stockholders and $10,000 to common stockholders - Answer-c.
$3,000 to preferred stockholders and $7,000 to common stockholders.
$3 dividend/share x 1,000 shares = $3,000
Noncumulative Preferred Stock
, Preferred dividends from 2017 are lost = $0
Preferred dividends for 2018 (1,000 shares × $3 per share) = 3,000
Remaining dividends to common stockholders = 7,000
Total dividends available = $10,000
Sharon Textiles Corporation has 1,000 shares of 5%, $100 ($5 per share) par
cumulative preferred stock and 25,000 shares of common stock outstanding. Sharon
declared no dividends in 2016 and had no dividends in arrears prior to 2016. In 2017,
Sharon declares a total dividend of $30,000. How much of the dividends go to the
preferred stockholders?
A. $ ‐ 0 ‐
B. $15,000
C. $10,000
D. $20,000 - Answer-C. $10,000
2016 (1,000 shares x $5/share) $ 5,000
2017 (1,000 shares x $5/share) 5,000
Total preferred stock dividends $10,000
Remainder ($20,000) goes to common stockholders
San Bruno Corporation's stockholders' equity section shows the par value of its
common stock at $.25 and the balance in the common stock account of $50,000. Also,
the equity section reflects 15,000 shares of treasury stock. What is the number of
shares outstanding?
A. 215,000
B. 200,000
C. 50,000
D. 185,000 - Answer-D. 185,00
# of shares
Issued ($50,000/$.25) 200,000
Less treasury shares (15,000)
Outstanding shares 185,000
When a company purchases treasury shares at $10,000 and then sells the shares at
$8,000, the difference of $2,000
A. is recorded as a loss on the income statement.
B. reduces stockholders' equity.
C. increases stockholders' equity.
D. is recorded as a gain on the income statement. - Answer-B. reduces stockholders'
equity
According to generally accepted accounting principles, treasury stock usually should be
recorded at
A. market value.
