SISTEMA UNIVERSITARIO ANA G.

MÉNDEZ

PROGRAMA AHORA
ACCO 111- Accounting Principles
Professor:  Norban Aponte Camacho, MBA.
Exam #3
Name: ______________________________ Date: _________________

• True (T) or False (F) (20 points)

• A corporation can be organized for the purpose of making a profit or it

may be not-for-profit.
• If a corporation pays taxes on its income, then stockholders will not have
to pay taxes on the dividends received from that corporation
• As soon as a corporation is authorized to issue stock, an accounting journal
entry should be made recording the total value of the shares authorized
• The amount of a cash dividend liability is recorded on the date of record
because it is on that date that the persons or entities who will receive the dividend are
identified
• A 3-for-1 common stock split will increase total stockholders' equity but
reduce the par or stated value per share of common stock.
• Retained earnings represents the amount of cash available for dividends
• When no-par value stock does not have a stated value, the entire proceeds
from the issuance of the stock becomes legal capital.
• The stockholders' equity section of a corporation's balance sheet consists
of (1) paid-in capital, (2) retained earnings, and (3) drawings.
• The acquisition of treasury stock by a corporation increases total assets and
total stockholders' equity.
• Treasury stock purchased for $25 per share that is reissued at $20 per
share, results in a Loss on Sale of Treasury Stock being recognized on the income
statement.
• Treasury stock is a contra stockholders' equity account.
• Net income of a corporation should be closed to retained earnings and net
losses should be closed to paid-in capital accounts.
• A correction in income of a prior period involves either a debit or credit to
the Retained Earnings account.
• Earnings per share is calculated by dividing net income by the weighted
average number of shares of preferred stock and common stock outstanding.
• Common Stock Dividends Distributable is reported as additional paid-in
capital in the stockholders' equity section.
• A prior period adjustment is reported as an adjustment of the beginning
 balance of Retained Earnings.
• Dividends in arrears on cumulative preferred stock are considered a
liability.
• Under the cost method, Treasury Stock is debited at the price paid to
reacquire the shares, and the same amount is credited to Treasury Stock when the shares
are sold.
• The cash proceeds from issuing par value stock may be equal to or greater
than, but not less than par value.
• Earnings per share is reported only for common stock.

II Select the best answer (20 points)

1. Stockholders of a corporation directly elect
a. the president of the corporation.
b. the board of directors.
c. the treasurer of the corporation.
d. all of the employees of the corporation.
2. The chief accounting officer in a company is known as the
a. controller.
b. treasurer.
c. vice-president.
d. president.
3. Which one of the following would not be considered an advantage of the
corporate form of organization?
a. Limited liability of owners
b. Separate legal existence
c. Continuous life
d. Government regulation
4. The two ways that a corporation can be classified by purpose are
a. general and limited.
b. profit and not-for-profit.
c. state and federal.
d. publicly held and privately held.
5. The officer who is generally responsible for maintaining the cash position of the
corporation is the
a. controller.
b. treasurer.
c. cashier.
d. internal auditor.
6. Which one of the following is not necessary in order for a corporation to pay a cash
dividend?
a. Adequate cash
b. Approval of stockholders
c. Declaration of dividends by the board of directors
d. Retained earnings
7. The date on which a cash dividend becomes a binding legal obligation is on the
a. declaration date.
b. date of record.
c. payment date.
d. last day of the fiscal year-end.

8. The effect of the declaration of a cash dividend by the board of directors is to

Increase Decrease
a. Stockholders' equity Assets
b. Assets Liabilities
c. Liabilities Stockholders' equity
d. Liabilities Assets

9. Common Stock Dividends Distributable is classified as a(n)

a. asset account.
b. stockholders' equity account.
c. expense account.
d. liability account.

10. If a corporation declares a 10% stock dividend on its common stock, the account
to be debited on the date of declaration is
a. Common Stock Dividends Distributable.
b. Common Stock.
c. Paid-in Capital in Excess of Par.
d. Retained Earnings.

11. Which of the following statements is not considered a disadvantage of the

corporate form of organization?
a. Additional taxes
b. Government regulations
c. Limited liability of stockholders
d. Separation of ownership and management
12. If a corporation has only one class of stock, it is referred to as
a. classless stock.
b. preferred stock.
c. solitary stock.
d. common stock.
13. A corporation has the following account balances: Common stock, $1 par value,
$40,000; Paid-in Capital in Excess of Par Value, $1,350,000. Based on this information,
the
a. legal capital is $1,390,000.
b. number of shares issued are 40,000.
c. number of shares outstanding are 1,390,000.
d. average price per share issued is $3.48.
14. If Vickers Company issues 4,000 shares of $5 par value common stock for
$140,000,
a. Common Stock will be credited for $140,000.
b. Paid-In Capital in Excess of Par Value will be credited for $20,000.
c. Paid-In Capital in Excess of Par Value will be credited for $120,000.
d. Cash will be debited for $120,000.
15.Dailey Company is a publicly held corporation whose $1 par value stock is
actively traded at $22 per share. The company issued 2,000 shares of stock to acquire
land recently advertised at $55,000. When recording this transaction, Dailey Company
will
a. debit Land for $55,000.
b. credit Common Stock for $44,000.
c. debit Land for $44,000.
d.credit Paid-In Capital in Excess of Par Value for $53,000
16. Which one of the following events would not require a formal journal entry on a
corporation's books?
a. 2 for 1 stock split
b. 100% stock dividend
c. 2% stock dividend
d. $1 per share cash dividend
17. If a stockholder receives a dividend that reduces retained earnings by the fair
market value of the stock, the stockholder has received a
a. large stock dividend.
b. cash dividend.
c. contingent dividend.
d. small stock dividend.
18. Which of the following statements regarding the date of a cash dividend
declaration is not accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased
19. New Corp. issues 2,000 shares of $10 par value common stock at $14 per share.
When the transaction is recorded, credits are made to
a. Common Stock $20,000 and Paid-in Capital in Excess of Stated Value $8,000.
b. Common Stock $28,000.
c. Common Stock $20,000 and Paid-in Capital in Excess of Par Value $8,000.
d. Common Stock $20,000 and Retained Earnings $8,000.
20. The following data is available for BOX Corporation at December 31,
2010:
Common stock, par $10 (authorized 15,000 shares} $100,000
Treasury Stock (at cost $15 per share) 600
Based on the data, how many shares of common stock are outstanding?
a. 15,000
b. 10,000
c. 14,960
d. 9,960

III Problems ( 60 points )

• The stockholders' equity section of Ankiel Corporation's balance sheet at

December 31, 2009, appears below:
Stockholders' equity
Paid-in capital
Common stock, $10 par value, 400,000 shares authorized;
250,000 issued and outstanding $2,500,000
Paid-in capital in excess of par 1,200,000
Total paid-in capital 3,700,000
Retained earnings 600,000
Total stockholders' equity $4,300,000

During 2010, the following stock transactions occurred:

Jan. 18 Issued 50,000 shares of common stock at $32 per share.
Aug. 20 Purchased 25,000 shares of Ankiel Corporation's common stock at
$26 per share to be held in the treasury.
Nov. 5 Reissued 9,000 shares of treasury stock for $28 per share.

Instructions ( 20 points)
(a) Prepare the journal entries to record the above stock transactions.
(b) Prepare the stockholders' equity section of the balance sheet for Ankiel
Corporation at December 31, 2010. Assume that net income for the year was $100,000 and
that no dividends were declared.
2.
Horner Corporation is authorized to issue 1,000,000 shares of $5 par value common stock.
During 2010, its first year of operation, the company has the following stock transactions.
Jan. 1 Paid the state $2,000 for incorporation fees.
Jan. 15 Issued 500,000 shares of stock at $6 per share.
Jan. 30 Attorneys for the company accepted 500 shares of common stock as payment for
legal services rendered in helping the company incorporate. The legal services are estimated to
have a value of $7,000.
July 2 Issued 100,000 shares of stock for land. The land had an asking price of $900,000.
The stock is currently selling on a national exchange at $8 per share.
Sept. 5 Purchased 15,000 shares of common stock for the treasury at $9 per share.
Dec. 6 Sold 11,000 shares of the treasury stock at $11 per share.

Instructions ( 15 points )
Journalize the transactions for Horner Corporation.

3. On November 1, 2010, Neely Corporation’s stockholders’ equity section is as follows:

Common stock, $10 par value $600,000
Paid-in capital in excess of par value 180,000
Retained earnings 200,000
Total stockholders’ equity $980,000

On November 1, Neely declares and distributes a 15% stock dividend when the market value of
the stock is $14 per share.

Instructions ( 15 points )
Indicate the balances in the stockholders’ equity accounts after the stock dividend has been
distributed.

4
Derek Corporation was organized on January 1, 2009. During its first year, the corporation
issued 40,000 shares of $5 par value preferred stock and 400,000 shares of $1 par value common
stock. At December 31, the company declared the following cash dividends:

2009 $ 8,000
2010 $30,000
2011 $70,000

Instructions ( 10 points)
(a) Show the allocation of dividends to each class of stock, assuming the preferred
stock dividend is 5% and not cumulative.
(b) Show the allocation of dividends to each class of stock, assuming the preferred
stock dividend is 6% and cumulative.
(c) Journalize the declaration of the cash dividend at December 31, 2011 using the
assumption of part (b).