Financial Accounting 6th Edition By Libby – Test Bank

Chapter 011: Reporting and Interpreting Owner’s Equity

True / False Questions

1. Outstanding shares of stock are those shares which a corporation has the ability to issue as documented in its charter in the state where incorporated.

FALSE

AACSB Tag: Relative Thinking

Difficulty: Medium
L.O.: 1

2. A major advantage a corporation has over a proprietorship or partnership is that it allows individuals to participate in ownership by purchasing small amounts of stock.

TRUE

AACSB Tag: Relative Thinking

Difficulty: Easy
L.O.: 1

3. The shares issued can be less than those outstanding when the corporation has repurchased some of their shares which are called treasury shares.

FALSE

AACSB Tag: Relative Thinking

Difficulty: Medium
L.O.: 1

4. Kansas City Company has 2,000,000 shares issued and 100,000 treasury shares. They report net income of $5,200,000 in 2009. Earnings per share equals $2.60.

FALSE

AACSB Tag: Analytic
Difficulty: Medium

L.O.: 2

5. Treasury stock is a corporation’s own stock that was sold, issued, repurchased, and is still held by the corporation.

TRUE

AACSB Tag: Relative Thinking
Difficulty: Easy

L.O.: 3

6. When a company repurchases some of its shares of stock (treasury stock), the number of shares issued is reduced.

FALSE

AACSB Tag: Relative Thinking

Difficulty: Medium

L.O.: 3

7. To pay a cash dividend, a corporation needs adequate cash, authorization from the board of directors, and adequate retained earnings.

TRUE

AACSB Tag: Relative Thinking

Difficulty: Medium

L.O.: 4

8. A company has 5,000,000 shares issued and 400,000 held in the treasury. If the board of directors declares a $16 million cash dividend, then the dividends per share would be $3.20.

FALSE

AACSB Tag: Analytic

Difficulty: Medium

L.O.: 4

9. On the date of payment of a cash dividend, the company would debit retained earnings and credit cash.

FALSE

AACSB Tag: Relative Thinking
Difficulty: Medium

L.O.: 4

10. The dividend yield ratio is a measure of the immediate return investors are receiving from dividends stated as a percentage of market price.

TRUE