4. Preferred stock differs from common stock in that: A. preferred stock pays ta

Question

4. Preferred stock differs from common stock in that:

A. preferred stock pays tax-free dividends.

B. preferred stock has no preemptive rights or residual claims.

C. preferred stock has more voting power and, as such, greater control over the management of the company.

D. preferred stockholders are paid dividends before common stockholders.

5. To determine net cash provided by or used in financing activities, one must analyze the:

A. Cash account.

B. Common Stock and Retained Earnings accounts.

C. Notes Receivable and Bonds Payable accounts.

D. Interest Expense and Dividend Income accounts.

6. Which of the following statements about issued and outstanding stock is correct?

A. Outstanding stock includes stock in the hands of investors, as well as treasury stock in the hands of the corporation.

B. Issued stock equals the sum of outstanding stock and treasury stock.

C. Issued stock is equal to authorized stock.

D. Outstanding stock includes all stock issued by a corporation.

7. A company reported that its bonds with a face value of $50,000 and a carrying value of $53,000 are retired for $56,000 cash. The amount to be reported under cash flows from financing activities is:

A. ($53,000)

B. ($56,000)

C. $0. This is an operating activity.

D. ($3,000)

Explanation / Answer

Answer:

4)

Correct Answer is D. preferred stockholders are paid dividends before common stockholders.

Preferred stock holders have a preference to receive a fixed rate preferred dividend before any dividend is paid to common stock holders.

5)

Correct Answer is B. Common Stock and Retained Earnings accounts.

Financing Activities means the cash flow from common stock and loans. Hence in determining the cash flow from financing activities, one must analyse the Common Stock and Retained Earnings Accounts.

6) Correct Answer is B. Issued stock equals the sum of outstanding stock and treasury stock.

Issued Stock = Outstanding Stock + Treasury Stock

Issue stock includes the outstanding stock held by the investors as well as any restricted stock like Treasury Stock held by the corporation.

7) Correct Answer is B. ($56,000)

Since the bonds issued earlier with a face value of $50,000 and now the carrying value of bonds at the retirement date is $53,000.... Company paid $56,000 in cash to retire the bonds. Hence $56,000 is the cash outflow related to financing activities..

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