5. The primary purpose of a stock split is to: a. increase paid-in capital b. re
ID: 2600580 • Letter: 5
Question
5. The primary purpose of a stock split is to: a. increase paid-in capital b. reduce the market price of the stock per share c. increase the market price of the stock per share d. increase retained earnings 6. The outstanding stock is composed of 10,000 shares of $100 par, cumulative, non- participating preferred 8% stock, and 50,000 shares of no-par common stock, rr erred and the current year. dividends have been paid every year except for the preceding tw If $260,000 is to be distributed as a dividend of the current year, w distributed to the preferred shareholders? S260,000 is to be distributed as a dividend of the current year, what total amount will be a $0 b. $160,000 c. $240,000 d. $260,000 7. Which of the following accounts is not reported in the stockholders' equity section of the corporate balance sheet? a. Treasury Stock b. Paid in capital in excess of par common stock c. Organization Costs d. Preferred Stock 8· The excess of issue price over par of common stock is termed a: a. discount b. contra asset c. deficit d. premium 9. A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 5 for 1 stock split, the number of shares outstanding after the split will be: a. 200,000 shares b. 50,000 shares c. 250,000 shares d. 10,000 shares 10. The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to a. decrease total liabilities and stockholders' equity b. increase total expenses and total liabilities c. increase total assets and stockholders' equity d. decrease total assets and stockholders' equityExplanation / Answer
Answer to Question No. 5
Option b i.e. Reduce the Market Price of the Stock per share.
Stock Split increases the Number of Shares outstanding in proportion to the ration in which stock is split. The Stock split reduces the Market Price per share in the same proportion in which Stock is split.
Answer to Question No. 6
Option C i.e. $240,000.
Preferred Dividend per share = 10,000 * $100 * 8%
Preferred Dividend per share = $80,000
As, the Preferred Stock are Cumulative shares, the dividend for the preceding two years will be paid along with the Current Year Dividend. Therefore, total amount to be distributed to the Preferred Shareholders are:
Amount to be distributed to Preferred Shareholders = $80,000 * 3
Amount to be distributed to Preferred Shareholders = $240,000
Answer to Question No. 7
Option C i.e. Organization Costs
Organization Costs is reported as an Expense in the Income Statement, thereby reducing the Net Income of the Company. And thereafter, Net Income is shown as addition to Retained Earning.
Answer to Question No. 8
Option D i.e. Premium.
The Excess of Issue Price over Par Value of the Common Stock is term as Premium or Paid-in Capital in Excess of Par. Whereby, deficiency of Issue Price from Par Value of Common Stock is termed as Discount.
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