Which of the following
For BusinessTutor:Question 7 Which of the following statements about dividend policies is correct?Answer Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the “bird-in-the hand” effect. One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases. One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest. One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy. The clientele effect suggests that companies should follow a stable dividend policy. 2 points Question 8 Which of the following statements is correct?Answer If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes. An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers. Stock repurchases tend to reduce financial leverage. If a company declares a 2-for-1 stock split, its stock price should roughly double. One advantage of adopting the residual dividend policy is that this makes it easier for corporations to meet the requirements of Modigliani and Miller's dividend clientele theory. 2 points Question 9 Which of the following statements is correct?Answer If a company has a 2-for-1 stock split, its stock price should roughly double. Capital gains earned in a share repurchase are taxed less favorably than dividends; this explains why companies typically pay dividends and avoid share repurchases. Very often, a company's stock price will rise when it announces that it plans to commence a share repurchase program. Such an announcement could lead to a stock price decline, but this does not normally happen. Stock repurchases increase the number of outstanding shares. The clientele effect is the best explanation for why companies tend to vary their dividend payments from quarter to quarter. 2 points Question 10 Which of the following statements is CORRECT?Answer When firms are deciding on the size of stock splits—say whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used. Back before the SEC was created in the 1930s, companies would declare reverse splits in order to boost their stock prices. However, this was determined to be a deceptive practice, and it is illegal today. Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits. When a company declares a stock split, the price of the stock typically declines—by about 50% after a 2-for-1 split—and this necessarily reduces the total market value of the equity. If a firm's stock price is quite high relative to most stocks—say $500 per share—then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50. Moreover, if the price is relatively low—say $2 per share—then it can declare a “reverse split” of say 1-for-25 so as to bring the price up to somewhere around $50 per share. 2 points Question 11 You own 100 shares of Troll Brothers' stock, which currently sells for $120 a share. The company is contemplating a 2-for-1 stock split. Which of the following best describes what your position will be after such a split takes place?Answer You will have 200 shares of stock, and the stock will trade at or near $120 a share. You will have 200 shares of stock, and the stock will trade at or near $60 a share. You will have 100 shares of stock, and the stock will trade at or near $60 a share. You will have 50 shares of stock, and the stock will trade at or near $120 a share. You will have 50 shares of stock, and the stock will trade at or near $60 a share. 2 points Question 12 Trenton Publishing follows a strict residual dividend policy. All else equal, which of the following factors would be most likely to lead to an increasein the firm's dividend per share?Answer The firm's net income increases. The company increases the percentage of equity in its target capital structure. The number of profitable potential projects increases. Congress lowers the tax rate on capital gains. The remainder of the tax code is not changed. Earnings are unchanged, but the firm issues new shares of common stock.
1. What is the total
1. What is the total stockholders' equity based on the following account balances?Common Stock$450,000Paid-In Capital in Excess of Par90,000Retained Earnings190,000Treasury Stock10,0001. $640,0002. $740,0003. $730,0004. $720,000 Save Answer 2. The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a 1. liquidating dividend2. stock split3. stock option4. preferred dividend Save Answer 3. The excess of cost over sales price of treasury stock should be debited to 1. Gain from the sale of Treasury Stock2. Loss from Sale of Treasury Stock3. Organizational Expenses4. Paid-In Capital from Sale of Treasury Stock Save Answer 4. The following information is available for Calvin Co.: 2009Dividends per share of common stock$ 0.90Market price per share of common stock20.001. The dividend yield is roughly 22%, which is of interest to bondholders.2. The dividend yield is 4.5 times the market price, which is important in solvency analysis.3. The dividend yield is 4.5%, which is of special interest to investors seeking current returns on their investments.4. The dividend yield is 4.5%, which is of interest to investors seeking an increase in market price of their stocks. Save Answer 5. Miriah Inc. has 6,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2006. What is the annual dividend on the preferred stock?1. $30,000 in total2. $300 in total3. $0.50 per share4. $50 per share Save Answer 6. Which of the following is not a prerequisite to paying a cash dividend?1. market value in excess of par value per share2. formal action by the board of directors3. sufficient retained earnings4. sufficient cash Save Answer 7. Alma Corp. issues 1,000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, credits are made to:1. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $6,000.2. Common Stock $10,000 and Retained Earnings $6,000.3. Common Stock $16,000.4. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $6,000. Save Answer 8. Characteristics of a corporation include 1. shareholders who are mutual agents2. its inability to own property3. shareholders who have limited liability4. direct management by the shareholders (owners) Save Answer 9. The date on which a cash dividend becomes a binding legal obligation is on the1. payment date.2. declaration date.3. last day of the fiscal year end.4. date of record. Save Answer 10. Which of the following is not characteristic of a corporation?1. Cash dividends paid by a corporation are deductible as expenses by the corporation.2. Corporations are required to file federal income tax returns.3. A corporation can own property in its name.4. The financial loss that a stockholder may suffer from owning stock in a public company is limited. Save Answer 11. Which one of the following would not be considered an advantage of the corporate form of organization?1. Separate legal existence2. Limited liability of stockholders3. Continuous life4. Government regulation Save Answer 12. A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to 1. decrease retained earnings, increase common stock, and decrease paid-in capital2. increase retained earnings, decrease common stock, and increase paid-in capital3. decrease retained earnings, increase common stock, and increase paid-in capital4. increase retained earnings, decrease common stock, and decrease paid-in capital Save Answer 13. Treasury stock should be reported in the financial statements of a corporation as a(n)1. deduction from total paid-in capital.2. liability.3. investment.4. deduction from total paid-in capital and retained earnings. Save Answer 14. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared?1. $10,0002. $80,0003. $90,0004. $100,000 Save Answer 15. When Bayou Corporation was formed on January 1, 20xx, the corporate charter provided for 100,000 share of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 9,000 shares of stock at a price of $23.00 per share. The entry to record the above transaction would include a1. debit to Cash for $90,0002. credit to Paid in Capital in Excess of Par- for $117,0003. credit to Common Stock for $207,0004. debit to Common Stock for $90,000 Save Answer 16. Which of the following would appear as a prior-period adjustment?1. error in the computation of depreciation expense in the preceding year2. loss from the restructuring of assets3. difference between the actual and estimated uncollectible accounts receivable4. loss resulting from the sale of fixed assets Save Answer 17. When a stock dividend is declared, which of the following accounts is credited?1. Retained Earnings2. Dividend Payable3. Stock Dividends Distributable4. Common Sock Save Answer 18. On January 1, 20xx, Swenson Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, 20xx, Swenson purchased 2,000 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1, 20xx.The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a 1. debit to a loss account for $6,0002. debit to Treasury Stock for $48,000.3. credit to Treasury Stock for $48,000.4. credit to a gain account for $6,000. Save Answer 19. Under the corporate form of business organization1. a stockholder is personally liable for the debts of the corporation.2. stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.3. stockholders wishing to sell their corporation shares must get the approval of other stockholders.4. ownership rights are easily transferred. Save Answer 20. Which of the following statements concerning taxation is accurate?1. Corporations pay income taxes but their owners do not.2. Corporations pay federal income taxes but not state income taxes.3. Only the owners must pay taxes on corporate income.4. Corporations pay federal and state income taxes.