Reference no: EM131791860

1. A company had 1,000,000 shares of $10 par value common stock outstanding. The amount of additional paid-in capital is $5,000,000, and Retained Earnings is $1,500,000. The company issues a 2-for-1 stock split. The market price of the stock is $12. What is the balance in the Common Stock account after this issuance?

$15,000,000

$10,000,000

$22,000,000

$20,000,000

2. For a business to be considered a corporation: it must issue both common and preferred stock. it must be organized as a separate legal entity. it must pay dividends. its stock must be sold in very large amounts.

3. A corporate charter specifies that the company may sell up to 38 million shares of stock. The company sells 30 million shares to investors and later buys back 12.0 million shares. The number of authorized shares after these transactions are accounted for is:

38 million shares.26 million shares.18 million shares.30 million shares.

4. Phelps, Inc. had assets of $101,466, liabilities of $21,646, and 14,838 shares of outstanding common stock at December 31, 2015. Net income for 2015 was $10,980. The company had assets of $119,151, liabilities of $25,971, 12,031 shares of outstanding, and its stock was trading at a price of $10 per share at December 31, 2016. Net income for 2016 was $11,203.

Required:

a. Calculate EPS for 2016. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b. Calculate ROE for 2016. (Round your answer to 1 decimal place.)

c. Calculate the Price/Earnings Ratio for 2016. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

5. When a company uses excess cash to buy back some of its outstanding common stock, which of the following ratios will be affected directly in the manner described below?

Return on equity (ROE) will decrease. There will not be any effect on the three ratios. The Price Earnings (PE) ratio will increase. Earnings per share (EPS) will increase.

6. A company has outstanding 12.50 million shares of $5.50 par common stock and 2.3 million shares of $5.30 par preferred stock. The preferred stock has an 11% dividend rate. The company declares $430,000 in total dividends for the year. Which of the following is correct if the preferred stockholders only have a current dividend preference?

Preferred stockholders will receive the entire $430,000, and they must also be paid $153,000 before the end of the current accounting period. Common stockholders will receive nothing.

Preferred stockholders will receive $47,300 or 11% of the total dividends. Common stockholders will receive the remaining $382,700.

Preferred stockholders will receive the entire $430,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing.

Preferred stockholders will receive the entire $430,000, and they must also be paid $153,000 sometime in the future before common stockholders will receive anything.

7. A company issues 1.09 million shares of preferred stock with a par value of $6.50 at its market price of $30.50 per share. The issuance should be recorded with a debit to Cash for:

$7.09 million and a credit to Preferred Stock for $7.09 million.

$26.16 million, a credit to Additional Paid-in Capital for $7.09 million, and a credit to Preferred Stock for $33.25 million.

$33.25 million and a credit to Preferred Stock for $33.25 million.

$33.25 million, a credit to Preferred Stock for $7.09 million, and a credit to Additional Paid-in Capital for $26.16 million.

8. Which one of the following statements about earnings per share (EPS) is correct?

EPS, in its basic form, is calculated by dividing net income by the average number of common shares issued. The EPS ratio is important because it signals the ability of the company to pay future dividends, which investors factor into the stock price. Earnings per share (EPS) is the best way to compare the performance of different companies. Earnings per share (EPS) is generally reported in the balance sheet under stockholders' equity.9.

Houghton Company began business on January 1, 2015 by issuing all of its 1,350,000 authorized shares of its $1 par value common stock for $26 per share. On June 30, Houghton declared a cash dividend of $2.50 per share to stockholders of record on July 31. Houghton paid the cash dividend on August 30. On November 1, Houghton reacquired 270,000 of its own shares of stock for $31 per share. On December 22, Houghton resold 135,000 of these shares for $37 per share.

Required:

a. Prepare all of the necessary journal entries to record the events described above. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

b. Prepare the stockholders' equity section of the balance sheet as of December 31, 2015 assuming that the net income for the year was $6,000,000.