Multiple Choice Questions
1. As a result of a stock split,
a. Stockholders’ equity is increased.
b. The par value of the stock is changed in the reverse proportion as the stock split.
c. The stockholders have a higher proportionate ownership of the company.
d. The market price of the outstanding stock is increasing because a split is evidence of a profitable company.
2. The balance of the $2.50 par value common stock account for Patriot Company was $240,000,000 before its recent 2-for-1 stock split. The market price of the stock was $50 per share before the stock split. What occurred as a result of the stock split?
a. The market price of the stock was not affected.
b. The balance in the common stock account was increased to $480,000.
c. The market price of the stock dropped to approximately $25 per share.
d. The balance in the retained earnings account decreased.
3. When a company declares a 3-for-1 stock split, the number of outstanding shares:
b. Stays the same, but the number of issued shares triples.
c. Is reduced by one-third.
d. Is reduced by one-third, and the number of issued shares is tripled.
4. Comprehensive income:
a. Is considered an appropriation of retained earnings.
b. Includes transactions that affect stockholders’ equity with the exception of those transactions that involve owners.
c. Includes all transactions that are under management’s control.
d. Is the result of all events and transactions reported on the income statement.
5. FASB’s concept of comprehensive income:
a. Requires that all transactions must be shown on the income statement.
b. Has a primary drawback because it allows management to manipulate the income figure to a certain extent.
c. Excludes the payment of dividends.
d. Allows items that are not necessarily under management’s control, such as natural disasters, to be shown as an adjustment of retained earnings.
6. Garner Corporation issued $50,000 in common stock dividends. Its net income for the year was $250,000. What is Garner’s dividend payout ratio?