Multiple Choice Questions
1. Which of the following is not a component of stockholders’ equity?
a. Loss on sale of equipment
b. Dividends payable
c. Retained earnings
d. Net income
2. Which of the following statements is true?
a. The shares that are in the hands of the stockholders are said to be outstanding.
b. It is very unlikely that corporations will have more than one class of stock outstanding.
c. Preferred stock is stock that has been retired.
d. The outstanding number of shares is the maximum number of shares that can be issued by a corporation.
3. Authorized stock represents the:
a. Number of shares that have been sold.
b. Number of shares that are currently held by stockholders.
c. Number of shares that have been repurchased by the corporation.
d. Maximum number of shares that can be issued.
4. McKean Corporation authorized 500,000 shares of common stock in its articles of incorporation. On May 1, 2011, 100,000 shares were sold to the company’s founders. However, on October 15, 2011, McKean repurchased 20,000 shares to settle a dispute among the founders.
At this date, how many shares were issued and outstanding, respectively?
a. 500,000 and 100,000
b. 100,000 and 100,000
c. 100,000 and 80,000
d. 80,000 and 100,000
5. Ames Corporation repurchases 10,000 shares of its common stock for $12 per share. The shares were originally issued at an average price of $10 per share. Later it resells 6,000 of the shares for $15 per share and the remaining 4,000 shares for $17 per share. How much gain or loss should Ames report on its income statement as a result of these transactions?
a. $0
b. $20,000 loss
c. $38,000 gain
d. $20,000 loss and $38,000 gain
6. With regard to preferred stock,
a. Its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments.
b. Its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared.
c. No dividends are expected by the stockholders.
d. There is a legal requirement for a corporation to declare a dividend on preferred stock.

  • CreatedSeptember 22, 2015
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