Practice Problems: Stockholders' Equity

Complete the demo problems, and self test true/false and multiple choice questions. Check your answers at the end after you finish.

Self-test

True-false

Indicate whether each of the following statements is true or false.

1. A person may favor the corporate form of organization for a risky business enterprise primarily because a corporation's shares can be easily transferred.

2. In the event of corporate liquidation, stockholders whose stock is preferred as to assets are entitled to receive the par value of their shares before any amounts are distributed to creditors or common stockholders.

3. The par value of a share of capital stock is no indication of the market value or book value of the share of stock.

4. When 10,000 shares of USD 20 par value common stock are issued in payment for a parcel of land with a fair market value of USD 300,000, the Common Stock account is credited for USD 200,000, and the Paid-In Capital in Excess of Par Value – Common account is credited for USD 100,000.


Multiple-choice

Select the best answer for each of the following questions.

1. Which of the following is not an advantage of the corporate form of organization?

a. Continuous existence of the entity.

b. Limited liability of stockholders.

c. Government regulation.

d. Easy transfer of ownership.


2. An arbitrary amount assigned by the board of directors to each share of a given class of no-par stock is:

a. Quasi-par value.

b. Stated value.

c. Redemption value.

d. Liquidation value.


3. Preferred stock that has dividends in arrears is:

a. Noncumulative preferred stock.

b. Noncumulative and callable preferred stock.

c. Noncumulative and convertible preferred stock.

d. Cumulative preferred stock.


4. Quinn Corporation issued 10,000 shares of USD 20 par value common stock at USD 50 per share. The amount that would be credited to Paid-In Capital in Excess of Par Value – Common is:

a. USD 200,000.

b. USD 300,000.

c. USD 500,000.

d. USD 700,000.

e. None of the above.


5. You are given the following information: Capital Stock, USD 80,000 (USD 80 par); Paid-In Capital in Excess of Par Value – Common, USD 200,000; and Retained Earnings, USD 400,000. Assuming only one class of stock, the book value per share is:

a. USD 680.

b. USD 280.

c. USD 80.

d. USD 400.

e. None of the above.