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Comparing EPS across companies is not advised because:


A) the number of shares outstanding may vary.
B) EPS is not a meaningful measure.
C) Retained Earnings may vary.
D) the price per share may vary.

E) A) and C)
F) None of the above

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McEwan Company has outstanding 10 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock.The preferred stock is noncumulative and has a 7% current dividend preference.The company declares total dividends amounting to $50,000,$250,000,and $600,000 during 2015,2016,and 2017,respectively. Required: Part a.Compute the amount of dividends to be distributed to preferred and common shareholders during 2015. Part b.Compute the amount of dividends to be distributed to preferred and common shareholders during 2016. Part c.Compute the amount of dividends to be distributed to preferred and common shareholders during 2017.

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Part a
Current preferred dividend = 1,00...

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A stock dividend is considered a large stock dividend if it is ____ than 25% of the outstanding shares,and it is recorded at the ______ value of the additional shares.


A) more; par
B) less; par
C) more; market
D) less; market

E) A) and B)
F) A) and C)

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Company X has a P/E ratio of 16 in year 2013 and 16.5 in 2014.In 2015,its P/E ratio is 24.The best way to interpret these data is to conclude that:


A) the stock is overpriced and should be sold.
B) the stock has great growth capacity and should be bought.
C) other financial results and news should be examined to determine the cause of the P/E ratio change.
D) the stock is underpriced and should be bought.

E) B) and D)
F) A) and C)

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In its most basic form,the earnings per share ratio is calculated as:


A) dividends paid on common stock divided by the average number of outstanding common shares.
B) the difference between net income and preferred dividends divided by the average number of outstanding common shares.
C) total dividends paid divided by the average number of total stock shares.
D) net income divided by average stockholders' equity.

E) All of the above
F) A) and D)

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A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock.The preferred stock has an 8% dividend rate.The board of directors declares $300,000 in total dividends for the year.Which of the following is correct if the preferred stockholders have a cumulative dividend preference?


A) Preferred stockholders will receive the entire $300,000 and they must also be paid $20,000 before the end of the current accounting period; common stockholders will receive nothing.
B) Preferred stockholders will receive $24,000 (or 8% of the total dividends) ; common stockholders will receive the remaining $276,000 (or $300,000 - $24,000) .
C) Preferred stockholders will receive the entire $300,000 and they must also be paid the remaining $20,000 sometime in the future before common stockholders will receive any dividends.
D) Preferred stockholders will receive the entire $300,000, but will receive nothing more in the future relating to this dividend declaration; common stockholders will receive nothing.

E) C) and D)
F) A) and D)

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Which of the following statements about a stock split is correct?


A) A stock split decreases Retained Earnings.
B) Stock splits do not require a journal entry.
C) Stock splits are the same as stock dividends.
D) Stock splits increase the par value per share.

E) A) and B)
F) A) and C)

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Which of the following statements about business forms is correct?


A) A sole proprietorship is an unincorporated business owned by one person.
B) All partnerships are owned by two people.
C) A corporation is not a legal entity.
D) An LLC (or limited liability company) has the same tax treatment as a corporation.

E) A) and D)
F) B) and D)

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A company issued 600 shares of $50 par value stock for $45,000.What is the total amount of contributed capital?


A) $30,000
B) $15,000
C) $45,000
D) $50

E) A) and B)
F) None of the above

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Issuing stock to obtain financing is called equity financing.

A) True
B) False

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Which of the following statements about equity and debt financing is correct?


A) Equity financing is always better than debt financing.
B) Equity financing requires dividends to be paid.
C) Dividends are tax deductible.
D) Equity financing can change stockholder control.

E) None of the above
F) A) and D)

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Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity?


A) Net Income
B) Stock Issuances
C) Additional Paid-in Capital
D) Treasury Stock

E) A) and B)
F) None of the above

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Core Corporation had 400,000 shares of $2 par value common stock authorized.On December 31,2015,there were 200,000 shares issued and outstanding.The market value of its common stock on that date was $100 per share.On January 5,2016,the board of directors declared a five-to-four stock split (i.e.,a 25% increase in the number of shares). Required: Part a.Briefly explain the how a stock spilt affects the stockholders' equity accounts and the total resources of the company. Part b.Assume that you have 100 shares of Core Corporation common stock.Determine how many shares will you have after the stock split. Part c.Determine how the stock split will impact the number of authorized shares,the number of issued and outstanding shares,and the par value per share. Part d.Determine the total par value of the company's issued and outstanding shares (that is,the balance of the Common Stock account)before the stock split and after the stock split.

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Part a
Stock splits are not dividends.Wh...

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All other things being equal,the higher the return on equity ratio,the better the financial performance of the company.

A) True
B) False

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If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan,your ownership percentage:


A) remains the same because the company now has more assets.
B) falls from 2.5% to 2%.
C) remains the same because the company now has fewer liabilities.
D) increases because the company now has more stock outstanding.

E) A) and D)
F) B) and C)

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A company had 300,000 shares of $10 par value common stock outstanding.The amount of additional paid-in capital is $1,500,000,and Retained Earnings is $450,000.The company issues a 2-for-1 stock split.The market price of the stock is $13.What is the balance in the Common Stock account after this issuance?


A) $6,000,000
B) $6,900,000
C) $3,000,000
D) $4,500,000

E) None of the above
F) C) and D)

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Stock options are given in order to:


A) increase Retained Earnings.
B) increase a corporation's liquidity.
C) provide a corporation with the choice of issuing.
D) provide incentives for employees to work harder.

E) A) and B)
F) A) and C)

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A company has net income of $5.6 million.Stockholders' equity at the beginning of the year is $32.55 million and,at the end of the year,it is $38.15 million.The only change to stockholders' equity came from net income.The return on equity ratio is approximately:


A) 0.15.
B) 0.16.
C) 0.87.
D) 6.64.

E) A) and C)
F) A) and B)

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A current dividend preference means that:


A) preferred stockholders are paid current dividends before common stockholders are paid dividends.
B) unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends.
C) preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation.
D) unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period.

E) B) and C)
F) C) and D)

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Refurbish,Inc.purchased 1,000 shares of its own stock at $8 a share.Later,it reissued the 1,000 shares for $10,000.The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n) :


A) $10,000 increase in stockholders' equity.
B) $10,000 decrease in stockholders' equity.
C) $8,000 increase in stockholders' equity.
D) $8,000 decrease in stockholders' equity.

E) A) and B)
F) All of the above

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