Question

1) The number of shares of stock a corporation sells to investors are

a) Authorized shares

b) Issued shared

c) Treasury shares

d) Outstanding shares

2) A corporation issued 20 shares of common stock with a $ 1 par value for $5 per share. The amount of cash the company generated by issuing the common stock was

a) $5

b) $20

c) $80

d) $100

3) The declaration of a cash dividend

A) Increases cash

b) Decreases cash

c) Increases retained earnings

d) Decreases retained earnings’

4) The payment of a cash dividend

a) Decreases dividends payable

b) Increases dividends payable

c) Increases retained earnings

d) Decreases retained earnings

5) A firm that purchases its own stock (treasury stock)

a) Does not change the amount of shareholders’ equity

b) Increases shareholders’ equity

c) Decreases shareholders’ equity

d) Is bankrupt

Answer 1

Question 1

Correct answer----(a) Authorized shares

A corporation cannot sell more than authorized shares. In other words authorized shares are maximum number of shares that a corporation can issue to investors.

Question 2

Correct answer----(d) $100

20 shares x 5 per share= $100 will be received on issue of shares. $20 will be credited to Common stock account while $80 will be credited to Additional paid in capital account.

Question 3

Correct answer----(d) Decreases retained earnings

Cash dividends is paid out of retained earnings hence retained earnings decrease. Cash decrease when declared dividends are actually paid off to shareholders.

Question 4

Correct answer----(A) Decreases dividends payable

Dividends payable decreases because when dividend is declared dividends payable is credited and dividend is actually paid in cash then a debit to dividends payable decreases its balance.

Question 5

Correct answer----(c) Decrease shareholder’s equity.

Treasury shares are treated as contra equity account so they decreases overall balance in shareholder’s equity.