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Wk 4 Wiley Plus True and False Questions Essay

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Week 4 Wiley True/False & Multiple Choice
Copyright © 2010 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 7/e
Type True/False in the box provided

1. The cost method derives its name from the fact that the Treasury Stock account is maintained at the cost of shares purchased.

TRUE |

2. When treasury stock is sold for an amount greater than cost, the difference should be credited to Gain on Sale of Treasury Stock and reported as other income on the Income
Statement.

FALSE |

3. Stockholders’ liability is generally unlimited; therefore, creditors have recourse to stockholders’ personal assets as well as corporate assets. FALSE |

4. Retained earnings is net income retained in a corporation and is often …show more content…

D |

4. Preferred stock would least likely have which characteristic?
a. The right of the holder to vote at stockholders’ meetings.
b. The right of the corporation to redeem or retire the stock.
c. Preference as to assets upon liquidation of the corporation.
d. Preference as to dividends. A |

5. A company had outstanding 80,000 shares of $10 par value common stock. During the period a 10% stock dividend was declared and distributed. The market value was $25 a share. As a result of this stock dividend, retained earnings should increase (decrease) by
a. $0.
b. $(80,000).
c. $(200,000).
d. $80,000. C |

6. Ross Corporation purchased 6,000 shares of Hunter common stock at $60 per share plus $7,200 brokerage fees as a short-term investment. The shares were subsequently sold at $65 per share less $8,400 brokerage fees. The cost of the securities purchased and gain or loss on the sale were
Cost Gain or Loss
a. $360,000 $30,000 gain
b. $360,000 $14,400 gain
c. $367,200 $14,400 gain
d. $367,200 $14,400 loss

C |

7. A company pays $600,000 for 30% of the common stock of X, Inc. In the first year, X,
Inc. reports net income of $120,000 and pays a cash dividend of $45,000. The balance in
Investments-X, at year end under the equity method is:
a. $577,500.
b. $622,500.
c. $636,000.
d. $675,000.

B |

8. The equity method is used when the investor
a. makes long-term investments in stocks.
b. plans to sell the investments

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