Accounting Seminar – 6

Participating preferred stock

Callable preferred stock

Cumulative preferred stock

Convertible preferred stock

31. 
    Preferred stock that the issuing corporation at its option may retire by paying a specified amount to the preferred stockholders plus any dividends in arrears is called:
    

1. 
   Convertible preferred stock
   
2. 
   Callable preferred stock
   
3. 
   Premium stock
   
4. 
   Cumulative preferred stock
   
5. 
   Participating preferred stock
   

31. 
    Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:
    

1. 
   Financial leverage
   
2. 
   Discount on stock
   
3. 
   Premium on stock
   
4. 
   Preemptive right
   
5. 
   Capital gain
   
31. 
    Preferred stock is often issued:
    
    1. 
       To initiate or increase financial leverage
       
    2. 
       To prevent dilution of common stock
       
    3. 
       To appeal to investors who believe that common stock is too risky
       

4. 
   To boost the return earned by common shareholders
   
5. 
   All of the above
   

31. 
    Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:
    

1. 
   Cumulative preferred stock
   

4

B. Callable preferred stock

C. Participating preferred stock

D. Convertible preferred stock

E. Preferential preferred stock

2. 
   Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as follows:
   

4. 
   $8,000 preferred; $22,000 common
   
5. 
   $16,000 preferred; $14,000 common
   
6. 
   $7,500 preferred; $22,500 common
   
7. 
   $15,000 preferred; $15,000 common
   
8. 
   $0 preferred; $30,000 common
   

3. 
   A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating preferred stock and 10,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:
   

4. 
   $1,000
   
5. 
   $1,250
   
6. 
   $2,250
   
7. 
   $3,500
   
8. 
   $4,500
   

4. 
   A company's board of directors votes to declare a total cash dividend of $25,000. The company has 2,500 shares of $1 par common stock and 400 shares of 4%, $200 par preferred stock outstanding. What is the total amount that will be paid to preferred shareholders?
   

4. 
   $1,000
   
5. 
   $22,500
   
6. 
   $400
   
7. 
   $3,200
   
8. 
   $25,000
   

5. 
   A company has 200,000 shares of $1 par value common stock and 20,000 shares of 7%, $100 par, cumulative preferred stock outstanding. The balance in Retained Earnings at the beginning of the year was $1,500,000 and one year's dividends were in arrears. Net income for the current year was $2,000,000. If the company paid a dividend of $3 per share on its common stock, what is the balance in Retained Earnings at the end of the year?
   

4. 
   $3,500,000
   
5. 
   $2,900,000
   
6. 
   $2,760,000
   
7. 
   $2,620,000
   
8. 
   $620,000
   
1. 
   Corporations often buy back their own stock:
   
   4. 
      To avoid a hostile take-over
      
   5. 
      To have shares available for a merger or acquisition
      
   6. 
      To have shares available for employee compensation
      
   7. 
      To maintain market value for the company stock
      
   8. 
      All of the above
      
2. 
   Stock that was reacquired and is still held by the issuing corporation is called:
   
   4. 
      Capital stock
      
   5. 
      Treasury stock
      
   6. 
      Redeemed stock
      
   7. 
      Preferred stock
      
   8. 
      Callable stock
      

8. 
   Treasury stock is classified as:
   
   4. 
      An asset account
      
   5. 
      A contra asset account
      

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C. A revenue account

D. A contra equity account

E. A liability account

35.