#1
Which of the following accounts represents ownership in a corporation?
Common Stock
ExplanationCommon stock signifies ownership in a corporation.
#2
What is the term used for the total earnings of a corporation's stockholders?
Retained Earnings
ExplanationRetained earnings represent cumulative profits kept within the corporation.
#3
Which of the following is NOT a component of shareholders' equity?
Accounts Payable
ExplanationAccounts payable is not part of shareholders' equity but represents liabilities.
#4
What is the accounting term for the allocation of a portion of a corporation's earnings to its shareholders?
Dividend
ExplanationA dividend is the distribution of a portion of a corporation's earnings to its shareholders.
#5
What is the primary purpose of the statement of changes in equity?
To explain changes in shareholders' equity accounts
ExplanationThe statement of changes in equity elucidates alterations in shareholders' equity accounts.
#6
Which of the following statements is true regarding the par value of a stock?
It indicates the minimum price at which the stock can be sold.
ExplanationPar value sets the minimum sale price for a stock.
#7
What is the formula for calculating earnings per share (EPS)?
Net Income / Average Outstanding Shares
ExplanationEPS is calculated by dividing net income by the average outstanding shares.
#8
When a corporation issues additional shares of its stock, what happens to the existing shareholders' ownership?
Their ownership becomes diluted
ExplanationExisting shareholders' ownership diminishes due to the increased number of shares.
#9
Which financial statement reports changes in a corporation's equity over a period?
Statement of Changes in Equity
ExplanationThe Statement of Changes in Equity documents changes in a corporation's equity over a specific timeframe.
#10
What is the term used for the process of repurchasing a corporation's own stock from the market?
Stock Buyback
ExplanationStock buyback is the process of a corporation repurchasing its own shares from the market.
#11
What is the effect of a stock dividend on shareholders' equity?
Remains the same
ExplanationStock dividends do not alter shareholders' equity.
#12
Which of the following is an example of a contra-equity account?
Treasury Stock
ExplanationTreasury stock is a contra-equity account representing shares repurchased by the corporation.
#13
What does the term 'stock split' refer to in accounting?
Dividing existing shares into multiple shares
ExplanationA stock split involves dividing each existing share into multiple shares.
#14
In a cash dividend declaration, what happens to shareholders' equity?
Decreases
ExplanationShareholders' equity reduces due to the distribution of cash dividends.
#15
What does the term 'dividend yield' measure?
The rate of return on an investment in a stock
ExplanationDividend yield quantifies the return on investment from dividends.
#16
What is the purpose of a stock repurchase program by a corporation?
To increase the market price of its stock
ExplanationStock repurchase programs aim to boost the market price of a corporation's stock.
#17
What is the effect of a stock split on the number of shares outstanding and the par value per share?
The number of shares increases, and the par value per share decreases.
ExplanationStock splits increase the number of shares and decrease the par value per share.