QUESTION 26 Authorized common stock refers to the total number of shares: Outstanding Issued Issued and outstanding That can be issued QUESTION 27 Which of the following represents a disadvantage of equity financing? Interest on debt is not tax deductible. Dividends are optional Dividends are not tax deductible. Interest on debt must be paid. QUESTION 28 Retained Earnings represent a company’s: Net income less dividends since the company first started. Undistributed net assets. Extra paid-in capital. Undistributed cash. QUESTION 29 Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a cash price of 512 per share. The entry to record this transaction would be: Debit Cash $312,000, credit Common Stock $26,000; credit Additional Paid-in Capital $286,000. Debit Cash for $312,000; credit Common Stock $312,000. Debit Common Stock $26,000, debit Additional Paid in Capital $286,000; credit Cash $312,000. Debit Cash $312,000; credit Stock Payable $286,000, credit Common Stock $26,000 Debit Common Stock $26,000; credit Cash $26,000.
26. Option – D, That can be issued
Authorized common stock refers to the total number of shares
that can be issued by company in its whole life.
27. Option – C, Dividends are not tax
One of the main disadvantage of equity financing is that the
dividends are not tax deductible.
28. Option – A, Net income less dividends since the
company first started
Retained earnings represent a company’s net income less
dividends since the company first started. It represents
accumulated earnings over the years.
29. Option – A,
Journal entry is-
|Cash A/c (26,000 shares x $12)||$312,000|
|Common stock (26,000 shares x $1)||$26,000|
|Additional Paid in capital (26,000 shares x $11)||$286,000|