quiz 3

1. A corporation issues 6,000 shares of $5 par value common stock for $8 cash per share. The entry to record this transaction includes:
a. A debit to Paid-In Capital in Excess of Par Value for $18,000.
b. A credit to Common Stock for $48,000.
c. A credit to Paid-In Capital in Excess of Par Value for $30,000.
d. A credit to Cash for $48,000.
e. A credit to Common Stock for $30,000.

e ; Entry to record this stock issuance is:

2. A company reports net income of $75,000. Its weighted-average common shares outstanding is 19,000. It has no other stock outstanding. Its earnings per share is:
a. $4.69
b. $3.95
c. $3.75
d. $2.08
e. $4.41

b; $75,000/19,000 shares = $3.95 per share

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3. A company has 5,000 shares of $100 par preferred stock and 50,000 shares of $10 par common stock outstanding. Its total stockholders' equity is $2,000,000. Its book value per common share is:
a. $100.00
b. $ 10.00
c. $ 40.00
d. $ 30.00
e. $ 36.36

d; Preferred stock = 5,000 × $100 = $500,000
Book value per share = ($2,000,000 − $500,000)/50,000 shares = $30 per common share

4. A company paid cash dividends of $0.81 per share. Its earnings per share is $6.95 and its market price per share is $45.00. Its dividend yield is:
a. 1.8%
b. 11.7%
c. 15.4%
d. 55.6%
e. 8.6%

a; $0.81/$45.00 = 1.8%

5. A company's shares have a market value of $85 per share. Its net income is $3,500,000, and its weighted-average common shares outstanding is 700,000. Its price-earnings ratio is:
a. 5.9
b. 425.0
c. 17.0
d. 10.4
e. 41.2

c; Earnings per share = $3,500,000/700,000 shares = $5 per share
PE ratio = $85/$5 = 17.0

1. A bond traded at 97½ means that
a. The bond pays 97½% interest.
b. The bond trades at $975 per $1,000 bond.
c. The market rate of interest is below the contract rate of interest for the bond.
d. The bonds can be retired at $975 each.
e. The bond's interest rate is 2½%.

2. A bondholder that owns a