Question 29

Which of the following statements is CORRECT?


Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.

The preferred stock of a given firm is generally less risky to investors than the same firm’s common stock.

Corporations cannot buy the preferred stocks of other corporations.

Preferred dividends are not generally cumulative.

A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.

2 points

Question 30

Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?


Price $25 $25

Expected dividend yield 5% 3%

Required return 12% 10%


Stock Y pays a higher dividend per share than Stock X.

Stock X pays a higher dividend per share than Stock Y.

One year from now, Stock X should have the higher price.

Stock Y has a lower expected growth rate than Stock X.

Stock Y has the higher expected capital gains yield.

2 points

Journalizing and Posting Transactions, and Preparing a Trial Balance and Adjustments D. Roulstone opened Roulstone Roofing Service on April 1. Transactions for April follow.

Apr.  1 Roulstone contributed $11,500 cash to the business in exchange for common stock.
2 Paid $6,100 cash for the purchase of a used truck.
2 Purchased $3,100 of ladders and other equipment; the company paid $1,000 cash, with the balance due in 30 days.
3 Paid $2,880 cash for two-year (or 24-month) premium toward liability insurance.
5 Purchased $1,200 of supplies on credit.
5 Received an advance of $1,800 cash from a customer for roof repairs to be done during April and May.
12 Billed customers $5,500 for roofing services performed.
18 Collected $4,900 cash from customers toward their accounts billed on April 12.
29 Paid $675 cash for truck fuel used in April.
30 Paid $100 cash for April newspaper advertising.
30 Paid $2,500 cash for assistants’ wages earned.
30 Billed customers $4,000 for roofing services performed.


Using the following accounts: Cash; Accounts Receivable; Supplies; Prepaid Insurance; Trucks; Accumulated Depreciation-Trucks; Equipment; Accumulated Depreciation-Equipment; Accounts Payable; Unearned Roofing Fees; Common Stock; Roofing Fees Earned; Fuel Expense; Advertising Expense; Wages Expense; Insurance Expense; Supplies Expense; Depreciation Expense-Trucks; and Depreciation Expense-Equipment. Record these transactions for April using journal entries.

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