AC 210 LearnSmart Chapter 11

BLANK per share equals Net Income divided by the average shares of common stock BLANK. (Assume no preferred stock).

Earnings; outstanding

_____ is an insignificant value per share of capital stock specified in the corporate charter.

Par value

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding. (Assume no preferred stock has been issued.)

Net Income

When does a corporation record an increase in Dividends Payable?

On the declaration date

The entry to record the issuance of 100,000 shares of $0.10 par value common stock for $10 per share is debit ______.

Cash for $1,000,000 and credit Common Stock for $10,000 and Additional Paid-in Capital for $990,000

When a company reissues shares at a price lower than the cost to previously purchase the treasury stock, it records a ______.

debit to Additional Paid-in Capital

When Diva, Inc., declared a $10,000 cash dividend, it recorded a debit to BLANK and a credit to Dividends BLANK. (Enter one word per blank.)

debit to DIVIDENDS and a credit to Dividends PAYABLE

A distribution of a company's accumulated prior earnings is a(n) ______.

dividend

Dew Drop Inn, Inc. has a current ratio of 0.9 to 1.0 and $4 of debt for every $1 of equity. If Dew Drop Inn needs additional financing, it would best improve its financial situation with ______.

equity financing

When a shareholder of Limited, Inc. sells its shares to another investor on the stock exchange, Limited, Inc.'s accounting equation ______.

is not affected because the corporation is separate from its owners

If you own stock in a corporation that goes bankrupt, you ______.

only stand to lose what you paid to buy the stock

Earnings per share (EPS) may be determined by ______. (Check all that apply.)

- dividing net income less preferred dividends by the average common shares outstanding - dividing the stock price by the P/E ratio

Stock options ______. (Check all that apply.)

- provide the holder with the option to purchase stock at a specified price during a specified period of time - are often given to employees as part of their compensation

BLANK BLANK represents the earned capital and BLANK Capital represents the paid-in capital. (Enter one word per blank.)

Retained Earnings; Contributed Capital

When a corporation buys back its own stock, the stock is reported on the balance sheet as ______.

Treasury Stock

BLANK capital, also called paid-in capital, reports the amount of capital the company received from investors. (Enter only one word per blank.)

contributed

Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity? (Select all that apply.)

- Dividends: Common - Dividends: Preferred - Net Income

Select those statements below that are true about cash dividends. (Check all that apply.)

- On the payment date, current assets are decreased. - On the declaration date, liabilities are increased.

Refurbish, Inc., reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, ______. (Select all that apply.)

- Treasury Stock will equal $4,000 - Additional Paid-in Capital will be increased by $2,000

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a(n) ______. (Check all that apply.)

- decrease in additional paid-in capital of $1,000 - increase in total assets of $10,000

Investors acquire common stock because they expect a return on their investment from ______. (Select all that apply.)

- distributions of dividends - increases in stock prices

If a business cannot pay its debts, creditors can expect the owner(s) to pay the debts with their personal assets if the business is a ______. (Check all that apply.)

- general partnership - sole proprietorship

Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. As a result of this transaction, Refurbish's ______. (Check all that apply.)

- treasury stock on the balance sheet will equal $4,000 - stockholders' equity on the balance sheet will be $10,000 higher

BLANK stock carries priority over common stock with regard to dividends. (Enter only one word per blank.)

Preferred

Stock options are expensed ______.

when granted and are recorded at the estimated cost of the options

Refurbish, Inc. bought 1,000 shares of its own stock at $8 a share. Later, it reissued the shares for $10,000. The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n) ______.

$10,000 increase in stockholders' equity

Refurbish, Inc., bought 1,000 shares of its own stock for $8,000. Later it reissued the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n) ______. (Select all that apply.)

- $2,000 credit to Additional Paid-in Capital - $8,000 credit to Treasury Stock

Lox, Stock and Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals ______ shares.

45,000

True or false: When a corporation declares a dividend its Net Income on the income statement is reduced.

False

Shares that were previously issued to and owned by stockholders but have been reacquired and now held by the corporation are called BLANK Stock. (Enter one word per blank.)

Treasury

Common stock's par value is ______.

an insignificant amount specified in the corporate charter

Transactions between a company and its stockholders affect the company's _____ accounts only.

balance sheet

Similar to a stock split, a stock BLANK also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders. (Enter one word per blank.)

dividend

Earnings per share (EPS) appears on the ______.

income statement

Retained Earnings of $100,000 represent a corporation's cumulative earnings ______ and is shown on the ______.

kept; balance sheet and statement of retained earnings

BLANK BLANK reports the cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began. (Enter one word per blank.)

retained earnings

The number of shares issued represents the number of shares ______.

sold

Which of the following would be found on a statement of stockholders' equity? (Select all that apply.)

- Additional Paid-in Capital - Stock Issuances - Net Income - Treasury Stock - Dividends

Which form of financing has a tax advantage?

debt financing

Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes a $5,000 BLANK to Treasury Stock. (Enter only one word per blank.)

increase (or debit)

The statement of BLANK BLANK reports the changes in retained earnings as well as paid-in capital. (Enter one word per blank.)

stockholders' equity

Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common stock. Which of the following is true?

This entry is correct.

Treasure This, Inc. had total assets of $100,000, liabilities of $60,000 and stockholders' equity of $40,000 before repurchasing 1,000 shares of its $1 par value common stock for $5 each. After this repurchase, total assets equal _____, liabilities equal ______ and stockholders' equity equals ______.

$95,000; $60,000; $35,000 (Repurchasing treasury stock decreases Assets, credit Cash, and decreases Shareholders' Equity, debit Treasury Stock. Assets=$100,000 - (1,000 shares x $5); SE=$40,000 - (1,000 shares x $5).)

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes a ______. (Check all that apply.)

- $10,000 debit to Treasury Stock - $10,000 credit to Cash

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The effect of this transaction on the accounting equation, using the cost method, includes a ______. (Check all that apply.)

- $10,000 increase in Treasury Stock - $10,000 decrease in Cash

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a ______. (Check all that apply.)

- $50,000 increase in total assets. - $50,000 increase in total stockholders' equity.

Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock from Stockits for $5 per share. Which statements are true regarding the effect of this transaction on Stockits' financial statements? (Select all that apply.)

- The financing activities section of the statement of cash flows increases. - Stockholders' equity on the balance sheet increases.

A stock dividend ______. (Check all that apply.)

- causes retained earnings to decrease. - distributes additional shares of stock to existing stockholders on a pro rata basis.

Advantages of debt financing over equity financing are that ______. (Check all that apply.)

- control is not diluted - interest payments on debt are tax deductible

The effect of repurchasing stock using the cost method is to ______. (Check all that apply.)

- decrease assets - decrease stockholders' equity - increase Treasury Stock

Preferred stock is advantageous in that it ______. (Check all that apply.)

- has priority over common stock when dividends are declared - has priority over common stock at liquidation

AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. The number of shares issued equals ______ shares.

100,000

In an IPO, Ima Rich purchased 1,000 shares of BMI, Inc. for $5,000. Five years later, Ima Rick sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of this sale?

BMI, Inc., will not be directly affected by this transaction.

The maximum number of shares a corporation is allowed to sell in accordance with its corporate charter are called BLANK shares. (Enter one word per blank.)

authorized

Treasury Stock is ______ account.

contra equity

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares authorized. Stockit has repurchased 10,000 of its shares. The number of shares authorized represents the ______. (Check all that apply.)

maximum number of shares Stockit is allowed to issue

Stock options are given to ______.

provide incentives for employees to work harder.

Diva, Inc. declared and paid $10,000 of dividends. Dividends of $10,000 may be found on the ______.

statement of retained earnings

What is contributed capital?

the amount stockholders have invested in exchange for stock

True or false: Some states allow corporations to issue no-par value common stock.

true