ACC CH 10

Albert Inc. has both common and preferred stock outstanding. Which should be listed first in the stockholders' equity section of the balance sheet?

Preferred stock

Which of the following is typically presented first in the equity section of the balance sheet?

Preferred stock

Match stock splits and stock dividends with their characteristics.

Stock splits- Cause the par value per share to change Stock splits and stock dividends- Cause total stockholders' equity to remain the same Stock dividends-Require a journal entry

Special contractually granted features can make preferred stock:

-convertible-redeemable-cumulative

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

Which of the following transactions are classified as a stock dividend?

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?

Articles of incorporation Corporate charter

The total number of shares that a company may sell is referred to as ____________ shares.

Authorized

Limited liability and ease of raising outside capital are advantages of this business form:

Corporation

True or false: A corporation is owned by debt and equity holders.

False

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

Preference in dist. of assets during dissolution of corpFirst right to specified amount of dividends

Which financial statement summarizes the changes in the balance of each stockholders' equity account?

Statement of stockholders' equity only

Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?

The right to redeem the preferred shares for cash The right to convert the shares to common shares

Shares of stock that are repurchased are referred to as stock.

Treasury

The declaration and payment of a cash dividend ultimately causes a(n):

a decrease in Retained Earnings a decrease in Cash decrease in stockholders' equity

The number of shares authorized is set forth in the company's:

articles of incorporation

Preferred stock tends to have attributes of

both bonds and common stock.

A frequent reason for a stock split is to

cause the market price per share to decline.

Match the term with the preferred stock characteristic. Convertible Redeemable Cumulative

convertible - shares can be converted for common stock redeemable - stocks can be turned in or re-purchased on demand cumulative - dividends not declared during one year are payable when declared in subsequent periods.

Additional taxes and more paperwork are the two primary disadvantages of this business form:

corporation

The journal entry to record the declaration of a dividend includes ______.

debit to Dividendscredit to Dividends Payable

A corporate charter:

describes the business activities. specifies the shares of stock to be issued. names the board of directors.

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

dividend

Similar to a stock split, a stock _____ also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.

dividend

When a corporation distributes assets of the company to its investors, it is referred to as a(n)

dividend.

Preferred stock generally (has/does not have) ______ voting rights and (has/does not have) ______ preference as to dividends.

does not have; has

Positive _________ represent the key to a company's long-run survival.

earnings, income, profit, or earning

Preferred stock is advantageous in that it:

has priority over common stock when dividends are declared and has priority over common stock at liquidation.

Preferred stock has a mixture of attributes of both equity and ______ .

liabilities

Disadvantages of the corporate form of business are

more paperwork additional taxation.

ROE relates

net income to the average stockholders' equity

Stock splits have the following effects on stockholders' equity

no change to total stockholders' equity

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

not paid out by dividends; balance sheet and statement of retained earnings

A company's past profits that are not paid out in dividends are ______.

retained earnings

Earned capital increases ____.

retained earnings

The rights of common stockholders typically include which of the following?

right to dividends when declared, right to vote for corporate directors, & right to distribution of asses in liquidation

Which of the following reports net income relative to average stockholders' equity in dollars?

roe

Which of the following will decrease the par value of shares?

stock split

A corporation is owned by its

stockholders

The declaration of cash dividends reduces . __________ _____________ (Enter one word per blank)

stockholders' equity

A 2-for-1 stock split increases the marketability of the stock because

the market price per share decreases.

Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?

the right to redeem the preferred shares for cash the right to convert the shares to common shares

The advantages to the corporate form of business include

transferability of ownership. ease of raising capital.

Shares of stock previously sold by the corporation that are repurchased are called

treasury stock.

Preferred stockholders:

have the right to receive dividends only in the years the board of directors declares dividends.

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n):

increase in liabilities. decrease in stockholders' equity.

Evaluation of the company's profitability requires consideration of the amount of a company's earnings in relation to the size of the

investment.

The most important advantage to the corporate form of business is

limited liability.

Corporations will declare a stock split in order to ______.

reduce the market price of a share of stock and make it more attractive to some investors

Match the preferred stock feature with the correct description.

Convertible- Marcus turn in his preferred stock and receives common shares in exchange. correct toggle button unavailable Redeemable- Nurbert Inc. demands return of preferred stock at the pre-specified amount correct toggle button unavailable Cumulative- During the current year, Petra Inc. pays dividends that were not declared last year correct toggle button unavailable

The purpose of the statement of shareholders' equity is to

report the changes and the sources of the changes in shareholder equity accounts.

Stock dividends have the following effects on stockholders' equity

-no change in stockholder equity -increase common stock -decrease retained earnings

Which of the following ratios measures the ability of company management to generate earnings from the resources owners provide?

Return on equity

Which of the following are included in the rights of common stockholders?

Right to vote on certain matters.

Distributions of stock to current shareholders of a corporation are called what type of distribution? (Select all that apply.)

Stock dividend Stock split

Distributions of stock to current shareholders of a corporation are called what type of distribution? (Select all that apply.)

Stock split Stock dividend

The amount of money paid into a company by its owners is referred to as:

invested capital

The number of shares outstanding equals the number of shares ______.

issued minus the number of shares in treasury

In a corporation, the stockholders' potential loss is

limited to the amount of the investment.

Shareholders' equity is another common term for equity. (Do not use shareholders)

stockholders

Retained earnings are:

increased by net income. sometimes called earned capital. decreased by dividends. all of the company's earnings not distributed to stockholders.

When a business incorporates, it must file its ______ with the state in which it incorporates.

articles of incorporation