Accounting Chapter 10 Interactive Assignment

Almond Corporation acquires 10,000 shares of its own $1 par value common stock at $10 per share. The journal entry for this transaction includes a:

debit to Treasury Stock for $100,000 (When a corporation repurchases its own stock, it increases (debits) Treasury Stock, while it decreases (credits) Cash. Specifically, the journal entry will include a debit to Treasury Stock and a credit to Cash for $100,000 (= 10,000 shares × $10 per share).)

When a corporation acquires shares of its own common stock, it records a:

debit to Treasury Stock for cost (When a corporation purchases its own stock, it debits Treasury Stock for the cost of the shares acquired.)

All of the following are components of stockholders' equity, except ____________.

notes payable

Earnings not distributed as dividends to stockholders is known as:

retained earnings

Return on equity measures:

the amount of income generated for each $1 of stockholders' equity.

For the current year, Fitch Company generates net income of $140,000. The company has 40,000 shares of common stock outstanding, and the stock is currently trading at $56 per share. What is the company's price-earnings ratio?

$16.00 (The company's earnings per share is $3.50 (= $140,000/40,000). Therefore, its price-earnings ratio is $16.00 (= $56.00/$3.50).)

Identify the primary disadvantages of the corporate form of business compared to a sole proprietorship or partnership.

Double taxation More paperwork

Why do most companies report stock splits in the same way as a large stock dividend?

To avoid changing the par value per share

A corporation's officers are appointed by the:

board of directors

Marina, Inc., acquires 1 million shares of its own $1 par value common stock at $70 per share. It later resells the 1 million shares of treasury stock for $75. We record the $5 difference per share as a:

credit to Additional Paid-in Capital (These shares originally were purchased for $70 per share, so the $75 resale price represents a $5 per share increase in additional paid-in capital.)

A small stock dividend encompasses less than ______ of the outstanding stock.

25%

On January 1, Year 3, Boxwood, Inc. issues 1,000 shares of $1 par value common stock for $30 per share. Later that year, the company issues 1,000 shares of $10 par value preferred stock for $80 per share. The company's balance sheet as of December 31, Year 3, will show total paid-in capital of:

$110,000 (Total paid-in capital as of December 31, Year 3 is $110,000 (common stock of $1,000 + preferred stock of $10,000 + additional paid-in capital of $99,000).

Identify the primary advantages of the corporate form of business compared to a sole proprietorship or partnership.

Limited liability Ability to raise capital

Which of the following is the complete description of the numerator in the equation used to calculate earnings per share?

Net income minus dividends on preferred stock

On January 1, Year 1, Davidson Corporation issues 1,000 shares of $1 par value common stock for $20 per share. Complete the necessary journal entry for the issuance of common stock by indicating the relevant account names and dollar amounts below. If more than one account title is debited or credited, enter the account titles in their alphabetical order.

Cash 20,000 Common Stock 1,000 Additional Paid-In Capital 19,000

The shares of preferred stock issued by Saturn Corporation can be exchanged for common stock. However, any dividends in arrears are lost. Which of the following features are present in the preferred stock issued by Saturn? Select all answers that apply to this question.

Convertible Noncumulative

Which of the following dates associated with dividends does not require an entry to be recorded?

Record date

Total assets, total liabilities, and total stockholders' equity do not change as a result of a large stock dividend.

True

The market value of Kennedy Corporation's common stock is $100 per share when it declares a 20% stock dividend on its 10,000 shares outstanding of $1 par value common stock. The entry to record this small stock dividend involves a _____.

credit to Additional Paid-in Capital for $198,000 (The entry involves a debit to Stock Dividends for $200,000, a credit to Common Stock for $2,000, and a credit to Additional Paid-in Capital for the $198,000 difference.)

Delta Corporation acquires 10,000 shares of its own $0.01 par value common stock at $10 per share. It later resells the 10,000 shares of treasury stock for $12. The entry to record this transaction will involve a:

credit to Additional Paid-in Capital for $20,000 (The journal entry will include a debit to Cash for $120,000 (= 10,000 shares × $12 per share), a credit to Treasury Stock for $100,000 (= 10,000 shares × $10 per share), and a credit to Additional Paid-in Capital for the difference, $20,000.)

On the date of declaration of the dividend, we _____.

debit Dividends (The declaration of a cash dividend creates a binding legal obligation for the company declaring the dividend. On that date, we increase Dividends, a temporary account that is closed into Retained Earnings at the end of each period, and increase the liability account, Dividends Payable.)

When a corporation issues stock to the general public for the first time, it is known as a(n):

initial public offering

What is the net effect of a dividend declaration and payment?

reduction in both stockholders' equity and assets (The net effect is a reduction in both retained earnings (stockholders' equity) and cash (asset).)

EyeCare Corporation issued 10,000 shares of 7%, $100 par value preferred stock at the beginning of Year 1. The company did not pay dividends in Year 1. However, preferred stockholders received dividends for Year 1 and Year 2, when the company declared dividends in Year 2. Preferred stockholders also have the option, under specified conditions, to return their shares for a predetermined price. Which of the following features are in present the preferred stock issued by EyeCare? Select all answers that apply to this question.

Redeemable Cumulative

The Stock Dividends account is a temporary stockholders' equity account that is closed into ______.

Retained Earnings

Clary Corporation reports dividends per share of $1.20 and net income for the year of $120,000. The current stock price is $48.00. What is the company's dividend yield?

2.5% (Dividend yield = $1.20/$48.00 = 2.5%.)

Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders' equity: •Issued 40,000 shares of common stock at $8 per share. •Reported a net income of $60,000. •Paid dividends of $30,000. •Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders' equity at the end of Year 1?

$300,000 (Total stockholders' equity at the end of Year 1 is $300,000 [= (40,000 × $8) + $60,000 − $30,000 − (5,000 × $10)].)

Marine Corporation issued common stock in Year 1. It issued 10,000 shares of 10%, $100 par value noncumulative preferred stock for $110 per share at the beginning of Year 3. It did not pay any dividends in Year 3 or Year 4. In December of Year 5, it declares total dividends of $250,000. How much will the common stockholders of Marine Corporation receive as dividends in Year 5?

$150,000 (Because preferred stock is noncumulative, preferred stockholders receive only the annual dividend of $100,000 (= 10,000 shares x 10% x $100). Common stockholders will receive the remaining $150,000.)

Lego, Inc., issued common stock in Year 1. It issued 10,000 shares of 8%, $100 par value cumulative preferred stock for $110 per share at the beginning of Year 4. It did not pay any dividends during Year 4. In December of Year 5, it declares total dividends of $200,000. How much will the preferred stockholders of Lego receive as dividends in Year 5?

$160,000 (Annual preferred dividends total $80,000 (= 10,000 shares x 8% x $100). The preferred stockholders will receive $160,000 (= $80,000 in arrears + $80,000 for Year 5).)

Fairfield Corporation issues 100,000 shares of $1 par value common stock for $10 per share. This transaction:

increases assets and increases stockholders' equity.

Innovative Media issues 1,000 shares of 8%, $50 par value preferred stock for $60 per share. Which of the following will be recorded at the time of the issue?

A credit to Additional Paid-in Capital for $10,000 (Cash will be debited for $60,000, Preferred Stock will be credited for the $50,000 par value, and Additional Paid-in Capital will be credited for $10,000.)

All of the following accounts are directly or indirectly affected by a large stock dividend except _____.

Additional Paid-in Capital

The stockholders' equity section of the balance sheet includes which of the following accounts? Select all answers that apply to this question.

Additional Paid-in Capital Common Stock Preferred Stock Retained Earnings Treasury Stock