ACCOUNTING FOR MANAGERS CH 8

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. What was the amount of dividends paid to common stockholders'?

$12,000: 5,000 shares x $20 x 6% = $6,000 annual x 3 years = $18,000 due to preferred stockholders'. $30,000 total dividend - $18,000 preferred stock distribution = $12,000 common stock distribution.

Fontaine Incorporated decided to issue a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25; there were 12,000 shares of stock issued; and 10,000 shares of stock outstanding. Recognizing the stock dividend will cause an increase in the amount of additional paid-in capital in excess of par value of

$5,000: $25 market value - $20 par value = $5 additional paid-in capital in excess of par value x 1,000 shares = $5,000.

Match the account title shown in the right column with the order in which they are presented in the stockholders' equity section of a balance sheet. Use the number 1 to represent the account title shown first, the number 2 to represent the second title, and so on.

1.) Par Value Preferred Stock 2.) Stated Value Common Stock 3.) Class B Common Stock 4.) Paid-in Capital in Excess of Par Value Preferred Stock 5.) Paid-in Capital in Excess of Stated Value Common Stock 6.) Retained Earnings

Which of the following is not normally included in the articles in incorporation?

A forecast of projected profitability

A partner's capital account will appear in which of the following financial statements?

Balance Sheet

Which of the following is true?

Buying the stock of a company may also be called investing in that company AND a stockholder may also be called an investor.

________ stockholders bear the highest risk of losing their investment if a company is forced to liquidate.

Common

Which of the following statements are true?

Common stockholders may have a right to vote in the election of the board of directors, Common stockholders may share in the distributions of profits, AND the same company may have more than one type of common stock.

Stock certificates are use as evidence of ownership in which of the following types of business organization?

Corporations

_________ are able to generate billions of dollars of capital by pooling the resources of millions of owners through public stock and bond offerings.

Corporations

Which of the following statements is true?

If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever AND preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders'.

How will declaring a cash dividend affect a corporation's financial statements?

Net income will not be affected AND Cash flow from financing activities will not be affected.

Which of the following are privileges that are frequently assigned to preferred stockholders?

Preferred stock has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders AND preferred stock dividend are paid before dividends are distributed to common stockholders.

A company's financial statements are not impacted on the date of ______ of a cash dividend.

Record

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Which of the following financial statements would be affected by the stock issue?

Statement of changes in Stockholders' equity, Statement of Cash Flows, AND Balance Sheet

Which of the following statements are true?

The balance sheet of a proprietorship contains a single Owner's Capital account AND owner withdrawals are shown in the capital statement of a proprietorship.

Suppose Company A buys the stock of Company B. How does the investment affect Company A's financial statements?

The investment in Company B account increases AND the cash account decreases.

How do stockholders' benefits from investing in the capital stock of another company?

The market value of the investment may increase AND stockholders may receive dividends

Which of the following statements are true?

The requirements for establishing a corporation vary from state to state. AND a Proprietorship is the simplest form of business organization to organize and operate.

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury

There would be no impact on the income statement AND Stanley would recognize a $500 increase in additional paid-in capital from treasury stock transactions.

common reasons corporations purchase treasury stock include which of the following?

To keep the price of the stock high when it appears to be falling, to avoid a hostile takeover, AND to stock available to satisfy the requirements of employee stock option plans

How will paying a cash dividend that was previously declared affect a corporations financial statements?

Total assets and total liabilities will decrease

Treasury stock is

a contra equity account shown on the balance sheet.

Cumulative dividends...

are dividends that accumulate for future payment when a company fails to pay a periodic dividend AND may also be called in arrears.

Purchasing treasury stock is a(n)

asset use event

The number of shares ________ is the maximum number of shares of stock corporations are legally permitted to issue.

authorized

Assume that Base Line Incorporated is authorized to issei's 50,000 shares of $15 state value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's

balance sheet would show $90,000 of paid-in capital in excess of stated value: $24 issue price - $15 stated value = $9 in excess of stated x 10,000 shares = $90,000.

Declaring a cash dividend is a(n)

claims exchange event

_______stockholders have the greatest potential for rewards when a corporation prospers.

common

Because a _______ is legally separate from its owners, creditors' personal assets as a payment for the company's debts.

corporation

A corporation becomes legally obligated to make a cash dividend on the ____________ date.

declaration

A stock split will cause a(n) _________ in the par value of the stock, a(n) _________ in the number of shares outstanding, and a(n) _________ in the market value per share of the stock.

decrease; increase; decrease

If a company reissues its Treasury Stock,

its stockholders' equity increases

If report earnings are_________ than analysts expect, the market value of the reporting company's stock will likely decline.

less

Companies that had paid dividends in the past are _______ likely to pay dividends in the future.

more

Stock dividends are based on the number of shares

outstanding

The term "withdrawal" may appear in the financial statements of a:

proprietorship AND partnership

The _________ value of stock is arbitrary amount established by the board of directors of a corporation.

stated

The greater the number of stockholders, the more _________ held a company is.

widely

Distributions to owners of proprietorship called

withdrawals