ACG ch. 11

Port St. Joe Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2021. No dividends were declared in 2019 or 2020. If the corporation pay $375,000 of dividends at the end of 2021, common stockholders will receive: $135,000 $295,000 $215,000 $0

$135,000 Preferred stockholders receive: 3 x $80,000 = $240,000 Common stockholders receive: $375,000 - 240,000 = $135,000

A corporation's December 31, 2021 balance sheet showed the following: 6% preferred stock, $50 par value, cumulative, 30,000 shares authorized; 12,000 shares issued $ 600,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 The corporation declared and paid a $100,000 cash dividend on December 15, 2021. If the company's dividends in arrears prior to that date were $48,000, the corporation's common stockholders would receive

$16,000 Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $48,000. Current year dividend to preferred stockholders = 12,000 x $50 x 6% = $36,000 Total paid to preferred stockholders = $48,000 + 36,000 = $84,000 Total paid to common stockholders = $100,000 - 84,000 = $16,000

At the start of its first year, a corporation issued 6,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock. The corporation declared and paid dividends of $18,000 in the first year. In its second year, the corporation declared and paid dividends of $72,000. What are the dividends received by the common stockholders in the second year?

$42,000 The preferred stock is cumulative so there are never dividends in arrears. Annual dividend to be paid to preferred shareholders = 6,000 shares x(8% x $50) = $24,000 Dividends in arrears = Annual dividend to be paid to preferred stockholders - Dividend paid to preferred stockholders Dividend in arrears = $24,000 - 18,000 = $6,000 Second year dividend to preferred stockholders = Annual dividend to be paid to preferred stockholders + dividends in arrears Second year dividend to preferred stockholders =$24,000 + 6,000 = $30,000 Dividend paid to common stockholders = Dividend - Dividend to preferred stockholders Dividend to common stockholders = $72,000 - 30,000 = $42,000

A corporation's balance sheet shows the following: Preferred stock, $20 par value, 8% cumulative, 30,000 shares authorized; 15,000 shares issued $ 300,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 What is the corporation's total paid-in capital?

$46,860,000 Preferred stock, $300,000 Common stock, $19,500,000 Paid-in capital in excess of par value—Preferred stock, $60,000 Paid-in capital in excess of par value—Common stock, $27,000,000 Total paid-in capital, $46,860,000

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $315,000 Treasury stock, $10,000 Dividends payable, $30,000 Paid-in capital in excess of par value, $55,000 Common stock, $215,000 How much is total stockholders' equity?

$575,000 Total stockholders' equity = Retained earnings - treasury stock + paid-in capital in excess of par value + common stock Total stockholders' equity = $315,000 - $10,000 + $55,000 + $215,000 = $575,000

The following data is available for a certain corporation at December 31: Common stock, par $2 (authorized 300,000 shares) $ 250,000 Treasury stock (at cost $10 per share) $ 1,200 Based on the data, how many shares of common stock are outstanding?

124,880 The common stock account records the par value of common stock that has been issued. Given the common stock account's total is $250,000 and common stock has a $2 par value per share the company the company must have 125,000 shares of common stock issued (i.e., $250,000/$2 per share = 125,000 shares). This company has treasury stock. Treasury stock is a corporation's own stock that has been reacquired. With $1,200 of treasury stock recorded on the company's books and a $10 cost per share the company must have 120 shares of its own common stock being held as treasury stock.The number of outstanding shares equals the number of issued shares minus the number of shares reacquired (i.e., treasury shares). This company has 124,880 shares outstanding (i.e., 125,000 - 120 = 124,880).

The following information is for a certain company: Net income, $920,000 Common stock dividends, $100,000 Preferred stock dividends, $50,000 Average total assets, $6,600,000 Average common stockholders' equity, $4,000,000 Average preferred stockholders' equity, $1,000,000 What is the return on common stockholders' equity?

21.75% Return on common stockholders' equity = Net income minus preferred stock dividends divided by the average common stockholders' equity Return on common stockholders' equity = (920,000 - 50,000)/4,000,000 = 21.75%.

The following information is for a given company: Net income, $750,000 Common stock dividends, $25,000 Preferred stock dividends, $75,000 Average total assets, $7,000,000 Average common stockholders' equity, $5,000,000 Average preferred stockholders' equity, $1,000,000 What is the payout ratio?

3.33% Payout ratio = Cash dividends declared on common stock divided by net income Payout ratio = 25,000/750,000 = 3.33%.

A corporation issues 1,000 shares of $8 par value common stock at par. Which of the following will be part of the journal entry to record the issuance?

A credit to Common Stock for $8,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 1,000 x $8 = $11,000 Credit to Common stock = 1,000 x $8 = $8,000 Credit to Paid-in capital in excess of par value = 1,000 x ($8 - $8) = $0

In 2021, MacIntosh Incorporated had 3,000 shares of 5%, $40 par value, cumulative preferred stock outstanding. The corporation had not paid a dividend in 2018, 2019, or 2020. In 2021, it paid $100,000 in dividends. How much of the dividend is paid to common stockholders?

Common stock dividend = Total dividend - Preferred stock dividend Common stock dividend = $100,000 - 24,000 = $76,000

Which of the following is not true of a corporation? Corporations may sue and be sued. Corporations may enter into binding legal contracts in its own name. Corporations pay federal income taxes as a separate entity. Corporations may buy, own, and sell property. Corporate losses must be paid personally by the corporation's shareholders.

Corporate losses must be paid personally by the corporation's shareholders As an entity that is separate from its owners—the stockholders—a corporation may enter binding legal contracts' It can also can buy, own, and sell property in its name. Likewise, corporations can sue and be sued. Corporations must also file annual income tax returns and pay taxes to the federal government

On November 11, ABC Corp. issues 100,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, the company credits: Common Stock $1,000,000 and Paid‐in Capital in Excess of Stated Value $200,000. Common Stock $1,200,000. Common Stock $1,000,000 and Paid‐in Capital in Excess of Par Value $200,000. Common Stock $1,000,000 and Retained Earnings $200,000.

Debit cash 1,200,000 credit common stock 1,000,000 credit paid-in capital common stock 200,000

Entries for cash dividends are required on the: Declaration date and the record date. Declaration date and the payment date. Record date and the payment date. Declaration date, record date, and payment date.

Declaration date and the record date On the date of declaration, a company records dividends and dividends payable. On the date of payment, the company records the decrease in dividends payable and the decrease in cash. There is no journal entry recorded on the date of record. The date of record is merely the date on which ownership is determined for the purpose of determining who receives the dividend for each share of stock outstanding.

In 2021, MacIntosh Incorporated had 3,000 shares of 5%, $40 par value, cumulative preferred stock outstanding. The corporation had not paid a dividend in 2018, 2019, or 2020. In 2021, it paid $100,000 in dividends. How much of the dividend is paid to preferred stockholders?

Preferred stock dividend = Par value x Rate x (1 + No. of years in arrears) x No. shares Preferred stock dividends = $40 per share x 5% x (1 + 3) x 3,000 = $24,000

Which one of the following is not a right of preferred stockholders? None of these are rights of preferred stockholders Priority voting rights Preferred stockholders have all of these rights Priority to the assets in the event of liquidation Priority in relation to dividends

Priority voting rights Preferred stockholders usually have no voting rights and never have priority voting rights. Preferred stockholders normally have a priority in relation to dividends. Preferred stockholders normally have a priority to assets in the event of liquidation.

Which of the following is not a common reason for acquiring treasury stock? To have additional shares available for use in acquiring other companies. To reissue the shares to officers and employees under bonus and stock compensation plans. To increase the earnings per share. To increase the trading of the company's stock in the securities market. To increase the number of shares outstanding

To increase the number of shares outstanding The acquisition of treasury stock increases the trading of a company's stock and makes the treasury shares available for distribution as part of a bonus or compensation plan or use in an acquisition of another company. Treasury stock reduces the number of shares outstanding thus increasing the earnings per share.

A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $14.00 per share. Which of the following will be recorded when the repurchase of the shares is journalized?

Treasury Stock will be debited for $1,400. The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 100 shares x $14/share = $1,400. Debit the Treasury Stock account to increase it.

If a corporation's stock is traded on a stock exchange, such as the New York Stock Exchange (NYSE), the corporation is classified as

a publicity held corporation Corporations are either publicly held or privately held. A corporation with stock sold on a stock exchange is a publicly held corporation. In contrast, stock of a privately held corporation is not sold on a stock exchange.

Which of these statements is false? All corporations have common stock that gives their owners voting rights. The stockholders' equity section begins with paid‐in capital. The authorization of capital stock does not result in a formal accounting entry. All corporations have preferred stock.

all corporations have preferred stock All corporations have common stock that gives their owners voting rights. Some corporations issued more than one class of common stock with one or more classes lacking voting rights, but all corporations do have at least one class of common stock with voting rights. The stockholders' equity section is organized in this order: (i) paid‐in capital, (ii) retained earnings, and (iii) treasury stock. Authorizing stock does not involve a journal entry. While all corporations have common stock, relatively few have preferred stock.

Treasury stock may be acquired: To reissue the shares to officers and employees under bonus and stock compensation plans. To signal to the stock market that management believes the stock is underpriced. To have additional shares available for use in the acquisition of other companies. All of these

all of these When a company acquires its own stock it buys its own stock from existing shareholders. The acquired stock becomes known as treasury stock. These purchases reduce the number of shares outstanding. Companies acquire their own stock for one or more reasons, including: To reissue the shares to officers and employees as part of bonus plans and stock compensation plans. To increase the trading of the company's stock in the securities market and on stock exchanges. To have additional shares available to offer it for the stock of other corporations in a merger. To increase earnings per share by reducing the number of outstanding shares. To reduce or eliminate the threat of hostile take‐overs by shareholders (e.g., reduce the number of shareholders who could be induced to sell to the party trying to take‐over the corporation).

The chief accounting officer in a company is known as the

controller The chief executive officer (CEO) performs daily management functions to operate the corporation. Other Officers help the chief executive officer operate the corporation. One such officer is the controller. The controller is the chief accounting officer. The controller maintains the corporation's accounting records, systems of internal controls, and prepares its financial statements, tax returns, and internal reports

A corporation issues 30,000 shares of $100 par value preferred stock for cash at $110 per share. The entry to record the transaction will include a

credit to Preferred Stock for $3,000,000 and a credit to Paid-in Capital in Excess of Par Value for $300,000. When a company issues preferred stock, it debits the cash it receives from the stockholder, it credits preferred stock for the par value of the stock issued. and it credits paid-in capital in excess of par value--preferred stock for any amount received in excess of par value. Debit cash for $3,300,000 (i.e., 30,000 shares x $110 per share). Credit preferred stock for $3,000,000 (i.e., 30,000 shares x $100 per share). Credit paid-in capital in excess of par--preferred stock for $300,000 (i.e., 30,000 shares x $10 per share).

A feature of preferred stock entitling the stockholder to receive current and unpaid prior‐year dividends before common stockholders receive any dividends.

cumulative dividend

Woodland Company declared a cash dividend of $2.00 per share on 50,000 shares of common stock on July 15. The dividend is to be paid one month later on August 15 to stockholders of record on July 31. The correct entry to be recorded on the date of declaration of July 15 will include a

debit to the Dividends account and a credit to the Dividends Payable account. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration: It debits the Dividends account and it credits Dividends Payable account. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable and credits Cash.

The net effects on the corporation of the declaration and payment of a cash dividend are to

decrease assets and decrease stockholders' equity. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration:It debits the Cash Dividend account (i.e., it decreases stockholders' equity) for the amount of the dividend, and it credits Dividends Payable (i.e., it decreases liabilities) for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable (i.e., it reduces liabilities) and credits Cash (i.e., it reduces assets) for the amount of the dividend paid. Thus, the net effect of declaring and paying a dividend is to decrease Cash (i.e., decrease assets) and increase Cash Dividends (i.e., which reduces stockholders' equity).

The amount per share of stock that must be retained in the business for protection of corporate creditors.

legal capital

Stock that has been issued and is being held by stockholders.

outstanding stock

Stock that has been assigned a value per share in the corporate charter.

par value stock

Stock that has contractual preferences over common stock in certain areas.

preferred stock

A corporation that may have thousands of stockholders and whose stock is regularly traded on a securities market.

publicly held corporation

The date when ownership of outstanding shares is determined for dividend purposes.

record date

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to

reduce the amount of retained earnings available for dividends to shareholders. Any portion of retained earnings may be restricted which means that portion of retained earnings cannot be used to pay dividends to shareholders. Restrictions on retained earnings can result from legal restrictions, contractual restrictions, or voluntary restrictions

Net income since the inception of a corporation that has not been distributed to a corporation's owners as dividends.

retained earnings

The issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share.

stock split

Stockholders of a corporation directly elect

the board of directors Stockholders (also called shareholders) have certain rights as the owners of the corporation. One of these rights is the right to vote in the election of the corporation's board of directors. The corporation's board of directors chooses the company's offices; company officers are not hired directly by shareholders.

A corporation's own stock that has been issued, fully paid for, and reacquired by the corporation but not retired.

treasury stock

Which of the following is not considered to be a characteristic of the corporate form of organization? Continuous life Unlimited liability of stockholders Transferable ownership rights Separate legal existence Ability to acquire capital through the issuance of stock

unlimited liability of stockholder Characteristics of corporations include: (i) separate legal existence, (ii) continuous life, (iii) ability to raise capital (e.g., via issuing stock), (iv) transferable ownership rights, (v) limited liability of stockholders, (vi) corporation management (e.g., elect board of directors), (vii) government regulations, and (viii) additional taxes.