ACTY 3110 Exam #3 Study Guide

When a company believes the market price of its stock is _______, it may attempt to support the price by ______ the supply of stock through stock repurchases.

undervalued; decreasing

Which of the following may be a source of paid-in capital? (Select all that apply.)

Company sells stock to investors Company repurchases some of its outstanding common stock Share-based compensation activities

Shareholders' equity consists of which of the following items? (Select all that apply.)

amounts earned by the corporation amounts invested by shareholders

A frequent reason for a stock split is to

cause the market price per share to decline.

When a company repurchases shares held as treasury stock, the number of shares outstanding:

decreases

Treasury shares are the same as shares that have never been issued; therefore, treasury shares

may not vote or receive cash dividends.

A reverse stock split requires

no journal entry

The right to purchase additional shares of stock to maintain one's percentage of ownership when new shares are issued is called a ______ right.

preemptive

Fantastic Gold Inc. declares and distributes to its shareholders 1 gram of gold in lieu of a cash dividend. Fantastic Gold is distributing a(n)

property dividend.

Mueller Company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a:

reverse stock split

When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this is referred to as a(n)

reverse stock split

Mars Inc. issues 5,000 shares of no par stock for $100,000. Which of the following entries are required? (Select all that apply.)

Debit cash. Credit common stock.

True or false: Treasury stock represents investments in treasury securities of the U.S. government.

False

True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.

False

Which type of stock usually has a high par value and a percentage of par value dividend rate?

Preferred stock

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?

The fair value of the stock

Retained earnings is typically reported on the balance sheet

as a single amount.

A business that has equity accounts labeled "common stock" and "retained earnings" is a

corporation.

When a company issues different classes of shares, it must

distinguish the rights for each class of stock.

Disadvantages of the corporate form of business are (Select all that apply.)

government regulation. double taxation.

Amounts earned by the corporation on behalf of its shareholders and recorded as a single amount are referred to as:

retained earnings

Which of the following are sources of shareholders' equity? (Select all that apply.)

retained earnings paid-in capital

If more than one class of shares is authorized, what type of information must be specified? (Select all that apply)

specific rights for each class designation to distinguish each class

The term treasury stock refers to

stock that is repurchased and not retired.

When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction? (Select all that apply.)

the amount of cash that would be paid to purchase the asset the quoted market price for the shares

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

the market price per share decreases.

Which feature of preferred stock requires that, when a dividend is declared, all previous undeclared dividends must be paid on preferred stock?

Cumulative

When a corporation repurchases its stock as treasury stock, the number of shares authorized

does not change.

The date on which a cash dividend becomes a liability to a corporation is the

declaration date.

Justin Corp. issues 10,000 shares of $1 par value common stock for $5 per share. The journal entry to record this transaction will include which of the following? (Select all that apply.)

credit to common stock $10,000 credit to additional paid-in capital $40,000

Knorr issues 1,000 shares of $2 par value common stock for $10 per share. The journal entry to record this transaction will include which of the following? (Select all that apply.)

credit to common stock $2,000 credit to additional paid-in capital $8,000

In year 1, Boise purchased 10,000 shares of treasury stock for $5 per share. In year 3, Boise reissued 1,000 shares of treasury stock for $8 per share. The journal entry to record the transaction in year 3 will include (Select all that apply.)

credit to paid-in capital from treasury stock for $3,000. credit treasury stock for $5,000.

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

dividend.

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.

In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Debit paid-in capital—treasury shares $400.

In year 1, Rim Corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Debit retained earnings $300. Credit treasury stock $5,000 Debit cash $4,500 Debit paid-in capital—share repurchase $200.

When a corporation issues two securities for a single price, how is the issue price usually allocated?

The cash received is allocated based on the relative market value of each security.

When does a dividend become a liability to a corporation?

When it is declared by the board of directors

If a company repurchases its shares of stock and does not retire the shares, the shares are reported as

a contra equity account—treasury stock.

Which of the following items are included in other comprehensive income? (Select all that apply.)

deferred gains and losses on derivatives gains and losses from amendments to postretirement programs net holding gains and losses on certain types of investments

Preferred stockholders usually have preference over common stockholders with respect to which items? (Select all that apply.)

distribution of assets in liquidation dividends

A liquidating dividend means that

dividends exceed retained earnings.

Which of the following items are included in other comprehensive income? (Select all that apply.)

net holding gains and losses on investments that are available for sale adjustments from foreign currency translations

When investors purchase shares of stock, it is classified as

paid-in capital.

A nonreciprocal transfer to owners is referred to as a

property dividend.

When a corporation repurchases its stock as treasury stock, the number of shares issued

remains the same.

The purpose of the statement of shareholders' equity is to

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

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

treasury stock