Ch. 18 - Shareholders' Equity

If 1% of common shares are retired, then common stock and additional paid-in capital should each be reduced by _____%.

1

_____ are the dominant form of business organization.

Corporations

_______ have characteristics of both regular corporations and partnerships.

S corporations

When cash is paid to retire stock, the effect is to decrease both ______ and shareholders' equity and the size of the company _________ (increases/decreases).

cash, decreases

________ income includes net holding gains/losses on investments, gains/losses from post-retirement benefit plans, deferred gains/losses on derivatives, and adjustments from foreign currency translation.

comprehensive

The owners are not personally liable for the debts of a ______.

corporation

If there is a _____ (debit/credit) difference between cash paid to repurchase shares and the amount the shares originally sold for (meaning, the shares were repurchased for less than the shareholders originally paid), then a paid-in capital - share repurchase account should be _____(debited/credited).

credit, credited

Registered owners of shares of stock on the _______ are entitled to receive a declared dividend.

date of record

When shares are formally retired, we should (increase/decrease) both common/preferred stock and paid-in capital.

decrease

A stock dividend will _____(increase/decrease) one or more shareholders' equity accounts and _____ (increase/decrease) one or more paid-in capital accounts.

decrease, increase

A stock ______ affects neither the assets nor the liabilities of a firm.

dividend

A share buyback increases share earnings, therefore it can be viewed as a way to distribute company profits without paying ______.

dividends

Corporations pay income taxes on their earnings, then shareholders pay income taxes on cash dividends. This is referred to as _____.

double taxation

Ownership interests of shareholders represent amounts _____ by shareholders and amounts _____ by the corporation on behalf of the shareholders.

invested, earned

When a corporation retires its own shares, those shares are just as if they had never been _____.

issued

When a dividend exceeds the balance in retained earnings, the excess is referred to as a ______ dividend and is debited to ______.

liquidating, additional paid-in capital

Comprehensive income encompasses all changes in equity other than those from transactions with ______.

owners

Amounts invested in the company by shareholders are reported as ____________.

paid-in capital

Any net increases in assets resulting from the sale and subsequent repurchase of stock is reflected as __________.

paid-in capital - share repurchase

A _____ feature allows preferred shareholders to receive additional dividends beyond the stated amount.

participating

Common shareholders have the right to maintain one's percentage share of ownership when new shares are issued. This is referred to as _____ right.

preemptive

If the board of directors declares dividends, ____ shareholders will receive the designated dividend before any dividends are paid to _____ shareholders.

preferred, common

Preferred shareholders may have a ________ privilege, which allows them to return their shares for a predetermined redemption price under specified conditions.

redemption

Corporations are subject to expensive government ______.

regulation

A _____ of retained earnings communicates management's intention to withhold assets represented by a specified portion of the retained earnings balance.

restriction

When directors declare a cash dividend, _______ is reduced and a ______ is recorded.

retained earnings, liability

When a company has a stock buyback, the shares can either be formally _____ or they can be called _______.

retired, treasury stock

Accounts that represent the ownership interest of shareholders are ______ ______ accounts.

shareholders' equity

The cost of treasury stock is reported as a temporary reduction in total _______. Allocating the cost occurs when the shares are _____.

shareholders' equity, resold

Shareholder liability is limited to the amounts they invest in the company when they purchase _____.

shares

The primary source of paid-in capital is the investment made by shareholders when buying _____.

stock

The distribution of additional shares of stock to current shareholders is called a _______.

stock dividend

After a stock dividend, shareholders own _______ (a higher / the same) percentage of the company. Each shareholder will own _____ (more/less) shares and the value of the individual shares will _____ (increase/decrease).

the same, more, decrease

Shares that are repurchased and not retired are called ______ stock.

treasury

The four classifications within shareholders' equity are paid-in capital, retained earnings, accumulated other comprehensive income, and _______.

treasury stock

_______ represents a corporation's accumulated, undistributed net income (or loss).

Retained earnings

________ may be debited in a treasury stock transaction, but not credited.

Retained earnings

Share issue costs reduce the net cash proceeds from the sale and also reduce the amount credited to the ___________ account.

additional paid-in capital

Unlike an investment in another firm's shares, the acquisition of a company's own shares does not create a(n) ______.

asset

Net _____ equals shareholders' equity.

assets

Shareholders' equity represents the residual amount leftover after creditor claims have been subtracted from _______.

assets

The right of ______ allows preferred shareholders to exchange shares of preferred stock for common stock at a specified ratio.

conversion

A _______ (debit/credit) balance in retained earnings indicates a dollar amount of assets previously earned by the firm but not distributed as dividends to shareholders.

credit

When treasury stock is resold, treasury stock is (debited/credited).

credited

Typically, preferred shares are _____, which means if the specified dividend is not paid for a given year, the unpaid dividends (in arrears) accumulate and must be made up in a later dividend year before any dividends are paid to common shareholders.

cumulative

If there is a _____ (debit/credit) difference between cash paid to repurchase shares and the amount the shares originally sold for (meaning, the shares were repurchased for more than the shareholders originally paid), then a paid-in capital - share repurchase account should be _______ (debited/credited), but ONLY if that account already has a ______ balance. The excess should be _______ (debited/credited) to ________.

debit, debited, credit, debited, retained earnings

When shares with a designated par value are sold for cash, cash is _______ (debited/credit), the common or preferred capital stock account is ____ (debited/credited) for the amount representing the par value of the shares, and the excess proceeds are ______ (debited/credited) to additional paid-in capital.

debited, credited, credited

The cost of acquiring shares to be later resold is temporarily _______ (debited/credited) to the ______ account.

debited, treasury stock

When shares are repurchased as treasury stock, we _____ increase/decrease the shareholders' equity with a ______ debit/credit to a contra shareholders' equity account called treasury stock.

decrease, debit

When a company's management feels the market price of its stock is undervalued, it may attempt to support the price by ______ (increasing/decreasing) the supply of stock in the marketplace.

decreasing

A debit balance in retained earnings is called a _____.

deficit

Amounts earned by a corporation on behalf of the shareholders are reported as ______.

retained earnings

Any net decrease in assets resulting from the sale and subsequent repurchase of stock is reflected as a reduction in _______.

retained earnings