Ch. 8 Qs

Additional Paid-in Capital account is (debited/credited) for the excess of the market value per share over the par value per

credited

The date on which the board of directors declares the dividend and it becomes a legal liability of the corporation is called (declaration/record/payment/ex-dividends) date.

declaration

Cash account is debited for the (market/par) value per share of common stock issued.

market

If the stock dividend percentage is less than 20 to 25 percent (i.e., a small stock dividend), (par/market) value of additional common shares issued is transferred from retained earnings to common stock for the par value and to additional paid-in capital for the market value minus the par value.

market

The issuance of additional shares of common stock to stockholders in proportion to the number of shares each currently owns is referred to as a (scrip/stock/bond) dividend

stock

Paid-in capital includes:

-common stock -preferred stock -additional paid-in capital

Common stockholders:

-experience no upper limit to the value of their ownership interests. -are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset.

Firm C has 10 percent, $80 par value cumulative preferred stock, 9,000 shares authorized, 7,000 issued, and 6,000 shares outstanding. Dividends are paid annually. Dividends were not paid in the prior three years. The total dividend requirement in the current year to pay dividends in arrears as well as the current year's preferred dividend is:

6,000 x $80 x 10% x 4 = $192,000

The entry to record the issuance of common stock for a price greater than the par value per share includes which of the following?

A credit to Common Stock account for the par value per share. A debit to Cash account for the market value (price) per share. A credit to Additional Paid-in Capital account for the excess of the market value (price) over the par value per share.

Stockholders' equity captions usually seen in a balance sheet include:

Accumulated other comprehensive income (loss) Retained earnings Preferred stock

Identify the true impact of a stock split.

After a stock split, the number of shares authorized, issued, and outstanding increase proportionately. After a stock split, existing stockholders receive additional shares of stock in ratios such as 2:1 or 3:1 or 4:1 (as some common examples). After a stock split, no accounting entry is required.

Identify the true impact of a stock split.

After a stock split, the total market value of the company's outstanding stock usually does not change. After a stock split, the Common Stock caption of stockholders' equity indicates a drop in the par value per share (if appropriate).

In the context of determining the ending balance of retained earnings within the statement of changes in retained earnings which of the following is true?

Cash dividends for common and preferred stock need to be subtracted (negative amount) The beginning balance of Retained Earnings account needs to be added (positive amount) Stock dividends need to be subtracted (negative amount)

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components?

Cumulative foreign translation adjustments Gains or losses on certain derivative instruments

The entry (on a per share basis) to record the issuance of $10 par value common stock at a market value (price) of $13 per share is:

DR Cash 13 CR Common Stock 10 CR Additional Paid-in Capital 3

Which of the following statements are true regarding common stock terminology?

In most states, stock with par value cannot be issued for a price less than the par value per share. Some firms assign a stated value per share, which is effectively treated the same as the par value per share.

Identify the true statements regarding noncontrolling interest.

It is sometimes called minority interest. It signifies that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties.

If a company issues a stock dividend, identify the true effects on the financial statements of the company.

Its total liabilities are not affected. Its common stock is increased. Its net income is not affected. Its total paid-in capital is increased.

Identify the similarities between preferred stock and bonds payable.

Liquidating value (for preferred) and maturity value (for bonds) both represent a fixed claim to assets. Preferred stock and bonds payable are both usually callable and may be convertible. Dividends (for preferred) and interest (for bonds) both normally represent a fixed claim to income.

Which of the following statements regarding net income (loss) and retained earnings are correct?

Net loss for the period decreases retained earnings. Dividends declared during the period decrease retained earnings.

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes:

a debit to Retained Earnings account for the market price per dividend share issued. a credit to Common Stock account for the par value per dividend share issued.

The effects on the financial statements of the purchase of treasury stock include:

a decrease to cash. a decrease to total stockholders' equity.

The effects on the financial statements of the sale of treasury stock for a price greater than the treasury shares were purchased for include:

an increase to cash. an increase to total stockholders' equity.

The effects on the financial statements of the sale of treasury stock at a price greater than the treasury shares were purchased for include:

an increase to total assets. no effect on total liabilities.

Prior period adjustments:

are direct adjustments to retained earnings for the correction of errors. may result in either an increase or decrease to retained earnings.

Stockholders' equity captions usually seen in a balance sheet include:

common stock treasury stock additional paid-in capital

Immediately after the issuance of a stock dividend, the market value per share of common stock for the company should normally:

decrease because more shares of stock are now outstanding, but the total market value of all shares remains the same.

Common stockholders:

do not have any personal liability for corporate debts and thus cannot be forced by creditors to invest additional amounts to make up for losses. have a claim to all assets that remain in the entity after all liabilities and preferred stock claims have been satisfied.

A stock dividend:

does not affect the proportionate ownership interests held by each shareholder. is the issuance of additional shares of stock in proportion to each stockholder's current ownership. is normally expressed as a percentage of previously issued shares.

Preferred stock is different from common stock in that preferred stock:

has a limited claim on the company's assets in the event of liquidation. does not generally have voting rights. has several debt-like features.

Additional paid-in capital:

is sometimes referred to as capital in excess of par. is a component of stockholders' equity.

Additional paid-in capital:

is sometimes referred to as capital surplus. is one of the items included in the paid-in capital (or contributed capital) category of stockholders' equity.

The number of shares that have been sold for cash (or in exchange for other assets) is referred to as (authorized/issued/treasury) shares.

issued

Preferred stock is different from common stock in that preferred stock:

must be paid dividends before any dividends can be paid on common stock. may be callable and/or convertible. has historically been viewed as having less risk than common stock.

Additional paid-in capital is a stockholders' equity category that reflects the excess of the amount received from the sale of preferred or common stock over the (surplus/market/par) value per share.

par

Dollar Inc. made a mistake in the year-end physical count of its inventory, and the error was discovered in the following year. Upon discovering the error, Dollar Inc. directly made the adjustment to the inventory and retained earnings in the current year. This scenario is an example of a _________.

prior period adjustment

Not-for-profit and governmental organizations normally report to resource providers rather than investors because:

these types of organizations do not have owners who have direct financial interests in the entities.

Any salary paid to the proprietor of a firm is _____.

treated as reduction to the proprietor's capital

Firm B has $3, $50 par value cumulative preferred stock, 50,000 shares authorized and issued, and 40,000 shares outstanding. Dividends are paid quarterly, and no dividends are in arrears. The quarterly dividend requirement is:

40,000 x $3 x 3/12 = $30,000

Which of the following statements regarding net income (loss) and retained earnings are correct?

Net income for the period increases retained earnings. Retained earnings represent the cumulative earnings the corporation has retained for use in the business.

Which of the following statements are true regarding owners' equity and ownership rights held in noncorporate entities?

Owners' equity for proprietorships and partnerships is usually referred to as capital. No distinction is made between invested capital and retained earnings for a proprietorship or a partnership. Neither proprietorships or partnerships issue stock.

Identify the differences between preferred stock and bonds payable.

Preferred dividends are not an expense and are not deductible for tax purposes; bond interest is an expense and is deductible for tax purposes. Preferred dividends may be legally skipped; bond interest must be paid, or the firm faces legal action, possibly leading to bankruptcy. Preferred stock has no maturity date; bond principal must be paid at maturity.

In the context of determining the ending balance of retained earnings within the statement of changes in retained earnings which of the following is true?

Stock splits have no effect on retained earnings Treasury stock purchases have no effect on retained earnings. Net income needs to be added (positive amount) to retained earnings

Identify the requirements that must be met for a corporation to pay a cash dividend.

The corporation must have enough cash to be able to pay the dividend. The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend.

Identify the requirements that must be met for a corporation to pay a cash dividend.

The declaration of a cash dividend must not result in a violation of any existing contractual agreements such as bond covenants. The board of directors must declare the dividend first to pay a cash dividend.

Identify the true effects on the financial statements of a company if it purchases treasury stock.

There will be no effect on its total liabilities. Its total assets will decrease.

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components?

Unrealized gains or losses on available-for-sale investments Changes in certain pension or other postretirement benefit items

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes:

a debit to Retained Earnings account for the market price per dividend share issued. a credit to Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued.

Companies reacquire their own common stock and hold it as treasury stock:

because the management of these companies believe that the market price for their common stock is temporarily low and will soon recover. for future use for employee stock purchase plans. to later be resold for cash if additional capital is needed. as a defensive move to thwart a takeover by another company. to later be resold for cash if additional capital is needed.

The number of (authorized/issued/outstanding/treasury) shares is stated in the corporate charter that is filed with the state of incorporation.

contributed

The income statement is not affected by stock dividends because the transaction is between the corporation and:

its stockholders; no gain or loss can result from a capital transaction.

f the stock dividend percentage is less than 20 to 25 percent (i.e., a small stock dividend),(par/market) value of additional common shares issued is transferred from retained earnings to common stock for the par value and to additional paid-in capital for the market value minus the par value.

market