CH 8 SmartBook
Under (cumulative/slate) voting, if three directors are to be elected, the owner of 50 shares of common stock is entitled to 150 votes.
cumulative
The date on which the board of directors declares the dividend and it becomes a legal liability of the corporation is called the (declaration/record/payment/ex-dividends) date.
declaration
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.
If the Retained Earnings account has a negative balance, it is referred to as an accumulated (depreciation/loss/deficit).
deficit
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 normally expressed as a percentage of previously issued shares. is the issuance of additional shares of stock in proportion to each stockholder's current ownership.
Preferred stock is different from common stock in that preferred stock:
does not generally have voting rights. has a limited claim on the company's assets in the event of liquidation. has several debt-like features.
Retained earnings is sometimes referred to as (contributed/earned) capital.
earned
In a consolidated balance sheet, the caption "Equity" is used to _____.
include both stockholders' equity and noncontrolling interest
Additional paid-in capital:
is a component of stockholders' equity. is sometimes referred to as capital in excess of par.
Stockholders' equity:
is sometimes referred to as net assets, which is assets minus liabilities. is the claim of the entity's stockholders to the assets shown in the balance sheet.
The number of (authorized/issued/treasury) shares is the number of shares of stock that have actually been transferred from the corporation to the stockholders.
issued
Identify the true statements regarding noncontrolling interest. More than one answer may be correct.
it is sometimes called minority interest- it signified that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties
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.
If the stock dividend percentage is less than 20 to 25 percent (i.e., a small stock dividend), the (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
When common stock is sold, the Cash account is debited for the (market/par) value per share of common stock issued.
market
The market value per share of common stock for a company decreases immediately after it issues a stock dividend because _____. Multiple choice question.
more number of shares of stock are now outstanding, and the total market value of the company's total shares do not change
The portion of equity in a subsidiary not attributable, directly or indirectly, to the parent company (reporting entity) is referred to as the (unusual/noncontrolling/extraordinary) interest.
noncontrolling
The number of (authorized/outstanding/treasury) shares will be less than the number of issued shares if the firm has (authorized/outstanding/treasury) stock.
outstanding, treasury
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
If the stock dividend percentage is more than 20 to 25 percent (i.e., a large stock dividend), the (par/market) value of additional common shares issued is transferred from retained earnings to common stock. Listen to the complete question
par
Preferred stock issues that provide for (cumulative/participating) dividends may result in the preferred stockholders receiving additional dividends beyond the annual preferred dividend requirement.
participating
Stockholders' equity ______.
represents the net assets of the business
Financial statements prepared by not-for-profit organizations focus on ______ rather than owners.
resource providers
The term capitalizing retained earnings refers to the fact that stock dividends cause a permanent transfer of some:
retained earnings to paid-in capital.
Under (cumulative/slate) voting, if three directors are to be elected, the owner of 50 shares of common stock is entitled to 50 votes.
slate
What is the accounting entry to record the purchase of treasury stock?
Dr. Treasury Stock Cr. Cash
Identify the similarities between preferred stock and bonds payable. More than one answer may be correct.
Liquidating value (for preferred stock) 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 stock) and interest (for bonds) both normally represent a fixed claim to income.
What happens after a stock split? More than one answer may be correct.
No accounting entry is required. The number of shares authorized, issued, and outstanding increase proportionately. Existing stockholders receive additional shares of stock in ratios such as 2:1 or 3:1 or 4:1 (as some common examples).
Which of the following statements are true regarding owners' equity and ownership rights held in noncorporate entities? More than one answer may be correct.
Not-for-profit and governmental organizations normally report to resource providers rather than investors because:
Which statements are true regarding preemptive rights of common stockholders? More than one answer may be correct.
They often help to maintain stockholder loyalty. They provide a way for stockholders to prevent their ownership interest from being diluted. They offer existing stockholders the right to purchase additional shares when more 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.
authorized
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. to later be resold for cash if additional capital is needed. for future use for employee stock purchase plans.
Preferred stock that is (callable/convertible) is redeemable (usually at a slight premium over par) at the option of the issuer.
callable
Not-for-profit organizations prepare a statement of ______, which is similar to a statement of stockholders' equity prepared by corporations.
changes in fund balances
Common stock is an example of what is sometimes referred to as (contributed/earned) capital.
contributed
If the stock dividend percentage is more than 20 to 25 percent (i.e., a large stock dividend), the (par/market) value of additional common shares issued is transferred from retained earnings to common stock. Listen to the complete question
market
A reverse stock split:
sometimes occurs when the market price of a company's common stock has settled in a lower level than management thinks is appropriate.
Some firms assign a (slate/stated/legal) value per share, which is essentially par value by a different name.
stated
Retained earnings represents ______.
the entity's cumulative earnings over the life of the entity less any dividends paid
Which of these statements about common stockholders are true? More than one answer may be correct.
All profits accrue to common stockholders; there is no upper limit to the value of their ownership interests. They are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's assets.
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
What is the accounting entry to record the sale of treasury stock for a price greater than the treasury shares were purchased for?
Dr. Cash Cr. Treasury Stock Cr. Additional Paid-in Capital
Which of the following statements are true regarding common stock terminology?
In most states, stockholders' equity cannot be reduced below the legal capital of the corporation by paying dividends or purchasing treasury stock. Some firms assign a stated value per share, which is effectively treated the same as the par value per share.
Which statements are true regarding the cumulative foreign currency translation adjustment? More than one answer may be correct.
It is reported within stockholders' equity rather than on the income statement because these amounts are unrealized. It is reported as a component of Accumulated Other Comprehensive Income (Loss) within stockholders' equity. It can swing back and forth from a debit (net cumulative loss) balance to a credit (net cumulative gain) balance within stockholders' equity. Need help? Review these concept resources.
How does a stock dividend affect the financial statements of the company? More than one answer may be correct.
Its common stock is increased. Its net income is not affected. Its total paid-in capital is increased.
When a company purchases treasury stock, how are the financial statements affected? More than one answer may be correct.
Its total assets will decrease. There will be no effect on its total liabilities.
Which 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.
Identify the differences between preferred stock and bonds payable. More than one answer may be correct.
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 stock has no maturity date; bond principal must be paid at maturity. Preferred dividends may be legally skipped; bond interest must be paid, or the firm faces legal action, possibly leading to bankruptcy.
How is preferred stock different from common stock? More than one answer may be correct.
Preferred stock has historically been viewed as having less risk than common stock. Preferred stock must be paid dividends before any dividends can be paid on common stock.
Which of these are included in 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? More than one answer may be correct.
A debit to the Retained Earnings account for the market price per dividend share issued A credit to the Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued
Which stockholders' equity captions are usually seen in a balance sheet?
Retained earnings Preferred stock Accumulated other comprehensive income (loss)
Which of the following statements regarding net income (loss) and retained earnings are correct?
Retained earnings represent the cumulative earnings the corporation has retained for use in the business. Net income for the period increases retained earnings.
What happens after a stock split? More than one answer may be correct.
The total market value of the company's outstanding stock usually does not change. The Common Stock caption of stockholders' equity indicates a drop in the par value per share (if appropriate).
Which statements are true regarding preemptive rights of common stockholders? More than one answer may be correct.
They are usually most significant in smaller, closely held corporations in which stockholders can prevent the dilution of their ownership interests. They can be a relatively inexpensive way to raise capital.
Which stockholders' equity captions are usually seen in a balance sheet?
Treasury stock Additional paid-in capital Common stock
A reverse stock split:
causes a company's market price per share of common stock to increase in proportion to the size of the reverse split. can be issued without the need for the issuer to record any accounting entries.
Ownership interests in subsidiaries held by parties other than the parent must be clearly identified, labeled, and presented in the consolidated balance sheet within (assets/liabilities/equity), but separate from the parent's (assets/liabilities/equity).
equity, equity
Companies reacquire their own common stock and hold it as treasury stock:
for future use for the acquisition of other companies. because management wants to shrink the supply of its own stock in the market to drive up the price per share. as a defensive move to thwart a takeover by another company.
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
The (declaration/record/payment/ex-dividends) date is used to determine who receives the dividend; the person listed on the stockholder records on the corporation on this date is considered the owner of the shares.
record
The (declaration/record/payment/ex-dividends) date is used to determine who receives the dividend; the person listed on the stockholder records on the corporation on this date is considered the owner of the shares. Listen to the complete question
record
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.
Companies reacquire their own common stock and hold it as treasury stock:
to later be resold for cash if additional capital is needed. 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.
Any salary paid to the proprietor of a firm is _____.
treated as reduction to the proprietor's capital
Paid-in capital includes which of these? More than one answer may be correct.
Additional paid-in capital Preferred stock Common stock
Firm A has 8 percent, $50 par value cumulative preferred stock, 30,000 shares authorized, issued, and outstanding. Dividends are paid semiannually, and no dividends are in arrears. The semiannual dividend requirement is:
30,000 x $50 x 8% x 6/12 = $60,000
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 cumulative foreign currency translation adjustment is reported as a component of:
Accumulated Other Comprehensive Income (Loss) within stockholders' equity on the balance sheet.
Preferred stock issues usually provide a (cumulative/participating) dividend, which means that any dividends that have been missed and are in (treasury/arrears) must be paid subsequently before any dividends can be paid to the common stockholders.
Blank 1: cumulative Blank 2: arrears
What is 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?
DR Cash 13 CR Common Stock 10 CR Additional Paid-in Capital 3
Identify the financial statement of a corporation that is similar to the statement of changes in fund balances prepared by not-for-profit organizations.
Statement of stockholders' equity
Which of the following statements are true?
Stock dividends are based on the number of shares previously issued. Cash dividends are based on the number of shares outstanding.
Which statements are true? More than one answer may be correct. Multiple select question. Stock dividends are not issued on treasury stock. Stock dividends and stock splits are based on the number of shares outstanding. Stock splits affect treasury stock. Cash dividends are not paid on treasury stock.
Stock splits affect treasury stock. Cash dividends are not paid on treasury stock.
Preferred stock that is callable is redeemable (usually at a slight premium over par) at the option of the (stockholder/issuer).
issuer
Which of these are included in 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? More than one answer may be correct.
A credit to the Common Stock account for the par value per dividend share issued A debit to the Retained Earnings account for the market price per dividend share issued
The entry to record the issuance of common stock for a price greater than the par value per share includes which of the following? More than one answer may be correct.
A debit to Cash account for the market value (price) per share A credit to Common Stock account for the par value per share A credit to Additional Paid-in Capital account for the excess of the market value (price) over the par value per share
How does a declaration of a cash dividend affect a firm's financial statements on the date of declaration? More than one answer may be correct.
A decrease in total stockholders' equity An increase in current liabilities
How does the purchase of treasury stock affect the financial statements? More than one answer may be correct.
A decrease to total stockholders' equity A decrease to cash
How does a declaration of a cash dividend affect a firm's financial statements on the date of declaration? More than one answer may be correct.
An increase in total liabilities A decrease in retained earnings
In the context of determining the ending balance of retained earnings within the statement of changes in retained earnings, which statements are true? More than one answer may be correct.
Stock dividends need to be subtracted (negative amount)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)Treasury stock purchases have no effect on retained earnings.Net income needs to be added (positive amount) to retained earningsStock splits have no effect on 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. In most states, the dividend must not exceed the corporation's retained earnings.
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.
Which statements regarding prior period adjustments are true?
They may result in either an increase or decrease to retained earnings. They are direct adjustments to retained earnings for the correction of errors.
When treasury stock is sold for a price greater than the treasury shares were purchased for, how does the transaction affect the financial statements? More than one answer may be correct.
An increase to cash An increase to total stockholders' equity
Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components? More than one answer may be correct.
Changes in certain pension or other postretirement benefit items Unrealized gains or losses on available-for-sale investments