Chapter 10

Retained earnings of $100,000 represent a corporation's cumulative earnings ______ and is shown on the ______.

not paid out by dividends; balance sheet and statement of retained earnings

The number of shares issued represents the number of shares:

sold

Another common term for stockholders' equity is:

shareholders' equity

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

treasury stock.

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.

Measurement: Dividends declared on outstanding common stock are payable on

All issued shares of common stock other than treasury stock.

Invested capital

Common stock

Special contractually granted features can make preferred stock:

convertible redeemable cumulative

Preferred stock is advantageous in that it:

has priority over common stock when dividends are declared. has priority over common stock at liquidation.

Historically, par value was considered to be

the value of the company's shares of stock.

ratio measures the ability of company management to generate earnings from the resources owners provide?

ROE (Return on equity)

Earned capital

Retained earnings

The rights of common stockholders typically include which of the following?

Right to vote for corporate directors. Right to dividends when declared. Right to distribution of assets in liquidation.

Distributions of stock to current shareholders of a corporation are called what type of distribution?

Stock dividend Stock split

The journal entry to record the declaration of a dividend includes ______.

a credit to Dividends payable a debit to Dividends

The number of shares authorized is set forth in the company's:

articles of incorporation

A frequent reason for a stock split is to

cause the market price per share to decline.

Preferred stockholders:

have the right to receive dividends only in the years the board of directors declares dividends.

The amount of money paid into a company by its owners is referred to as:

invested capital

Preferred stock:

is useful for raising capital without reducing common stockholders' control. has preference as to dividends. generally does not have voting rights.

Disadvantages of the corporate form of business are

more paperwork additional taxation.

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

preference in distribution of assets during dissolution of corporation first right to specified amount of dividends

A corporation is owned by its...

shareholders

True or false: The board of directors is responsible for establishing corporate policies.

true

The amount of dividends paid out relative to the share price is referred to as:

dividend yield

Earned capital increases ____.

retained earnings

Diva, Inc. declared and paid $10,000 of dividends in Year 3. The dividends result in a reduction of

retained earnings.

A corporate charter:

specifies the shares of stock to be issued. describes the business activities. names the board of directors.

True or false: A corporation is owned by debt and equity holders.

false. A corporation is owned by its shareholders, who are equity holders.

Evaluation of the company's profitability requires consideration of the amount of a company's earnings in relation to the size of the

investment.

The number of shares outstanding equals the number of shares ______.

issued minus the number of shares in treasury

In a corporation, the stockholders' potential loss is

limited to the amount of the investment.

Which of the following will decrease the par value of shares?

stock split

The term treasury stock refers to

stock that is repurchased by the issuing corporation.

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

the market price per share decreases.

Positive ________ represent the key to a company's long-run survival.

Earnings

Limited liability and ease of raising outside capital are advantages of this business form:

corporation

Which of the following is included in the rights of common stockholders?

right to vote

When a business incorporates, it must file its ______ with the state in which it incorporates.

articles of incorporation

Wyanot Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. The journal entry to record this transaction includes:

$100,000 credit to Preferred stock. $10,000 credit to Additional paid-in capital - preferred. $110,000 debit to Cash.

X-Co issued 1,000 shares of its 5%, $10 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes:

$100,000 debit to Cash. $10,000 credit to Preferred stock. $90,000 credit to Additional paid-in capital.

Which of the following are included in the duties of the board of directors?

Establish corporate policies. Appoint officers to manage the corporation.

The (a) issuance of common stock and (b) purchase of treasury stock have what effects on total expenses reported in the income statement?

Neither "Issuing common stock increases total revenues" nor "Purchasing treasury stock increases total expenses" is correct.

______ capital is the amount of money paid into a company by its owners.

Paid-in (Invested, contributed)

Albert Inc. has both common and preferred stock outstanding. Which should be listed first in the stockholders' equity section of the balance sheet?

Preferred stock

The total number of shares that a company may sell is referred to as:

authorized shares

The advantages to the corporate form of business include

ease of raising capital. transferability of ownership.

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n):

increase in liabilities. decrease in stockholders' equity.

The legal capital per share of stock that is assigned when the corporation is first established is referred to as

par value

A stock dividend causes a stockholder's percentage ownership in a company to ______

remain the same

AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. The number of shares issued equals ______ shares.

100,000

Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?

The right to redeem the preferred shares for cash The right to convert the shares to common shares