Chapter 10: Stockholders Equity

An accumulated deficit ______.

indicates accumulated net losses means that Retained earnings has a debit balance

Match the level of risk exposure for investors with the respective type of investment. Instructions 1. Bonds 2. Preferred stock 3. Common stock

1. lowest 2. middle 3. highest page 497

Similar to a stock split, a stock ______ also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.

dividend

Preferred stock:

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

Dividends payable is a(n) ____ account with a normal ____ balance and is recorded on the declaration date.

liability; credit

Investors who acquire preferred stock:

- do not have voting rights. - have preference as to dividends.

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?

Corporate charter Articles of incorporation

Preferred stockholders usually have preference over common stockholders with respect to which items?

Dividends Distribution of assets in liquidation

Select those statements below that are true about cash dividends. a) On the payment date, current assets are decreased. b) On the date of record, retained earnings is decreased. c) On the payment date, retained earnings is decreased. d) On the declaration date, liabilities are increased.

On the payment date, current assets are decreased. On the declaration date, liabilities are increased.

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a: a) $50,000 decrease in total stockholders' equity. b) $50,000 increase in total stockholders' equity. c) $50,000 increase in total liabilities. d) $10,000 increase in total assets. e) $10,000 increase in total stockholders' equity. f) $50,000 increase in total assets.

b) $50,000 increase in total stockholders' equity. d) $50,000 increase in total assets.

A corporate charter (aka articles of incorporation): a) is required only for publicly-traded corporations. b) specifies the shares of stock to be issued. c) names the board of directors. d) describes the business activities. e) specifies the number of shares outstanding.

b) specifies the shares of stock to be issued. c) names the board of directors. d) describes the business activities.

An increase in EPS is an indicator of ______.

higher profitability

Corporations may be ____ held ____ or held.

privately; publicly

The purpose of the statement of shareholders' equity is to

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

The declaration of cash dividends reduces _____ ______.

retained earnings

The statement of shareholders' equity reports a) assets, liabilities, and owners' equity for the period. b) the changes in each shareholder equity account. c) the revenues and expenses for the period. d) the changes to assets over the period.

the changes in each shareholder equity account.

Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock for $5 per share. Which statement is true regarding the effect of this transaction on Stockits' financial statements?

Stockholders' equity on the balance sheet increases.

The declaration of a dividend results in ______.

an increase in Dividends an increase in liabilities

When should a corporation record a liability for dividends in arrears on its cumulative preferred stock?

When the dividends have been declared

Which financial statement summarizes the changes in the balance of each stockholders' equity account?

Statement of stockholders' equity only

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by: (Select all that apply.) a) increasing total assets. b) decreasing total stockholders' equity. c) increasing retained earnings. d) increasing total stockholders' equity. e) increasing total liabilities. f) increasing additional paid-in capital.

a) increasing total assets. d) increasing total stockholders' equity.

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by: (Select all that apply.) decreasing total stockholders' equity. increasing total assets. increasing additional paid-in capital. increasing total stockholders' equity. increasing total liabilities. increasing retained earnings.

increasing total assets. increasing additional paid-in capital. increasing total stockholders' equity.