Chapter 11 LearnSmarts

Dividends Payable is a(n) _______ account with a normal ______ balance and is initially recorded on the ______ date.

liability, credit, declaration

A stock _____, typically given to employees as part of their compensation that gives them the opportunity to buy the company's stock at a predetermined price, is recorded as an expense at the time it is granted

option

_____ is an insignificant value per share of capital stock specified in the corporate charter

par value

Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common stock. Which of the following is true?

this entry is correct

When a corporation buys back its own stock, the stock is reported on the balance sheet as

treasury stock

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The effect of this transaction on the accounting equation, using the cost method, includes a

- $10,000 decrease in Cash - $10,000 increase in Treasury Stock

Which of the following would be found on a statement of stockholders' equity?

- Dividends - Net Income - Stock Issuances - Additional Paid-in Capital - Treasury Stock

Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity?

- Dividends: Preferred - Dividends: Common - Net Income

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000. The effect of this transaction on the accounting equation includes a(n)

- decrease in assets - decrease in stockholders' equity

A stock dividend:

- distributes additional shares of stock to existing stockholders on a pro rata basis - causes retained earnings to decrease

When Diva, Inc., declared a $10,000 cash dividend, it recorded a debit to ______ and a credit to Dividends _____.

dividends, payable

Refurbish, Inc. bought 1,000 shares of its own stock at $8 a share. Later, it reissued the shares for $10,000. The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n)

$10,000 increase in stockholders' equity

Advantages of debt financing over equity financing are that

- control is not diluted - interest payments on debt tax deductibles

Sea the World Cruises issued 400,000, $1 par value shares of the 1,000,000 shares authorized for $1,000,000. The entry to record the issuance of the stock includes

- debit Cash $1,000,000 - credit Common Stock $400,000 - credit Additional Paid-in capital $600,000

The declaration and payment of a cash dividend ultimately causes a(n)

- decrease in Cash - decrease in Retained Earnings - decrease in stockholders' equity

Preferred stock is advantageous in that it

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

Investors earn a return on stock investments by

- receiving dividends - selling the stock for more than its cost

In an IPO, Ima Rich purchased 1,000 shares of BMI, Inc. for $5,000. Five years later, Ima Rick sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of this sale?

BMI, Inc., will not be directly affected by this transaction

True or false: No gain or loss is reported when treasury stock is reissued because GAAP does not consider transactions between a corporation and its owners to be profit-making activities.

True

Transactions between a company and its stockholders affect the company's

balance sheet

The money a corporation receives from investors by issuing stock is called

contributed capital

The owners of a(n) _____ are not personally responsible for the debts of the business.

corporation

Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes a $5,000 ____ to Treasury Stock

debit

When does the company record the dividend?

declaration date

Preferred stock generally ______ preference as to dividends

has

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding.

net income

When a corporate charter does not specify a legal value per share, then the stock issued is referred to as

no-par value stock

When a stockholder sells its shares of ABC Co. to another person at a price higher than what the stockholder purchased it for, ABC records

nothing

A common stock's ____ value is typically set at a low amount and has little meaning today other than being used to by some states to access fees.

par

Just In Thyme, Inc. has the following December 31 equity balances: Common Stock of $20,000; Additional Paid-in Capital of $30,000; and Retained Earnings of $50,000. If Just In Thyme repurchases $10,000 of its stock, the total stockholders' equity balance would equal

$90,000

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissu

- increase in total assets of $10,000 - decrease in additional paid-in capital of $1,000

Lox, Stock and Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals

45,000

Which of the following statements are true? A. Corporations rely more on debt financing than equity financing because debt financing is more plentiful. B. Corporations rely more on equity financing than debt financing because debt financing is more expensive. C. An advantage of equity over debt financing is corporations are not required to pay dividends or repay stockholders. D. Two sources of financing for a corporation are debt and equity.

C and D

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000 and recorded the entry with a debit to

Treasury Stock and a credit to Cash of $8,000

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares authorized. Stockit has repurchased 10,000 of its shares. The number of shares authorized represents the

maximum number of shares Stockit is allowed to issue

When does a corporation record an increase in Dividends Payable?

on the declaration date

The statement _______ ________ of reports the changes in retained earnings as well as paid-in capital

stockholders' equity

Treasury stock is reported in the

stockholders' equity section of the balance sheet

Contributed capital of $1,000,000 is found in the ______ section of the

stockholders' equity; balance sheet

Treasury Stock on the balance sheet is

subtracted from total stockholders' equity

Treasure This, Inc. had total assets of $100,000, liabilities of $60,000 and stockholders' equity of $40,000 before repurchasing 1,000 shares of its $1 par value common stock for $5 each. After this repurchase, total assets equal _____, liabilities equal ______ and stockholders' equity equals ______.

$95,000; $60,000; $35,000

The maximum number of shares a corporation is allowed to sell in accordance with its corporate charter are called ____ shares.

authorized

When a company reissues shares at higher price than the cost to previously purchase the treasury stock, it records a

credit to Additional Paid-in Capital

When a company issues of shares of $0.10 par value common stock for $10 per share, it will record a

credit to Additional Paid-in Capital for the difference between the $10 price and the $0.10 par value

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

______ per share equals Net Income divided by the average shares of common stock ______

earnings, outstanding

Dew Drop Inn, Inc. has a current ratio of 0.9 to 1.0 and $4 of debt for every $1 of equity. If Dew Drop Inn needs additional financing, it would best improve its financial situation with

equity financing

True or false: When a corporation declares a dividend its Net Income on the income statement is reduced.

false

Retained Earnings represents cumulative ______ by the business

profits retained and net income kept

Stock options are given to

provide incentives for employees to work harder

______ ______ represents the earned capital and ________ Capital represents the paid-in capital

retained earnings; contributed

The number of shares issued represents the number of shares

sold

Shares that were previously issued to and owned by stockholders but have been reacquired and now held by the corporation are called _____ Stock.

treasury