Chapter 13 LS

Identify the advantages of the corporate form of business.

- Limited liability of stockholders - Ease of capital accumulation - Continuous life

Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total _________.

10,000 shares x $5 x .05 = $2,500.

Blink, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $__________

19500

_________ stock is the number of shares that a corporation's charter allows it to sell.

Authorized

___________ stock is the number of shares that a corporation's charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.

Authorized

Identify the disadvantages of the corporate form of business.

Corporate taxation Government regulation

Gomez Inc.'s charter authorizes 1,000 shares of stock at a par value of $1 per share. Gomez sells 200 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include which of the following entries?

Credit to Common Stock, $1 par for $200. Debit to Cash for $200.

Ivers, Inc. purchased 100 shares of its own $10 par value common stock for $20 per share. The journal entry to record this transaction would include which of the following entries?

Debit to Treasury Stock; credit to Cash.

Identify which of the following is not generally a right of common stockholders.

Manage operations

Dane, Inc. purchased 10 shares of its own $5 par value common stock for $20 per share. The journal entry to record this transaction would include a (debit/credit) __________ to the Treasury Stock account in the amount of $__________

debit; $200

The amount of income earned per each share of a company's outstanding common stock is known as:

earnings per share

True or false: Preferred stock can be issued to raise money with voting rights.

false; Preferred stock can be issued to raise money with no voting rights.

Stock that typically includes preference for receiving dividends and for distribution of corporate assets during a liquidation is called __________ stock.

preferred

Corporations can be separated into two types. A __________ held corporation does not offer its stock for public sale and usually has few stockholders. A __________ held corporation offers its stock for public sale and can have thousands of stockholders.

privately and publicly

__________ __________is an account that consists of a company's cumulative net income less any losses and dividends declared since its inception.

retained earnings

A statement of stockholders' equity lists balances of:

retained earnings common stock shares net income cash dividends

A stock __________ is the distribution of additional shares to stockholders according to their percent ownership. When this occurs, the corporation "calls in" its outstanding shares and issues more than one new share in exchange for each old share.

split

Mario, Inc. declares a 2-for-1 stock __________. This means that Mario will "call in" its outstanding shares and issue two shares in exchange for each old share of stock.

split

The _____ lists the beginning and ending balances of key equity accounts and describes the changes that occur during the period.

statement of stockholders' equity

A _______ dividend, declared by a corporation's directors, is a distribution of additional shares of the corporation's own stock.

stock

When a corporation purchases shares of its own stock, it is called ________ stock.

treasury

Stockholders have the right to __________ at stockholders' meetings.

vote

In the computation of basic earnings per share, a company will use the _____.

weighted-average common shares outstanding

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries?

- Debit to Cash for $500. - Credit to Common Stock for $50. - Credit to Paid-In Capital, in Excess of Stated Value for $450.

John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts?

- Paid-in Capital in Excess of Par Value - Common Stock

Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to _________ in the amount of _______.

Paid-in Capital, in Excess of Par; $8,000

_________ has/have special rights that give it priority over other types of stock in one or more areas.

Preferred stock

_________ has/have special rights that give it priority over other types of stock in one or more areas. Multiple choice question.

Preferred stock

The account that consists of a company's cumulative net income less any losses and dividends declared since its inception is called _________.

Retained Earnings

Which of the following is not a reason that a corporation would issue preferred stock?

To obtain a tax advantage over corporations with no preferred stock

Corporations purchase and hold their own stock, known as treasury stock, for several reasons. Identify which of the following is not a reason that a corporation would buy treasury stock.

To reduce the market value of the common shares outstanding

True or false: Stockholders do not have the power to bind the corporation to contracts. This is referred to as lack of mutual agency.

True

A _________ is the distribution of cash to its owners. This is determined by the board of directors.

cash dividend

A ___________ is an entity created by law that is separate from its owners. Owners are called stockholders or shareholders. These entities can be privately or publicly held.

corporation

Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit) __________ to Common Stock, $1 par for $__________

credit and $100

Josie Inc.'s charter authorizes 1,000 shares of stock with no par value. Josie Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) __________ to Common Stock, for $__________

credit for $500

Josie Inc.'s charter authorizes 1,000 shares of stock with no par value. Josie Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit)__________ to Common Stock, for $__________

credit for $500

Riley Inc.'s charter authorizes 1,000 shares of stock at a stated value of $10 per share. Riley issues 50 shares of stock at its initial offering for $20 per share. The journal entry to record this transaction will include a (debit/credit) __________ to Common Stock, $__________

credit for $500

On August 20, Max, Inc. issues 100 shares of $1 par value preferred stock for $3,000 cash. The entry to record this transaction would include a (debit/credit) __________ to the preferred stock account in the amount of $__________

credit, 100

On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry to record this transaction would include a (debit/credit) ________ to the preferred stock account in the amount of _______.

credit; $1,000 ;The preferred stock account is credited for the par value of $10 per share. The excess is credited to the Paid-In Capital account.

Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) _______ to Common Stock for ______.

credit; $500

The board of directors authorizes a cash __________ or distribution of cash to its investors.

dividend

A charter application usually must be signed by the prospective stockholders called incorporaters or __________. Then, it is filed with the appropriate state official.

promoters

The board of directors of Visor, Inc. authorize a _________, a distribution of additional shares of the corporation's own stock, to existing shareholders.

stock dividend

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate __________

taxation, taxes, tax, or double taxatio

A corporation is created by obtaining a charter from:

the state government