Principles of Financial Accounting Ch. 11 Concepts

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. What was the amount of dividends paid to common stockholders?

$12,000

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. How much of the distributions will go to the preferred stockholders?

$18,000

Fontaine Incorporated issued a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25. There were 12,000 shares of stock issued and 10,000 shares of stock outstanding. As a result of the stock dividend, retained earnings earnings decreased by ______.

$25,000

Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock that has a current market value of $5.20 per share. Based on this The book value per share of the stock is ______.

$3.20 Reason: ($50,000 stock + $30,000 retained earnings) ÷ 25,000 shares of stock = $3.20 per share.

Cloud Company has 5,000 shares of 6%, $20 par value noncumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. What was the amount of dividends paid to preferred stockholders?

$6,000

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line would show $______ of cash inflow from ______ activities.

240000, financing

Fontaine Incorporated issued a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25. There were 12,000 shares of stock issued and 10,000 shares of stock outstanding. The stock dividend increased the amount of additional paid-in capital in excess of par value by $______.

5000

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid $30,000 of cash dividends in a year when no dividends were in arrears. Based on this information, the preferred stockholders received $______ and the common stockholders received $______.

6,000, 24,000

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's balance sheet would show $______ of paid-in capital in excess of par value.

90,000

Select all that apply Which of the following characteristics make transferring the ownership of a proprietorship difficult?

A buyer must purchase the entire business. Most proprietorships are owner operated.

Which of the following is not normally included in the articles of incorporation?

A forecast of projected profitability

Select all that apply The issue of no-par common stock affects the ______.

Balance Sheet Statement of Cash Flows

Which form of business organization offers the greatest ease of transferring ownership?

Corporation

Which form of business organization offers the greatest opportunity to raise capital?

Corporations

Which of the following statements is true? - Corporations are not legally required to declare cash dividends. - A corporation must recognize a liability for a dividend on the payment date. - A corporation becomes legally obligated to pay a dividend on the date of record. - Dividends are recorded as expenses on the declaration date.

Corporations are not legally required to declare cash dividends.

Select all that apply Which of the following statements are true? - A company may only have one class of preferred stock. - All common stock has voting rights. - Different classes of stock may have different rights and privileges. - A company may have different classes of common stock.

Different classes of stock may have different rights and privileges. A company may have different classes of common stock.

True or false: A company may have different classes of preferred stock, but only one class of common stock.

False

True or false: Profitable companies cannot be forced into bankruptcy.

False

Select all that apply Which of the following statements are true? - Since the par value represents the legal capital, it constitutes the most important characteristic of stock. - Many states allow corporations to issue no-par stock. - Par value represents the purchase price of stock offered to executives and other premium investors. - To minimize the amount of assets that owners must maintain in the business, many corporations issue stock with very low par values.

Many states allow corporations to issue no-par stock. To minimize the amount of assets that owners must maintain in the business,many corporations issue stock with very low par values.

Select all that apply Which of the following statements are true? - Owner withdrawals are shown in the capital statement of a proprietorship. - The Retained Earnings account is shown on the balance sheet of a proprietorship. - Distributions to the owner of a proprietorship are called dividends. - The balance sheet of a proprietorship contains a single Owner's Capital account.

Owner withdrawals are shown in the capital statement of a proprietorship. The balance sheet of a proprietorship contains a single Owner's Capital account.

Select all that apply Which of the following statements are true? - All partners receive an equal share of earnings. - Proprietorships and partnerships account for owner contributions, retained earnings and withdrawals in the same way. - Partnerships do not have a Retained Earnings account because all earnings are distributed directly to each partner's capital account immediately. - The term withdrawals may be found in the financial statements of both proprietorships and partnerships. - Partnerships do not maintain separate capital accounts for each partner.

Partnerships do not have a Retained Earnings account because all earnings are distributed directly to each partner's capital account immediately. The term withdrawals may be found in the financial statements of both proprietorships and partnerships.

The Public Company Accounting Oversight Board (PCAOB) was created by the

Sarbanes-Oxley Act of 2002

Select all that apply Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. This stock issue affects the ______.

Statement of Cash Flows Balance Sheet

Select all that apply Paying a previously declared dividend affects the ______.

Statement of Cash Flows Balance Sheet

Select all that apply Purchasing treasury stock affects the ______.

Statement of Cash Flows Balance Sheet

Select all that apply Which of the following statements are true? - The amount of a preferred stock dividend is usually stated on the stock certificate. - If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever. - An advantage of preferred stock is that their dividends are usually unlimited. - Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders.

The amount of a preferred stock dividend is usually stated on the stock certificate. If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever. Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders.

Select all that apply Which of the following statements are true? - Outstanding stock is stock that has a high probability of a significant increase in market value. - The number of shares outstanding may be less than the number of shares issued. - Treasury stock is stock that a company has repurchased from its investors. - Authorized stock is the number of shares the members of the board of directors is permitted to purchase.

The number of shares outstanding may be less than the number of shares issued. Treasury stock is stock that a company has repurchased from its investors.

Select all that apply Which of the following statements are true?

Trading on a stock exchange is limited to the stockbrokers who are members of the exchange. The stock of closely held companies is not sold on major stock exchanges.

True or false: Partnerships and proprietorships are usually managed by their owners.

True

True or false: The appropriation of retained earnings restricts the amount of retained earnings available for the distribution of dividends.

True

Stock with a stated value is accounted for exactly the same way as stock with ______ value.

a par

Select all that apply Corporations ______.

are established under rules that vary from state to state are separate legal entities created by the authority of a state government

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury stock for $30 per share, the $500 excess of the resale price over the purchase price will be recorded _______.

as paid-in capital from treasury stock transactions

Purchasing treasury stock is a(n) ______ transaction.

asset use

The maximum number of shares of stock corporations are legally permitted to issue is the ______ number of shares.

authorized

Select all that apply Corporations purchase treasury stock to ______. - avoid a hostile takeover - have stock available to satisfy the requirements of - employee stock option plans - generate gains, thereby improving the amount of net income - be in a position to cast votes for the members of the board of directors - keep the price of the stock high when it appears to be falling

avoid a hostile takeover have stock available to satisfy the requirements of employee stock option plans keep the price of the stock high when it appears to be falling

Partners capitals account appear on the the ______.

balance sheet only

Select all that apply When a company issues no-par common stock, the ______. - company cannot pay dividends because there is no par value on which dividends can be based - cash inflow is classified as a financing activity - entire amount of the proceeds is placed into the Common Stock account

cash inflow is classified as a financing activity entire amount of the proceeds is placed into the Common Stock account

If a company is forced to liquidate, the highest risk of losing their investment rests with ______ stockholders.

common

The greatest potential for rewards when a corporation prospers rests with ______ stockholders.

common

Creditors cannot claim owners' personal assets as payment for the company's debts if the company is organized as a(n) ______.

corporation

The benefit of continuity of existence is an advantage of being organized as a(n) ______.

corporation

The life of a ______ continues even after the owner(s) have departed.

corporation

Billions of dollars of capital may be generated by pooling the resources of millions of owners through public stock and bond offerings for companies organized as

corporations

Stock certificates are used as evidence of ownership in ______.

corporations

In a business liquidation, priority rests with ______.

creditors

A corporation becomes legally obligated to pay a cash dividend on the ______ date.

declaration

ABC Corporation paid $15,000 to the Internal Revenue Service (IRS) on profits earned and their stockholders paid an additional $6,000 to the IRS for the dividends received from ABC. This phenomenon is commonly called ______ ______.

double taxation

A company can show a high price-earnings (P/E) ratio, even when the market is not optimistic if ______.

earnings per share is very low

Select all that apply The Securities and Exchange Commission (SEC) has the authority to ______.

establish accounting principles for corporations registered on a stock exchange defer its rule-making authority to independent, private sector organizations such as the Financial Accounting Standards Board (FASB) enforce securities law

It is assumed under the ______ ______ doctrine that a business is able to continue its operations into the foreseeable future.

going concern

The Public Company Accounting Oversight Board (PCAOB) is empowered to ______.

impose disciplinary and remedial sanctions for violations of its rules, securities law and professional auditing and accounting standards

Double taxation refers to the fact that ______.

income is taxed first at the corporate level and a second time when stockholders receive dividends

Declaring a cash dividend ______.

increases liabilities and decreases stockholders' equity

Select all that apply A stock split ______. - increases the par value per share - increases the number of shares outstanding - has no effect on cash flow - decreases the market value per share

increases the number of shares outstanding has no effect on cash flow decreases the market value per share

Select all that apply Recording the cash payment of a previously declared dividend decreases ______.

liabilities assets

A chief advantage of the corporate form of business is ______.

limited liability

If a business ceases to operate, its remaining assets are sold and the proceeds are returned to creditors and investors through a process called business ______.

liquidation

Select all that apply Par value represents the Blank______. - market value on the date of issue - price investors must pay to obtain a share of stock - maximum liability of the investors - minimum amount of assets that must be retained in the company as protection for creditors

maximum liability of the investors minimum amount of assets that must be retained in the company as protection for creditors

Select all that apply Cumulative dividends ______. - are paid to preferred stockholders only after common stockholders receive their dividends - may also be called dividends in arrears - are normally assigned to common stock - are dividends that accumulate for future payment when a company fails to pay a periodic dividend

may also be called dividends in arrears are dividends that accumulate for future payment when a company fails to pay a periodic dividend

Select all that apply Book value per share is Blank______. - the price of stock on the date it was originally sold to an investor - measured in historical dollars - the value investors are willing to pay for a share of stock - calculated by dividing total stockholders' equity by the number of shares of stock owned by investors

measured in historical dollars calculated by dividing total stockholders' equity by the number of shares of stock owned by investors

Companies that had paid dividends in the past are ______ (less/more) likely to pay dividends in the future.

more

Select all that apply When a corporation buys treasury stock, the ______. - number of shares of stock outstanding decreases - total amount of stockholders' equity increases - number of shares of stock authorized is not affected

number of shares of stock outstanding decreases number of shares of stock authorized is not affected

Select all that apply Stock dividends have no effect on ______. - ownership interest in assets - the statement of cash flows - net income - total assets - market value of the stock

ownership interest in assets the statement of cash flows net income total assets

Select all that apply Stock dividends have no effect on ______.

ownership interest in assets the statement of cash flows total assets net income

When par or stated value stock is issued, the amount received above the par or stated value is recorded in the ______ account.

paid-in capital in excess of par (or stated) value

Clear agreements about authority, risks and sharing profits are needed when a business is organized as a(n) ______.

partnership

Select all that apply The term withdrawal may appear in the financial statements of a ______. - partnership - corporation - not-for-profit organization - proprietorship

partnership proprietorship

Two or more individuals share ownership in ______.

partnerships

The date that a company settles its dividend liability is the _____ date.

payment

Corporations are usually managed on a daily basis by ______.

professional executives

Price-earnings (P/E) ratios reported in the financial press are often based on _____ earnings per share.

projected

Owner contributions and retained earnings are combined in a single capital account on the balance sheets of ______.

proprietorships

A company's financial statements are not impacted on the date of ______ of a cash dividend.

record

The party that owns the stock on the date of ______ is legally entitled to a cash dividend.

record

When a company appropriates retained earnings, total retained earnings ______.

remains unchanged

Select all that apply Declaring a cash dividend affects ______. - retained earnings - expenses - cash flow from financing activities - liabilities

retained earnings liabilities

A business owned by a single individual that is usually be established simply by obtaining a local business license is a(n) ______ ______.

sole proprietorship

No legal ownership agreement is required for ______.

sole proprietorships

The sale of treasury stock is a(n) ______ transaction.

source

When par or stated value stock is issued, the total amount received is ______.

split between two equity accounts

Like par value, ______ value is an arbitrary amount assigned by the board of directors to a share of stock.

stated

Select all that apply In predicting the declaration of cash dividend payments a stockholder can examine ______.

the cash account to assess sufficiency for dividend declarations retained earnings to assess sufficiency for dividend declarations

Select all that apply Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue, ______. - total liabilities increased by $90,000 - the income statement was not affected - total assets increased by $240,000 - cash flow from investing activities increased by $240,000 - total stockholder's equity increased by $150,000

the income statement was not affected total assets increased by $240,000

Select all that apply Stock splits have no effect on ______

total assets total stockholders' equity total liabilities

Select all that apply Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value preferred stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue ______. - total liabilities increased by $90,000 - the income statement was not affected - total assets increase by $240,000 - cash flow from financing activities increased by $240,000 - total stockholder's equity increased by $150,000

total assets increase by $240,000 the income statement was not affected cash flow from financing activities increased by $240,000

Select all that apply Common rights assigned to investors who own common stock include the right to ______. - use corporate assets to satisfy personal needs - vote on significant matters that affect the corporate charter - participate in the election of directors - share in the distribution of profits - examine financial statements before they are issued to the general public

vote on significant matters that affect the corporate charter participate in the election of directors share in the distribution of profits

Distributions to owners of proprietorships are called ______.

withdrawals