AC 210 Chapter 11

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

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

Contributed Capital

Any difference between the cost of the treasury stock and the price when it is re-issued is recorded as a ______.

debit to Additional Paid-in Capital when the price is below the cost

Which form of financing has a tax advantage?

debt financing

A stock dividend ______.

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

Investors acquire common stock because they expect a return on their investment from ______.

distributions of dividends increases in stock prices

Distribution of a company's accumulated prior earnings is a(n) ______.

dividend

Preferred stock generally ______ preference as to dividends.

has

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

Retained Earnings represents cumulative ______ by the business.

net income kept profits retained

Stock options ______.

provide the holder with the option to purchase stock at a specified price during a specified period of time are often given to employees as part of their compensation

Investors earn a return on stock investments by ______.

selling the stock for more than its cost receiving dividends

Treasury Stock on the balance sheet is ______.

subtracted from total stockholders' equity

Contributed capital of $1,000,000 represents ______.

the amount stockholders have invested in exchange for stock

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

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

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

issued minus the number of shares in treasury

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

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 ______ shares.

45,000

Stock options are expensed ______.

when granted and are recorded at the estimated cost of the options

True or false: Some states allow corporations to issue no-par value common stock.

True

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes a ______.

$100,000 debit to Cash $10,000 credit to Common Stock $90,000 credit to Additional Paid-in Capital

When does a corporation record an increase in Dividends Payable?

On the declaration date

After a 3-for-1 stock split, the par value of each stock is ______ the par value prior to the split.

one third

Preferred stockholders ______.

receives dividends before common stockholders

Diva, Inc. declared and paid $10,000 of dividends. Dividends of $10,000 may be found on the ______.

statement of retained earnings

Treasury stock is reported in the ______.

stockholders' equity section of the balance sheet

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

False

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares it is allowed to issue. Stockit has repurchased 10,000 of its own shares. The number of shares authorized equals ______ shares.

1,000,000

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

Refurbish, Inc., bought 1,000 shares of its own stock for $8,000. Later it reissued the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n) ______.

$2,000 credit to Additional Paid-in Capital $8,000 credit to Treasury Stock

The declaration of a dividend results in ______.

a decrease in Retained Earnings after temporary accounts are closed an increase in liabilities an increase in Dividends

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

authorized

Preferred stock is advantageous in that it ______.

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

Investors who acquire preferred stock ______.

have preference as to dividends have preference over common stockholders

Earnings per share (EPS) appears on the ______.

income statement

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

kept; balance sheet and statement of retained earnings

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 increase in Treasury Stock $10,000 decrease in Cash

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 ______.

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

Refurbish, Inc., reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, ______.

Additional Paid-in Capital will be increased by $2,000 Treasury Stock will equal $4,000

Which of the following line items would be found on a statement of stockholders' equity that would not be on the statement of retained earnings?

Common Stock Treasury Stock Additional Paid-in Capital

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

Par Value

reports the cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began

Retained Earnings

The statement of __________ reports the changes in retained earnings as well as paid-in capital.

Stockholders Equity

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

Stockholders' equity on the balance sheet increases. The financing activities section of the statement of cash flows increases.

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

Treasury Stock

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

True or false: All transactions between a company and its stockholders do not affect the income statement. Dividends do not affect Net Income.

True

Transactions between a company and its stockholders affect the company's _____ accounts only.

balance sheet

When does the company record the dividend?

declaration date

The effect of repurchasing stock using the cost method is to ______.

decrease assets increase Treasury Stock decrease stockholders' equity

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a(n) ______

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

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

Earnings per share (EPS) may be determined by ______.

dividing the stock price by the P/E ratio dividing net income less preferred dividends by the average common shares 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

Advantages of equity financing over debt financing include that ______.

equity financing does not require repayment dividends are optional

Common stock's par value ______. (

has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies affects how common stock is recorded was introduced to prevent bankrupt companies from unfairly distributing company resources

Advantages of debt financing over equity financing are that ______.

interest payments on debt are tax deductible control is not diluted

Preferred stock ______.

is useful for raising capital without reducing common stockholders' control has preference as to dividends

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

no-par value stock

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

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 assess fees.

par