AC 211 Test 3- Chapter 11
AnuU, Inc. sold 100,000 shares of the 1,000,000 it is allowed to sell. AnuU repurchased 10,000 of these shares. What is the number of shares outstanding?
90,000
The journal entry to record the declaration of a dividend includes _____________.
A debit to dividends and a credit to dividends payable
Dividends on preferred stock ______________.
Are paid before dividends on common stock, may be paid at a fixed rate such as 7%, and are more attractive than common stock dividends to investors who want a stable income
The entry to record the issuance of 100,000 shares of $0.10 par value common stock for $10 per share is debit _____________.
Cash for $1,000,000 and credit common stock for $10,000 and additional paid-in capital for $990,000
Stock splits and stock dividends
Cause total stockholders' equity to remain the same
Which 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, and additional paid in capital
When a company issues share 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
The closing entry required at year end includes a _______________.
Credit to dividends and debit to retained earnings
When a company reissues shares at a price lower than the cost to previously purchase the treasury stock, it records a ______________.
Debit to additional paid in capital
Any difference between the cost of the treasury stock and the price when it is reissued is recorded as a _____________.
Debit to additional paid-in capital when the price is below the cost
The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a _______________
Debit to cash, debit to additional paid in capital, and credit to treasury stock
The journal entry to record the payment of a previously declared dividend includes a _______________.
Debit to dividends payable and credit to cash
What are two sources of financing for a corporation?
Debt and equity
Declaration and payment of a cash dividend ultimately causes a ___________.
Decrease in cash, decrease in retained earnings, and a decrease in stockholders' equity
A cash dividend differs from a 2-for-1 stock split in that a cash dividend _______________.
Decreases current assets and decreases retained earnings
Payment date
Dividends payable is decreased
Which of the following accounts are closed into retained earnings at year end?
Expense accounts, revenue accounts, and dividends
The reacquisition of preferred stock is referred to as a redemption because the stocks are ___________________.
Formally retired
An increase in EPS is an indicator of ________________.
Higher profitability
The repurchase of treasury stock will cause earnings per share (EPS) to ____________.
Increase
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 _____________.
Increase in total assets of $10,000 and a decrease in additional paid-in capital of $1,000
A stock dividend ________________.
Increases common stock, decreases retained earnings, and has no effect on total stockholders' equity
Issuing preferred stock _____________.
Increases stockholders' equity similar to issuing common stock
The risk from financial leverage ______________.
Increases when the cost of borrowing is greater than the return and decreases when a company issues new shares of stock
The number of shares outstanding equals the number of shares _______________.
Issued minus the number of shares in treasury
Dividends payable is a _____________ account with a normal _____________ balance and is initially recorded on the ________________ date.
Liability, credit, declaration
Accumulated deficit ______________.
Means that retained earnings has a debit balance, is shown in parentheses on the balance sheet, and indicates accumulated net losses
ROE relates ______________.
Net income to the average common stockholders' equity
Does a corporation have a legal obligation to pay dividends?
No
Does a stock dividend affect a stockholder's percentage ownership in a company?
No
After a 3-for-1 stock split, the par value of each stock is ____________ the par value prior to the split.
One third
A share of stock that has a dividend rate specified on it must be _______________.
Preferred stock
Investors earn a return on stock investments by ____________.
Receiving dividends and selling the stock for more than its cost
Corporations will declare stock dividends (or stock split) in order to ______________.
Reduce the market price of a share of stock and make it more attractive to some investors
Treasury stock ______________.
Reduces total stockholders' equity, is a contra-equity account, and is shares of stock no longer outstanding
Dividends is closed into _________________ at the end of the fiscal year.
Retained earnings
Treasury stock
Shares that were previously issued to and owned by stockholders but have been reacquired and now held by the corporation
Retained earnings are ______________.
Sometimes called earned capital, decreased by dividends, increased by net income, and all of the company's earnings kept rather than distributed to stockholders
Declaration date
The board of directors officially approves a dividend
A higher ROE means ______________.
The company used financial leverage to its stockholders advantage and stockholders may enjoy higher returns
What does retained earnings report?
The cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began.
Why might a company issue a stock dividend?
To lower the market price per share, to signal an expectation of future significant earnings, and to demonstrate commitment to stockholders while conserving cash during difficult times
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, ____________.
Treasury stock will equal $4,000 and additional paid in capital will be increased by $2,000
When should a corporation record a liability for dividends on its cumulative preferred stock?
When the dividends have been declared
What type of account is treasury stock?
A contra-equity
Stock splits
Cause the par value per share to change
What is an advantage of equity over debt financing?
Corporations are not required to pay dividends or repay stockholders
Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity?
Net income, common dividends, and preferred dividends
Do dividends affect net income?
No
Retained earnings represent cumulative ______________ by the business.
Profits retained and net income kept
What is dividends closed into at the end of the fiscal year?
Retained earnings
Date of record
Stock records are finalized to determine which stockholders are to receive payment
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 and the financing activities section of the statement of cash flows increases
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
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
Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes a ______________.
$10,000 debit to treasury stock and $10,000 credit to cash
In its 1st year of business, Decks Cleared, Inc. declared a $8,000 total dividend. How much of the $8,000 would go to the common stockholders given the company has 1,000 shares of 5%, $100 par value preferred stock outstanding?
$3,000 = $8,000 - (1,000 x 100 x .05)
Prior to a $4,000 stock dividend, total stockholders' equity equaled $50,000. After the stock dividend, total stockholders' equity equals ____________.
$50,000 -> a stock dividend decreases retained earnings and increases common stock and addition paid-in capital (in total) by the same amount, so there is no change in total stockholders' equity
