Ch.11 Accounting SmartBook

The journal entry to record the purchase of treasury stock includes a ________ to cash and a ________ to treasury stock.

- credit, debit

Stocks are traded ex-dividend after the ______.

- date of record

The journal entry to record the issue of no par value stock for $25 cash includes a ________ to cash and a ________ to common stock.

- debit, credit

The journal entry to record the issue of $10 par value stock for $25 cash includes a ________ to cash, a ________ to common stock, and a ________ to additional paid in capital in excess of par value account.

- debit, credit, credit

Preferred stock ________.

- dividends are paid before common stock dividends - often has a liquidation value - frequently has a dividend guarantee

The journal entry to record the cash payment for a previously declared dividend includes a debit to ________ ________ and a credit to ________.

- dividends payable, cash

The par value and original issue price of treasury stock ______ have an effect on the entry to record it.

- does not

Double taxation refers to the fact that ________.

- income is taxed at both the corporate level and when stockholders receive dividends

The payment of a previously declared dividend does not affect the ______,

- income statement - statement of stockholders' equity

Fontaine Incorporated issued a 10% stock dividend on its $20 par value common stock when there were 12,000 shares issued and 10,000 shares outstanding. The market value of the stock was $25. As a result of the stock dividend paid in capital in excess of par value ______.

- increased $5,000

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

- limited liability

The price an investor must pay to purchase a share of stock is called the ________ ________.

- market value

Cumulative dividends ________.

- may also be called dividends in arrears - accumulate for future payment when unpaid

When a corporation buys treasury stock, the number of shares of stock ______.

authorized is not affected outstanding decreases

In the stockholders' equity section of the balance sheet, ________ stock is normally listed before ________ stock.

- preferred, common

Distributions to owners of proprietorships are called ________.

- withdrawals

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. If Cloud pays $30,000 of cash dividends in Year 3, common stockholders will receive ________.

- $24,000 Reason: 5,000 shares × $20 × 6% = $6,000 annual preferred dividend. Since the preferred stock is noncumulative, there are no dividends in arrears and the common shareholders will receive $24,000.

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. This was reported as ________ activities.

- $240,000 of cash inflow from financing

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

- $25,000 Reason: $25 market value x 10,000 shares outstanding × 10% stock dividend = $25,000 decrease in retained earnings.

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 with a current market value of $5.20 per share. Based on this information, the book value per share is ______.

- $3.20 Reason: Bookvalue= ($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.If Cloud pays $30,000 of cash dividends in Year 3, preferred stockholders will receive ________.

- $6,000 Reason: 5,000 shares × $20 × 6% = $6,000 annual preferred dividend. Since the preferred stock is noncumulative, there are no dividends in arrears.

The PCAOB Act of 2002 was adopted to address a number of high-profile business failures. True or False?

- False

The stated value of a share of stock is established by the federal government. True or False?

- False

Which of the following statements are true? Multiple select question. • S Corporation status is available only to large corporations whose stock is widely held. • Double taxation is mostly a burden for large corporations. • Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships. • S Corporations are taxed as proprietorships or partnerships.

- Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships. - S Corporations are taxed as proprietorships or partnerships.

Transferring the ownership of a proprietorship is difficult because ________.

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

Which of the following statements are true? Multiple select question. • 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.

Which of the following statements are true? Multiple select question. Dividends in arrears must be paid before a company can pay interest on debt. Like creditors, preferred stockholders can force a company into bankruptcy if dividends in arrears are not paid. Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders. 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. - If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever.

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 transaction affects the ________.

- Statement of Cash Flows - Balance Sheet

Which of the following statements are true? Multiple select question. • The Retained Earnings account is shown on the balance sheet of a proprietorship. • The balance sheet of a proprietorship contains a single Owner's Capital account. • Owner withdrawals are shown in the capital statement 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.

Authorized Stock

- The maximum number of shares a company can legally issue

Outstanding Stock

- The number of shares currently owned by investors

Treasury Stock

- The number of shares of stock that a company has repurchased from its investors

Which of the following statements are true? Multiple select question. • A partnership is a separate legal entity created by the authority of a state government. • The requirements for establishing a corporation vary from state to state. • A proprietorship is the simplest form of business organization to organize and operate. • Corporations are subject to less regulation than proprietorships.

- The requirements for establishing a corporation vary from state to state. - A proprietorship is the simplest form of business organization to organize and operate

Which of the following statements are true? Multiple select question. • The Financial Accounting Standards Board (FASB) was established by the Securities Exchange Act of 1934. • The stock of closely held companies is not sold on major stock exchanges. • Trading on a stock exchange is limited to the stockbrokers who are members of the exchange. • Extensive regulation of trading began in the 1960s.

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

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

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

Issued Stock

- The total number of share the company has sold to investors

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

Partnerships and proprietorships are usually managed by their owners. True or False?

- True

Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock.When Stanley resells 100 shares of the treasury stock for $30 per share ______.

- a $500 increase in additional paid-in capital from treasury stock will be recorded assets will increase by $3,000

The departure of owner(s) does not terminate ________.

- a corporation

Purchasing treasury stock is a(n) ________ transaction.

- asset use

The maximum number of shares of stock corporations are legally permitted to issue is called ________ shares.

- authorized

When a corporation buys treasury stock, the number of shares of stock ________.

- authorized is not affected - outstanding decreases

The PCAOB ________. Multiple select question. • can impose sanctions for violations of its rules, laws and standards • has authority over both public and private corporations • was created by the Sarbanes-Oxley Act of 2002 • replaced the Securities and Exchange Commission (SEC)

- can impose sanctions for violations of its rules, laws and standards - was created by the Sarbanes-Oxley Act of 2002

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

- capital acquisition

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. As a result of the stock issue ________.

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

When a company issues no-par common stock, the ________.

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

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

- common

Treasury stock is a(n) ______ account.

- contra equity

The benefit of limited liability is a significant reason for the popularity of the ________ form of business structure.

- corporate

It is easiest to transfer ownership in a ________.

- corporation

Continuity of existence is an advantage of ________.

- corporations

Stock certificates are used as evidence of ownership in ________.

- corporations

The ability to generate billions of dollars of capital by pooling the resources of millions of owners through public stock and bond offerings is only available to ________.

- corporations

The greatest opportunity to raise capital is available to ________.

- corporations

Recording the full amount paid in the Treasury Stock account is called the ________ ________ of accounting for treasury stock.

- cost method

The journal entry to record the issue of $10 stated value common stock for $25 cash will include a ________ account.

- credit to the common stock - credit to the paid in capital excess of stated value - debit to the cash

Par value ________. Multiple select question. • is the market value on the date of issue • multiplied by the number of shares of stock issued represents legal capital • represents the price investors must pay to obtain a share of stock • represents the maximum liability of the investors

- multiplied by the number of shares of stock issued represents legal capital - represents the maximum liability of the investors

The term withdrawal may appear in the financial statements of ________.

- proprietorship - partnership

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

An organization owned by a single individual who is responsible for making business and profit distribution decisions is called a(n) ________ ________.

- sole, proprietorship

An arbitrary amount established by the board of directors of a corporation assigned to no-par stock is called ________ ________.

- stated, value

The issue of no-par common stock affects the ________.

- statement of cash flows - balance sheet

The highest level of organizational authority in a corporation is represented by ________.

- stockholders

A stock split has no affect on ________.

- stockholders' equity total assets total liabilities net income

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

When a corporation purchases its own stock, the stock purchased is called ________ stock.

- treasury

Common stockholders have the right to ________.

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

Match the account title shown in the right column with the order in which they are presented in the stockholders' equity section of a balance sheet. Use the number 1 to represent the account title shown first, the number 2 to represent the second title, and so on.

1 Par Value Preferred Stock 2 Stated Value Common Stock 3 Class B Common Stock 4 Paid-in Capital in Excess of Par Value Preferred Stock 5 Paid-in Capital in Excess of Stated Value Common Stock 6 Retained Earnings

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

declaration

Issuing a stock dividend is a(n) ______ transaction.

equity exchange

Common reasons corporations purchase treasury stock include to ______

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

Purchasing treasury stock does not impact the ______.

income statement

The payment of a previously declared dividend does not affect the ______,

income statement statement of stockholders' equity

A stock split will ______

increase the number of shares outstanding decrease the market value per share not affect cash flow

Corporation are ______ required to declare dividends.

not