Chapter 10 Concept Videos

When comparing the typical sole proprietorship and corporation, the form of business having higher assets and earnings is the corporation. a) True b) False

a) True

A corporation's officers are appointed by the: a) board of directors b) company president c) primary stockholder d) state in which the corporation operates

a) board of directors

Identify the primary advantages of the corporate form of business compared to a sole proprietorship or partnership. a) limited liability b) ability to raise capital c) lower taxes d) less paperwork e) ease of incorporation

a) limited liability b) ability to raise capital

All of the following are components of stockholders' equity, except ____________. a) notes payable b) paid-in-capital c) retained earnings d) treasury stock

a) notes payable

On the date of declaration of the dividend, we _____. a. debit Dividends b. debit Dividends Payable c. credit Cash d. credit Retained Earnings

a. debit dividends

Lego, Inc., issued common stock in Year 1. It issued 10,000 shares of 8%, $100 par value cumulative preferred stock for $110 per share at the beginning of Year 4. It did not pay any dividends during Year 4. In December of Year 5, it declares total dividends of $200,000. How much will the preferred stockholders of Lego receive as dividends in Year 5? a) $200,000 b) $160,000 c) $80,000 d) $40,000

b) $160,000

All privately held corporations are regulated by the Securities and Exchange Commission. a) True b) False

b) False

Companies usually rely on angel investors and venture capital firms following an initial public offering. a) True b) False

b) False

The Common Stock account increases when treasury stock is resold for more than its original cost. a) True b) False

b) False

The general public is entitled to invest in a privately held corporation. a) True b) False

b) False

There is a direct relationship between the par value and market value of common stock: stocks with a low par value have a low market value, while stocks with a high par value have a high market value. a) True b) False

b) False

Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders' equity: Issued 40,000 shares of common stock at $8 per share. Reported a net income of $60,000. Paid dividends of $30,000. Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders' equity at the end of Year 1? ------------------------------------------------------------------------------------- $300,000 $350,000 $400,000 $460,000

$300,000

A small stock dividend encompasses less than ______ of the outstanding stock. 5% 20% 25% 50%

25%

The balance in retained earnings equals all net income, less all dividends, since the company began operations. a) True b) false

A) True

All of the following accounts are directly or indirectly affected by a large stock dividend except _____. Retained Earnings Additional Paid-in Capital Common Stock Stock Dividends

Additional Paid-in Capital

The stockholders' equity section of the balance sheet includes which of the following accounts? (Select all answers that apply to this question.) Additional Paid-in Capital Bonds Payable Common Stock Notes Payable Preferred Stock Retained Earnings Treasury Stock

Additional Paid-in Capital common stock preferred stock retained earnings treasury stock

On January 1, Year 1, Davidson Corporation issues 1,000 shares of $1 par value common stock for $20 per share. Complete the necessary journal entry for the issuance of common stock by indicating the relevant account names and dollar amounts below. If more than one account title is debited or credited, enter the account titles in their alphabetical order.

Debit Cash for 20,000 Credit Common Stock for 1,000 Credit Additional Paid-in Capital for 19,000

If losses exceed income since the company began operations, Retained Earnings will have a credit balance. T/F

False

In the stockholders' equity section of the balance sheet, common stock is listed before preferred stock. T/F

False

The Stock Dividends account is a temporary stockholders' equity account that is closed into ______. Retained Earnings Common Stock Dividends Net Income

Retained Earnings

1) authorized stock 2) outstanding stock 3) issued stock Shares actually sold, which includes treasury stock Total number of shares available to sell Shares held by investors

Shares actually sold, which includes treasury stock - 3 Total number of shares available to sell - 1 Shares held by investors - 2

Preferred stock is "preferred" to common stock two ways: (1) preferred stockholders have first rights to dividends, and (2) in the event the company is dissolved, preferred stockholders receive preference over common stockholders in the distribution of assets. a) True b) False

a) True

Why do most companies report stock splits in the same way as a large stock dividend? To avoid changing the par value per share To increase stock prices To boost earnings per share and other key ratios To avoid recording a transaction

To avoid changing the par value per share

For a profitable company that pays little in dividends, the balance in retained earnings will increase over time. T/F

True

The statement of stockholders' equity summarizes the changes in the balance in each stockholders' equity account over a period of time. T/F

True

Total assets, total liabilities, and total stockholders' equity do not change as a result of a large stock dividend. T/F

True

When a company uses a portion of the company's earnings to buy back treasury shares, the action decreases stockholders' equity. T/F

True

Marine Corporation issued common stock in Year 1. It issued 10,000 shares of 10%, $100 par value noncumulative preferred stock for $110 per share at the beginning of Year 3. It did not pay any dividends in Year 3 or Year 4. In December of Year 5, it declares total dividends of $250,000. How much will the common stockholders of Marine Corporation receive as dividends in Year 5? a) $150,000 b) $250,000 c) $50,000 d) $100,000

a) $150,000

Innovative Media issues 1,000 shares of 8%, $50 par value preferred stock for $60 per share. Which of the following will be recorded at the time of the issue? a) A credit to Additional Paid-In Capital for $10,000 b) A debit to Cash for $50,000 c) A credit to Preferred Stock for $10,000 d) A credit to Preferred Stock for $60,000

a) A credit to Additional Paid-In Capital for $10,000

The shares of preferred stock issued by Saturn Corporation can be exchanged for common stock. However, any dividends in arrears are lost. Which of the following features are present in the preferred stock issued by Saturn? Select all answers that apply to this question. a) Convertible b) Redeemable c) Cumulative d) Noncumulative

a) Convertible d) Noncumulative

Dividends paid are allocated according to the percentage of shares owned by each stockholder. a) True b) False

a) True

EyeCare Corporation issued 10,000 shares of 7%, $100 par value preferred stock at the beginning of Year 1. The company did not pay dividends in Year 1. However, preferred stockholders received dividends for Year 1 and Year 2, when the company declared dividends in Year 2. Preferred stockholders also have the option, under specified conditions, to return their shares for a predetermined price. Which of the following features are in present the preferred stock issued by EyeCare? Select all answers that apply to this question. a) Convertible b) Redeemable c) Cumulative d) Noncumulative

b) Redeemable c) Cumulative

Delta Corporation acquires 10,000 shares of its own $0.01 par value common stock at $10 per share. It later resells the 10,000 shares of treasury stock for $12. The entry to record this transaction will involve a: a) debit to Cash for $100,000 b) credit to Additional Paid-In Capital for $20,000 c) credit to Common Stock for $100 d) credit to Treasury Stock for $120,000

b) credit to Additional Paid-In Capital for $20,000

Identify the primary disadvantages of the corporate form of business compared to a sole proprietorship or partnership. a) ownership limitations b) double taxation c) personal liability d) more paperwork

b) double taxation d) more paperwork

When a corporation issues stock to the general public for the first time, it is known as a(n): a) integrated primary offering b) initial public offering c) seasoned equity offering d) secondary public offering

b) initial public offering

Which of the following dates associated with dividends does not require an entry to be recorded? a. Payment date b. Record date c. Declaration date

b. Record Date

What is the net effect of a dividend declaration and payment? a. reduction in both liabilities and assets b. reduction in both stockholders' equity and assets c. increase in both liabilities and stockholders' equity d. increase in liabilities and decrease in stockholders' equity

b. reduction in both stockholders' equity and assets

Marina, Inc., acquires 1 million shares of its own $1 par value common stock at $70 per share. It later resells the 1 million shares of treasury stock for $75. We record the $5 difference per share as a: a) gain in the income statement b) revenue in the income statement c) credit to Additional Paid-In Capital d) credit to Common Stock

c) credit to Additional Paid-In Capital

Fairfield Corporation issues 100,000 shares of $1 par value common stock for $10 per share. This transaction: a) increases assets and increases liabilities b) increases assets and decreases liabilities c) increases assets and increases stockholders' equity d) increases assets and decreases stockholders' equity

c) increases assets and increases stockholders' equity

Earnings not distributed as dividends to stockholders is known as: a) common stock b) paid-in capital c) retained earnings d) treasury stock

c) retained earnings

The market value of Kennedy Corporation's common stock is $100 per share when it declares a 20% stock dividend on its 10,000 shares outstanding of $1 par value common stock. The entry to record this small stock dividend involves a _____. debit to Stock Dividends for $2,000 credit to Common Stock for $200,000 credit to Additional Paid-in Capital for $198,000 debit to Cash for $200,000

credit to Additional Paid-in Capital for $198,000

On January 1, Year 3, Boxwood, Inc. issues 1,000 shares of $1 par value common stock for $30 per share. Later that year, the company issues 1,000 shares of $10 par value preferred stock for $80 per share. The company's balance sheet as of December 31, Year 3, will show total paid-in capital of: a) $11,000 b) $30,000 c) $99,000 d) $110,000

d) $110,000

Almond Corporation acquires 10,000 shares of its own $1 par value common stock at $10 per share. The journal entry for this transaction includes a: a) debit to Common Stock for $10,000 b) debit to Common Stock for $100,000 c) debit to Treasury Stock for $10,000 d) debit to Treasury Stock for $100,000

d) debit to Treasury Stock for $100,000

When a corporation acquires shares of its own common stock, it records a: a) debit to Common Stock for par value b) debit to Common Stock for cost c) debit to Treasury Stock for par value d) debit to Treasury Stock for cost

d) debit to Treasury Stock for cost