Chapter 11 Accounting

Why might a corporation repurchase its own stock? (Check all that apply.)

to avoid the dilutive effect of issuing new shares when stock options are exercised to have shares of stock to issue when stock options are exercised

Why would an investor buy stock in another company? (Check all that apply.)

to sell the stock for more than its cost to receive dividends

The effect of the entry to close the Drawing account causes Blank______. (Check all that apply.)

total owner's equity to remain unchanged the Capital account to decrease the Drawings account to have a $0 balance

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. As a result of this transaction, Refurbish's Blank______. (Check all that apply.)

treasury stock on the balance sheet will equal $4,000 stockholders' equity on the balance sheet will be $10,000 higher

X-Co issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes a Blank______. (Check all that apply.)

$100,000 credit to Preferred Stock $100,000 debit to Cash

A corporation's board of directors is

Elected by its stockholders

Match the transaction on the left with the appropriate statement of cash flows classification on the right.

Payment of Accounts Payable matches Choice Operating activities Payment of dividends to stockholders matches Choice Financing activities Purchase of a new delivery truck matches Choice Investing activities

Which of the following have voting rights in a corporation?

Stockholders

Refurbish, Inc. bought 1,000 shares of its own stock for $8,000. Later, it resold the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n) Blank______. (Check all that apply.)

$2,000 credit to Additional paid-in capital $8,000 credit to Treasury stock

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 Blank______ shares

45000

The effect of buying back its own common stock on the earnings per share ratio is to Blank______ it.

Increase

T/F: An advantage of the corporate form of ownership is that the stockholders have limited liability

True

True or false: If you buy stock a day after the ex-dividend date, you may expect to pay a lower price than the day before the ex-dividend date.

True

Which of the following are typical benefits to being a shareholder?

Voting Rights, dividends, residual claim

Which of the following line items are found on a sole proprietorship's statement of owner's equity? (Check all that apply.)

Withdrawals Net income

The effect of a large stock dividend on the accounting equation includes Blank______ in retained earnings

a decrease

If a company's EPS falls from $5 to $3, then investors may expect Blank_

a reduction in the stock price

A corporation's board of directors could prefer a stock split to a stock dividend because a stock split Blank______.

does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future

The purpose of the statement of owners' equity is to show each partner's Blank______. (Check all that apply.)

drawings during the year share of net income earned during the year contributions during the year

Owner's equity is the same for a partnership and sole proprietorship except that Blank______. (Check all that apply.)

each partner has a separate capital account each partner has a drawings account

The date of record is the date on which the corporation Blank______.

finalizes its list of stockholders who will receive dividends

EPS is a good predictor of

future stock prices

A stock dividend Blank______. (Check all that apply.)

has no effect on total stockholders' equity decreases Retained Earnings increases Common Stock

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by Blank______. (Check all that apply.)

increasing total stockholders' equity increasing Additional Paid-in Capital increasing total assets

Treasury stock Blank______. (Check all that apply.)

is a contra-equity account is stock that is no longer outstanding has a negative equity balance

Dividends on preferred stock Blank______. (Check all that apply.)

may be paid at a fixed rate, such as 7% are more attractive than common stock dividends to investors who want a stable income are paid before dividends on common stock

have ultimate authority in a corporation and elect the members of the board of directors. (Enter one word per blank.)

stockholders

Investors who acquire preferred stock Blank______. (Check all that apply.)

that is cumulative have the right to receive dividends in arrears once dividends are declared generally do not have voting rights have preference as to dividends

Contributed capital of $1,000,000 represents

the amount stockholders have invested in exchange for stock

Seasoned offerings are

the selling of additional new shares after an IPO

Before the board of directors declares a cash dividend, it should consider whether Blank______. (Check all that apply.)

there is sufficient cash there are sufficient retained earnings

On January 1, Year 1, Bank & Rupp, Inc. issued 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6%, cumulative preferred stock. No dividends were declared in Year 1. In Year 2, Bank & Rupp declared and paid a $1 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend paid to the preferred stockholders equals Blank______.

$6000

Wok N Roll, Inc. began on January 1, Year 1 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in Year 1 or Year 2. In Year 3, Wok N Roll declared and paid a $0.50 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in Year 3 equals Blank______.

$65,000

Vests, Inc. has 1,000 shares of 5%, par $100 preferred stock and 10,000 shares of $1 par value common stock outstanding. If the common stockholders received $2 per share in dividends, then the preferred stock dividend was Blank______ per share.

5%

The closing entry of a sole proprietorship requires the revenues to be(debited/credited) and the Capital account to be (debited/credited).

Debited; credited

The dividend payment date is when Blank______. (Check all that apply.)

Dividends Payable is decreased Cash is decreased

Which of the following statements best describe earnings per share (EPS)?

EPS is an indicator of an entity's profitability. EPS measures the amount of earnings available to common shareholders on a per-share basis.

When does a corporation record an increase in Dividends Payable?

On the declaration date

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? (Select all that apply.)

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

The laws governing corporations

allow a company to be incorporated in a different state from the one in which it operates

When Diva, Inc. declared a $10,000 cash dividend, it recorded a $10,000 Blank______. (Check all that apply.)

credit to Dividends Payable debit to Retained Earnings

Mr. Big invested $10,000 in his new sole proprietorship called Buy and Large. The entry to record this investment in Buy and Large's accounting records includes a $10,000 Blank______. (Check all that apply.)

credit to Mr. Big, Capital debit to Cash

The closing entry of a sole proprietorship requires the expenses to be ----- (debited/credited) and the Capital account to be -----(debited/credited).

credited; debited

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a Blank______. (Check all that apply.)

debit to Additional paid-in capital credit to Treasury stock debit to Cash

Morris Lest recorded the closing entries for his sole proprietorship. To close the M. Lest, drawing requires a Blank______.

debit to M. Lest, Capital

Mr. Big received a $5,000 payment from his sole proprietorship, Buy and Large, for work performed by Mr. Big. The payment should be recorded with a $5,000 Blank______.

debit to Mr. Big, Drawings

the declaration and payment of a cash dividend ultimately causes a(n) Blank______. (Check all that apply.)

decrease in Retained Earnings decrease in stockholders' equity decrease in Cash

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n) Blank______. (Check all that apply.)

decrease in stockholders' equity increase in liabilities

The number of shares outstanding equals the number of shares

issued minus the number of shares in treasury

Par value is also referred to as

legal capital

A corporate charter:

specifies the number of shares authorized specifies the rights and characteristics of the stock is required before stock is issued

The account used to record the difference between the cash received and the cost of treasury stock reissued is Blank______.

Additional paid-in capital

An increase to Rich's Farm's account called Barry Rich, capital would occur when Blank______.

Barry Rich invests cash in Rich's Farm

True or false: After an initial sale of stock to the public by X, Inc., when investors sell their shares in secondary markets, X's total stockholders' equity will increase.

False

Stockable, Inc. began business on January 1 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of 6%, noncumulative, $100 par value preferred stock. No dividends were declared in the first year of operations. In the second year of operations, Stockable declared and paid a $0.50 dividend to its common stockholders. Which of the following is true?

Stockable, Inc. has no legal obligation to pay a dividend to preferred stockholders in the first year of operations.

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, Blank______. (Check all that apply.)

Treasury stock will equal $(4,000). Additional paid-in capital will be increased by $2,000

Shares outstanding is important to financial analysts because it affects certain ratios such as the

earnings per share ratio

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

A dividend date of record is the date on which the corporation

prepares the list of current stockholders who will receive the dividend payment and makes no journal entry.

Corporations can raise large amounts of money because

shares of stock in public companies can easily be bought and sold by investors

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

statement of stockholders' equity (retained earnings)

Contributed capital is the amount in the

stockholders' equity section of the balance sheet that is the amount invested by owners

Common stock's par value

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

What is earnings per share (EPS)?

A financial measure required for public companies that reports how much of a company's reported earnings was generated for each common shareholder

Which of the following is a characteristic of a sole proprietorship?

Its income is taxed once— on the owner's individual income tax return.

Stock options Blank______.

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

A stock dividend Blank______. (Check all that apply.)

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

A distribution of a company's accumulated prior earnings is a(n)

dividend

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by Blank______. (Check all that apply.)

increasing total stockholders' equity increasing total assets

A stock dividend is considered a large stock dividend if it is Blank______ than 25% of the outstanding shares, and it is recorded at the Blank______ value of the additional shares.

more; par

A stock split differs from a large stock dividend in that Blank______. (Check all that apply.)

no journal entry is required for a stock split a large stock dividend causes retained earnings to decrease

If you buy stock a day after the ex-dividend date, you may expect to Blank______ the ex-dividend date. (Check all that apply.)

not receive the dividend owed as of pay a lower price than the day before

A stock dividend Blank______.

provides no economic value for current stockholders

Investors earn a return on stock investments by Blank______. (Check all that apply.)

selling the stock for more than its cost receiving dividends