Chapter 11 Learnsmarts

Common stock's par value is ______.

an insignificant amount specified in the corporate charter

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

balance sheet

____________ capital, also called paid-in capital, reports the amount of capital the company received from investors

contributed

The P/E ratio is calculated by ______.

dividing the stock price by EPS

A corporation ______ have a legal obligation to pay dividends.

does not

When a stockholder sells its shares to another person for more than its original cost, the corporation ______.

does not make a journal entry

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

par value

Treasury stock is reported in the ______.

stockholders' equity section of the balance sheet

Treasury stock represents ______. (Check all that apply.)

-a contra-equity account -the amount paid for stock reacquired and currently held in treasury

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

False

Which of the following reports net income relative to average common stockholders' equity?

ROE

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000 and recorded the entry with a debit to ______. (Check all that apply.)

Treasury Stock and a credit to Cash of $8,000

The number of shares issued represents the number of shares ______.

sold

Which of the following would be found on a statement of stockholders' equity? (Select all that apply.)

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

A corporation may be restricted from paying a dividend if ______. (Check all that apply.)

-a creditor's loan agreement is violated -the dividend is greater than the amount of retained earnings

Retained Earnings are ______. (Check all that apply.)

-all of the company's earnings kept rather than distributed to stockholders -increased by net income -decreased by dividends -sometimes called earned capital

Stock options ______. (Check all that apply.)

-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

The entry to record the issuance 100 shares of 3%, $100 par value preferred stock at a price of $105 is recorded with a debit to ______.

Cash of $10,500 and credit to Preferred Stock of $10,000 and Additional Paid-in Capital -Preferred of $500

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

no-par value stock

If you own stock in a corporation that goes bankrupt, you ______.

only stand to lose what you paid to buy the stock

Large stock dividends are recorded at _______ and small stock dividends are recorded at ______.

par value; market value

_____________ stock carries priority over common stock with regard to dividends.

preferred

Lenders will sometimes impose dividend restrictions to ______.

prevent the corporation from paying out too much to stockholders

A company's past profits that are kept instead of being paid to stockholders are ______.

retained earnings

Treasures, Inc. repurchased 1,000 shares of its $1 par value common stock for $100,000. The journal entry to record this transaction includes a ______. (Check all that apply.)

-$100,000 debit to Treasury Stock -$100,000 credit to cash

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 ______. (Check all that apply.)

$10,000 debit to Treasury Stock $10,000 credit to Cash

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

Contributed Capital

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

makes no entry

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 ______. (Select all that apply.)

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

Which of the following statements are true? (Check all that apply.)

-An advantage of equity over debt financing is corporations are not required to pay dividends or repay stockholders. -Two sources of financing for a corporation are debt and equity

Issuing preferred stock ______.

increases stockholders' equity similar to issuing common stock

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

issued minus the number of shares in treasury

An advantage of __________ financing is interest is tax deductible

debt

Dividends Payable is recorded as a credit on the ______.

declaration date

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding. (Assume no preferred stock has been issued.)

net income

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

Preferred stockholders ______.

receives dividends before common stockholders

Treasury Stock ______. (Check all that apply.)

-reduces total stockholders' equity -is a contra-equity account -is shares of stock no longer outstanding

The owners of a(n) _____________ are not personally responsible for the debts of the business

corporation

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

When recording the issuance of preferred stock, Preferred Stock is ______.

credited and causes stockholders' equity to increase

The effect of repurchasing stock using the cost method is to ______. (Check all that apply.)

-decrease stockholders' equity -increase Treasury Stock -decrease assets

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

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

Advantages of debt financing over equity financing include that ______. (Check all that apply.)

-interest payments are tax deductible -stockholders' control will not be diluted

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

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

Accumulated Deficit ______. (Check all that apply.)

-means that Retained earnings has a debit balance -indicates accumulated net losses -is shown in parentheses on the balance sheet

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

-selling the stock for more than its cost -receiving dividends

True or false: Dividends on preferred stock are attractive to some investors, such as retirees or company founders, who want stable income from their investments.

True

True or false: No gain or loss is reported when treasury stock is reissued because GAAP does not consider transactions between a corporation and its owners to be profit-making activities.

True

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

kept; balance sheet and statement of retained earnings