COB 202: Ch 11

Cloud company has 5K shares of 6% , $20 par value cumulative preferred stock outstanding. The company has also 8K shares of $10 par value common stock outstanding. Cloud paid no dividends in Y! or Y2. In Y3, Cloud paid $30K of cash dividends. What was the amount of dividends paid to preferred stockholders

$18,000 5,000 shares x $20 x 6% = $6,000 annual preferred dividend. The preferred stockholders will receive two years of dividends that are in arrears plus the dividend due for the current year for a total of $18,000 of dividends ($6,000 x 3 years)

Fontaine Inc decide to issue a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25; there were 12,000 shares of stock issued; and 10,000 shares of stock outstanding. Recognizing the stock dividend will cause an decrease in the amount of retained earnings of

$25,000 $25 market value x 10,000 shares outstanding x 0.10 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. The stock has a current market value of $5.20 per share. Based on this information, the book value per share of the stock is

$3.20 ($50,000 stock + $30,000 retained earnings ) / 25,000 shares of stock = 3.2 OR (120,000 assets - 40,000 liabilities) / 25,000 shares = 3.2

Fontaine Inc decide to issue a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25; there were 12,000 shares of stock issued; and 10,000 shares of stock outstanding. Recognizing the stock dividend will cause an increase in the amount of additional paid-in capital in excess of par value of

$5,000 $25 market value - $20 par value = $5 additional paid-in capital in excess of par value X (10,000 shares x 10% dividend) = $5,000

Cloud company has 5K shares of 6% , $20 par value cumulative preferred stock outstanding. The company has also 8K shares of $10 par value common stock outstanding. Cloud paid no dividends in Y! or Y2. In Y3, Cloud paid $30K of cash dividends in a year when no dividends were in arrears. Based on this info

$6,000 would be paid to preferred stockholders and $24,000 would be paid to common stockholders 5,000 shares x $20 x 6% = $6,000 annual due to preferred stockholders. $30,000 total dividend - $6,000 preferred stock distribution = $24,000 common stock distribution

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On 1/1, Y1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's balance sheet would show

$90,000 of paid-in capital in excess of stated value $24 issue price - $15 stated value = $9 in excess of stated x 10,000 shares = $90,000

match the following terms: 1) authorized stock 2) issued stock 3) outstanding stock 4) treasury stock

1) number of shares of stock a corporation has state approval to issue 2) stock a company has sold to the public 3) shares of stock a corporation has issued that has been issued less any treasury stock the corporation has repurchased 4) stock previously issued to the public that the issuing corporation has bought back. contrast with outstanding stock

Match the account title shown in the right column with the order in which they are presented in the stockholders' equity section of the 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 cs 3) class b no par cs 4) paid in capital in excess of pv 5) paid in capital in excess of sv 6) appropriated r/e 7) unappropriated r/e 8) treasury stock

which of the following are common rights assigned to investors who own common stock

1) the right to buy and sell stock 2) the right to share in the distribution of profits 3) the right to share in the distribution of corporate assets in the case of liquidation 4) the right to vote on significant matters that affect the corporate charter 5) the right to participate in the election of directors

If a company has net earnings of $4,500,000; earnings per share of $1.73; sales of $72M; and common stock with a current market price of $24.22 per share, its price-earning ratio is

14 24.22 / 1.73 = 14

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. Stanley reissues 100 shares of the treasury stock for $20 per share. Assume there were no previous treasury stock transactions. Then...

Losses are not recognize on the sale of treasury stock - corporations do NOT recognize gains or losses on the sale of treasury stock there would be no impact on the income statement

a stock split will have

NO EFFECT on total stockholders' equity NO EFFECT on total assets

... stock is normally listed before ... stock in the stockholders' section of the balance sheet

Preferred Common

purchasing treasury stock is a

asset use transaction

a partner's capital account will appear in which of the following financial statements

balance sheet

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On 1/1, Y1, Base Line issued 10,000 shares of the stock for $24 per share. Which of the following financial statements would be affected by the stock issue?

balance sheet statement of changes in stockholders' equity statement of cash flows

declaring a cash dividend is a

claims exchange event

... are able to generate billions of dollars of capital by pooling the resources of millions of owners through public stock and bond offerings

corporations

stock certificates are used as evidence of ownership in which of the following types of business organization

corporations

which of the following business forms offers the benefit of continuity existence

corporations

which of the following statements is TRUE

corporations are not legally required to declare cash dividends

the journal entry to record an appropriation of retained earnings will include a ... to the appropriated retained earnings account, a ... to the retained earnings account

credit debit

the journal entry to record the purchase of treasury stock will include a

credit to cash debit to treasury stock

the journal entry to record the declaration of a cash dividend will include a ... to the dividends payable account, a ... to the dividends account

credit to the dividends payable account debit to dividends

the journal entry to record the cash payment for a previously declared dividend will include a ... to the dividends payable account, and a ... to the cash

debit credit

the journal entry to record the issue of no par value stock for $25 cash will include a ... to the cash account, a ... to the common stock account

debit credit

the journal entry to record the issue of $10 stated value stock for $25 cash will include a ... to the cash account, a ... to the common stock account, and a ... additional paid in capital in excess of stated value account

debit credit credit

the journal entry to record the issue of $10 par value stock for $25 cash will include a

debit cash credit common stock credit to the paid in capital excess of par value account

the journal entry to record the declaration of a cash dividend will include a

debit to dividends credit to dividends payable

the journal entry to record a 10% stock dividend on $10 par value when the market value is $30 a share will include a

debit to retained earnings credit to common stock credit to the additional paid in capital in excess of par value account

a corporation becomes legally obligated to make a cash dividend on the ... date

declaration

when a company issues no-par common stock, the:

entire amount of the proceeds is placed into the Common Stock account; issuing no-par common stock increases cash and common stock by the same amount. It is also a cash inflow from financing activities cash inflow is classified as a financing activity; issuing no-par common stock increases cash and common stock by the same amount. It is also a cash inflow from financing activities

t/f: companies issue only one class of common stock

false

t/f: the stated value of a share of stock is established by the federal government

false assigned by board of directors of stock

double taxation refers to the fact that

income is taxed first at the corporate level and a second time when stockholders receive dividends

which of the following is a chief advantage of the corporate form of business

limited liability

The price-earning ratio is calculated by dividing ... ... per share by ... per share

market price earnings

cumulative dividends

may also be called dividends in arrears are dividends that accumulate for future payment when a company fails to pay a periodic dividend

companies that had paid dividends in the past are ... likely to pay dividends in the future

more

If Pepper Company has a price-earnings ratio of 32 and Squash Company has a price-earnings ratio of 24, this may suggest that the stock market is ... optimistic about Pepper Company's future earnings potential compared to Squash Company's

more investors are willing to pay more for current earnings (high P/E ratio) when they believe future earnings will grow

stock dividends are based on the number of shares...

outstanding

the term withdrawal may appear in the financial statements of a

partnership proprietorship

which of the following statements is TRUE

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

which of the following characteristics make transferring the ownership of a proprietorship difficult

proprietor must find someone willing to purchase the entire business most proprietorships are owner operated

a ... is owned by a single individual who is responsible for making business and profit distribution decisions

proprietorship

a company's financial statements are not impacted on the date of ... of a cash dividend

record

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On 1/1, Y1, Base Line issued 10,000 shares of the stock for $24 per share. which of the following financial statements would be affected by the stock issue

statement of changes in stockholders equity statement of cash flows balance sheet

which of the following statements are TRUE

the term withdrawals may be found in the financial statements of both proprietorship and partnerships partnerships do not have a R/E account because all earnings are distributed directly to each partner's capital account immediately

which of the following statements is TRUE

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

how will paying a cash dividend that was previously declared affect a corporation's financial statements

total assets and total liabilities will decrease

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On 1/1, Y1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue

total assets would increase by $240,000 cash flow from financing activities would increase by $240,000 the income statement would not be affected

when a corporation appropriates retained earnings

total liabilities are not affected total assets are not affected

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

treasury

t/f: Acme Company reported significant growth in 2012; it was less growth than analysts expected. Under these conditions, Acme's stock may decline

true

t/f: partnerships and proprietorship are usually managed by their owners

true

... held companies can generally be controlled with smaller percentages of ownership than ... held companies

widely closely

distributions to owners of proprietorship are called

withdrawals