Exam 2-CH 18

A restriction of retained earnings

indicates management's intention to withhold assets for a specified purpose communicates the portion of retained earnings not available for dividends

A limitation of the return on shareholders' equity ratio is that

it uses the book value of equity

Mandatorily redeemable preferred stock is classified as _____ under U.S. GAAP and related dividends are reported as ______.

liability; reduction of net income

When a company believes the market price of its stock is _______, it may attempt to support the price by ______ the supply of stock through stock repurchases

undervalued; decreasing

Shareholders influence a company by

voting for the board of directors.

What is the effect of the repurchase of treasury stock on the return on shareholders' equity ratio?

increase

The most likely reason for a company to declare a reverse stock split is to

increase the market value of the shares.

Mueller Company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a:

reverse stock split

In year 1, Clark purchased 1,000 shares of treasury stock for $10 per share. In year 2, Clark reissued 200 shares of treasury stock for $14 per share. The journal entry to record the transaction in year 2 will include a credit to

treasury stock for $2,000.

The four classifications within shareholders' equity are

treasury stock. accumulated other comprehensive income. retained earnings. paid-in capital.

Ragle Corp. issues 1,000 shares of its $5 par value common stock in exchange for equipment. The book value of the equipment on the investor's books was $40,000, and its catalog list price was $45,000. The equipment could be purchased in the market for $42,000. The stock was not publicly traded. Which of the following entries will be included in the journal entry to record the issuance of the stock?

Debit equipment $42,000.

Why do companies declare stock dividends?

To capitalize retained earnings into the common stock and paid-in-capital accounts To give shareholders the illusion they are receiving a real dividend

A business that has equity accounts labeled "common stock" and "retained earnings" is a

corporation.

A liquidating dividend means that

dividends exceed retained earnings.

A limited liability partnership (LLP) is similar to a limited liability company (LLC), except it

does not have the same limited liability protection.

Disadvantages of the corporate form of business are

government regulation. double taxation.

A reverse stock split requires

no journal entry

The _______ value method of accounting for treasury stock is essentially identical to formally retiring shares and is rarely used in practice.

par

A distribution of assets to shareholders is referred to as a

dividend

Property dividends are valued at

fair value

Treasury stock is reported in the financial statements as

a contra equity account.

If more than one class of shares is authorized, what type of information must be specified?

designation to distinguish each class specific rights for each class

The earnings-price ratio is calculated as ______ divided by the market price per share.

earnings per share

The number of shares a specific corporation is authorized to issue is set forth in

its articles of incorporation.

A corporation with shares held by only a few individuals is referred to as:

privately held

Place the steps for a quasi reorganization in the proper order.

revalue the firm's assets eliminate the deficit balance in retained earnings date retained earnings

When a property dividend is declared, a gain or loss is recognized for

the difference between the fair value and the book value of the assets distributed.

For IFRS reporting, the critical feature that distinguishes a liability from equity is if

the issuer is required to deliver cash or another financial instrument to the holder.

Historically, par value indicated

the real value of shares the amount of net assets that were not available for distribution to shareholders. the issue price of all shares

Reynolds Corp. has 100,000 shares of $1 par value common stock issued and outstanding. Reynolds declares a 20% stock dividend when the fair value of the stock is $8 per share. The debit to retained earnings for the stock dividend is

$160,000.

Linx Corp. has the following classes of equity: Preferred stock, $10 par, 8% dividend rate $100,000 Common stock, $1 par $50,000 The preferred stock is cumulative and nonparticipating. No dividends were paid in 2016 or 2017. In 2018, Linx declared a dividend of $90,000. The common stockholders will receive a dividend of

$66,000.

Which of the following transactions are classified as a stock dividend?

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

Which of the following is reported on the balance sheet?

Accumulated other comprehensive income

How should cash dividends be reported on the statement of shareholders' equity?

As a reduction of retained earnings.

The _________ Business Corporation Act is designed to serve as a guide for states in developing their corporate laws.

Model

When a company repurchases its stock and immediately retires the stock, which of the following occurs?

The equity accounts are reduced for the amount in which the shares were originally sold.

Comprehensive income may be presented as part of a combined income/comprehensive income statement, or separately immediately following the income statement.

True

When stock splits or stock dividends result in fractional shares, companies issue _______ payments along with the additional shares to compensate for the fractions.

cash

Newly issued stock may be exchanged for

cash services non-cash assets

Shareholders' equity is classified under IFRS into two categories: share capital and

reserves

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as earnings.

retained

A corporation's accumulated, undistributed net income or loss is referred as

retained earnings.

Net assets equals

shareholders' equity.

Stock repurchases are often used to offset the effects of

shares issued for stock awards and stock option programs.

The term treasury stock refers to

stock that is repurchased and not retired.

A 2-for-1 stock split increases the marketability of the stock because

the market price per share decreases.

Clam Corp. issues 1,000 shares of $10 par value preferred stock and 3,000 shares of $1 par value common stock for $48,000. The fair value of the preferred stock is $20 per share, and the fair value of the common shares is $10 per share. What is the amount allocated to the paid in capital—excess of par, common stock?

$25,800

The effect of share issue costs is to

reduce paid-in capital in excess of par.

The most important advantage to the corporate form of business is

limited liability.

When investors purchase shares of stock, it is classified as

paid-in capital.

When treasury shares are reissued for an amount greater than cost, the amount over the cost increases

paid-in capital—treasury shares.

In order for a dividend to be declared, a corporation must have sufficient

retained earnings.

The Model Business Corporation Act

serves as the model for corporate laws in most states.

What are the effects of a stock split?

the number of shares outstanding increases par value decreases

Which feature of preferred stock requires that, when a dividend is declared, all previous undeclared dividends must be paid on preferred stock?

Cumulative

Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?

S corporation

Which of the following is true regarding the issuance of a stock dividend?

Shareholders will still own the same percentage of the company as before the distribution The fair value per share decreases in proportion to the additional shares issued

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?

articles of incorporation corporate charter

The ex-dividend date is usually 1 day

before the date of record.

A corporation may repurchase its shares of stock because management

believes the market price of the stock is undervalued.

When stock splits or stock dividends result in fractional shares, companies issue payments along with the additional shares to compensate for the fractions.

cash

Which of the following are sources of shareholders' equity?

paid-in capital retained earnings

Preferred stock that has contractual rights in which the company is obligated to repurchase the stock at a specified future date is called

mandatorily redeemable preferred stock.

A corporation's investors may not bind the corporation to a contract. Therefore, investors of a corporation lack

mutual agency.

The return on shareholders' equity ratio is computed by dividing

net income by average shareholders' equity.

Other common terms for shareholders' equity include

stockholders' investment stockholders' equity

Which of the following terms refer to the ownership interests of a corporation?

stockholders' investment stockholders' equity shareholders' equity

A repurchase of treasury stock will ______ a company's return on equity because net income is divided by a _______ amount of equity.

increase; smaller

Placid Corp. issues 1,000 shares of its $1 par value common stock in exchange for equipment. The book value of the equipment on the investor's books was $20,000, and its catalog list price was $23,000. The quoted market price of the stock in The Wall Street Journal was $22 per share. Which of the following entries will be included in the journal entry to record the issuance of the stock?

Credit additional paid-in capital $21,000.

Farley Corp. has 50,000 shares of $1 par value common stock issued and outstanding. Farley declares a 10% stock dividend when the fair value of the stock is $9 per share. Which of the following entries will be included in the entries required to record the declaration and payment of the stock dividend?

Credit common stock $5,000. Credit additional paid-in capital $40,000. Debit retained earnings $45,000.

Cumulative Noncumulative

Dividends, if not declared, accumulate and must be paid in the future when a dividend is declared. Dividends are paid in the current year only if declared.

Cash dividends are paid on treasury shares.

False

When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.

False

If a company repurchases its shares of stock and does not retire the shares, the shares are reported as

a contra equity account—treasury stock.

Mandatorily redeemable preferred stock is reported as

a liability on the balance sheet.

Preferred stock is similar to a bond when it has which of the following features?

a mandatory redeemable feature a dividend rate

A stock split effected in the form of a large stock dividend

reduces paid in capital - excess of par. has no effect on the par value of the stock.

Items that under U.S. GAAP are reported under the heading of "accumulated other comprehensive income" would be reported by a IFRS-based entity under the heading of ____.

reserves

Historically, par value was considered to be

the amount of net assets that were not available for distribution to shareholders.

In year 1, Sofia Corp. issued 1,000 shares of $1 par value common stock for $10 per share. In year 4, Sofia repurchased and immediately retired 100 shares of the stock at $6 per share. Which of the following entries would be included in the journal entry to retire the shares?

Credit paid-in capital—share repurchase $400. Debit paid-in capital in excess of par $900. Debit common stock $100.

The purposes of a quasi reorganization are to

reduce the deficit in retained earnings. write down inflated assets.

One advantage of investing in a corporation is the lack of mutual agency, which means that:

Individual investors may not bind the corporation to a contract

State laws regulate which of the following corporate activities?

issuance of stock repurchase of stock nature of share authorization

On April 1, the board of directors of Waspi Corp. declares a property dividend of 100,000 shares of Rourke Corp.'s preferred stock that Waspi had purchased in January for $10 per share. On April 1, the market value of the shares was $12 per share. The date of record is April 30, and the shares will be distributed on May 15. The journal entry on May 15 will include which of the following entries?

Credit investment in Rourke securities $1,200,000.

Niles Corp. issues 1,000 shares of $10 par value preferred stock and 5,000 shares of $5 par value common stock for $150,000. The fair value of the preferred stock is $50 per share, and the fair value of the common stock is $20 per share. The journal entry to record the transaction will include which of the following entries?

credit to preferred stock $10,000 credit to paid-in capital in excess of par—common stock $75,000 credit to paid-in capital in excess of par—preferred stock $40,000 credit to common stock $25,000

The date on which the board of directors announces that a dividend will be paid is referred to as the

declaration date.

When a company issues different classes of shares, it must

distinguish the rights for each class of stock.

Companies may engage in stock repurchases for the following reasons:

to offset the increase in shares issued under stock compensation programs to support the price of its shares by decreasing the supply in the marketplace

Although the Model Business Corporation Act has eliminated the concept of legal capital, par value is still disclosed because

most companies had par value shares outstanding before the Model Act was adopted.

Accountants must be familiar with issues of legal capital and par value, even though such concepts have been eliminated from the Model Business Corporation Act, because

most companies have par value shares and continue to issue previously authorized par value shares

The statement of shareholders' equity reports

the changes in each shareholder equity account for the period.

In order to receive a dividend, investors must purchase shares of stock before the

ex-dividend date.

A company that is distributing liquidating dividends tends to be in the process of:

dissolving

Consistent with U.S. GAAP, companies that repurchase shares held as treasury stock may utilize

either the cost or par value method

Balance sheet Statement of stockholders' Equity

Reports amounts of shareholders' equity at end of reporting periods. Reports sources of the changes in stockholders' equity accounts.

Royce has 100,000 shares of $10 par issued and outstanding. Royce declares a 2-for-1 stock split in the form of a stock dividend. Which of the following are true?

The number of shares outstanding increases. The par value will not change.

When a corporation issues shares of common stock for an amount above par, which of the following entries occur?

credit to common stock credit to additional paid-in capital

Miles Corp. declares and distributes a 3-for-1 stock split effected in the form of a 200% stock dividend. Miles had 10,000 shares of $1 par value common stock valued at $8 per share before the stock split. If Miles does not capitalize retained earnings, the journal entry required to record the split would include a debit to

paid-in capital in excess of par $20,000.

The purpose of the statement of shareholders' equity is to

report the changes and the sources of the changes in shareholder equity accounts.

Formally retiring shares reduces these accounts to their pre-issuance condition:

paid-in capital in excess of par common stock

If treasury stock on hand was purchased at different times and is subsequently reissued, what cost flow assumptions are acceptable in determining the cost of shares sold?

weighted-average FIFO LIFO

Bell Corp. has the following classes of equity: Preferred stock, $10 par, 8% dividend rate $100,000 Common stock, $1 par $50,000 The preferred stock is noncumulative and nonparticipating. No dividends were paid in 2016 or 2017. In 2018, Bell declared a dividend of $90,000. The common stockholders will receive a dividend of

$82,000.

Corporations raise equity capital by

-operating at a profit. -issuing stock

A small stock dividend is usually less than ______% of the number of shares of stock outstanding.

25

Brandon issues 1,000 shares of $5 par value common stock for $20 per share. Stock issue costs are $500. The journal entry to record the issuance of stock will include which of the following entries?

Credit additional paid-in capital $14,500. Debit cash $19,500. Credit common stock $5,000.

In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Debit paid-in capital—treasury shares $400.

On September 1, the board of directors of Mayor Corp. declares a property dividend of 10,000 shares of Plum Corp.'s preferred stock that Mayor had purchased in May for $5 per share. On September 1, the market value of the shares is $6 per share. The date of record is September 30, and the shares will be distributed on October 15. The journal entry on September 1 will include which of the following entries?

Debit retained earnings $60,000. Credit gain on appreciation of securities $10,000.

Treasury stock represents investments in treasury securities of the U.S. government.

False

The characteristics of a limited liability company include which of the following features?

Owners are liable to the extent of their investment. Income and expenses are passed through to the owners. All members can be involved with management without losing liability protection.

What is a benefit of a limited liability corporation?

Owners' liability is limited to the extent of their initial investment. Income and expenses pass through to owners, avoiding double taxation.

Which type of stock usually has a high par value and a percentage of par value dividend rate?

Preferred stock

When a corporation issues two securities for a single price, how is the issue price usually allocated?

The cash received is allocated based on the relative market value of each security.

When a corporation issues two securities for a single price and the market value of only one security is known, how is the cash received allocated?

The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.

When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction?

The shares can be called treasury shares. The shares can be formally retired.

Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders?

The state in which the corporation is incorporated

If a company has preferred stock outstanding, a variation of calculating return on shareholders' equity can be made by making which adjustments to the ratio?

Use average common shareholders' equity in the denominator. Subtract preferred dividends from net income.

Carnival issues 10,000 shares of $1 par value common stock for $10 per share. Stock issue costs are $3,000. The journal entry to record the issuance of stock will include a credit to

additional paid-in capital for $87,000.

Retained earnings is typically reported on the balance sheet

as a single amount.

A share buyback can be viewed as a distribution of company profits to shareholders, which are taxed at ________, which are ________ than the rates for dividends.

capital gains rates; lower

The two items that are required for a cash dividend to be declared are

cash. a sufficient balance in retained earnings.

For U.S. GAAP reporting purposes, mandatorily redeemable preferred stock is classified as

debt.

If preferred shares must be redeemed by a certain date, they should be classified as

debt.

The date on which a cash dividend becomes a liability to a corporation is the

declaration date.

Preferred stockholders usually have preference over common stockholders with respect to which items?

distribution of assets in liquidation dividends

When stock splits or stock dividends result in fractional shares, the situation is handled by

issuing cash payments for the fractional shares.

In a corporation, shareholders' liability is

limited to the amount of the investment.

A share buyback can be viewed as a distribution of company profits, and distributions to investors may be eligible for

lower capital gains tax rates on their individual tax returns.

Return on shareholders' equity indicates the percent of corporate earnings for each dollar of total equity invested in the corporation, whereas the earnings-price ratio reflects the percentage earned for each dollar of

market value of common stock.

The return to common shareholders' equity is calculated by subtracting ______ from net income and dividing that amount by average ____________.

preferred dividends; shareholders' equity attributed to common shareholders

Which of the following are designations for different classes of stock?

preferred stock, common stock Class A, Class B, Class C

The two types of corporations are

profit and not-for-profit.

Fantastic Gold Inc. declares and distributes to its shareholders 1 gram of gold in lieu of a cash dividend. Fantastic Gold is distributing a(n)

property dividend.

Who owns and controls a corporation?

shareholders

A ______ stock dividend is less than 25% of the outstanding shares of stock.

small

Distributions of stock to current shareholders of a corporation are called what type of distribution?

stock dividend

Which of the following dividends has no effect on total owners' equity?

stock dividend

A corporation is owned by its

stockholders, shareholders, or investors

A reason for using stock dividends is

to capitalize retained earnings into the common stock and paid-in capital accounts

A quasi-reorganization allows a firm that is undergoing financial difficulties to

write-down inflated assets and reduce an accumulated deficit

Which of the following describe the ways in which companies may record stock splits effected in the form of dividends?

Capitalize retained earnings. Reduce the paid-in capital in excess of par account.

Which of the following may be a source of paid-in capital?

Company sells stock to investors Share-based compensation activities Company repurchases some of its outstanding common stock

Which of the following is subject to double taxation?

Corporations

Declaration date Record date Ex-dividend date Payment Date

Date that the corporate board of directors announces a dividend Date that a determination is made as to recipients of a dividend Date before which investors must purchase stock in order to receive a dividend Date that corporate assets are transferred to shareholders

On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. What is the journal entry required on March 20, 2018?

No entry is required.

What type of corporations include churches, hospitals, universities, and charities?

Not-for-profit

Which item is included in shareholders' equity?

Retained earnings

When a small stock dividend is declared and distributed,

earned capital is reclassified as invested capital. or retained earnings is reduced by the market value of the shares issued

Which account is a stockholders' equity account?

Additional paid-in capital

On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on April 1, 2018, will include which of the following entries?

Credit cash $3,000. Debit dividends payable $3,000.

On April 1, 2018, Rawlings declares a dividend of $0.30 per share. Rawlings has 100,000 shares authorized, and 40,000 issued and outstanding. The date of record is April 28, and the payment date is May 15. Which of the following entries is included in the journal entry on May 15?

Debit dividends payable $12,000.

In year 1, Pride Corp. issued 10,000 shares of $1 par value common stock for $8 per share. In year 3, Pride repurchased and immediately retired 1,000 shares of the stock at $6 per share. Which of the following entries would be required to retire the shares?

Debit paid-in capital in excess of par $7,000.

Which of the following are steps involved in a quasi-reorganization?

Revalue the firm's assets to reflect fair values Eliminate the retained deficit against additional-paid in capital

The rights of common stockholders typically include which of the following?

Right to dividends when declared. Right to distribution of assets in liquidation. Right to vote for corporate directors.

Conversion Redemption

Right to exchange preferred stock for common stock Right to return preferred stock

Which of the following are included in the rights of common stockholders?

Right to vote on certain matters.

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?

The fair value of the stock

Cash and property dividends ______ total equity, and stock dividends _______ total equity.

decrease; do not effect

The earnings-price ratio is ________ divided by __________.

earnings per share; market price per share

A preemptive right is the right to

purchase additional shares of stock in proportion to the current percentage of ownership.

When a share repurchase is viewed as treasury stock, the cost of the treasury stock _______ shareholders' equity.

reduces

Which of the following accounts are classified as shareholders' equity?

retained earnings common stock Preferred stock Additional paid-in capital Net unrealized holding gains on investments

A company originally issues par value common stock at an amount above par. Subsequently, the company reacquires the shares for more than the issue price and immediately retires the shares. The company has no previous transactions for stock repurchases. Which of the following accounts would be reduced for the repurchase and retirement of the shares?

retained earnings common stock paid-in capital in excess of par

Amounts earned by the corporation on behalf of its shareholders and recorded as a single amount are referred to as:

retained earnings.

In year 1, Rim Corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Debit retained earnings $300. Debit paid-in capital—share repurchase $200. Credit treasury stock $5,000 Debit cash $4,500

Owners of __ corporations have the limited liability of a corporation, but income and expenses are passed through the owners as in a partnership, avoiding double taxation.

S

When treasury shares are reissued for an amount less than cost and no paid-in capital from treasury shares account exists, the amount that is less than the cost decreases

retained earnings.

A company that repurchases its own securities accounts for the buyback as:

retired shares or treasury shares.

Which type of dividend does not reduce the assets of the firm or create a liability?

stock dividend

Other common terms for shareholders' equity include

stockholders' equity stockholders' investment

On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on March 1, 2018, will include which of the following entries?

Credit dividends payable $3,000. Debit retained earnings $3,000.

Which type of corporation is regulated by the Securities and Exchange Commission?

Public

When does a dividend become a liability to a corporation?

When it is declared by the board of directors

If a company wishes to increase its stock price, it might declare a ______ stock split.

reverse

Canton has 60,000 shares of $10 par issued and outstanding. Canton declares a 2-for-1 stock split. What is the par value and number of shares outstanding after the stock split?

$5 par; 120,000 shares

Salisbury Company retires shares for the first time. It repurchases the shares at an amount more than the original issue price. Salisbury Company should debit _________ because the additional payment represents a ___________ to shareholders.

retained earnings; distribution of assets

When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this is referred to as a(n)

reverse stock split.

Under IFRS, shareholders' equity typically is classified under two categories referred to as:

share capital reserves

Brian Corp. issues 5,000 shares of $10 par value preferred stock and 20,000 shares of $1 par value common stock for $150,000. The fair value of the preferred stock is $20 per share, and the fair value of the common shares is unknown. What is the amount allocated to the paid in capital—excess of par, common stock?

$30,000

U.S. GAAP IFRS

Accumulated other comprehensive income items Reserves

Any portion of a dividend that does not represent a distribution of earnings is debited to which account?

Additional paid-in capital

The portion of a dividend that is a liquidating dividend reduces which account?

Additional paid-in capital

A company has available-for-sale debt securities in its portfolio that have increased in value at year-end. How should the unrealized gain on the available-for-sale securities be reported on the statement of shareholders' equity? (Assume the fair value option is not elected.)

As an increase in comprehensive income.

Other comprehensive income Accumulated other comprehensive income

Comprehensive income statement Balance Sheet

When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded?

Credit common stock for the par amount.

On April 1, the board of directors of Waspi Corp. declares a property dividend of 100,000 shares of Rourke Corp.'s preferred stock that Waspi had purchased in January for $10 per share. On April 1, the market value of the shares is $12 per share. The date of record is April 30, and the shares will be distributed on May 15. The journal entry on April 1 will include which of the following entries?

Credit gain on appreciation of securities $200,000.

Ziegler Corp. has a deficit in retained earnings of $150,000 after revaluing all accounts in a quasi reorganization. Prior to the quasi reorganization, Ziegler had balances of $100,000 in the common stock account and $120,000 in the paid-in capital in excess of par account. The journal entry required to eliminate the deficit in retained earnings would include which of the following?

Debit common stock for $30,000

Linwood Corp. has a deficit in retained earnings of $100,000 after revaluing all accounts in a quasi reorganization. Prior to the quasi reorganization, Linwood had balances of $75,000 in the common stock account and $120,000 in the paid-in capital in excess of par account. The journal entry required to eliminate the deficit in retained earnings would include which of the following?

Debit paid-in capital in excess of par $100,000.

On September 1, the board of directors of Mayor Corp. declares a property dividend of 10,000 shares of Plum Corp.'s preferred stock that Mayor had purchased in May for $5 per share. On September 1, the market value of the shares was $6 per share. The date of record is September 30, and the shares will be distributed on October 15. The journal entry on October 15 will include which of the following entries?

Debit property dividends payable $60,000. Credit investment in Plum $60,000.

In year 1, Frill Corp. issued 1,000 shares of $1 par value common stock for $10 per share. In year 3, Frill repurchased and immediately retired 100 shares of the stock at $12 per share. Which of the following entries would be included in the journal entry to retire the shares?

Debit retained earnings $200. Debit common stock $100. Debit paid-in capital in excess of par $900.

In year 1, Tallon Corp. issued 10,000 shares of $1 par value common stock for $10 per share. In year 2, Tallon repurchased and immediately retired 1,000 shares of the stock at $15 per share. Which of the following entries would be included in the journal entry to retire the shares?

Debit retained earnings $5,000. Credit cash $15,000. Debit paid-in capital in excess of par $9,000. Debit common stock $1,000.

Gosling Corp. has 100,000 shares of common stock authorized, 80,000 shares issued, and 20,000 shares of treasury stock. Gosling declares a dividend of $0.10 share. Which of the following entries is required at the date of declaration?

Debit retained earnings $6,000.

______ represents the creditors' interest in the company, whereas ______ represents the investors' interest in the company.

Debt; equity

Formally retiring shares has what effect on total shareholders' equity?

Decrease

A distribution of 25% or more of the outstanding shares of stock is treated as which of the following?

Either a stock dividend or a stock split

U.S.GAAP IFRS

Equity Liability

A corporation is owned by debt and equity holders.

False

Newly issued stock may be exchanged only for cash.

False

Stock dividends typically are paid on treasury shares.

False

The balance sheet should disclose the sources of changes in the stockholders' equity accounts.

False

The return on shareholders' equity ratio is calculated as net income divided by common stock.

False

Which of the following are characteristics of treasury stock?

It has no voting rights. It is stock that is repurchased by the company. It does not receive a dividend.

When treasury stock is acquired at different times for different amounts and is subsequently sold, what cost flow assumptions are acceptable?

LIFO, FIFO, or weighted-average

Which of the following accurately describes shareholders' equity?

Ownership interests of the shareholders

Which preferred stock feature allows preferred shareholders to receive additional dividend distributions above the amount stated on the preferred stock certificate?

Participating

Participating Nonparticipating

Preferred shareholders may receive additional dividends above that amount stated in the preferred stock certificate. Preferred shareholders receive a dividend equal to the amount stated in the preferred stock certificate.

Cash dividend Property dividend Small stock dividend Large stock dividend

Reduce retained earnings; reduce a current asset. Reduce retained earnings, recognize gain on appreciation on income statement. Reduce retained earnings for fair value; increase common stock by par value; increase additional paid-in capital. Reduce retained earnings by par; increase common stock by par.

No journal entry is required on the date of record.

True

The rationale for reducing retained earnings if stock is retired for an amount greater than the original issue price is that

a payment to shareholders is a distribution of corporate assets.

A restriction of retained earnings signifies that

a portion of retained earnings is not available for dividends.

When treasury stock is purchased, the cost of treasury stock is reported as

a reduction in shareholders' equity.

Shareholders' equity consists of which of the following items?

amounts earned by the corporation amounts invested by shareholders

Consistent with U.S. GAAP, comprehensive income may be reported as

an expanded version of the income statement a separate statement immediately following the income statement

When a business incorporates, it must file its ______ with the state in which it incorporates.

articles of incorporation

Corporations can raise capital by:

borrowing. operating at a profit. issuing stock.

Under IFRS, the critical feature that distinguishes a liability is if the issuer can be required to deliver ________ or another financial instrument to the holder.

cash

A frequent reason for a stock split is to

cause the market price per share to decline

What are some common terms that companies use to differentiate between share types?

class A, class B and class C shares common or preferred stock common versus capital stock

The right of a shareholder to exchange their preferred stock for another class of stock is referred to as a right of _______ , whereas the right of the preferred shareholder to have their stock repurchased by the corporation for cash is referred to as a __________ privilege.

conversion; redemption

Justin Corp. issues 10,000 shares of $1 par value common stock for $5 per share. The journal entry to record this transaction will include which of the following?

credit to additional paid-in capital $40,000 credit to common stock $10,000

Knorr issues 1,000 shares of $2 par value common stock for $10 per share. The journal entry to record this transaction will include which of the following?

credit to additional paid-in capital $8,000 credit to common stock $2,000

Ship Corp. issues 1,000 shares of $10 par value preferred stock and 4,000 shares of $1 par value common stock for $100,000. The fair value of the preferred stock is unknown, but the fair value of the common stock is $8 per share. The journal entry to record the transaction will include which of the following entries?

credit to common stock $4,000 credit to preferred stock $10,000 credit to paid-in capital in excess of par—common stock $28,000

In year 1, Boise purchased 10,000 shares of treasury stock for $5 per share. In year 3, Boise reissued 1,000 shares of treasury stock for $8 per share. The journal entry to record the transaction in year 3 will include

credit treasury stock for $5,000. credit to paid-in capital from treasury stock for $3,000.

The journal entry to record a stock split effected in the form of dividends may include which of the following?

debit to paid-in-capital credit to common stock debit to retained earnings

When a corporation issues a stock dividend, the fair value of the shares should normally

decrease.

When a company repurchases shares held as treasury stock, the number of shares outstanding:

decreases

When a corporation repurchases its stock as treasury stock, the number of shares outstanding:

decreases.

A restriction of retained earnings is typically indicated by a ______ in the notes to the financial statements.

disclosure

When a corporation distributes assets of the company to its investors, it is referred to as a(n)

dividend.

When a corporation repurchases its stock as treasury stock, the number of shares authorized

does not change.

Because the return on shareholders' equity is based on the book value of equity, analysts often supplement their understanding of the return to shareholders with the ____________.

earnings-price ratio

Which of the following items are included in other comprehensive income?

net holding gains and losses on certain types of investments gains and losses from amendments to postretirement programs deferred gains and losses on derivatives net holding gains and losses on investments that are available for sale adjustments from foreign currency translations

A credit balance in retained earnings indicates that

net income has exceeded the dividends distributed to shareholders.

An accumulated deficit in retained earnings indicates that the company has

net losses.

In a limited liability partnership,

owners are liable for their own actions, but not entirely liable for the actions of other partners

The right to purchase additional shares of stock to maintain one's percentage of ownership when new shares are issued is called a ______ right.

preemptive

A nonreciprocal transfer to owners is referred to as a

property dividend.

The feature that shares of preferred stock may be exchanged for cash at the option of the corporation or the shareholders is referred to as what?

redeemable

When a corporation repurchases its stock as treasury stock, the number of shares issued

remains the same.

Miles Corp. declares and distributes a 3-for-1 stock split effected in the form of a 200% stock dividend. Miles had 10,000 shares of $1 par value common stock valued at $8 per share before the stock split. If Miles wishes to capitalize retained earnings, the journal entry required to record the stock split would include a debit to

retained earnings $20,000.

A distribution of 25% or more of the outstanding shares of stock may be treated as which of the following?

stock split stock dividend

The costs for legal, promotional, and accounting services to issue stock should be

subtracted from the proceeds of issuing stock.

A debit balance in retained earnings indicates that

the company has a deficit.

If retained earnings is restricted, the disclosure is usually found in

the notes to financial statements.

When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction?

the quoted market price for the shares the amount of cash that would be paid to purchase the asset

Shares of stock previously sold by the corporation that are repurchased are called

treasury stock.