LS 11: Stockholders' Equity

Double Vision, Inc. had 10,000 shares issued and outstanding of its $1 par value common stock. at December 31, Common Stock equaled $10,000. RE equaled $20,000 and total SE equaled $50,000 prior to a 2-for-1 stock split. as a result of a 2-for-1 stock split, _____ - the common stock equals $20,000 - the number of shares outstanding equals 5,000 - par value equals $0.50 - RE equals $40,000

par value equals $0.50

a dividend date of record is the date on which the corporation ______

makes no entry

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. the effect of this transaction on the accounting equation, using the cost method, includes a _____ - $9,000 decrease in Additional Paid-In Capital - $10,000 decrease in Cash - $1,000 increase in SE - $10,000 increase in Treasury Stock

- $10,000 decrease in Cash - $10,000 increase in TS

what is the effect on the accounting equation of the entry to record the payment of dividends that were previously declared?

- L decrease - A decrease

stock options _____ - provide the holder with the option to purchase stock at a specified price during a specified period of time - are stock dividends in which additional shares equal to more than 20-25% of the shares outstanding are issued - are a corporation's option to issue both preferred and common stock - are often given to employees as part of their competition

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

Wyanot Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. the journal entry to record this transaction includes a _____

- $110,000 debit to Cash - $100,000 credit to Preferred Stock - $10,000 credit to Additional Paid-in Capital - Preferred

Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. prior to the resistance, the TS balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. after recording this transaction, _____ - TS will equal $4,000 - Additional Paid-In Capital will be increased by $2,000 - TS will equal $2,000 - Cash will be decreased by $10,000

- TS will equal $4,000 - Additional Paid-In Capital will be increased by $2,000

a stock dividend _____ - increases a stockholders' percentage ownership in the corp. - causes retained earnings to decrease - causes total SE to decrease - distributes additional shares of stock to existing stockholders on a pro rata basis

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

investors acquire common stock because they expect a return on their investment from _____ - increase in stock prices - distribution of dividends - receiving paid-in capital - repurchases of treasury stock

- increase in stock prices - distribution of dividends

issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by ______

- increasing total A - increasing total SE

identify what is needed to calculate the P/E ratio - average SE - return on equity - EPS - common stock dividends declared - stock price

- stock price - EPS

match stock splits and stock dividends with their characteristics - stock splits - stock splits and stock dividends - stock dividends

- stock splits: cause the par value per share to change - stock splits and stock dividends: cause TOTAL SE to remain the same - stock dividends: require a journal entry

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares it is allowed to issue. Stockit has repurchased 10,000 of its own shares. the number of shares authorized equals _____ shares

1,000,000

during the year, Lox, Stock, and Bagel Inc.'s net income was $60,000. its average SE was $240,000, and it had 120,000 shares outstanding the entire year. its stock was selling for $10 per share. its P/E ratio equals ______. the company has no preferred stock

40.00 $10/($60,000/120,000 shares)

AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. the number of shares outstanding equals ______ shares

90,000

shares that were previously issued to and owned by stockholders but have been reacquired and now held by the corporation are called _____ Stock

Treasury

why is Additional Paid-in Capital recorded for a small stock dividend?

because small stock dividends are recorded at market value

preferred stock carries priority over common stock _____ - only when dividends are declared and paid - both for dividends and at liquidation - only when a corporation is liquidated

both

ownership structure can vary from one company to another, but the most basic form of corporation offers _____ - net income - treasury stock - common stock - preferred stock

common stock

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

contributed

Dividends Payable is recorded as a credit on the ______ - last day of the fiscal year - declaration date - date of payment - date of record

declaration date

the effect of issuing 1,000,000 new shares of common stock will _____ EPS

decrease

when a company needs a large amount of long-term financing, it may issue stock, which is referred to as ______ financing, or it may borrow from lenders, which is referred to as _____ financing

equity; debt

an increase in EPS is an indicator of ______

higher profitability

a corporation is a separate ______ entity and can own assets, incur liabilities, and enter into contracts

legal

a common stock's _____ value is typically set at a low amount and has little meaning today other than being used to by some states to assess fees

par

at what governmental level are corporate charters issued? - State - Federal - International - Local

state

the statement of _____ _____ reports the changes in retained earnings as well as paid-in capital

stockholders' equity

Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common Stock. which of the following is TRUE?

this entry is correct

Bank, Rupp, & Baroque, Inc. began on January 1 by issuing 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 the 1st year. in the 2nd year, Bank, Rupp, & Baroque declared and paid a $1.00 dividend to its common stockholders. which of the following are TRUE? - dividends payable should be reported on the 2nd year's December 31 BS - dividends in arrears should be disclosed in the notes to the 1st year's financial statements - dividends payable should be reported on the 1st year's December 31 BS - dividends expense should be reported on the IS for the 1st year ended December 31

dividends in arrears should be disclosed in the notes to the 1st year's financial statements

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 _____ - $1,000 debit to Treasury Stock - $100,000 credit to Treasury Stock - $1,000 credit to Treasury Stock - $100,000 debit to Cash - $100,000 debit to Treasury Stock - $100,000 credit to Cash

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

match the date with the related event: declaration date date of record payment date

- declaration date: board of directors officially approves a dividend - date of record: stock records are finalized to determine which stockholders are to receive payment - payment date: dividends payable is decreased

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. the effect of reissuing the treasury stock includes a(n) _____ - increase in RE of $1,000 - increase in total SE of $11,000 - decrease in additional paid-in capital of $1,000 - increase in total assets of $10,000

- decrease in additional paid-in capital of $1,000 - increase in total assets of $10,000

advantages of equity financing over debt financing include that _____ - dividends are tax deductible - dividends are optional - stockholders' control will increase - equity financing does not require repayment

- dividends are optional - equity financing does not require repayment

Treasury Stock _____ - is the number of shares authorized minus the number of shares issued - is shares of stock no longer outstanding - reduces total SE - is a contra-equity account

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

lenders will sometimes impose dividend restrictions to ______ - prevent the corporation from paying out too much to stockholders - ensure the lenders will receive more dividends than the stockholders - prevent the corporation from paying out too much to other creditors - try to increase available dividends

prevent the corporation from paying out too much to stockholders

similar to a stock split, a stock ______ also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.

dividend

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. the effect of this transaction on the accounting equation includes a _____

- $50,000 increase in total SE - $50,000 increase in total assets

the effect of repurchasing stock using the cost method is to _____ - increase A - decrease L - decrease SE - increase TS - decrease A - decrease TS - increase L

- decrease SE - increase TS - decrease A

the declaration and payment of a cash dividend ultimately causes a(n) _____ - decrease in Cash - decrease in SE - decrease in Treasury Stock - increase in Treasury Stock - decrease in RE

- decrease in Cash - decrease in SE - decrease in RE

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000. the effect of this transaction on the accounting equation includes a(n) _____

- decrease in SE - decrease in A

Squid Roe, Inc;s ROE increased 2 percentage points to 12%. this increase may have happened because Squid Roe _____ - borrowed more funds at 12% - generated more profits than the interest incurred on its borrowed funds - replaced its 12% debt with 10% debt - replaced its 10% debt with 12% debt - had an increase in interest expense relative to profits

- generated more profits than the interest incurred on its borrowed funds - replaced its 12% debt with 10% debt

advantages of a corporation are ______ - it can raise large amounts of money by issuing stock - ownership interests are easily transferable - it can borrow at a lower interest rate than other forms of organizations - stockholders, and not the corporation, are liable for the liabilities of the corporation

- it can raise large amounts of money by issuing stock - ownership interests are easily transferable

earnings per share (EPS) equals _____ divided by the average shares of common stock outstanding

Net Income

_____ _____ reports the cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began

Retained Earnings

dividends is closed into _____ _____ at the end of the fiscal year

Retained Earnings

cumulative preferred stock is entitled to receive current dividends plus "dividends in ______" before any future common dividends can be paid

arrears

a major advantage of the corporate form of ownership is _____ legal liability

limited

when a stockholder sell its shares of ABC Co. to another person at a price higher than what the stockholder purchased it for, ABC records _____

nothing