Stockholders' Equity WileyPlus

A corporation was organized in January 2018 with authorized capital of $10 par value common stock. On February 1, 2018, shares were issued at par for cash. On March 1, 2018, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on February 1,2018 or March 1, 2018

March 1, 2018

What feature of preferred stock makes it more like a debt than an equity instrument?

Redeemable

Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders

bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership

A primary source of stockholders' equity is

both income retained by the corporation and contributions by stockholders

The residual interest in a corporation belongs to the

common shareholders

What effect does the issuance of a 2-for-1 stock split have on par value per share and retained earnings

decrease on par value per share and no effect on retained earnings

Stockholder's equity is generally classified into two major categories:

earned capital and contributed capital

Stock issues in non-cash transactions should be recorded at the

fair market value of the stock issued or the property received, whichever is more readily determinable

According to the FASB, redeemable preferred stock should be

included as a liability

A dividend which is a return to stockholders of a portion of their original investments is a

liquidating dividend

Additional paid-in capital is not affected by the issuance of

no-par stock

How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet

note disclosure

Cash dividends are paid on the basis of the number of shares

outstanding

At the date of the financial statements, common stock shares issues would exceed common stock shares outstanding as a result of the

purchase of treasury stock

The cumulative feature of preferred stock

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders

The preemptive right of a common stockholder is the right to

share proportionately in any new issues of stock of the same class

In a corporate form of business organization, legal capital is best defined as

the par value of all capital stock issued

Dividends are not paid on

treasury common stock

What does not decrease Retained Earnings

Stock Splits

What is not a legal restriction related to profit distributions by a corporation?

The amount distributed in any one year can never exceed the net income reported for that year

Total stockholder' equity represents

a claim against a portion of the total assets of the company

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

a footnote

The balance in Common Stock Dividend Distributable should be reported as an

addition to capital stock

Common stock dividends distributable is reported on the balance sheet as

an addition to common stock

Noncumulative preferred dividends in arrears

are not paid or disclosed

Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital 2. an expense of the period in which the stock is issued 3. an intangible asset

1

Which one of the following is not a right of common stockholders? 1. To share proportionately in all management decisions 2. To share proportionately in profits and losses. 3 To share proportionately in corporate assets upon liquidation 4. To share proportionately in any new issues of stock of the same class

1. To share proportionately in all management decisions

Which of the following statements related to dividends is incorrect? 1. Before declaring a dividend, management must consider availability of funds to pay the dividend 2. Distribution to owners must be in compliance with the state laws 3. Dividends must be paid in the period declared 4. Dividends must be declared by the Board of Directors

3. Dividends must be paid in the period declared

All of the following statements are true regarding preferred stock except: 1. companies usually issue preferred stock with a par value 2. the dividend preference for preferred stock is expressed as a percentage of the par value 3. a company often issues preferred stock instead of debt, because of a high debt-to-equity ratio 4. a preference as to dividends assures the payment of dividends

4. a preference as to dividends assures the payment of dividends

Characteristics of the corporate form of organization include all of following except: 1. capital stock or share system 2. facility for attracting and accumulating large amounts of capital 3. variety of ownership interests 4. unlimited liability of stockholders

4. unlimited liability of stockholders

What represents the total number of shares that a corporation may issue under the terms of its charter?

Authorized shares

A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect additional paid-in capital and retained earnings

Decrease additional paid-in capital and decrease retained earnings