Survey of Accounting Chapter 8 Smartbook

Which of the following statements are true?

- Treasury stock is stock that a company has repurchased from its investors. - The number of shares outstanding may be less than the number of shares issued.

Book value per share is ____________ .

- calculated by dividing total stockholders' equity by the number of shares of stock owned by investors - measured in historical dollars

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

In predicting the declaration of cash dividend payments a stockholder can examine __________ .

- retained earnings to assess sufficiency for dividend declarations - the cash account to assess sufficiency for dividend declarations

Outstanding stock

The number of shares currently owned by investors

Treasury stock

The number of shares of stock that a company has repurchased from its investors

Issued stock

The total number of share the company has sold to investors

Relationships between shareholders are critically important when assessing the capacity to control a corporation through stock ownership.

True

Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's legal capital is $_________ .

150,000

Which of the following is not normally included in the articles of incorporation?

A forecast of projected profitability

Which of the following statements is true?

Corporations are not legally required to declare cash dividends

The maximum number of shares of stock corporations are legally permitted to issue is the ________ number of shares.

authorized

If a company is forced to liquidate, the highest risk of losing their investment rests with ____________ stockholders.

common

Creditors cannot claim owners' personal assets as payment for the company's debts if the company is organization as a(n) _______________.

corporation

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

declaration

Corporations become legally obligated to pay dividends on the ____________ .

declaration date

Paying a previously declared cash dividend ________ .

decreases both liabilities and assets

The issue of no-par common stock does not affect the _____________ .

income statement

A chief advantage of the corporate form of business is __________ .

limited liability

Authorized stock

maximum number of shares a company can legally issue

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

more

Stock prices are influenced ______________ .

more by forecasts than by history

Corporations normally list ____________ stock before _______ stock in the stockholders' section of the balance sheet.

preferred; common

Owner contributions and retained earnings are combined in a single capital account on the balance sheets of ____________.

proprietorships

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

record

Financial statement contain ______ of the information needed to help an investor determine ownership levels necessary to permit control.

some

The greater the number of stockholders, the more ___________ held a company is.

widely

Companies that are _______ held can generally be controlled with smaller percentages of ownership than ________ held companies.

widely ; closely

Distributions to owners of proprietorships are called ___________ .

withdrawals

Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's balance sheet will show ______ of paid-in-capital in excess of par value.

$90,000 Reason: $24 issue price - $15 par value = $9 in excess of par × 10,000 shares = $90,000.

Which of the following statements are true?

- If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever. - Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders.

How do stockholders benefit from investing in capital stock?

- Stockholders may receive dividends - The market value of the investment may increase

Which of the following statements are true?

- The requirements for establishing a corporation vary from state to state. - A proprietorship is the simplest form of business organization to organize and operate

When a company issues no-par common stock, the ____________ .

- cash inflow is classified as a financing activity - entire amount of the proceeds is placed into the Common Stock account.

Preferred stock ________.

- dividends are paid before dividends are distributed to common stockholders - has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders

The par value represents the __________ .

- minimum amount of assets that must be retained in the company as protection for creditors - maximum liability of the investors

When a corporation buys treasury stock, the _____________ .

- number of shares of stock authorized is not affected - number of shares of stock outstanding decreases

Match the account title shown in the right column with the order in which they are presented in the stockholders' equity section of a 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 Common Stock 3. Class B Common Stock 4. Choice, Paid-in Capital in Excess of Par Value Preferred Stock Paid-in Capital in Excess of Par Value Preferred Stock 5. Paid-in Capital in Excess of Stated Value Common Stock 6. Retained Earnings

Which financial statement is affected on both the date of declaration and the payment date of a dividend?

Balance sheet

The greatest potential for rewards when a corporation prospers rests with _________ stockholders.

common

No-par stock may have a(n) _________ value which is an arbitrary amount established by the board of directors to the stock.

stated

A decrease in earnings should always result in a decrease in stock price

False

The stated value of a share of stock is established by the federal government.

False

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 that has a current market value of $5.20 per share. Based on this The book value per share of the stock is ______.

$3.20 Reason: ($50,000 stock + $30,000 retained earnings) ÷ 25,000 shares of stock = $3.20 per share.

Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Which financial statements were affected by the stock issue?

- Balance sheet - Statement of cash flows

Which of the following statements are true?

- Many states allow corporations to issue no-par stock. - To minimize the amount of assets that owners must maintain in the business, many corporations issue stock with very low par values.

Which financial statements are NOT affected by the declaration of a dividend?

- income statement - statement of cash flows

The financial statement effects of issuing stated value stock are identical to the financial statement effects of issue par value stock.

True

Treasury stock is _________ on the balance sheet.

a contra equity

The date of record for a cash dividend _____________ .

has no effect on the financial statements

The market value of stock should increase when a company ___________ .

retains earnings for reinvestment

A company announced that earnings were 15% higher than last year. As a result, stock prices should ______.

rise or fall depending upon expected earnings