AC 210 Chapter 11 Learnsmart

Stock splits and stock dividends

cause total stockholders' equity to remain the same

The closing entry required at year end includes a

debit to retained earnings Credit to dividends

Nova, Inc. is considering declaring a $100,000 cash dividend. Nova has a cash balance of $20,000 and a retained earnings balance of $100,000. Nova should ___________________

not declare a cash dividend because it does not have enough cash.

A stock dividend causes the stock price per share to _________________

decrease

Which of the following is NOT a reason a company would repurchase its own stock?

to increase total stockholders' equity balance and improve the ROE

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

refurbish inc bought 1000 shares of its own stock at 8$ a share. Later it reissued the shares for 10,000. the effect of the entry to record the sale of treasury stock on the equation includes a

$10,000 increase in stockholders equity

Daffy Duct inc. issued 10,000 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes a ____________

$100,000 debit to cash, $90,000 credit to additional paid in capital and $10,000 credit to common stock.

If Squid Roe Inc.'s P/E ratio is 12 and Lox, Stock and Bagel's is 20, then investors expect ____________

Lox, Stock and Bagel's earnings to grow at a faster rate than Squid Roe's

A corporation that has a loan covenant____________

May be required to repay the loan immediately if it violates the covenant. Must disclose the covenant in the notes to financial statements

Treasury stock is reported in the

equity section of the balance sheet

Which of the following line item amounts would be under the retained earnings column of a statement of stockholders' equity

Dividends: preferred Dividends: common net income

EPS (earnings per share) equals________divided by the average shares of common stock outstanding.

Net income

A corporation may be restricted from paying a dividend if ___________

The dividend is greater than the amount of retained earnings a creditors loan agreement is violated

Items such as unrealized gains and losses from pensions, foreign currencies or financial investments are reported as _________________

accumulated other comprehensive income

The journal entry to record the payment of a previously declared dividend includes a _______________

debit to dividends payable Credit to cash

A corporation _________ have a legal obligation to pay dividends.

does not

common stock's par value

has become less meaningful was introduced to prevent bankrupt companies from unfairly distributing company resources affects how common stock is recorded

A __________ P/E ratio indicates investors anticipate an improvement in the company's future results.

higher

Which type of investment would retirees wanting a stable income prefer?

income investment

On April 30, 2015, Victoria Secreto sold 1,000 shares of her Limited, Inc.'s common stock to Claire Jewels for $8,000. The stock cost Victoria $5,000. Limited, Inc.'s accounting equation ________________________

is not affected because the corporation is separate from its owner

Under IFRS, if the company issuing preferred stock is contractually obligated to pay dividends or to redeem the shares at a future date, then the preferred stock is classified as ________________

liability

A dividend date of record is the date on which the corporation_________

makes no entry

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares authorized. Stockit has repurchased 10,000 of its shares. The number of shares authorized represents the _______________

maximum number of shares Stockit is allowed to issue

A current dividend preference requires that __________________

preferred dividends must be paid before any dividends are paid to common stockholders

Lenders will sometimes impose dividend restrictions to _______

prevent the corporation from paying out too much to stockholders

treasury stock

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

A stock dividend causes a stockholder's percentage ownership in a company to ___________

remain the same

Refurbish inc bought 1000 shares of its own stock for $8000. Later it reissued the shares for $10000. The journal entry to record the sale of treasury stock includes a________

$8000 credit to treasury stock, $2000 credit to additional paid in capital

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 ___________________

-$10,000 increase in treasury stock -$10,000 decrease in Cash

A stock dividend ______________

-has no effect on stockholders' equity -decreases Retained Earnings -Increases Common Stock *provides no economic value fro current stockholders

Investors earn a return on stock by _________________

-selling the stock for more than its cost -receiving dividends

a higher ROE means ____________________

-the company used financial leverage to its stockholders' advantage -stockholders may enjoy higher reutrns

Prior to a $4,000 stock dividend, total stockholders' equity equaled $50,000. After the stock dividend, total stockholders' equity equals ___________

$50,000 (a stock dividend decreases retained earnings and increases common stock and additional paid-in capital (in total) by the same amount, so there is no change in total stockholders' equity)

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 assets -increasing total stockholders' equity -increasing Additional Paid-in Capital

Squid Roe Inc.'s P/E ratio is 12. Which of the following statements is true?

Investors are willing to pay 12 times the current year's earnings per share of stock

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

Treasury stock represents_______

A contra equity account, the amount paid for stock reacquired and currently held in treasury

If a company's EPS falls from $5 to $3 then investors may expect_________

A reduction in the stock price

Canton Inc. issued 10000 shares of $1 par value common stock at $10 per share. Mr. Smart the bookkeeper, recorded this transaction with a $100000 debit to cash and a $100000 credit to common stock. As a result of this entry____________

Additional paid-in capital will be understated and Common stock will be overstated.

On January 1, 2014, Bank & Rupp, Inc. issued 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 2014. In 2015, Bank & Rupp declared and paid a $1 dividend to its common stockholders. Assuming all shares origianlly issued are outstanding, the total dividend paid to the preferred stockholders equals_________________

$6,000 Since the preferred stock is cumulative, $6,000 (=1,000 shares x $50 par value x 6% x 2 years) must be paid to preferred stockholders before the common stockholders may recieve a $1 dividend

Wok N Roll, Inc. began on January 1, 2014 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5% cumulative preferred stock. No dividends were declared in 2014 or 2015. In 2016, Wok N Roll declared and paid a $0.50 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in 2016 equals ________________

$65,000 Cumulative stock recieves 1,000 shares x $100 par x 5% x 3 years and common stock receives 100,000 shares x $0.50

X-Co issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes a ______________.

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

Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity?

-Net Income -Dividends: Common -Dividends: Preferred

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a _______________

-debit to Cash -debit to Additional Paid-in Capital -credit to Treasury Stock

The closing entry required at year end, includes a _________________

-debit to Retained Earnings -credit to Dividends

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a _________________

-debit to cash -debit to Additional Paid-in Capital -credit to Treasury Stock

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it issued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a ____________________

-decrease in additional paid-in capital of $1,000 -increase in total assets of $10,000 (Stockholders equity increases by $10,000. Treasury Stock (contra-equity) decreases $11,000, which increases stockholders' equity: Additional Paid-in Capital decreases $1,000 ($11,000-$10,000), which decreases stockholders' equity.)

A cash dividend differs from a 2-for-1 stock split in that a cash dividend ____________

-decreases retained earnings -decreases current assets

The risk from financial leverage ________________

-increases when the cost of borrowing is greater than the return -decreases when a company issues new shares of stock

Accumulated Deficit ______________

-indicates accumulated net losses -is shown in parentheses on the balance sheet -means that Retained earnings has a debit balance

Before the board of directors declares a cash dividends, it should consider whether __________________

-there is sufficient cash -there are sufficient retained earnings

Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. As a result of this transaction, Refurbish's _______________________

-treasury stock on the balance sheet will equal $4,000 -stockholders' equity on the balance sheet will be $10,000 higher

Atomic, Inc. had 10,000 shares of $1 par value common stock outstanding prior to a 2-for-1 stock split. As a result of the stock split ___________________

20,000 shares are outstanding with a $0.50 par value

Which of the following accounts are closed into Retained earnings at year end

Dividends revenue accounts and expense accounts

Retained earnings are ____________

Sometimes called earned capital decreased by dividends increased by net income all of the company's earnings kept rather than distributed to stockholders

Uma rich purchased 100 shares of stockiest inc $1 par value common stock from stockits for $5 per share. which statements are true regarding the effect of this transaction on stockits financial statements

Stockholders equity on the balance sheet increases The

T/F: No gain or loss is reported when treasury stock is reissued because the GAAP does not consider transactions between a corporation and its owners to be profit-making activities

True, GAAP does not allow gains or losses reported when a corporation reissues its treasury stock.

Stock Splits

cause the par value per share to change

Preferred stockholders _____________________

have the right to receive dividends only in the years the board of directors declares dividends

Squid Roe inc's ROE increased two percentage points to 12%. This increase may have happened because Squid Roe __________

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

Stock Dividends

require a journal entry