AC 210 LearnSmart Ch 11

The declaration and payment of a cash dividend ultimately causes a(n) ______.

decrease in cash, stockholders equity, and retained earnings

A stock dividend ______.

distributes additional shares of stock to existing stockholders on a pro rata basis, causes retained earnings to decrease.

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

When a corporate charter does not specify a legal value per share, then the stock issued is referred to as ______.

no-par value stock

_____ is an insignificant value per share of capital stock specified in the corporate charter.

par value

Large stock dividends are recorded at _______ and small stock dividends are recorded at ______.

par value, market value

The maximum number of shares a corporation is allowed to sell in accordance with its corporate charter are called ____ shares.

authorized

Transactions between a company and its stockholders affect the company's _____ accounts only.

balance sheet

Preferred stock carries priority over common stock _____

both for dividends and at liquidation

The entry to record the issuance 100 shares of 3%, $100 par value preferred stock at a price of $105 is recorded with a debit to ______.

Cash of $10,500 and credit to Preferred Stock of $10,000 and Additional Paid-in Capital -Preferred of $500

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

Which of the following reports net income relative to average common stockholders' equity?

ROE

A company may be restricted from paying dividends if it has ______.

a loan covenant

Advantages of equity financing over debt financing include that ______.

dividends are optional, equity financing does not require payment

accumulated deficit _____

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

The number of shares outstanding equals the number of shares ______.

issued minus the number of shares in treasury

A major advantage of the corporate form of ownership is ______.

limited legal liability

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

net income, dividend common, dividends preferred

When a stockholder sells its shares of ABC Co. to another person at a price higher than what the stockholder purchased it for, ABC records ______.

nothing

If you own stock in a corporation that goes bankrupt, you ______.

only stand to lose what you paid to buy the stock

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

_____ stock carries priority over common stock with regard to dividends.

preferred

A share of stock that has a dividend rate specified on it must be ______.

preferred stock

Stock options are given to ______.

provide incentives for employees to work harder.

A company's past profits that are kept instead of being paid to stockholders are ______.

retained earnings

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

retained earnings

The entry to record the issuance of preferred stock is ______.

similar to the issuance of common stock, increases stockholders equity

Match stock splits and stock dividends with their characteristics.

stock splits (Cause the par value per share to change), dividends (Require a journal entry), stock splits and stock dividends (Cause total stockholders' equity to remain the same)

Contributed capital of $1,000,000 is found in the ______ section of the ______.

stockholder's equity, balance sheet

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

During the year, Lox, Stock and Bagel Inc.'s net income was $60,000. Its average stockholders' equity 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

20 ($10/(60,000/120,000 shares)

An accumulated deficit means a company has ______

accumulated more net losses than net income

Which form of financing has a tax advantage?

debt financing

Dividends Payable is recorded as a credit on the ______.

declaration date

Which of the following would be found on a statement of stockholders' equity?

Stock Issuances, Additional Paid-in Capital, Dividends, Treasury Stock, Net Income

The effect on the accounting equation of declaring a cash dividend includes ______.

a decrease in stockholders' equity, an increase in liabilities

When recording the issuance of preferred stock, Preferred Stock is ______.

credited, causes stockholders equity to increase

When a company reissues shares at a price lower than the cost to previously purchase the treasury stock, it records a ______

debit APIC

Any difference between the cost of the treasury stock and the price when it is re-issued is recorded as a ______.

debit to Additional Paid-in Capital when the price is below the cost

Match the date with the related event.

declaration date (The 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)

Treasury Stock on the balance sheet is ______.

subtracted from total stockholders' equity

Contributed capital of $1,000,000 represents ______.

the amount stockholders have invested in exchange for stock

The money a corporation receives from investors by issuing stock is called ______.

contributed capital

Earnings per share (EPS) may be determined by ______.

dividing net income less preferred dividends by the average common shares outstanding, dividing the stock price by the P/E ratio

The P/E ratio is calculated by ______

dividing the stock price by EPS

When a stockholder sells its shares to another person for more than its original cost, the corporation ______.

does not make a JE

True or false: When a corporation declares a dividend its Net Income on the income statement is reduced.

false

The effect of repurchasing stock using the cost method is to ______.

increase treasury stock, decrease assets and stockholders equity

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

contributed

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

treasury

When a corporation buys back its own stock, the stock is reported on the balance sheet as ______.

treasury stock