accounting 100 final
outstanding stock =
# of shares issued - # in treasury
times interest earned
(net income +interest expense+ income tax expense)/interest expense
earnings per share ratio
(net income - preferred dividends)/ weighted avg common shares outstanding
avg collection perdio
365/accounts receivable turnover
days in inventory
365/inventory turnover
How does a corporation compare to an individual?
Both are tax-paying entities.
John owns 10% of Hat Trick Manufacturing. He wishes to exercise his preemptive right. What should he do?
Buy 10% of any new stock offerings.
T/F: The initial market price of a stock is affected by the par value of stock.
False
T/F: The par value of a stock reflects the most recent market price.
False
Which two accounts are regularly used with Retained Earnings during the closing process?
Income Summary and Dividends.
is total stockholder's equity affected by a stock split?
No
A company pays quarterly dividends to their shareholders. If the dividends increase in one quarter compared to the previous quarter, what likely happened?
The company purchased treasury stock.
T/F: A net loss decreases retained earnings.
True
T/F: An obligation for dividends in arrears exists only after the board of directors declares payment.
True
An investor is looking to purchase common stock for a low price with the hope that the stock price will increase dramatically over the next few years. What type of company would this investor be most likely to invest in?
a company that does not pay dividends out of their retained earnings
Treasury stock should be reported in the financial statements of a corporation as a ________ from ________ and ___________.
a deduction from total paid-in capital and retained earnings.
An investor is looking to invest in companies that do not pay regular dividends now but instead reinvest their retained earnings back into the company. What is one likely goal of this investor?
achieving capital gains on the stock purchases
How should treasury stock be reported in the financial statements of a corporation?
as a deduction from total paid-in capital and retained earnings
Downtrodden Corporation has been experiencing consistent net losses for the past five years. How does the company report the resulting deficit?
as a deduction on the stockholders' equity section of the balance sheet
basic accounting equation
assets= liabilities +stockholders' equity
How does the purchase of treasury stock affect current shareholders?
by increasing earnings per share
payout ratio
cash dividends declared on common stock/net income
What is a cause for occasional restrictions of retained earnings?
contractual loan restrictions
Preferred stock has ________ __________ that give it priority over common stock in certain areas.
contractual provisions
inventory turnover
cost of a good sold/avg. inventory
working capital
current assets-current liabilities
current ratio
current assets/current liabilities
journal entry for a declaration of dividends
debit: cash dividends credit: dividends payable
journal entry for a payment of dividends
debit: dividends payable credit: cash
journal entry to record net income
debit: income summary credit: retained earnings
3 solvency ratios
debt to assets ratio, times interest earned, free cash flow
A corporation purchases 3,000 shares of its own $5 par common stock for $8 per share, recording it at cost. What will be the effect on total stockholders' equity?
decrease of $24,000
A corporation purchases 4,000 shares of its own $5 par common stock for $8 per share, recording it at cost. What will be the effect on total stockholders' equity?
decrease of $32,000
stock dividend leads to a ______ in retained earnings and a ______ in paid-in capital
decrease; increase
net loss occurs when...
expenses exceed revenues
issuance of stock dividends causes the market price to do what?
go down
gross profit rate
gross profit/net sales
Treasury shares plus outstanding shares equal ___________.
issued stock
What is one requirement of the corporate form of business?
issuing quarterly and annual reports
Closeknit Corporation has a limited number of stockholders. As a privately held corporation, Closeknit is exempt from
issuing reports to the SEC.
If no-par value stock does not have a stated value, then the entire proceeds from the issuance of the stock become
legal capital.
s corporation
legal treatment of corporation but tax treatment as a partnership (no taxation) // cannot have more than 100 stockholders
causes for retained earnings restrictions
legal, contractual, voluntary
Briggs Industries issued preferred stock for the first time during its most recent fiscal year. On its balance sheet for this fiscal year, Briggs should
list the firm's common stock after its preferred stock.
price-earnings ratio
market price per share/earnings per share
free cash flow =
net cash provided by operating activities - capital expenditures - cash dividends
accounts receivable turnover
net credit sales/ avg net accounts receivable
return on assets =
net income / total assets
return on common stockholders' equity
net income-preferred dividends/ avg common stockholders' equity
profit margin
net income/net sales
return on assets
net income/total assets
gross profit =
net sales - cost of goods sold
asset turnover
net sales/avg total assets
does the stock dividend affect the par value?
no
is total stockholder's equity affected by an issuance of a stock dividend?
no
The entire proceeds from the issuance of common stock becomes legal capital if ________ stock is issued ________ a stated value.
no-par; without
Which two items comprise the major components of stockholders' equity on the corporate balance sheet?
paid-in capital and retained earnings
legal capital is based on the _____ value of the stock issued
par
The stated value is treated the same way as ________ value for accounting purposes.
par value
What amounts involving common stock are considered "legal capital"?
par value and stated value
How does a company determine the amount to record as "legal capital"?
par value or stated value
What constitutes capital stock on the stockholders' equity section of the balance sheet?
preferred and common stock at par
If a company would like to increase earnings per share for their shareholders, which action should they take?
purchase treasury stock
retained earnings =
revenues - expenses - dividends
Two classifications appearing in the paid-in capital section of the balance sheet are capital stock and
stockholders' liability.
a stock dividend reduces retained earnings by ______ x______
the number of shares used x market price per share
When Catawba Corporation purchases treasury stock, which amount is debited to the treasury stock account?
the price paid to reacquire the shares
debt-to-assets ratio
total liabilities/total assets
Leary Manufacturing Corporation purchased 5,000 shares of its own previously issued $10 par common stock for $125,000. As a result of this event, _____ decreased $125,000.
total stockholders' equity
Identifying the type of account involved and whether to make a debit or a credit to the account is the purpose of
transaction analysis
Which of the following is listed under the total paid-in capital and retained earnings section of the balance sheet?
treasury stock
Where does the listing for treasury stock appear in the stockholders' equity section of the balance sheet?
under the total of paid-in capital and retained earnings
liquidity ratios (6)
working capital, current ratio, inventory turnover, days in inventory, accounts receivable turnover, avg collection period