Accounting 2 Chapter 13 Smart book

When a corporation purchases shares of its own stock, it is called ________ stock.

treasury

In the computation of basic earnings per share, a company will use the _____.

weighted-average common shares outstanding

Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total _________.

$2,500 Reason: 10,000 shares x $5 x .05 = $2,500.

Identify the formula to compute basic earnings per share.

(Net income - preferred dividends)/weighted-average common shares outstanding

A small stock dividend is a distribution of _____% or less of previously outstanding shares.

25

On January 1, Lang, Inc. has 100,000 shares of stock issued and outstanding. The board of directors of Lang wants to authorize a large stock dividend. This means that they must authorize a stock dividend of at least ______ shares of stock.

25,001 Reason: A large stock dividend is a distribution of 25% of previously issued outstanding shares.

_________ stock is the number of shares that a corporation's charter allows it to sell.

Authorized

Visor, Inc. had net income during the period of $10,000. Preferred dividends were $2,000 and the weighted-average common shares outstanding were 500. Basic earnings per share equal $(Blank 1).

Blank 1: 16

Blink, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $(Blank 1).

Blank 1: 19500

(Blank 1) stock is the number of shares that a corporation's charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.

Blank 1: Authorized

(Blank 1) (Blank 2) is an account that consists of a company's cumulative net income less any losses and dividends declared since its inception.

Blank 1: Retained Blank 2: Earnings

Long, Inc. purchased 50 shares of its own $10 par value common stock for $50 per share. The journal entry to record this transaction would include a debit to the (Blank 1) Stock account in the amount of $(Blank 2).

Blank 1: Treasury Blank 2: 2500

Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called (Blank 1) stock.

Blank 1: common

On August 20, Max, Inc. issues 100 shares of $1 par value preferred stock for $3,000 cash. The entry to record this transaction would include a (debit/credit) to the preferred stock account in the amount of $(Blank 2).

Blank 1: credit Blank 2: 100

Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit) (Blank 1) to Common Stock, $1 par for $(Blank 2).

Blank 1: credit Blank 2: 100 or $100

Avery, Inc. held 100 shares of its own $10 par value common stock purchased for $15 per share. On December 1, Avery sold 10 shares at $15 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) to Treasury Stock in the amount of $(Blank 2).

Blank 1: credit Blank 2: 150

Josie Inc.'s charter authorizes 1,000 shares of stock with no par value. Josie Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) (Blank 1) to Common Stock, for $(Blank 2).

Blank 1: credit Blank 2: 500

Riley Inc.'s charter authorizes 1,000 shares of stock at a stated value of $10 per share. Riley issues 50 shares of stock at its initial offering for $20 per share. The journal entry to record this transaction will include a (debit/credit) (Blank 1) to Common Stock, $(Blank 2).

Blank 1: credit Blank 2: 500

On June 1, the board of directors of Big, Inc. declare a 20% stock dividend. On this date, there were 10,000 shares of $1 par value stock issued and outstanding and the market value was $5 per share. The entry to record this transaction would include a (debit/credit) to Retained Earnings in the amount of $(Blank 2).

Blank 1: debit Blank 2: 10000

Dane, Inc. purchased 10 shares of its own $5 par value common stock for $20 per share. The journal entry to record this transaction would include a (debit/credit) to the Treasury Stock account in the amount of $(Blank 2).

Blank 1: debit Blank 2: 200

The board of directors authorizes a cash (Blank 1) or distribution of cash to its investors.

Blank 1: dividend

Stock that typically includes preference for receiving dividends and for distribution of corporate assets during a liquidation is called (Blank 1) _ stock.

Blank 1: preferred

Corporations can be separated into two types. A (blank 1) held corporation does not offer its stock for public sale and usually has few stockholders. A (Blank 2) held corporation offers its stock for public sale and can have thousands of stockholders.

Blank 1: privately, closely, or private Blank 2: publicly or public

A charter application usually must be signed by the prospective stockholders called incorporaters or (Blank 1). Then, it is filed with the appropriate state official.

Blank 1: promoters

Mario, Inc. declares a 2-for-1 stock (Blank 1). This means that Mario will "call in" its outstanding shares and issue two shares in exchange for each old share of stock.

Blank 1: split

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate (Blank 1).

Blank 1: taxation, taxes, tax, or double taxation

Stockholders have the right to (Blank 1) at stockholders' meetings.

Blank 1: vote

John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts? (Check all that apply.)

Common Stock Paid-in Capital in Excess of Par Value

Gomez Inc.'s charter authorizes 1,000 shares of stock at a par value of $1 per share. Gomez sells 200 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.)

Credit to Common Stock, $1 par for $200. Debit to Cash for $200.

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.)

Debit to Cash for $500. Credit to Paid-In Capital, in Excess of Stated Value for $450. Credit to Common Stock for $50.

Ivers, Inc. purchased 100 shares of its own $10 par value common stock for $20 per share. The journal entry to record this transaction would include which of the following entries?

Debit to Treasury Stock; credit to Cash.

Identify the disadvantages of the corporate form of business. (Check all that apply.)

Government regulation Corporate taxation

Identify the advantages of the corporate form of business. (Check all that apply.)

Limited liability of stockholders Ease of capital accumulation Continuous life

Identify which of the following is not generally a right of common stockholders.

Manage operations

Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to _________ in the amount of _______.

Paid-in Capital, in Excess of Par; $8,000

The market value per share is the price at which stock is bought and sold. Which of the following factors does not influence market value?

Par value

_________ has/have special rights that give it priority over other types of stock in one or more areas.

Preferred stock

The account that consists of a company's cumulative net income less any losses and dividends declared since its inception is called _________.

Retained Earnings

On January 1, the board of directors of Shante, Inc. declared a 10% stock dividend. On this date, there were 10,000 shares of $1 par value stock issued and outstanding and the market value was $5 per share. The entry to record this transaction would include a debit to _____ in the amount of ______.

Retained Earnings; $5,000

Which of the following is not a reason that a corporation would issue preferred stock?

To obtain a tax advantage over corporations with no preferred stock

Corporations purchase and hold their own stock, known as treasury stock, for several reasons. Identify which of the following is not a reason that a corporation would buy treasury stock.

To reduce the market value of the common shares outstanding

True or false: Preferred stock can be issued to raise money without giving up control.

True

True or false: Stockholders do not have the power to bind the corporation to contracts. This is referred to as lack of mutual agency.

True

A _________ is the distribution of cash to its owners. This is determined by the board of directors.

cash dividend

When all authorized shares of stock have the same rights and characteristics, the stock is called _______ stock.

common

A ___________ is an entity created by law that is separate from its owners. Owners are called stockholders or shareholders. These entities can be privately or publicly held.

corporation

On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry to record this transaction would include a (debit/credit) ________ to the preferred stock account in the amount of _______.

credit; $1,000 Reason: The preferred stock account is credited for the par value of $10 per share. The excess is credited to the Paid-In Capital account.

Cameron, Inc. held 1,000 shares of its own $10 par value common stock purchased for $20 per share. In March, Cameron sold 10 shares at $20 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) ________ to Treasury Stock in the amount of ________.

credit; $200 Reason: Under the cost method, they will credit the Treasury Stock account for the price paid, $20 per share x 10 shares = $200.

Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) _______ to Common Stock for ______.

credit; $500

The amount of income earned per each share of a company's outstanding common stock is known as:

earnings per share

A stock dividend that is greater than 25% of the previously outstanding shares of stock is considered to be a (small/large) stock dividend.

large

The ______ value per share is the price at which a stock is bought and sold.

market

Jordan Inc.'s charter states that there are 50,000 shares of stock authorized with a par value of $5 per share. This typically means that investors must pay a (minimum/maximum) of $5 per share to invest in the corporation.

minimum

A statement of stockholders' equity lists balances of:

net income common stock shares retained earnings cash dividends

The _____ value of stock is an amount assigned per share by the corporation in its charter. In many states, this amount establishes the minimum legal capital, which refers to the least amount that the buyers of stock must contribute or be subject to paying at future dates.

par

Carefree, Inc. has 20,000 shares issued and outstanding. On August 1, the board authorizes a 20% stock dividend. This is considered a (large/small) stock dividend.

small

A stock __________ is the distribution of additional shares to stockholders according to their percent ownership. When this occurs, the corporation "calls in" its outstanding shares and issues more than one new share in exchange for each old share.

split

The _____ lists the beginning and ending balances of key equity accounts and describes the changes that occur during the period.

statement of stockholders' equity

A _______ dividend, declared by a corporation's directors, is a distribution of additional shares of the corporation's own stock.

stock

The board of directors of Visor, Inc. authorize a _________, a distribution of additional shares of the corporation's own stock, to existing shareholders.

stock dividend

A corporation is created by obtaining a charter from:

the state government