ACG modules 10-11

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Why does a corporation repurchase its stock 4 reasons

(1) send a sign to other that stock is worthy (2) obtain shares that can be reissued as payment for purchases of other companies (3)obtain shares to reissue to employees as part of employee stock purchase plans (4) reduce the number of outstanding shares to increase per-share measure of earnings and stock value

why would a company want to issue a stock dividend

(1)To increase the number of shares of stock outstanding (2)To reduce the market price per share of stock (3)To transfer some of the corporation's retained earnings to paid-in capital (4)To minimize distributing the corporation's cash to its stockholders

what are the four main elements to the stockholders equity on the balance sheet

1. Contributed capital 2. retained earnings 3.treasury stock (neg) 4.accumulated other comprehensive (Loss/neg)

Advantages of Equity Financing

1. Equity does not have to be repaid 2. Dividends are optional

advantages of debt financing

1. Interest on debt is tax deductible 2. Debt does not change stockholder control

Interest formula

Interest=(Principle)(Rate)(Time)

What is a discount bond?

Bonds that sell for less than face value. When market rate rises, prices drop

Who is responsible for FICA

Both the employee and company. Split 50/50 called matching contribution

Bonds

Certificates of debt that carry a promise to buy back the bonds at a higher price

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record the payroll deductions?

Current liabilities increase $113.90.

Journal entry to record Payroll Tax Expense

DEBIT Salaries and wage expense CREDIT withheld income tax expense, FICA payable, Charitable contributions payable and cash(the salaries-expense/paybles)

what is the journal entry for the reissuing of treasury stock

Debit cash (stock*share price) Credit Treasury stock(stock*repurchase price) additional paid in capital(cash-treasury) If the cash is less, debit additional paid in cap

what is the journal entry for the repurchase of treasury stock

Debit treasury stock and credit cash

what are the three important dates with cash dividends

Declaration date, record date, payment date

A distribution of a company's accumulated prior earnings is a(n) ______.

Dividend

What is the employee responsible for when paying for accrued liabilities?

Federal Income tax

How does preferred stock differ from common stock?

Preferred stock gives its owners certain advantages over common stock. It receives dividend preference over common stockholders. It also receives assets before common stockholders if the corporation liquidates.

How does a stock dividend effect the financial statements

Regardless of size of it only affects the within stockholders equity, not the total stockholders equity

How much a employer has to burden

Salary and wages expense + payroll tax expense

Sales Tax Payable

Sales tax collected from customers by the seller, representing current liabilities payable to the government

Notes Payable

Short-term or long-term liabilities that a business promises to repay by a certain date.

Which of the following are not required payroll deductions from an employees' gross earnings?

State unemployment tax (SUTA) Charitable contributions Federal unemployment tax (FUTA)

State unemployment tax (SUTA) and Federal unemployment tax (FUTA)

State unemployment tax is paid by the employer, not the employee, and thus is not deducted from employees' gross pay

The entry to record the issuance of 100 bonds at their $1,000 face value causes ______.

The entry includes a debit to Cash (+A) and credit to Bonds Payable (+L) for $100,000 (100 x $1,000 x 100%).

authorized shares

The maximum number of shares a corporation may issue

What is the face value of a bond?

The payment made when the bond matures; used to compute interest payments

What is the stated interest rate? and what is it also called

The rate stated on the face of the bond that is used to compute interest payments. Also called the coupon rate or contract rate.

what are the benefits of common stock

Voting rights, dividends, residual claim, preemptive rights

The discount on a bonds payable becomes ______.

additional interest expense over the life of the bonds

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

amount stockholders have invested in exchange for stock

Current Liabilities

liabilities due within a short time, usually within a year. Deferred Rev

Advantages of a corporation

limited liability, ability to raise capital and transfer ownership

when does the company have a liability to pay dividends?

once the dividend is declared

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

only lose what you paid for the stock

current liabilities for your employer

payroll deductions create ....?

The entry to record the initial borrowing of cash by issuing a promissory note causes a(n) ______

increase in assets increase in liabilities

why would a company issue a stock dividend

1. To lower the market price per share of stock 2. To demonstrate commitment to stockholders while conserving cash during difficult times 3. To signal an expectation of significant future earnings

What are the three key elements of a bond

1. maturity date 2. face value 3. stated interest rate

A bond with an issue price of $10,100 and a face value of $10,000 was issued at ______.

101.000

What is a premium bond?

A bond that sells for more than face value. When market value rate falls, price goes up

Treasury stock

A corporation's own stock that it has reacquired

what type of account is treasury stock and its normal balance and is it perm or temp

contra equity account NOT asset dr permanent account

Journal entry for note payment

debit Notes payable credit cash

Journal entry for sales tax

debit cash 1050 credit sales revenue 1000 credit sales tax payable 50

Journal entry for establishing a notes payable

debit cash credit notes payable

preferred stock journal entry

debit cash(issue* $per share, credit preferred stock(issue*par value) and additional paid in capital(difference of cash and add)

what is the journal entry for issuing stock with par value

debit cash(issue* amount of issuance) credit common stock(issue shares* par) additional paid in cap (cash-common stock)

Journal entry for payment date

debit dividends payable credit cash

the journal entry for declaration date

debit dividends, credit dividends payable

Journal entry to record accrued interest

debit interest expense, credit interest payable

Journal entry to record interest payment

debit interest payable(the accrued) and interest expense(remaining) and credit cash for full amount

dividends in arrears

dividends on cumulative preferred stock that have not been declared in prior years

Accruing a liability always involves recording both a(n)______ and a liability.

expense

A bond's maturity date is the date on which the ______.

face value of the bonds are paid

The stated rate ______.

remains the same throughout the life of the bonds

issued shares

shares of stock that have been distributed by the corporation outstanding+treasury

par value

small amount of value per share of capital stock

what are stock spilts and why

spilt the shares you already have and it does not effect common stock, add., and total stockholder. Simply reduces the stock price to seem more affordable

preffered stock

stock that entitles the holder to a fixed dividend, whose payment takes priority over that of common-stock dividend, and no voting rights

What is the maturity date?

the exact date the issuer of a bond must pay the principal to the bondholder

Who determines the issue price for the bond and how

the market investors determine the issue price and will base it of how a company keeps it promise. Higher ratings=greater issue price

outstanding shares

the number of shares issued minus the number of shares held as treasury stock

Sales Tax payable how to solve

the sales rev amount *percent sales tax (1,000*5%)


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