CH 11 - Corporate Reporting and Equity

No-par value stock is stock not assigned a value per share by the corporate charter. Its advantage is that ___________.

there is no minimum legal capital

A(n) ___ agent assists with purchases and sales of shares by receiving and issuing certificates as necessary.

transfer

Keys, Inc. purchased 100 shares of its own common stock for $10 per share. The stock is now classified as______ stock, a contra equity account, reported on the statement of stockholder's equity.

treasury

Stockholders have the right to _____ at stockholders' meetings.

vote

Roger Hillcrest owns 100 shares of $10 par, 5% noncumulative preferred stock. During the current year, there are no dividends declared or paid. If there is a large cash dividend paid in the following year, Roger would be entitled to up to $____ for the previous year before common shareholders are paid.

0

Mario Hernandez owns 25 shares of $100 par, 5% cumulative preferred stock. During the current year, no dividends are declared or paid. The unpaid amount of $____ is considered dividends in

125, arrears

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 $

19500

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.

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

______ is a general term that refers to any shares issued to obtain capital (owner financing).

Capital stock

The board of directors of Chester, Inc. authorizes a $0.10 cash dividend to its 10,000 shares of common stock issued and outstanding. On the date of payment, a journal entry will debit which of the following accounts and for what amount?

Common Dividend Payable for $1,000.

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

Payton, Inc.'s charter authorized 100,000 shares of stock with a par value of $1 per share. Payton issues 100 shares at a market value of $5 per share. The journal entry to record this transaction will include a credit to______ in the amount of

Common Stock, $1 par; $100

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

Continuous life Limited liability of stockholders Ease of capital accumulation

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

Corporate taxation Government regulation

J. Flores owns a business and is trying to decide whether to incorporate. While researching corporations, she has determined the following facts. Which of these facts is not correct?

Corporations dissolve when owners transfer rights.

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?

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

(Cumulative/noncumulative) preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders.

Cumulative

______ preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders.

Cumulative

Authorizing a cash dividend payment to investors requires three crucial dates. Identify which of the following is not a correct term to describe these dates.

Date of authorization

When a corporation declares and pays a cash dividend, there are three notable important dates. Which date does not require a formal journal entry to the financial statements?

Date of record

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.

The board of directors of Anchor, Inc. authorizes a $0.50 cash dividend to its 100,000 shares of common stock issued and outstanding. On the date of payment, a journal entry will include which of the following accounts? (Check all that apply.)

Debit to Common Dividend Payable Credit to Cash

An advantage of purchasing preferred stock is that preferred shareholders are guaranteed to receive dividend payments each year.

False

To record a stock split, debit Retained Earnings and credit Common Stock.

False Reason: No journal entry is required for a stock split.

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

Manage operations

______ value stock is stock not assigned a value per share by the corporate charter. Its advantage is that it can be issued at any price without the possibility of a minimum legal capital.

No-par

______ preferred stock confers no right to prior period unpaid dividends.

Noncumulative

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

On March 15, the board of directors of Richmond, Inc. declare a cash dividend of $1 per share. On March 15, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a debit to the

Retained Earnings

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

Retained Earnings

______ value stock is no-par stock to which the directors assigned a certain value per share. This value becomes the minimum legal capital per share in this case.

Stated

Which of the following statements is false regarding stock splits?

Stock splits increase retained earnings.

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

There are several reasons why a board of directors would authorize a stock dividend. Which of the following is not a reason for a stock dividend?

To reduce the par value of the stock

A corporation can pay a brokerage house to issue its stock. Some brokerage houses underwrite an indirect issuance of stock; they buy the stock from the corporation and resale it to investors.

True

A corporation has agreed to pay a $0.10 cash dividend on shares of common stock. On the date of record, no formal journal entry is required.

True

Preferred stock can be issued to raise money without giving up control.

True

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

True

Which of the following is not a characteristic of a corporation?

Unlimited liability of stockholders

When stock is sold for less than par value, it is issued at

a discount

A voluntary transfer of amounts from Retained Earnings to inform users of special activities that require funds are called:

appropriated retained earnings

____ 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.

authorized

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

cash dividend

A statement of stockholders' equity lists balances of: (Check all that apply.)

cash dividends common stock shares retained earnings net income

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 ____ stock

common

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

common

Treasury stock is a(n) ____ equity account, with a normal debit balance. It is reported on the stockholders' equity section of the balance sheet as a reduction to stockholders' equity.

contra

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 June 1, the board of directors of Dylan, Inc. declare a cash dividend of $1 per share. On June 1, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a (debit/credit) to the Common Dividend Payable account.

credit

Rush, Inc.'s charter authorized 500,000 shares of stock with a par value of $1 per share. Rush issues 10 shares at a market value of $10 per share. The journal entry to record this transaction will include a (debit/credit) to the Common Stock, $1 par account in the amount of $

credit, $10

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) to Common Stock, $1 par for $

credit, 100

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 $

credit, 100

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) to Common Stock, for $

credit, 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) to Common Stock, $

credit, 500

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

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

A ____ on stock occurs when a corporation issues its stock for less than par (or stated) value; however, most states prohibit stock to be sold for less than the par (or stated) value.

discount

The board of directors authorizes a cash ___ or distribution of cash to its investors.

dividend

When stock is cumulative preferred stock and the board of directors does not declare a dividend, the unpaid dividend amount is called:

dividend in arrears.

Preferred stock usually carries a preference for dividends, meaning that:

dividends are allocated to preferred shareholders before they are issued to common shareholders

Stock dividends are given to

keep the market price of the stock affordable.

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

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

When the board of directors authorizes a cash dividend to investors, there are three important dates involved—the date of declaration, date of record, and date of

payment

Stock that typically includes preference for receiving dividends and for distribution of corporate assets during a liquidation is called (common/preferred) stock.

preferred

A ______ on stock occurs when a corporation issues its stock for more than par (or stated) value.

premium

Martin, Inc.'s charter authorizes 50,000 shares of stock with a par value of $1 per share. 1,000 shares of stock are issued at a market value of $5 per share. This means that the shares of stock are issued at a (premium/discount)

premium

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

privately, publicly

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

promoters

A(n) _______ keeps stockholder records and prepares official lists of stockholders for stockholder meetings and dividend payments.

registrar

Statutory and contractual restrictions are called _____ retained earnings.

restricted

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

retained, earnings

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

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

split

Vernon, Inc.'s charter did not assign a par-value to its authorized stock. However, Vernon's directors assigned a(n)______ value per share. This value becomes the minimum legal capital per share in this case.

stated

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 corporation can sell ____ directly or indirectly (through a brokerage).

stock

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

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate

taxation

A corporation is created by obtaining a charter from:

the state government