ch 8 sb

Which of the following statements regarding net income (loss) and retained earnings are correct?

Dividends declared during the period decrease retained earnings. Net loss for the period decreases retained earnings.

Identify the true statements regarding noncontrolling interest.

It signifies that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties. It is sometimes called minority interest.

If a company issues a stock dividend, identify the true effects on the financial statements of the company.

Its net income is not affected. Its common stock is increased. Its total liabilities are not affected. Its total paid-in capital is increased.

Cash account is debited for the (market/par) value per share of common stock issued. Listen to the complete question

Market

Which of the following statements regarding net income (loss) and retained earnings are correct?

Net income for the period increases retained earnings. Retained earnings represent the cumulative earnings the corporation has retained for use in the business.

Which of the following statements are true regarding owners' equity and ownership rights held in noncorporate entities?

Owners' equity for proprietorships and partnerships is usually referred to as capital. No distinction is made between invested capital and retained earnings for a proprietorship or a partnership. Neither proprietorships or partnerships issue stock.

Paid-in capital includes:

Preferred stock Common Stock Additional Paid In Capital

the (declaration/record/payment/ex-dividends) date is used to determine who receives the dividend; the person listed on the stockholder records on the corporation on this date is considered the owner of the shares.

R

The (declaration/record/payment/ex-dividends) date is used to determine who receives the dividend; the person listed on the stockholder records on the corporation on this date is considered the owner of the shares.

Record

Some firms assign a (slate/stated/legal) value per share, which is essentially par value by a different name.

Stated

Identify the requirements that must be met for a corporation to pay a cash dividend.

The board of directors must declare the dividend first to pay a cash dividend. The declaration of a cash dividend must not result in a violation of any existing contractual agreements such as bond covenants.

Firm B has $3, $50 par value cumulative preferred stock, 50,000 shares authorized and issued, and 40,000 shares outstanding. Dividends are paid quarterly, and no dividends are in arrears. The quarterly dividend requirement is:

40,000 x $3 x 3/12 = $30,000

The entry to record the issuance of common stock for a price greater than the par value per share includes which of the following?

A credit to Common Stock account for the par value per share. A credit to Additional Paid-in Capital account for the excess of the market value (price) over the par value per share. A debit to Cash account for the market value (price) per share.

A firm's own stock that has been acquired from its stockholders is called (authorized/issued/outstanding/treasury) stock. Listen to the complete question

Treasury

Immediately after the issuance of a stock dividend, the market value per share of common stock for the company should normally:

decrease because more shares of stock are now outstanding, but the total market value of all shares remains the same.

The (declaration/payment/ex-dividends) date occurs two business days before the record date; this gives buyers and sellers of publicly traded stocks sufficient time to pay for the purchase and to deliver the stock certificate, respectively.

e

A firm's own stock that has been acquired from its stockholders is called (authorized/issued/outstanding/treasury) stock. Listen to the complete question

has several debt-like features. has a limited claim on the company's assets in the event of liquidation. does not generally have voting rights.

Preferred stock is different from common stock in that preferred stock:

may be callable and/or convertible. has historically been viewed as having less risk than common stock. must be paid dividends before any dividends can be paid on common stock.

The effects on the financial statements of the sale of treasury stock at a price greater than the treasury shares were purchased for include:

no effect on total liabilities. an increase to total assets.

The portion of equity in a subsidiary not attributable, directly or indirectly, to the parent company (reporting entity) is referred to as the (unusual/noncontrolling/extraordinary) interest.

noncontrolling

Additional paid-in capital is a stockholders' equity category that reflects the excess of the amount received from the sale of preferred or common stock over the (surplus/market/par) value per share.

par

The term capitalizing retained earnings refers to the fact that stock dividends cause a permanent transfer of some:

retained earnings to paid-in capital.

Not-for-profit and governmental organizations normally report to resource providers rather than investors because:

these types of organizations do not have owners who have direct financial interests in the entities.

The number of issued shares will always be less than or equal to the number of (authorized/outstanding) shares. Likewise, the number of outstanding shares will always be less than or equal to the number of (issued/treasury) shares.

Authorized Issued

Dollar Inc. made a mistake in the year-end physical count of its inventory, and the error was discovered in the following year. Upon discovering the error, Dollar Inc. directly made the adjustment to the inventory and retained earnings in the current year. This scenario is an example of a _____.

prior period adjustment

Identify the true impact of a stock split.

After a stock split, the total market value of the company's outstanding stock usually does not change. After a stock split, the Common Stock caption of stockholders' equity indicates a drop in the par value per share (if appropriate).

The income statement is not affected by stock dividends because the transaction is between the corporation and:

its stockholders; no gain or loss can result from a capital transaction.

If the stock dividend percentage is less than 20 to 25 percent (i.e., a small stock dividend), the (par/market) value of additional common shares issued is transferred from retained earnings to common stock for the par value and to additional paid-in capital for the market value minus the par value.

market

Prior period adjustments:

may result in either an increase or decrease to retained earnings. are direct adjustments to retained earnings for the correction of errors.

Firm A has 8 percent, $50 par value cumulative preferred stock, 30,000 shares authorized, issued, and outstanding. Dividends are paid semiannually, and no dividends are in arrears. The semiannual dividend requirement is:

30,000 x $50 x 8% x 6/12 = $60,000

Identify the true impact of a stock split.

After a stock split, no accounting entry is required. After a stock split, existing stockholders receive additional shares of stock in ratios such as 2:1 or 3:1 or 4:1 (as some common examples). After a stock split, the number of shares authorized, issued, and outstanding increase proportionately.

Any salary paid to the proprietor of a firm is _____.

Any salary paid to the proprietor of a firm is _____.

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components?

Changes in certain pension or other postretirement benefit items Unrealized gains or losses on available-for-sale investments

Common stock is an example of what is sometimes referred to as (contributed/earned) capital.

Contributed

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components?

Cumulative foreign translation adjustments Gains or losses on certain derivative instruments

The entry to record the sale of treasury stock for a price greater than the treasury shares were purchased for is:

Dr. Cash Cr. Treasury Stock Cr. Additional Paid-in Capital

The entry to record the purchase of treasury stock is:

Dr. Treasury Stock Cr. Cash

Stockholders' equity captions usually seen in a balance sheet include:

Paid In Capital-> Preferred stock, common stock, additional paid in capital Retained earnings Accumulated other comprehensive income Non controlling interest

In most states, the (par/stated/slate) value per share represents the legal capital on the corporation.

Par

Identify the differences between preferred stock and bonds payable.

Preferred dividends may be legally skipped; bond interest must be paid, or the firm faces legal action, possibly leading to bankruptcy. Preferred dividends are not an expense and are not deductible for tax purposes; bond interest is an expense and is deductible for tax purposes. Preferred stock has no maturity date; bond principal must be paid at maturity.

The issuance of additional shares of common stock to stockholders in proportion to the number of shares each currently owns is referred to as a (scrip/stock/bond) dividend.

Stock

In the context of determining the ending balance of retained earnings within the statement of changes in retained earnings which of the following is true?

The beginning balance of Retained Earnings account needs to be added (positive amount) Stock dividends need to be subtracted (negative amount) Cash dividends for common and preferred stock need to be subtracted (negative amount)

Identify the requirements that must be met for a corporation to pay a cash dividend.

The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend. The corporation must have enough cash to be able to pay the dividend.

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes:

a credit to Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued. a debit to Retained Earnings account for the market price per dividend share issued.

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes:

a debit to Retained Earnings account for the market price per dividend share issued. a credit to Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued.

The effects on the financial statements of the sale of treasury stock at a price greater than the treasury shares were purchased for include:

a decrease to cash. a decrease to total stockholders' equity.

Common stockholders:

experience no upper limit to the value of their ownership interests. are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset. Reason: Bondholders take considerably less risk in order to receive a fixed interest rate but do not participate in the upside potential of the entity.

Companies reacquire their own common stock and hold it as treasury stock:

for future use for employee stock purchase plans. to later be resold for cash if additional capital is needed. because the management of these companies believe that the market price for their common stock is temporarily low and will soon recover.

Companies reacquire their own common stock and hold it as treasury stock:

for future use for the acquisition of other companies. because management wants to shrink the supply of its own stock in the market to drive up the price per share. as a defensive move to thwart a takeover by another company

Common stockholders:

have a claim to all assets that remain in the entity after all liabilities and preferred stock claims have been satisfied. do not have any personal liability for corporate debts and thus cannot be forced by creditors to invest additional amounts to make up for losses.

A stock dividend:

is normally expressed as a percentage of previously issued shares. does not affect the proportionate ownership interests held by each shareholder. is the issuance of additional shares of stock in proportion to each stockholder's current ownership.

Additional paid-in capital:

is sometimes referred to as capital surplus. is one of the items included in the paid-in capital (or contributed capital) category of stockholders' equity

The number of shares that have been sold for cash (or in exchange for other assets) is referred to as (authorized/issued/treasury) shares.

issued

If the stock dividend percentage is more than 20 to 25 percent (i.e., a large stock dividend), the (par/market) value of additional common shares issued is transferred from retained earnings to common stock.

par