Ch.11 Learnsmart

Shares outstanding equals shares ____ minus ___ shares

issued; treasury

A stock dividend causes a stockholder's % ownership in a company to

remain the same

How is the P/E ratio calculated?

stock price/earnings per share

Contributed Capital Represents

the amount stockholders have invested in exchange for stock

T or F: A corporation does not have a legal obligation to pay dividends

True

T or F: Some states allow corporations to issue no-par value common stock

True

Preferred Stock carries priority over common stock

both for dividends and at liquidation

EPS is a good predictor of ___

future stock prices

Treasury stock is reported

in the equity section of the balance sheet

Where does EPS appear?

income statement

What does the ROE do?

report NI relative to average common stockholder's equity in dollars

Stock Dividends

require a journal entry

A company's past profits that are kept instead of being paid to stockholder's are

retained earnings

Date of Record

stock records are finalized to determine which stockholder's are to receive payment

Treasury Stock

1. is shares of stock no longer outstanding 2. reduces total stockholder's equity 3. is a contra-equity account

Accumulated Deficit (3 things)

1. is shown in () on the balance sheet 2. indicates accumulated net losses 3. means that RE has a debit balance

Stock Options

1. provide the holder with the option to purchase stock at a specified price during a specific period of time 2. are often given to employees as part of their compensation

Advantages of debt financing over equity financing

1. stockholder's control will not be diluted 2. interest payments are tax deductible

Stock Splits

cause the par value per share to change; does not reduce retained earnings

Stock Splits and Stock Dividends

cause total stockholder's equity to remain the same

A stock dividend causes the stock price per share to

decrease

What does a cash dividend do?

decreases current assets and RE

What does a stock dividend do?

distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders

Journal Entry Declaration of Dividends

Debit: Dividends Credit: Dividends Payable

Payment Date

Dividends payable is decreased

Dividends are closed into _____ at the end of the year

retained earnings

Declaration Date

the day when the board of directors officially approves a dividend

Why would lenders impose a dividend restriction?

to prevent the corporation from paying out too much to stockholders

When is a stock dividend considered large?

when it's more than 25% of the outstanding shares and recorded at the par value of the additional shares