Chapter 11

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The effect of this transaction on the accounting equation, using the cost method, includes a Blank______. (Check all that apply.)

$10,000 increase in Treasury Stock $10,000 decrease in Cash OR $10,000 debit to Treasury Stock $10,000 credit to Cash

Refurbish, Inc. bought 1,000 shares of its own stock for $8,000. Later, it resold the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n) Blank______. (Check all that apply.)

$8000 credit to treasury stock, $2000 credit to additional paid in capital

Treasure This, Inc. had total assets of $100,000, liabilities of $60,000 and stockholders' equity of $40,000 before repurchasing 1,000 shares of its $1 par value common stock for $5 each. After this repurchase, total assets equal Blank______, liabilities equal Blank______ and stockholders' equity equals Blank______.

$95,000; $60,000; $35,000

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares it is allowed to issue. Stockit has repurchased 10,000 of its own shares. The number of shares authorized equals Blank______ shares.

1,000,000

On December 31, Microhard, Inc. declared a $2 per common share dividend. Its $1 par value common stock's market price is $40, its Total stockholders' equity is $2,000,000, and its Net income for the year ended is $100,000. The dividend yield at December 31 equals Blank______.

5%

Prior to a $4,000 stock dividend, total stockholders' equity equaled $50,000. After the stock dividend, total stockholders' equity equals Blank______.

50,000

When par value common stock is issued, the amount received over the par value is credited to the ______ ______ account.

ADDITIONAL PAID IN CAPITAL

The account used to record the difference between the cash received and the cost of treasury stock reissued is Blank______.

ADDITIONAL PAID-IN CAPITAL

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. The bookkeeper, recorded this transaction with a $100,000 debit to Cash and a $100,000 credit to Common stock. As a result of this entry Blank______. (Check all that apply.)

Additional paid-in capital will be understated Common stock will be overstated

Ownership structure can vary from one company to another, but the most basic form of corporation offers Blank______.

COMMON STOCK

When par value common stock is issued, the par value times the number of shares is credited to the account.

COMMON STOCK

Treasury stock is reported in the financial statements as a(n) Blank______.

CONTRA EQUITY ACCOUNT

capital represents the amount stockholders have invested in exchange for stock.

CONTRIBUTED

The owners of a(n) are not personally responsible for the debts of the business. (Enter only one word per blank.)

CORPORATION OR LIMITED LIABILITY COMPANY

Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common stock. Which of the following is true?

CORRECT

Mars Inc. issues 5,000 shares of no par stock for $100,000. Which of the following entries is required?

CREDIT COMMON STOCK

The dividend payment date is when Blank______. (Check all that apply.)

Cash is decreased Dividends Payable is decreased

When a corporation issues shares of common stock for an amount above par, which of the following entries occur?

Credit to additional paid-in capital Credit to common stock

Knorr issues 1,000 shares of $2 par value common stock for $10 per share. The journal entry to record this transaction will include:

Credit to additional paid-in capital $8,000, and credit to common stock $2,000

Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes a $5,000 to Treasury Stock. (Enter only one word per blank.)

DEBIT

A corporation ______ have a legal obligation to pay dividends.

DOES NOT

The dividend yield equals Blank______.

Dividends per share/Market price per share

Shares outstanding is important to financial analysts because it affects certain ratios such as the Blank______.

EARNINGS PER SHARE RATIO

A corporation's board of directors is Blank______.

ELECTED BY ITS STOCKHOLDERS

True or false: A corporation is owned by creditors.

FALSE

True or false: After an initial sale of stock to the public by X, Inc., when investors sell their shares in secondary markets, X's total stockholders' equity will increase.

FALSE

EPS is a good predictor of Blank______.

FUTURE STOCK PRICES

A corporation may repurchase its stock in order to Blank______.

HAVE SHARES OF STOCK TO ISSUE WHEN STOCK OPTIONS ARE EXERCISED

An increase in EPS is an indicator of Blank______.

HIGHER PROFITABILITY

The effect of buying back its own common stock on the earnings per share ratio is to Blank______ it.

INCREASE

An IPO stands for a(n) offering. (Enter one word per blank.)

INITIAL PUBLIC

Par value is also referred to as Blank______.

LEGAL CAPITAL

Select those statements below that are true about cash dividends. (Check all that apply.)

On the declaration date, liabilities are increased. On the payment date, current assets are decreased.

Lenders will sometimes impose dividend restrictions to ______.

PREVENT THE CORPORATION FROM PAYING OUT TOO MUCH TO STOCKHOLDERS

Stock options are given to ______.

PROVIDE INCENTIVES FOR EMPLOYEES TO WORK HARDER

Identify an advantage of being a publicly traded company, rather than a sole proprietorship or partnership.

Potential to raise a lot of capital

The selling of additional new shares after an IPO are referred to as Blank______.

SEASONED OFFERINGS

The oversight of all corporations are regulated by Blank______.

STATE LAWS

Which of the following have voting rights in a corporation?

STOCKHOLDERS

Which of the following receive dividends if declared?

STOCKHOLDERS

have ultimate authority in a corporation and elect the members of the board of directors. (Enter one word per blank.)

STOCKHOLDERS

Match stock splits and stock dividends with their characteristics.

Stock splits matches Choice Cause the par value per share to change Stock splits and stock dividends matches Choice Cause total stockholders' equity to remain the same Stock dividends matches Choice Require a journal entry

The corporation must have Blank______ to pay dividends.

Sufficient cash

When a company repurchases its own securities, the stock is recorded in which account?

TREASURY STOCK

True or false: An advantage of the corporate form of ownership is that the stockholders have limited liability.

TRUE

True or false: No gain or loss is reported when treasury stock is reissued because GAAP does not consider transactions between a corporation and its owners to be profit-making activities.

TRUE

True or false: Some states allow corporations to issue no-par value common stock.

TRUE

Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury stock balance was $(12,000), which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, Blank______. (Check all that apply.)

Treasury stock will equal $(4,000). Additional paid-in capital will be increased by $2,000

The laws governing corporations Blank______.

VARY FROM STATE TO STATE

Which of these would be considered a large stock dividend?

Z Company has 400,000 shares outstanding and issued another 100,000 shares as a stock dividend.

Treasury stock represents Blank______. (Check all that apply.)

a contra-equity account the amount paid for stock reacquired and currently held in treasury

A corporation may be restricted from paying a dividend if ______. (Check all that apply.)

a creditor's loan agreement is violated doing so reduces the amount of legal capital below the required minimum

The effect of a large stock dividend on the accounting equation includes Blank______ in retained earnings.

a decrease

The effect of a large stock dividend on the accounting equation includes Blank______. (Check all that apply.)

a decrease in Retained Earnings an increase in Common Stock no effect on total stockholders' equity

To determine the amount received from issuing stock, Blank______.

add the Common Stock and Additional Paid-in Capital accounts

Common stock's par value is Blank______.

an insignificant amount specified in the corporate charter

The effect on the accounting equation of reissuing treasury stock causes total Blank______. (Check all that apply.)

assets to increase stockholders' equity to increase

A stock dividend _______.

causes retained earnings to decrease distributes additional shares of stock to existing stockholders on a pro rata basis

The journal entry to record a large stock dividend includes a debit to Retained earnings and a credit to Blank______.

common stock

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a Blank______. (Check all that apply.)

debit to Cash debit to Additional paid-in capital credit to Treasury stock

The journal entry to record the payment of a previously declared dividend includes a ______. (Check all that apply.)

debit to Dividends payable credit to Cash

The corporation must have Blank______ to pay dividends.

debit to Retained Earnings credit to Common Stock

A corporation creates Dividends payable on the date. (Enter one word per blank.)

declaration

The date on which a cash dividend becomes a liability to a corporation is the Blank______ date.

declaration

Dividends Payable is recorded as a credit on the Blank______.

declaration date

A stock dividend causes the stock price per share to Blank______.

decrease

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

dividend

Before the board of directors announces a cash , it should consider whether there is sufficient cash and retained earnings. (Enter one word per blank.)

dividend

Similar to a stock split, a stock also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders. (Enter one word per blank.)

dividend

A corporation may be restricted from paying a dividend if ______. (Check all that apply.)

doing so reduces the amount of legal capital below the required minimum a creditor's loan agreement is violated

The date of record is the date on which the corporation Blank______. Multiple choice question.

finalizes its list of stockholders who will receive dividends

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a(n) Blank______. (Check all that apply.)

increase in total assets of $10,000 decrease in additional paid-in capital of $1,000

When a shareholder of Limited, Inc. sells its shares to another investor on the stock exchange, Limited, Inc.'s accounting equation Blank______.

is not affected because the corporation is separate from its owners

The number of shares outstanding equals the number of shares Blank______.

issued minus the number of shares in treasury

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares authorized. Stockit has repurchased 10,000 of its shares. The number of shares authorized represents the Blank______. (Check all that apply.)

maximum number of shares Stockit is allowed to issue

A stock dividend is considered a large stock dividend if it is Blank______ than 25% of the outstanding shares, and it is recorded at the Blank______ value of the additional shares.

more, par

Which of the following is done on the date of record?

no journal entry is made on this date

If you buy stock a day after the ex-dividend date, you may expect to Blank______ the ex-dividend date. (Check all that apply.)

not receive the dividend owed as of pay a lower price than the day before

Lenders will sometimes impose dividend restrictions to _______

prevent the corporation from paying out too much to stockholders

Stock options are given to ______.

provide incentives for employees to work harder.

Stock options Blank______. (Check all that apply.)

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

A stock dividend ______.

provides no economic value for current stock holders

Cash is decreased Dividends Payable is decreased

provides no economic value for current stockholders.

The declaration date is the date on which the corporation Blank______.

records its obligation to pay a dividend

Corporations will declare stock dividends (or stock split) in order to ______.

reduce the market price of a share stock and make it more attractive to some investors

A stock dividend causes a stockholder's percentage ownership in a company to Blank______.

remain the same

Investors earn a return on stock investments by Blank______. (Check all that apply.)

selling the stock for more than its cost receiving dividends

Investors earn a return on stock investments by:

selling the stock for more than its cost;receiving dividends

An IPO Blank______. (Check all that apply.)

stands for initial public offering is when a private company goes public

Diva, Inc. declared and paid $10,000 of dividends. Dividends of $10,000 may be found on the Blank______.

statement of stockholder's equity (retained earnings)

Treasury stock is reported in the Blank______.

stockholders' equity section of the balance sheet

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

the amount stockholders have invested in exchange for stock

Seasoned offerings are Blank______.

the selling of additional new shares after an IPO

Why might a corporation repurchase its own stock? (Check all that apply.)

to have shares of stock to issue when stock options are exercised to avoid the dilutive effect of issuing new shares when stock options are exercised

Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. As a result of this transaction, Refurbish's Blank______. (Check all that apply.)

treasury stock on the balance sheet will equal $4,000 stockholders' equity on the balance sheet will be $10,000 higher

True or false: If you buy stock a day after the ex-dividend date, you may expect to pay a lower price than the day before the ex-dividend date.

true

When does a dividend become a liability to a corporation?

when it is declared by the board of directors