intermedia Ch. 18 SB

Which of the following transactions are classified as a stock dividend?

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

Which account is a stockholders' equity account?

Additional paid-in capital

Owners of _____ corporations have the limited liability of a corporation, but income and expenses are passed through the owners as in a partnership, avoiding double taxation.

Blank 1: S

A distribution of assets to shareholders is referred to as a ______.

Blank 1: dividend or dividends

When the dividend exceeds the balance in retained earnings, the excess is referred to as a ______ dividend.

Blank 1: liquidating or liquidation

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as ____ earnings.

Blank 1: retained or reinvested

A corporation is owned by its _____ .

Blank 1: stockholders, shareholders, or investors

Which of the following may be a source of paid-in capital? (Select all that apply.) Company repurchases some of its outstanding common stock Company sells stock to investors Share-based compensation activities Company generates profit from its operations

Company repurchases some of its outstanding common stock Company sells stock to investors Share-based compensation activities

Which of the following is subject to double taxation?

Corporations

Brandon issues 1,000 shares of $5 par value common stock for $20 per share. Stock issue costs are $500. The journal entry to record the issuance of stock will include which of the following entries? (Select all that apply.) Debit common stock issue expense $500. Credit additional paid-in capital $19,500. Credit common stock $20,000. Credit common stock $5,000. Credit additional paid-in capital $15,000. Credit additional paid-in capital $14,500. Debit cash $19,500.

Credit common stock $5,000. Credit additional paid-in capital $14,500. Debit cash $19,500.

When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded?

Credit common stock for the par amount.

In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Debit paid-in capital—treasury shares $400.

True or false: A corporation is owned by debt and equity holders.

False

True or false: Treasury stock represents investments in treasury securities of the U.S. government.

False

True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.

False

Which type of stock usually has a high par value and a percentage of par value dividend rate?

Preferred stock

When a corporation issues two securities for a single price and the market value of only one security is known, how is the cash received allocated?

The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.

When does a dividend become a liability to a corporation?

When it is declared by the board of directors

Mandatorily redeemable preferred stock is reported as

a liability on the balance sheet.

A restriction of retained earnings signifies that

a portion of retained earnings is not available for dividends.

When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction? (Select all that apply.) an independent appraisal of the value of the asset the book value of the existing shares the amount of cash that would be paid to purchase the asset the quoted market price for the shares the net book value of the asset

an independent appraisal of the value of the asset the amount of cash that would be paid to purchase the asset the quoted market price for the shares

Retained earnings is typically reported on the balance sheet

as a single amount.

Which of the following accounts might a corporation use to record changes in its ownership interests during a reporting period? (Select all that apply) owner's capital account common stock accumulated other comprehensive income retained earnings

common stock accumulated other comprehensive income retained earnings

When a corporation issues shares of common stock for an amount above par, which of the following entries occur? (Select all that apply.) credit to retained earnings credit to additional paid-in capital credit to common stock credit to revenue

credit to additional paid-in capital credit to common stock

If preferred shares must be redeemed by a certain date, they should be classified as

debt.

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

declaration date.

Cash and property dividends ______ total equity, and stock dividends _______ total equity.

decrease; do not effect

When a company repurchases shares held as treasury stock, the number of shares outstanding _____.

decreases

If more than one class of shares is authorized, what type of information must be specified? (Select all that apply) designation to distinguish each class specific rights for each class annual dividends per share issued to each class

designation to distinguish each class specific rights for each class

A company that is distributing liquidating dividends tends to be in the process of:

dissolving

When a corporation distributes assets of the company to its investors, it is referred to as a(n)

dividend.

When a corporation repurchases its stock as treasury stock, the number of shares authorized

does not change.

Disadvantages of the corporate form of business are (Select all that apply.) ease of raising capital. government regulation. double taxation. less paperwork.

government regulation. double taxation.

A restriction of retained earnings (select all that apply) indicates management's intention to withhold assets for a specified purpose communicates the portion of retained earnings not available for dividends indicates that cash has been set aside for future dividends. signifies cash may not be used for stock repurchases.

indicates management's intention to withhold assets for a specified purpose communicates the portion of retained earnings not available for dividends

The most important advantage to the corporate form of business is

limited liability.

Treasury shares are the same as shares that have never been issued; therefore, treasury shares Multiple choice question.

may not vote or receive cash dividends.

The return to common shareholders' equity is calculated by subtracting ______ from net income and dividing that amount by average ____________.

preferred dividends; shareholders' equity attributed to common shareholders

The two types of corporations are

profit and not-for-profit.

A nonreciprocal transfer to owners is referred to as a

property dividend.

Fantastic Gold Inc. declares and distributes to its shareholders 1 gram of gold in lieu of a cash dividend. Fantastic Gold is distributing a(n)

property dividend.

The effect of share issue costs is to

reduce paid-in capital in excess of par.

A property dividend (Select all that apply.) is the issuance of common stock to investors. reduces retained earnings. reduces the common stock account. is a noncash distribution to owners.

reduces retained earnings. is a noncash distribution to owners.

When a corporation repurchases its stock as treasury stock, the number of shares issued

remains the same.

The purpose of the statement of shareholders' equity is to

report the changes and the sources of the changes in shareholder equity accounts.

A corporation's accumulated, undistributed net income or loss is referred as

retained earnings.

A company that repurchases its own securities accounts for the shares of stock as

retired shares or treasury shares.

Mueller Company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a:

reverse stock split

When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this is referred to as a(n)

reverse stock split.

Distributions of stock to current shareholders of a corporation are called what type of distribution?

stock dividend

The statement of shareholders' equity reports

the changes in each shareholder equity account for the period.

A 2-for-1 stock split increases the marketability of the stock because

the market price per share decreases.

Shares of stock previously sold by the corporation that are repurchased are called

treasury stock.

A quasi-reorganization allows a firm that is undergoing financial difficulties to

write-down inflated assets and reduce an accumulated deficit

Which of the following are characteristics of treasury stock? (Select all that apply.) It is retired when it is purchased. It has no voting rights. It is stock that is repurchased by the company. It does not receive a dividend.

It has no voting rights. It is stock that is repurchased by the company. It does not receive a dividend.

When a corporation issues two securities for a single price, how is the issue price usually allocated?

The cash received is allocated based on the relative market value of each security.

Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders?

The state in which the corporation is incorporated

Preferred stockholders usually have preference over common stockholders with respect to which items? (Select all that apply.) issuance of additional debt dividends distribution of assets in liquidation issuance of additional shares

dividends distribution of assets in liquidation

A liquidating dividend means that

dividends exceed retained earnings.

Corporations raise capital by issuing stock operating at a profit. repurchasing treasury stock. issuing debt.

issuing stock operating at a profit. issuing debt.

In a corporation, shareholders' liability is

limited to the amount of the investment.

Which of the following accounts are classified as shareholders' equity? investments in securities retained earnings additional paid-in capital common stock

retained earnings additional paid-in capital common stock

Which of the following accurately describes shareholders' equity?

Ownership interests of the shareholders

The costs for legal, promotional, and accounting services to issue stock should be

subtracted from the proceeds of issuing stock.

Which of the following accounts are classified as shareholders' equity? Preferred stock Investments in securities Net unrealized holding gains on investments Additional paid-in capital

Preferred stock Net unrealized holding gains on investments Additional paid-in capital

A frequent reason for a stock split is to

cause the market price per share to decline.

A business that has equity accounts labeled "common stock" and "retained earnings" is a

corporation.

Amounts earned by the corporation on behalf of its shareholders are referred to as

retained earnings.

Historically, par value was considered to be

the amount of net assets that were not available for distribution to shareholders.

Corporations raise equity capital by operating at a profit. borrowing debt from creditors. issuing stock

operating at a profit. issuing stock

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?

The fair value of the stock

When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction? The shares are a contra-asset. The shares can be formally retired. The shares can be treated as an investment security. The shares can be called treasury shares.

The shares can be formally retired. The shares can be called treasury shares.

The purposes of a quasi reorganization are to (Select all that apply.) file for bankruptcy. write down inflated assets. reduce the deficit in retained earnings. acquire additional investment from stockholders.

write down inflated assets. reduce the deficit in retained earnings.

In year 1, Rim Corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries? Debit retained earnings $300. Debit paid-in capital—share repurchase $200. Credit treasury stock $5,000 Debit paid-in capital—treasury shares $500. Debit cash $4,500 Credit treasury stock $4,500 Credit paid-in capital treasury shares $500.

Debit retained earnings $300. Debit paid-in capital—share repurchase $200. Credit treasury stock $5,000 Debit cash $4,500

If a company has preferred stock outstanding, a variation of calculating return on shareholders' equity can be made by making which adjustments to the ratio? (Select all that apply.) Use average common shareholders' equity in the denominator. Add preferred dividends to net income. Subtract preferred dividends from the denominator. Subtract preferred dividends from net income.

Use average common shareholders' equity in the denominator. Subtract preferred dividends from net income.

Carnival issues 10,000 shares of $1 par value common stock for $10 per share. Stock issue costs are $3,000. The journal entry to record the issuance of stock will include a credit to

additional paid-in capital for $87,000.

What element of the financial statements is described by the following definition? "Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions."

assets

A company originally issues par value common stock at an amount above par. Subsequently, the company reacquires the shares for more than the issue price and immediately retires the shares. The company has no previous transactions for stock repurchases. Which of the following accounts would be reduced for the repurchase and retirement of the shares? (Select all that apply.) other comprehensive income common stock retained earnings investment in securities paid-in capital in excess of par

common stock retained earnings paid-in capital in excess of par

State laws regulate which of the following corporate activities? (Select all that apply.) repurchase of stock issuance of stock amount of debt allowed nature of share authorization acquisition of assets

repurchase of stock issuance of stock nature of share authorization

The ownership interests of the investors in a corporation are referred to as

shareholders' equity.

The term treasury stock refers to

stock that is repurchased and not retired.

What type of corporations include churches, hospitals, universities, and charities?

Not-for-profit

Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?

S corporation

When a company repurchases its stock and immediately retires the stock, which of the following occurs?

The equity accounts are reduced for the amount in which the shares were originally sold.

When a company issues different classes of shares, it must

distinguish the rights for each class of stock.

When investors purchase shares of stock, it is classified as

paid-in capital.

Historically, par value indicated (select all that apply) the amount of net assets that were not available for distribution to shareholders. the amount of retained earnings that must be set aside for future dividends. the real value of shares the issue price of all shares

the amount of net assets that were not available for distribution to shareholders. the real value of shares the issue price of all shares