Learnsmart 11

paid in capital

contributed capital

When a company reissues shares at higher price than the cost to previously purchase the treasury stock, it records a

credit to Additional Paid-in Capital

Which form of financing has a tax advantage?

debt financing

Dividends Payable is recorded as a credit on the ______.

declaration date

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.

dividends

When shares of stock that were issued to the public are later bought and sold among investors on the stock exchange, the issuing corporation ______.

does not record any entry because it does not receive or give anything of value

A corporation's board of directors could prefer a stock split to a stock dividend because a stock split ______.

does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future

______ per share equals Net Income divided by the average shares of common stock __________

earnings outstanding

_________ per share equals Net Income divided by the average shares of common stock ______________-

earnings outstanding

Preferred stock ______.

has preference as to dividends is useful for raising capital without reducing common stockholders' control

Earnings per share (EPS) appears on the ______.

income statement

A dividend date of record is the date on which the corporation ______.

makes no entry

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

statement of retained earnings

Treasury Stock on the balance sheet is ______.

subtracted from total stockholders' equity

Treasury Stock ______.

-is a contra-equity account -is shares of stock no longer outstanding -reduces total stockholders' equity

A corporation that has a loan covenant ______.

-may be required to repay the loan immediately if it violates the covenant -must disclose the covenant in the notes to the financial statements

Any difference between the cost of the treasury stock and the price when it is re-issued is recorded as a ______.

debit to Additional Paid-in Capital when the price is below the cost

Accumulated Deficit ______.

means that Retained earnings has a debit balance is shown in parentheses on the balance sheet indicates accumulated net losses

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.

Preferred stockholders ______.

receives dividends before common stockholders

The Date of __________ is the cut-off date for determining which specific stockholders are to be paid the dividend.

record

__________ ___________ reports the cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began.

retained earnings

When a company has both common and preferred stock, its ROE must be adjusted by ______.

subtracting the preferred stock balance from total stockholders' equity subtracting preferred stock dividends from net income

A stock dividend ______.

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

Preferred stock is advantageous in that it ______

-has priority over common stock at liquidation -has priority over common stock when dividends are declared

Which of the following reports net income relative to average common stockholders' equity?

ROE

Date of record

Stock records are finalized to determine which stockholders are to receive payment

Declaration date

The board of directors officially approves a dividend

Earnings per share (EPS) may be determined by ______.

dividing net income less preferred dividends by the average common shares outstanding dividing the stock price by the P/E ratio

A company may be restricted from paying dividends if it has ______.

a loan covenant

A share of stock that has a dividend rate specified on it must be ______.

preferred stock

The entry to record the issuance of preferred stock is ______.

similar to the issuance of common stock increases stockholders' equity

The statement of __________ ____________ reports the changes in retained earnings as well as paid-in capital.

stockholders equity

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes a

$10,000 debit to Treasury Stock $10,000 credit to Cash

An accumulated deficit means a company has

accumulated more net losses than net income

Which of the following would be found on a statement of stockholders' equity?

Treasury Stock Net Income Dividends Additional Paid-in Capital Stock Issuances

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

Issuing preferred stock ______.

increases stockholders' equity similar to issuing common stock

earned capital

retained earnings

Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock from Stockits for $5 per share. Which statements are true regarding the effect of this transaction on Stockits' financial statements?

-Stockholders' equity on the balance sheet increases. -The financing activities section of the statement of cash flows increases.

The effect of repurchasing stock using the cost method is to ______.

increase Treasury Stock decrease stockholders' equity decrease assets

Select those statements below that are true about cash dividends.

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

The declaration of a dividend results in ______.

-a decrease in Retained Earnings after temporary accounts are closed -an increase in Dividends -an increase in liabilities

Payment date

Dividends payable is decreased

When does a corporation record an increase in Dividends Payable?

On the declaration date

The journal entry to record the declaration of a dividend includes ______.

a debit to Dividends a credit to Dividends Payable

When a stockholder sells its shares of ABC Co. to another person at a price higher than what the stockholder purchased it for, ABC records ______.

nothing

After a 3-for-1 stock split, the par value of each stock is ______

one third

A stock ________ , typically given to employees as part of their compensation that gives them the opportunity to buy the company's stock at a predetermined price, is recorded as an expense at the time it is granted.

option

Double Vision, Inc. had 10,000 shares issued and outstanding of its $1 par value common stock. At December 31, Common stock equaled $10,000, Retained Earnings equaled $20,000 and Total stockholders' equity equaled $50,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, ______.

par value equals $0.50.

_________ stock carries priority over common stock with regard to dividends.

preferred

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a ______.

$50,000 increase in total stockholders' equity. $50,000 increase in total assets.

The effect on the accounting equation of declaring a cash dividend includes ______.

-a decrease in stockholders' equity -an increase in liabilities

Dividends on preferred stock ______.

-are more attractive than common stock dividends to investors who want a stable income -are paid before dividends on common stock -may be paid at a fixed rate, such as 7%

Stock options ______.

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

Preferred stock carries priority over common stock ______.

both for dividends and at liquidation