PCP - Chapter 11: Corporate Reporting and Analysis

Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total

$2,500 10,000 shares x $5 par x 5% =

Retained Earnings

An account that consists of a company's cumulative net income less any losses and dividends declared since its inception.

Corporation

An entity created by law that is separate from its owners. Owners are called stockholders or shareholders. These entities can be privately or publicly held.

Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called

Common Stock

John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts?

Common Stock Paid-in Capital in Excess of Par Value

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries?

D.R. Cash: $500 C.R. Paid-In Capital, in Excess of Stated Value: $450 Common Stock: $50

Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to ____ in the amount of ____

Paid-In Capital, in Excess of Par: $8,000

The market value per share is the price at which stock is bought and sold. Which of the following factors does not influence market value? -Growth -Dividends -Expected future earnings -Par value

Par value

Stock Split

The distribution of additional shares to stockholders according to their percent ownership. When this occurs, the corporation "calls in" its outstanding shares and issues more than one new share in exchange for each old share.

The Market Value Per Share

The price at which a stock is bought and sold.

Corporations purchase and hold their own stock, known as treasury stock, for several reasons. Identify which of the following is not a reason that a corporation would buy treasury stock. -To reduce the market value of the common shares outstanding. -To reissue them to employees. -To use their shares to acquire another corporation. -To show management confidence in the price.

To reduce the market value of the common shares outstanding.

Long, Inc. purchased 50 shares of its own $10 par value common stock for $50 per share. The journal entry to record this transaction would include a debit to the ____ account in the amount of

Treasury Stock; $2,500

Preferred stock can be issued to raise money without giving up control.

True

On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry to record this transaction would include a (debit/credit) ____ to the preferred stock account in the amount of

credit; $1,000

Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit) ____ to Common Stock, $1 par for ____

credit; $100

On August 20, Max, Inc. issues 100 shares of $1 par value preferred stock for $3,000 cash. The entry to record this transaction would include a (debit/credit) ____ to the preferred stock account in the amount of

credit; $100

Mario, Inc. declares a 2-for-1 stock ____. This means that Mario will "call in" its outstanding shares and issue two shares in exchange for each old share of stock.

split

The board of directors of Visor, Inc. authorize a ____ a distribution of additional shares of the corporation's own stock, to existing shareholders.

stock dividend

A corporation is created by obtaining a charter from:

the state government

Keys, Inc. purchased 100 shares of its own common stock for $10 per share. The stock is now classified as

Treasury Stock

Stockholders have the right to

vote at stockholders' meeting.

A small stock dividend is a distribution of ____ or less of previously outstanding shares.

25%

Treasury Stock

A contra equity account, reported on the statement of stockholder's equity.

Identify the advantages of the corporate form of business. -Limited liability of stockholders -Ease of capital accumulation -Corporate taxation -Government regulation -Continuous life

Continuous life Limited Liability of stockholders Ease of capital accumulation

Ivers, Inc. purchased 100 shares of its own $10 par value common stock for $20 per share. The journal entry to record this transaction would include which of the following entries?

Debit to Treasury Stock; Credit to Cash

Stock Dividend

Declared by a corporation's directors, is a distribution of additional shares of the corporation's own stock.

Avery, Inc. held 100 shares of its own $10 par value common stock purchased for $15 per share. On December 1, Avery sold 10 shares at $15 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) ____ to Treasury Stock in the Amount of

credit; $150

The board of directors authorizes a cash ____ or distribution of cash to its investors.

dividend

Blink, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total

$19,500 1,000 shares x $10 par x 5% = $500 $20,000 - $500

Common Stock

When all authorized shares of stock have the same rights and characteristics.

Gomez Inc.'s charter authorizes 1,000 shares of stock at a par value of $1 per share. Gomez sells 200 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include which of the following entries?

Credit to Common Stock, $1 par for $200 Debit to Cash for $200

Identify the disadvantages of the corporate form of business. -Limited liability -Lack of mutual agency -Corporate taxation -Government regulation -Transferable ownership rights

Government regulation Corporate taxation

Preferred Stock

Has special rights that give it priority over other types of stock in one or more areas. Stock that typically includes preference for receiving dividends and for distribution of corporate assets during a liquidation.

Statement of Stockholders' Equity

Lists the beginning and ending balances of key equity accounts and describes the changes that occur during the period

Identify which of the following is not generally a right of common stockholders.

Manage operations

A statement of stockholders' equity lists balances of:

Retained Earnings Cash Dividends Net Income Common Stock Shares

Cash Dividend

The distribution of cash to its owners. This is determined by the board of directors.

Authorized Stock

The number of shares that a corporation's charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.

Which of the following is not a reason that a corporation would issue preferred stock? -To boost the return earned by common stockholders. -To raise capital without sacrificing control. -To obtain a tax advantage over corporations with no preferred stock. -To appeal to certain investors who want less risk.

To obtain a tax advantage over corporations with no preferred stock.

Stockholders do not have the power to bind the corporation to contracts. This is referred to as lack of mutual agency.

True

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate

taxation

Cameron, Inc. held 1,000 shares of its own $10 par value common stock purchased for $20 per share. In March, Cameron sold 10 shares at $20 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) ____ to Treasury Stock in the amount of

credit; $200 $20 per share x 10 shares =

Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) ____ to Common Stock for

credit; $500

Josie Inc.'s charter authorizes 1,000 shares of stock with no par value. Josie Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) ____ to Common Stock, for

credit; $500

Riley Inc.'s charter authorizes 1,000 shares of stock at a stated value of $10 per share. Riley issues 50 shares of stock at its initial offering for $20 per share. The journal entry to record this transaction will include a (debit/credit) ____ to Common Stock, ____

credit; $500

Corporations can be separated into two types. A ____ held corporation does not offer its stock for public sale and usually has few stockholders. A ____ held corporation offers its stock for public sale and can have thousands of stockholders.

privately; publicly

A charter application usually must be signed by the prospective stockholders called incorporaters or

promoters. Then, it is filled with the appropriate state official.

Carefree, Inc. has 20,000 shares issued and outstanding. On August 1, the board authorizes a 20% stock dividend. This is considered a (large/small) ____ stock dividend

small