Smartbook CH 10

Which of the following companies typically are subject to double taxation? Sole proprietorships Corporations Partnerships

Corporations

***Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes: $10,000 credit to Cash. $1,000 debit to Treasury stock. $1,000 credit to Treasury stock. $1,000 debit to Cash. $10,000 debit to Treasury stock. $10,000 credit to Treasury stock.

-$10,000 credit to Cash. -$10,000 debit to Treasury stock. Reason: -Use the cost, not the par value. -As a contra equity account, treasury stock is increased with a debit.

Shares of stock that are repurchased are referred to as ___ stock.

treasury

***Unpaid dividends on cumulative preferred stock are referred to as dividends in ___.

arrears

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

retained

**A company's past profits that are not paid out in dividends are ______. -cash -dividends -retained earnings -reported as income for the current year

retained earnings

***Which of the following will decrease the par value of shares? both a stock split and a stock dividend stock split large stock dividend

stock split

***Which of the following will decrease the par value of shares? stock split large stock dividend both a stock split and a stock dividend

stock split

The legal capital per share of stock that is assigned when the corporation is first established is referred to as ___ ___.

par value

Preferred stock has a mixture of attributes of both equity and ___.

liability (or debt/ bonds)

**Xavier Inc. has $10 million par value, 6% cumulative preferred stock outstanding. During the current year, the board of directors declares $2 million in dividends. No dividends were declared for the previous year. Dividends payable to common stockholders during the current year will be: $800,000 $1 million $1.4 million $1.2 million

$800,000 Reason: $2 mill - ($10 million x 0.06 x 2 years)

***The number of shares outstanding equals the number of shares ______. -issued minus the number of shares in treasury -authorized minus the number of shares issued -issued plus the number of shares in treasury -authorized plus the number of shares issued

issued minus the number of shares in treasury

**The term "dividends in arrears" refers to preferred stock dividends that are: not paid in a given year declared but not yet paid declared and already paid

not paid in a given year

If a corporation repurchases its own common stock, the stock is referred to as: common stock investment in common stock treasury stock preferred stock

treasury stock

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

False Reason: A corporation is owned by its shareholders, who are equity holders.

The total number of shares that a company may sell is referred to as ___ shares.

authorized

**A journal entry is required for which of the following? A large stock dividend A stock split Both a stock large stock dividend and a stock split

A large stock dividend

***Which of the following will change the balance of a stockholders' equity account category? Bonds are issued Cash dividends Preferred stock is issued Treasury stock is resold at cost

Cash dividends Preferred stock is issued Treasury stock is resold at cost

**A debit balance in retained earnings indicates that -revenues were greater than expenses. -dividends were paid during the year. -the company is expanding. -the company has an accumulated deficit.

the company has an accumulated deficit.

Shares of stock previously sold by the corporation that are repurchased are called additional paid-in capital. investments in securities. treasury stock. available for sale securities.

treasury stock.

**What types of companies frequently do not pay dividends? -unprofitable companies -growth companies -mature companies

-unprofitable companies -growth companies

**Which of the following provides additional financing to a firm in exchange for a percentage ownership in the company before it issues stock through an initial public offering? -S corporation -Limited liability company -Venture capital firm -Limited liability partnership

Venture capital firm

**Additional reporting requirements of corporations are intended to ensure -that the company has many investment opportunities. -adequate disclosure of information needed by investors and creditors. -that the company continues to be profitable.

-adequate disclosure of information needed by investors and creditors.

***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 proceeds. Credit common stock for the par amount. Credit common stock for the amount in excess of par.

Credit common stock for the par amount.

The declaration of cash dividends reduces ___ ___

stockholders' equity (or retained earnings)

**An IPO: -is when a private company goes public. -stands for initial public offering. -stands for independent public obligations. -stands for issued private options.

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

Corporations will declare a stock split in order to ______. -reduce the market price of a share of stock and make it more attractive to some investors -increase the corporation's retained earnings -increase a stockholders' ownership percentage in the corporation -increase the market price of a share of stock to help maximize the stockholders' wealth

-reduce the market price of a share of stock and make it more attractive to some investors Reason: A stock dividend increases the number of shares outstanding and is recorded with a debit to Retained Earnings (-SE) and credit to Common Stock (+SE). The increase in shares should cause a decrease, not increase, in the price since there are more shares outstanding and no change in total SE.

**When a business incorporates, it must file its ______ with the state in which it incorporates. initial public offering articles of incorporation federal tax return proxy statement

articles of incorporation

Just In Thyme, Inc. has the following end of year equity balances: Common stock of $20,000; Additional paid-in capital of $30,000; and Retained earnings of $50,000. If Just In Thyme repurchases $10,000 of its stock, the total stockholders' equity balance would equal ______. $60,000 $40,000 $90,000 $110,000

$90,000 Reason: $20,000 + 30,000 + 50,000 - 10,000

Marcus turn in his preferred stock and receives common shares in exchange.

convertible

***Redeemable preferred stock with a fixed redemption date is reported -on the income statement as an expense. -on the balance sheet with shareholders' equity. -on the income statement as revenue. -on the balance sheet as a liability. -on the balance sheet as an asset.

on the balance sheet as a liability.

**A wealthy individual in the business community who risks investment funds on promising new businesses is referred to as a(n) venture capital firm. bondholder. angel investor. limited liability corporation.

angel investor.

**Cumulative preferred stock is entitled to receive current dividends plus dividends in ___ before any future common dividends can be paid.

arrears

**The number of shares authorized is set forth in the company's: general journal articles of incorporation general ledger

articles of incorporation

Double taxation represents a disadvantage for ___

corporations

***Preferred stockholders: -have the right to receive dividends only in the years the board of directors declares dividends. -must receive more dividends per share than the common stockholders. -have the right to receive dividends only if there are enough dividends to pay the common stockholders too. -must receive dividends every year.

have the right to receive dividends only in the years the board of directors declares dividends.

The amount of money paid into a company by its owners is referred to as: owners' surplus retained earnings investment in common stock invested capital

invested capital

The most important advantage to the corporate form of business is limited liability. regulation. double taxation. ease of formation.

limited liability.

A corporation is owned by its ___

stockholders

**Shareholders influence a company by -voting to establish corporate policies. -voting for the officers who manage the company. -appointing the top management of the company. -voting for the board of directors.

voting for the board of directors.

***Xavier Inc. has $10 million par value, 6% cumulative preferred stock outstanding. During the current year, the board of directors declares $2 million in dividends. No dividends were declared for the previous year. Dividends payable to preferred stockholders during the current year will be: $2 million $600,000 $1.2 million $1 million

$1.2 million Reason: $10 million x 0.06 x 2 years

**Just In Thyme, Inc. has the following end of year equity balances: Common stock of $20,000; Additional paid-in capital of $30,000; and Retained earnings of $50,000. If Just In Thyme repurchases $10,000 of its stock, the total stockholders' equity balance would equal ______. $90,000 $60,000 $110,000 $40,000

$90,000 Reason: $20,000 + 30,000 + 50,000 - 10,000

**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) ______. -$2,000 debit to Additional paid-in capital -$8,000 credit to Treasury stock -$2,000 credit to Additional paid-in capital -$10,000 debit to Treasury stock -$10,000 credit to Treasury stock

-$8,000 credit to Treasury stock -$2,000 credit to Additional paid-in capital Reason: The entry to record the sale includes a $10,000 debit to Cash, an $8,000 credit to Treasury stock (the original cost), and a $2,000 credit, not debit, to Additional paid-in capital (the difference between the sale price and the cost).

**A corporation may repurchase its shares of stock because management -want to increase its investments in trading securities. -believes the market price of the stock is undervalued. -needs additional current assets on the balance sheet. -want to manipulate the price of the stock and record gains on the income statement.

-believes the market price of the stock is undervalued.

The dividend payment date is when ______. -the board of directors announces that a dividend will be paid -cash is paid to satisfy the dividend liability -the list of stockholders is finalized to determine who will receive the payment

-cash is paid to satisfy the dividend liability

Albert Inc. has both common and preferred stock outstanding. Which should be listed first in the stockholders' equity section of the balance sheet? The sequence is unimportant Common stock Preferred stock

Preferred stock

***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? -Total liabilities will be understated. -Total stockholders' equity will be overstated. -This entry is correct. -Total assets will be overstated.

This entry is correct.

Issued shares

Total number of shares of stock issued (sold) to investors

***When does a dividend become a liability to a corporation? -On the ex-dividend date -At the end of each quarter -When it is declared by the board of directors -On the last day of the fiscal year

When it is declared by the board of directors

***When should a corporation record a liability for dividends in arrears on its cumulative preferred stock? -Never -When recording year-end adjusting entries -When the corporation knows it will not be paying dividends -When the dividends have been declared

When the dividends have been declared

**The journal entry to record the resale of treasury stock below cost will result in a debit to cash and: additional paid-in capital treasury stock a loss

additional paid-in capital

**A frequent reason for a stock split is to -cause the market price per share to decline. -shift amounts from retained earnings to other equity accounts. -issue more shares of stock so investors have more value. -give the investors an extra dividend for the year.

cause the market price per share to decline.

**Stock splits have the following effects on stockholders' equity -decrease in total stockholders' equity -increase in total stockholders' equity -no change to total stockholders' equity -decrease in retained earnings -increase in retained earnings -increase in common stock

no change to total stockholders' equity

***Only ___ common shares are eligible to receive dividends.

outstanding

Nurbert Inc. demands return of preferred stock at the pre-specified amount

redeemable

The contra account used to record a company's repurchase of its own common stock is the ___ stock account.

treasury

Amounts earned by the corporation and not paid out in dividends are referred to as common stock. retained earnings. shareholders' equity. paid-in capital.

retained earnings.

**Preferred stock generally (has/does not have) ______ voting rights and (has/does not have) ______ preference as to dividends. -does not have; has -has; does not have -has; has -does not have; does not have

-does not have; has

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights: -guaranteed dividends -preference in distribution of assets during dissolution of corporation -consistently higher return than earned by common stockholders -first right to specified amount of dividends

-preference in distribution of assets during dissolution of corporation -first right to specified amount of dividends

***Statement of Stockholders' Equity

Shows the change in the account balance of each equity account over time

**The effect of a large stock dividend on the accounting equation includes ______ in retained earnings. no change a decrease an increase

a decrease

**A distribution of assets to shareholders is referred to as a(n) ___

dividend

***Canton has 60,000 shares of $10 par stock issued and outstanding. Canton declares a 2-for-1 stock split but for convenience accounts for it as a 100% stock dividend. What is the par value per share and number of shares outstanding after the stock split? $5 par; 60,000 shares $10 par; 120,000 shares $5 par; 120,000 shares $10 par; 60,000 shares

$10 par; 120,000 shares

***When a corporation issues shares of common stock for an amount above par, which of the following entries occur? Credit to revenue Credit to additional paid-in capital Credit to retained earnings Credit to common stock

Credit to additional paid-in capital Credit to common stock

***True or false: A 100% stock dividend requires the same record keeping as a stock split.

False Reason: A stock split requires all records be changed to reflect the new par value.

***Which of the following shares are eligible to receive dividends? Issued shares Outstanding shares Treasury shares Authorized shares

Outstanding shares

date of record

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

***The dividend payment date is when: cash is increased. cash is decreased. dividends payable is decreased. retained earnings is decreased. retained earnings is increased. dividends payable is increased.

cash is decreased. dividends payable is decreased.

The dividend payment date is when ______. -cash is paid to satisfy the dividend liability -the board of directors announces that a dividend will be paid -the list of stockholders is finalized to determine who will receive the payment

cash is paid to satisfy the dividend liability

***If we multiply the current stock price per share and the number of shares outstanding, we will be able to calculate the ___ value of equity.

market (or fair)

***At the date of purchase, an asset's book value typically is equal to its: historical cost value in use opportunity cost market value

market value

**A small stock dividend is valued at book value. market value. net present value. par value.

market value.

___ ___ firms provide additional financing to start up corporations.

venture capital

***Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by: (Select all that apply.) -increasing total liabilities. -increasing total stockholders' equity. -increasing additional paid-in capital. -increasing retained earnings. -decreasing total stockholders' equity. -increasing total assets.

-increasing total stockholders' equity. -increasing additional paid-in capital. -increasing total assets.

True or false: An asset's book value is usually equal to its market value.

False

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

Treasury stock

Preferred stock tends to have attributes of treasury stock. bonds only. common stock only. both bonds and common stock.

both bonds and common stock.

Preferred stock carries priority over common stock: -both for dividends and at dissolution -only when a corporation is dissolved -only when dividends are declared and paid

both for dividends and at dissolution

**Additional reporting requirements for corporations serve to protect primarily creditors primarily investors both investors and creditors

both investors and creditors

esearch shows that which stock dividends tend to cause a drop in the stock price of the company declaring the dividend? small stock dividends only both large and small stock dividends large stock dividends only

both large and small stock dividends

**A(n) ___ balance in retained earnings represents an accumulated deficit.

debit (or negative)

***Dividends payable is recorded as a credit on the declaration date. last day of the fiscal year. date of payment. date of record.

declaration date.

When a corporation distributes assets of the company to its investors, it is referred to as a(n) warrant. expense. option. dividend.

dividend.

***The exchange of a company's common shares for non-cash consideration should be recognized at the ___ value of the goods or services received.

fair

***When treasury shares are reissued for an amount greater than cost, the amount over the cost increases -additional paid-in capital. -gain on sale of treasury stock. -retained earnings. -the investment account.

-additional paid-in capital.

***A small stock dividend is usually less than ______% of the number of shares of stock outstanding. 50 10 5 25

25

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

True

**An S corporation enjoys which benefit? no double taxation limited liability unlimited number of shareholders

no double taxation

Common stock that has not been assigned a par value is referred to as: registered stock no-par stock zero-value stock penny stock

no-par stock

***The market value of equity is equal to the product of these two factors: current stock price number of shares issued number of shares outstanding par value of stock

-current stock price -number of shares outstanding

**Treasury stock is reported in the financial statements as -a contra equity account. -an expense on the income statement. -a noncurrent liability. -an increase in current assets.

a contra equity account.

***For U.S. GAAP reporting purposes, mandatorily redeemable preferred stock is classified as a liability. other comprehensive income. common stock. preferred stock.

a liability.

***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.

dividend

When a noncash asset is distributed to stockholders, it is called a property ___

dividend

**___ capital is the amount of money paid into a company by its owners.

invested (or paid-in/ contributed)

The stockholders' equity section of the balance sheet presents the change in each revenue and expense account over time. balance of each revenue and expense account at a point in time. balance of each equity account at a point in time. change in each equity account over time.

balance of each equity account at a point in time.

**The journal entry to record a large stock dividend includes a debit to Stock Dividends and a credit to: cash additional paid-in capital retained earnings common stock

common stock

**The date on which a cash dividend becomes a liability to a corporation is the payment date. declaration date. record date. ex-dividend date.

declaration date.

**Stock dividends have the following effects on stockholders' equity increase in retained earnings decrease in retained earnings increase in total stockholders' equity increase in common stock decrease in total stockholders' equity no change to total stockholders' equity

decrease in retained earnings increase in common stock no change to total stockholders' equity

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes: -credit to Additional Paid-in Capital -credit to Treasury Stock -credit to Common Stock -debit to Cash -debit to Additional Paid-in Capital

-credit to Treasury Stock -debit to Cash -debit to Additional Paid-in Capital Reason: Additional Paid-in Capital is debited, not credited, because the price (cash received) was lower than the cost of the treasure stock.

Assuming that two companies operating in the same industry are profitable, which of the following companies is more likely to pay dividends to its stockholders? A growing company A mature company

A mature company

Which of the following are sources of shareholders' equity? Liabilities Paid-in capital Retained earnings Assets

Paid-in capital Retained earnings

Outstanding shares

The number of shares issued less treasury shares repurchased by the corporation

Diva, Inc. declared and paid $10,000 of dividends in 2018. The dividends result in a reduction of revenues. retained earnings. common stock. net income.

retained earnings.

___ ___ represents a corporation's own stock that it has reacquired.

treasury stock

A corporate charter: -is required only for publicly-traded corporations. -specifies the number of shares outstanding. -specifies the shares of stock to be issued. -names the board of directors. -describes the business activities.

-specifies the shares of stock to be issued. -names the board of directors. -describes the business activities.

Corporations raise capital by repurchasing treasury stock. issuing stock. purchasing new assets.

issuing stock.

***Farley Corp. has 50,000 shares of $1 par value common stock issued and outstanding. Farley declares a 10% stock dividend when the fair value of the stock is $9 per share. Which of the following entries will be included in the entries required to record the declaration and payment of the stock dividend? Credit common stock $45,000. Debit stock dividends $45,000. Debit retained earnings $5,000. Credit additional paid-in capital $40,000. Credit common stock $5,000.

Debit stock dividends $45,000. Credit additional paid-in capital $40,000. Credit common stock $5,000.

***True or false: Typically the balance in the additional paid-in capital account will be larger than the common stock account of a company that issues par value stock.

True Reason: Common stock is recorded at par value and will generally be smaller than additional paid-in capital.

***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' GAAP does not allow gains or losses to be reported when a corporation reissues its treasury stock.

**A business that is co-owned by two or more persons, and whose investors have unlimited liability, is called a corporation. partnership. proprietorship.

partnership.

Dividends payable is a(n) ___ account with a normal ___ balance and is recorded on the declaration date.

liability; credit

***On January 1, 2018, Bank & Rupp, Inc. issued 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6%, cumulative preferred stock. No dividends were declared in 2018. In 2019, Bank & Rupp declared and paid dividends to both common and preferred stockholders. A $1 dividend was paid to common stockholders. Assuming all shares originally issued are outstanding, the total dividend paid to the preferred stockholders equals $3,000 $2,000 $6,000 $1,000

$6,000 Reason: Since the preferred stock is cumulative, $6,000 (=1,000 shares x $50 par x 6% x 2 years) must be paid to preferred stockholders before the common stockholders may receive a $1 dividend.

**Stockit, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. Stockit has repurchased 10,000 of its own shares. The number of shares authorized equals ______ shares. 1,000,000 100,000 90,000 910,000 10,000

1,000,000 Reason: The number of shares authorized equals 1,000,000 which is the maximum shares the company is allowed to sell. Of the 1,000,000 shares, the company has sold 100,000 and bought back 10,000 leaving 90,000 shares outstanding.

**A common reason for companies repurchasing their own shares is that they -need additional current assets on the balance sheet. -want to increase its investments in trading securities. -want to manipulate the price of the stock and record gains on the income statement. - may want to redistribute corporate cash without paying dividends.

may want to redistribute corporate cash without paying dividends.

**Knorr issues 1,000 shares of $2 par value common stock for $10 per share. The journal entry to record this transaction will include which of the following? Credit to additional paid-in capital $8,000 Credit to common stock $10,000 Credit to retained earnings $8,000 Credit to common stock $2,000

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

How should cash dividends be reported on the statement of shareholders' equity? As a reduction of common stock. As a reduction of comprehensive income. As a reduction of treasury stock. As a reduction of retained earnings.

As a reduction of retained earnings.

***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): -decrease in retained earnings of $1,000. -increase in total stockholders' equity of $11,000. -increase in total assets of $10,000. -decrease in additional paid-in capital of $1,000.

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

**A credit balance in retained earnings indicates that -liabilities are less than shareholders' equity. -net income has exceeded the dividends distributed to shareholders. -treasury stock was not purchased. -dividends were not declared during the year.

net income has exceeded the dividends distributed to shareholders.

***Retained earnings of $100,000 represent a corporation's cumulative earnings ______ and is shown on the ______. -not paid out by dividends; balance sheet and statement of retained earnings -declared; statement of retained earnings and income statement -in cash; balance sheet

-not paid out by dividends; balance sheet and statement of retained earnings Reason: Dividends, not earnings, are "declared". Retained earnings represents the earnings "kept" by the company and is shown on the balance sheet and the statement of retained earnings.

***The purpose of the statement of shareholders' equity is to -report the additional expenses of the company that were not accrued during the year. -reconcile the balance sheet with the statement of cash flows. -report the changes and the sources of the changes in shareholder equity accounts. -reconcile net income with taxable income and retained earnings.

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

Historically, par value was considered to be -the maximum amount of money the company could borrow. -the amount of retained earnings that must be appropriated for future dividends. -the amount of cash that must be maintained in the corporation for contingencies. -the value of the company's shares of stock.

the value of the company's shares of stock.

**Bank, Rupp & Baroque, Inc. began on January 1, 2018 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6% cumulative preferred stock. No dividends were declared in 2018. In 2019, Bank, Rupp & Baroque declared and paid a $1.00 dividend to its common stockholders. Which of the following is true? -Dividends expense should be reported on the income statement for the year ended December 31, 2018. -Dividends payable should be reported on the December 31, 2018 balance sheet. -Dividends in arrears should be disclosed in the notes to the 2018 financial statements. -Dividends payable should be reported on the December 31, 2019 balance sheet.

Dividends in arrears should be disclosed in the notes to the 2018 financial statements.

**Which of the following transactions is the most common type of property dividend? -A distribution of additional shares of a corporation's stock to current shareholders of the corporation. -A distribution of shares of stock held as an investment to stockholders of the corporation. -A distribution of stock to corporate executives as an inducement to extend their contract with the corporation. -A distribution of stock options to current employees as incentive compensation.

-A distribution of shares of stock held as an investment to stockholders of the corporation.

***AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. The number of shares issued equals ______ shares. 1,000,000 10,000 90,000 100,000 910,000

100,000 Reason: The number of shares authorized equals 1,000,000 which is the maximum shares the company is allowed to sell. Of the 1,000,000 shares, the company has sold 100,000 and bought back 10,000 leaving 90,000 shares outstanding. The total issued shares is the full 100,000.

Xavier Inc. has $10 million par value, 6% cumulative preferred stock outstanding. During the current year, the board of directors declares $2 million in dividends. No dividends were declared for the previous year. Dividends payable to preferred stockholders during the current year will be: $2 million $1.2 million $1 million $600,000

$1.2 million Reason: $10 million x 0.06 x 2 years

Canton has 60,000 shares of $10 par stock issued and outstanding. Canton declares a 2-for-1 stock split but for convenience accounts for it as a 100% stock dividend. What is the par value per share and number of shares outstanding after the stock split? $5 par; 120,000 shares $10 par; 60,000 shares $10 par; 120,000 shares $5 par; 60,000 shares

$10 par; 120,000 shares

Reynolds Corp. has 100,000 shares of $1 par value common stock issued and outstanding. Reynolds declares a 20% stock dividend when the fair value of the stock is $8 per share. The debit to stock dividends is $20,000. $160,000. $10,000. $140,000.

$160,000. Reason: 100,000 x 20% = 20,000 shares x $8 = $160,000

**An accumulated deficit ______. -indicates accumulated net losses -indicates that no dividends have been declared -means that Retained earnings has a credit balance -means that Retained earnings has a debit balance

-indicates accumulated net losses -means that Retained earnings has a debit balance

***Treasury stock: -is the number of shares authorized minus the number of shares issued. -is a contra-equity account. -reduces stockholders' equity. -is shares of stock no longer outstanding.

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

In a corporation, the stockholders' potential loss is -limited to the amount of the investment. -limited to the amount of net income. -unlimited with responsibility for all corporate losses.

-limited to the amount of the investment.

**An accumulated deficit in retained earnings indicates that the company has -no liabilities. -net losses. -fewer assets than stockholders' equity. -net income for the period.

-net losses.

**Earned capital increases ____. -retained earnings -accumulated other comprehensive income -common stock

-retained earnings

Which account is a stockholders' equity account? Investments in common stock Additional paid-in capital Lease obligations Bonds payable

Additional paid-in capital

**stock splits

Cause the par value per share to change

**Stock splits and stock dividends

Cause total stockholders' equity to remain the same

Invested capital

Common stock

**On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on April 1, 2018, will include which of the following entries? Credit dividends payable $3,000. Debit cash $3,000. Debit retained earnings $3,000. Credit cash $3,000. Debit dividends payable $3,000.

Credit cash $3,000. Debit dividends payable $3,000.

**On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on March 1, 2018, will include which of the following entries? Credit cash $3,000. Credit dividends payable $3,000. Debit cash $3,000. Debit dividends $3,000.

Credit dividends payable $3,000. Debit dividends $3,000.

***When a cash dividend is declared and paid in the same year, the total effects on the balance sheet include which of the following? Decrease net income. Decrease stockholders' equity. Increase liabilities. Decrease assets.

Decrease stockholders' equity. Decrease assets.

**stock dividends

Require a journal entry

Earned capital

Retained earnings

**Which of the following accounts are classified as shareholders' equity? Retained earnings Investments in securities Common stock Additional paid-in capital Bonds payable

Retained earnings Common stock Additional paid-in capital

**Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation? proprietorship S corporation partnership C corporation

S corporation

**Who owns and controls a corporation? Managers Board of directors Shareholders Creditors

Shareholders

***The effect of a large stock dividend on the accounting equation includes: an increase in common stock. a decrease in total assets. a decrease in total stockholders' equity. no effect on total stockholders' equity. a decrease in retained earnings.

an increase in common stock. no effect on total stockholders' equity. a decrease in retained earnings. Reason: A large stock dividend is recorded with a debit to Retained Earnings (-SE) and a credit to Common Stock (+SE). There is no affect on assets.

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): -decrease in additional paid-in capital of $1,000. -increase in total assets of $10,000. -decrease in retained earnings of $1,000. -increase in total stockholders' equity of $11,000.

decrease in additional paid-in capital of $1,000. increase in total assets of $10,000. Reason: Stockholders' equity increases by $10,000, not $11,000. Treasury stock decreases $11,000, which increases stockholders' equity; additional paid-in capital decreases $1,000 ($11,000-10,000), which decreases stockholders' equity.

A(n) ___ corporation is considered closely held with few owners, whereas a(n) ___ corporation is available to any investor who wants to purchase shares of stock on the stock exchange.

private; public

Corporations may be ___ held or ___ held.

public; privately

**The date on which a company determines the registered owners of the stock who will receive a dividend is referred to as the payment date. record date. ex-dividend date. declaration date.

record date.

**Green Company declares and issues a 20% stock dividend. The stock dividend will cause total stockholders' equity to remain the same increase decrease

remain the same

***Green Company declares and issues a 20% stock dividend. The stock dividend will cause total assets to increase. decrease. remain the same.

remain the same.

**convertible

Shares can be converted for common stock

True or false: Common shares issued with a stated value are recorded in the same manner as par value stock.

True

declaration date

The board of directors officially approves a dividend

***Wok N Roll, Inc. began on January 1, 2018 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in 2018 or 2019. In 2020, Wok N Roll declared and paid dividends to common and preferred stockholders. A $0.50 dividend was paid to common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in 2020 equals: $65,000 $55,000 $50,000 $50,500

$65,000 Reason: Cumulative preferred stock receives 1,000 shares x $100 par x 5% x 3 years and common stock receives 100,000 shares x $0.50.

***The effect of a large stock dividend on the accounting equation includes: -a decrease in total assets. -no effect on total stockholders' equity. -a decrease in retained earnings. -a decrease in total stockholders' equity. -an increase in common stock.

-no effect on total stockholders' equity. -a decrease in retained earnings. -an increase in common stock. Reason: A large stock dividend is recorded with a debit to Retained Earnings (-SE) and a credit to Common Stock (+SE). There is no affect on assets.

**Which of the following transactions are classified as a stock dividend? -A distribution of stock options to current employees as incentive compensation. -A distribution of stock to corporate executives as an inducement to extend their contract with the corporation. -A distribution of additional shares of a corporation's stock to current shareholders of the corporation. -A distribution of shares of stock held as an investment to stockholders of the corporation.

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

**How is treasury stock reported in the financial statements? -As an expense for other comprehensive income. -As a contra-asset account. -As a contra equity account. -As a direct reduction to retained earnings.

As a contra equity account.

***Bank, Rupp & Baroque, Inc. began on January 1, 2018 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6% cumulative preferred stock. No dividends were declared in 2018. In 2019, Bank, Rupp & Baroque declared and paid a $1.00 dividend to its common stockholders. Which of the following is true? -Dividends expense should be reported on the income statement for the year ended December 31, 2018. -Dividends payable should be reported on the December 31, 2019 balance sheet. -Dividends payable should be reported on the December 31, 2018 balance sheet. -Dividends in arrears should be disclosed in the notes to the 2018 financial statements.

Dividends in arrears should be disclosed in the notes to the 2018 financial statements. Reason: -Dividends are not an expense. -Dividends were paid in 2019. -Dividends are not a liability until they are declared in 2019.

payment date

Dividends payable is decreased

**When a company declares and pays a cash dividend, what are the financial statement effects? Stockholders' equity decreases. Assets increase. Liabilities increase. Net income decreases.

Stockholders' equity decreases.

**redeemable

Stocks can be turned in or re-purchased on demand

**Before common dividends can be paid, the ______ preferred stock must be paid ______. -common; dividends -cumulative; dividends in arrears -cumulative; interest owed -current; interest owed

cumulative; dividends in arrears

***A ______ balance in retained earnings indicates an accumulated deficit. credit debit

debit

**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.

debit

***The journal entry to record a large stock dividend includes: credit to Cash debit to Common stock credit to Additional paid-in capital debit to Stock Dividends credit to Common stock

debit to Stock Dividends credit to Common stock

***A stock dividend typically causes the stock price to ______. remain the same decrease increase

decrease Reason: A stock dividend increases the number of shares outstanding and is recorded with a debit to Retained Earnings (-SE) and credit to Common Stock (+SE). The increase in shares should cause a decrease, not increase, in the price since there are more shares outstanding and no change in total SE.

***Refurbish, Inc. bought 1,000 shares of its own stock for $8,000. Later it resold the shares for $10,000. The effect of the sale of treasury stock on the accounting equation includes a(n) -$10,000 decrease in stockholders' equity. -$8,000 decrease in stockholders' equity. -$10,000 increase in stockholders' equity. -$8,000 increase in stockholders' equity.

-$10,000 increase in stockholders' equity. Reason: Treasury stock decreases $8,000, which increases stockholders' equity; Additional paid-in capital increases by $2,000 ($10,000-8,000), which increases stockholders' equity.

Which of the following occurs on the date of record? -A liability is recorded for the future dividend payment. -Dividends are paid to shareholders. -A list of shareholders that are entitled to receive a dividend is made. -The board of directors announces that a dividend will be paid.

-A list of shareholders that are entitled to receive a dividend is made.

***Balance sheet

Shows the balance of each equity account at a specific point of time.

***For most companies that issue par-value common stock, which account balance is typically the highest? additional paid-in capital both are approximately equal common stock

additional paid-in capital

Another common term for stockholders' equity is: shareholders' equity investment equity undistributed equity retained equity

shareholders' equity

***Stock dividends have the following effects on stockholders' equity increase in total stockholders' equity decrease in retained earnings decrease in total stockholders' equity increase in common stock no change to total stockholders' equity increase in retained earnings

-decrease in retained earnings -increase in common stock -no change to total stockholders' equity

***A stock dividend ______. -causes total stockholders' equity to decrease -has no effect on each stockholder's ownership percentage -causes total stockholders' equity to increase -increases each stockholder's ownership percentage

-has no effect on each stockholder's ownership percentage Reason: A stock dividend reduces Retained Earnings (-SE) and increases Common Stock (+SE). The stockholders receive the same percentage so their percentage ownership remains the same.

**Under IFRS, preferred stock is typically reported as: a liability an asset stockholders' equity

a liability

The journal entry to record the declaration of a dividend includes ______. -a credit to Retained earnings -a debit to Dividends -a credit to Dividends payable -a credit to Cash -a credit to Dividends declared

-a debit to Dividends -a credit to Dividends payable

***A stock dividend causes a stockholder's percentage ownership in a company to ______. decrease increase remain the same

remain the same Reason: A stock dividend reduces Retained Earnings (-SE) and increases Common Stock (+SE). The stockholders receive the same percentage so their percentage ownership remains the same.

**A corporation's accumulated, undistributed net income or loss is referred as -comprehensive income. -accumulated comprehensive income. -corporate dividends. -retained earnings.

retained earnings.

***A ______ stock dividend is less than 25% of the outstanding shares of stock. small treasury large intermediary

small

***___ stock dividends are recorded at market value, while ___ stock dividends are recorded at par value.

small; large

***Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by: (Select all that apply.) -increasing retained earnings. -increasing total liabilities. -increasing total assets. -increasing total stockholders' equity. -decreasing total stockholders' equity. -increasing additional paid-in capital.

-increasing total assets. -increasing total stockholders' equity. Reason: The preferred stock is issued at its par value so there is no additional paid-in capital. Additional paid-in capital is increased only if the price is greater than the par value.

True or false: The board of directors is responsible for establishing corporate policies.

True Reason: The board of directors establishes company policies and appoints officers.

***Wyanot Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. The journal entry to record this transaction includes: -$100,000 debit to Cash. -$110,000 debit to Cash. -$100,000 credit to Preferred stock. -$10,000 credit to Additional paid-in capital - preferred. -$5,000 credit to Preferred stock.

-$110,000 debit to Cash. -$100,000 credit to Preferred stock. -$10,000 credit to Additional paid-in capital - preferred.

***What are the effects of a stock split accounted for as a 100% stock dividend? -Par value per share stays the same. -The number of shares outstanding decreases. -Par value per share increases. -Par value per share decreases. -The number of shares outstanding increases.

-Par value per share stays the same. -The number of shares outstanding increases.

Which of the following is included in the rights of common stockholders? -Right to dividend payment every year. -Right to purchase assets of the corporation. -Right to restrict preferred stock. -Right to vote

-Right to vote

***Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders? -A variable interest rate that increased each year -The right to convert the shares to common shares -The right to redeem the preferred shares for cash

-The right to convert the shares to common shares -The right to redeem the preferred shares for cash

***Preferred stock: -must be issued before any common stock is issued. -has preference as to dividends. -is useful for raising capital without reducing common stockholders' control. -generally does not have voting rights.

-has preference as to dividends. -is useful for raising capital without reducing common stockholders' control. -generally does not have voting rights.

***Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by: (Select all that apply.) -increasing additional paid-in capital. -increasing total liabilities. -increasing total stockholders' equity. -decreasing total stockholders' equity. -increasing retained earnings. -increasing total assets.

-increasing additional paid-in capital. -increasing total stockholders' equity. -increasing total assets.

**On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on March 1, 2018, will include which of the following entries? Debit cash $3,000. Debit dividends $3,000. Credit dividends payable $3,000. Credit cash $3,000.

Debit dividends $3,000. Credit dividends payable $3,000.

***Gosling Corp. has 100,000 shares of common stock authorized, 80,000 shares issued, and 20,000 shares of treasury stock. Gosling declares a dividend of $0.10 share. Which of the following entries is required at the date of declaration? Credit dividends payable $8,000. Debit dividends $10,000. Credit cash $8,000. Debit dividends $6,000.

Debit dividends $6,000. Reason: 60,000 shares outstanding x $0.10

***On April 1, 2018, Rawlings declares a dividend of $0.30 per share. Rawlings has 100,000 shares authorized, and 40,000 issued and outstanding. The date of record is April 28, and the payment date is May 15. Which of the following entries is included in the journal entry on May 15? -Credit common stock $30,000. -Debit dividends payable $12,000. -Credit cash $30,000. -Debit retained earnings $12,000.

Debit dividends payable $12,000. Reason: 40,000 x $.30 = $12,000

Which of the following is typically presented first in the equity section of the balance sheet? Treasury stock Preferred stock Common stock Retained earnings

Preferred stock

**Preferred stockholders: -have the right to receive dividends only if there are enough dividends to pay the common stockholders too. -must receive dividends every year. -have the right to receive dividends only in the years the board of directors declares dividends. -must receive more dividends per share than the common stockholders.

have the right to receive dividends only in the years the board of directors declares dividends.

***The statement of shareholders' equity reports the revenues and expenses for the period. assets, liabilities, and owners' equity for the period. the changes in each shareholder equity account. the changes to assets over the period.

the changes in each shareholder equity account.

___ investors are wealthy individuals in the business community willing to risk investment funds on a promising business venture.

angel

Additional taxes and more paperwork are the two primary disadvantages of this business form: corporation partnership sole proprietorship

corporation

business that is organized as a separate legal entity with limited liability for its owners is a proprietorship. corporation. partnership.

corporation.

Shareholders' equity is another common term for ___ equity.

stockholders

**Allison Company's board of directors assigns a $2 stated value to its no-par common stock. If Allison sells 10,000 shares for $10 per share, the Common Stock account should be credited for: $20,000 $80,000 $100,000

$20,000 Reason: $2 x 10,000 shares

**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: -maximum number of shares Stockit is allowed to sell. -number of shares that have been repurchased. -number of shares sold.

-maximum number of shares Stockit is allowed to sell.

Limited liability and ease of raising outside capital are advantages of this business form: Partnership Corporation Sole Proprietorship

Corporation

Mars Inc. issues 5,000 shares of no par stock for $100,000. Which of the following entries is required? Debit additional paid-in capital. Credit additional paid-in capital. Credit cash. Credit common stock. Debit common stock.

Credit common stock.

Preferred stockholders usually have preference over common stockholders with respect to which items? -Issuance of additional debt -Distribution of assets in liquidation -Dividends -Issuance of additional shares

Distribution of assets in liquidation Dividends

Authorized shares

Total number of shares available to sell as indicated in the company's articles of incorporation

**For a specific corporation, the total number of shares available to sell are referred to as: issued outstanding authorized

authorized

During the current year, Petra Inc. pays dividends that were not declared last year

cumulative

Special contractually granted features can make preferred stock: redeemable extraordinary convertible cumulative

redeemable convertible cumulative

***Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes: -$100,000 debit to Cash -$90,000 credit to Additional paid-in capital -$100,000 credit to Common stock -$10,000 credit to Common stock -$10,000 debit to Cash

-$100,000 debit to Cash -$90,000 credit to Additional paid-in capital -$10,000 credit to Common stock Reason: Of the $100,000 cash received, $10,000 is credited to Common stock (the par value, $1, times the number of shares issued, 10,000 shares). The additional $90,000 received over the par value is credited to Additional paid-in capital.

***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 liabilities. -$10,000 increase in total stockholders' equity. -$50,000 increase in total assets. -$10,000 increase in total assets. -$50,000 decrease in total stockholders' equity.

-$50,000 increase in total stockholders' equity. -$50,000 increase in total assets. Reason: The entry includes a $50,000 debit to Cash (+A) and a $10,000 credit to Common Stock (+SE) and $40,000 to Additional Paid-In Capital (+SE). Liabilities are not affected.

***X-Co issued 1,000 shares of its 5%, $10 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes: $100,000 credit to Preferred stock. $90,000 credit to Additional paid-in capital. $100,000 debit to Cash. $10,000 credit to Preferred stock. $90,000 debit to Cash.

-$90,000 credit to Additional paid-in capital. -$100,000 debit to Cash. -$10,000 credit to Preferred stock.

**Shareholders' equity consists of which of the following items? -Amounts earned by the corporation -Amounts borrowed by the corporation -Amounts invested by shareholders -Amounts of assets purchased by the corporation

-Amounts earned by the corporation -Amounts invested by shareholders

**Which of the following are included in the duties of the board of directors? -Appoint officers to manage the corporation. -Manage the daily activities of the corporation. -Establish corporate policies. -Appoint the members of the board of directors.

-Appoint officers to manage the corporation. -Establish corporate policies.

Which of the following are included in the duties of the board of directors? -Appoint officers to manage the corporation. -Establish corporate policies. -Manage the daily activities of the corporation. -Appoint the members of the board of directors.

-Appoint officers to manage the corporation. -Establish corporate policies.

The acronym "IPO" stands for -Internal public operations -Initial property outcome -Initial public offering -Internal process management

-Initial public offering

**The rights of common stockholders typically include which of the following? -Right to dividends when declared. -Right to vote for corporate directors. -Right to receive a percentage of net income each year. -Right to distribution of assets in liquidation.

-Right to dividends when declared. -Right to vote for corporate directors. -Right to distribution of assets in liquidation.

**LLCs and LLPs share which of the following characteristics? -Unlimited number of owners -Double taxation -Limited liability -Double taxation avoidance -Limited number of owners

-Unlimited number of owners -Limited liability -Double taxation avoidance

**Limited liability companies and limited liability partnerships share which of the following characteristics? Limited number of owners Unlimited number of owners Double taxation No double taxation Limited personal liability

-Unlimited number of owners -No double taxation -Limited personal liability

***Munster Inc. pays its attorney fees of $12,000 by issuing 1,000 shares of $1 par value common stock. The shares have a current market value of $12 per share. Munster's journal entry to recognize the issuance of stock should include: -debit to legal fees for $1,000 -credit to additional paid in capital for $11,000 -credit to common stock for $12,000 -credit to common stock for $1,000 -debit to legal fees for $12,000

-credit to additional paid in capital for $11,000 -credit to common stock for $1,000 -debit to legal fees for $12,000 Reason: legal fees are reported at fair (market) value of stock

**Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights: -first right to specified amount of dividends -consistently higher return than earned by common stockholders -guaranteed dividends -preference in distribution of assets during dissolution of corporation

-first right to specified amount of dividends -preference in distribution of assets during dissolution of corporation

**No-par value stock is common stock that: -has not been assigned a par value -is not publicly traded -has no current value

-has not been assigned a par value

**Under IFRS, preferred stock dividends typically are reported as: -an extraordinary loss -accumulated comprehensive income -a reduction of retained earnings -interest expense

-interest expense

**Disadvantages of the corporate form of business are -less paperwork. -more paperwork -additional taxation. -ease of raising capital.

-more paperwork -additional taxation.

**Attracting outside investment is easier for corporations than for sole proprietorships and partnerships because: -investments in common stock are more secure than other investments -ownership interest can easily be transferred among individual investors -transfer of ownership interest does not change the organization's operations raising capital by selling common stock is less costly

-ownership interest can easily be transferred among individual investors -transfer of ownership interest does not change the organization's operations

**The advantages to the corporate form of business include -transferability of ownership. -ease of raising capital. -double taxation for the corporation.

-transferability of ownership. -ease of raising capital.

***Peter Inc. issues 15,000 shares of no par stock for $500,000. Common stock should be: -Credited for $15,000 -Debited for $500,000 -Credited for $500,000 -Debited for $15,000 -neither debited nor credited since no par value was assigned to the share

Credited for $500,000

**cumulative

Dividends not declared during one year are payable when declared in subsequent periods

**Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock for $5 per share. Which statement is true regarding the effect of this transaction on Stockits' financial statements? -Stockholders' equity on the balance sheet decreases. -A gain on sale of stock will be reported on the income statement. -The investing activities section of the statement of cash flows increases. -Stockholders' equity on the balance sheet increases.

Stockholders' equity on the balance sheet increases. Reason: Stockit does not report gains or losses on the issuance of its common stock. The entry includes a $500 debit to Cash and a $100 credit to Common Stock and $400 to Additional Paid-In Capital.

True or false: The total net income earned by a corporation on behalf of its shareholders and not paid out as dividends is called retained earnings.

True