Smartbook Ch 10

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n):

- increase in liabilities - decrease in stockholders' equity

The advantages to the corporate form of business include

- transferability of ownership - ease of raising capital Reason: Double taxation is a disadvantage.

The amount of money paid into a company by its owners is referred to as:

invested capital

The statement of stockholders' equity reports

the changes in each equity account balance over time

Historically, par value was considered to be

the value of the company's shares of stock

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

Blank 1: liability Blank 2: credit

Limited liability and ease of raising outside capital are advantages of this business form:

Corporation

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

Invested

Which of the following is included in the rights of common stockholders?

Right to vote Reason: Stockholders have a right to dividends when distributed, but not necessarily every year.

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

authorized

Preferred stock has a mixture of attributes of both equity and

debt

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

does not have; has

A stock dividend ______.

has no effect on each stockholder's ownership percentage

No-par value stock is common stock that:

has not been assigned a par value

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

issued minus the number of shares in treasury Reason: The number of shares outstanding equals the number of shares issued minus the number of shares bought back by the company. The number of shares authorized is the maximum number of shares the company is allowed to sell.

The most important advantage to the corporate form of business is

limited liability Reason: Regulation is a disadvantage to the corporate form of business. Double taxation is a disadvantage for corporations.

Stock splits have the following effects on stockholders' equity

no change to total stockholders' equity

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

The purpose of the statement of shareholders' equity is to

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

A company's past profits that are not paid out in dividends are ______.

retained earnings

Diva, Inc. declared and paid $10,000 of dividends in Year 3. The dividends result in a reduction of

retained earnings

Earned capital increases

retained earnings

A corporation is owned by its . (Enter one word per blank)

shareholders

Who owns and controls a corporation?

shareholders

Another common term for stockholders' equity is:

shareholders' equity

The term treasury stock refers to

stock that is repurchased by the issuing corporation

Shareholders' equity is another common term for equity. (Do not use shareholders)

stockholders

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

treasury stock

Shareholders influence a company by

voting for the board of directors

Disadvantages of the corporate form of business are

- more paperwork - additional taxation

Which of the following is typically presented first in the equity section of the balance sheet?

Preferred stock

Which of the following are included in the duties of the board of directors?

- Appoint officers to manage the corporation - Establish corporate policies

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 assets - increasing total stockholders' equity

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:

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

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?

- Articles of incorporation - Corporate charter

What are the effects of a stock split accounted for as a 100% stock dividend?

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

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?

$10 par; 120,000 shares

The rights of common stockholders typically include which of the following?

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

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 declaration of cash dividends reduces ________ ________. (Enter one word per blank)

Blank 1: retained Blank 2: earnings

Which financial statement summarizes the changes in the balance of each equity over time?

Statement of stockholders' equity only

A frequent reason for a stock split is to

cause the market price per share to decline

Additional taxes and more paperwork are the two primary disadvantages of this business form:

corporation

Dividends payable is recorded as a credit on the

declaration date

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

dividend

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

dividend

Similar to a stock split, a stock also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.

dividend

Which of the following will decrease the par value of shares?

stock split

Preferred stock:

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

Stock dividends have the following effects on stockholders' equity

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

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

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

Special contractually granted features can make preferred stock:

- redeemable - cumulative - convertible

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:

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

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 total assets - increasing total stockholders' equity

The number of shares authorized is set forth in the company's:

articles of incorporation

Preferred stockholders:

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

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

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.

Preferred stock tends to have attributes of

both bonds and common stock

Which of the following occurs on the date of record?

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

Common stock that has not been assigned a par value is referred to as:

no-par stock

Match the term with the preferred stock characteristic.

- Convertible: Shares can be converted for common stock - Redeemable: Stocks can be turned in or re-purchased on demand - Cumulative: Dividends not declared during one year are payable when declared in subsequent periods

The declaration of a dividend results in ______.

- an increase in Dividends - an increase in liabilities

When a business incorporates, it must file its ______ with the state in which it incorporates.

articles of incorporation

Match the preferred stock feature with the correct description.

- Convertible: Marcus turn in his preferred stock and receives common shares in exchange - Redeemable: Nurbert Inc. demands return of preferred stock at the pre-specified amount - Cumulative: During the current year, Petra Inc. pays dividends that were not declared last year

Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals ______ shares.

45,000 Reason: The 45,000 shares outstanding equals the number issued of 50,000 minus the 5,000 shares bought back by the company.

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.

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

Blank 1: par Blank 2: value

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.

Match the source of capital with the account in which it is recognized.

- Earned capital: Retained earnings - Invested capital: Common stock

Match stock splits and stock dividends with their characteristics.

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

Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?

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

Preferred stock is advantageous in that it:

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

A corporate charter:

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

In a corporation, the stockholders' potential loss is

limited to the amount of the investment

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

Preferred stock

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

The date on which a company determines the registered owners of the stock who will receive a dividend is referred to as the

record date