302 Chapter 18

no journal entry

A reverse stock split requires

the notes to financial statement

If retained earnings is restricted, the disclosure is usually found in ___.

limited to the amount of the investment

In a corporation, shareholders' liability is ____.

conversion, redemption

The right of a shareholder to exchange his preferred stock for another class of stock is referred to as a right of ________, whereas the right of the preferred shareholder to have her stock repurchased by the corporation for cash is referred to as a ______ privilege.

conversion

The right to exchange preferred stock for common stock.

preemptive

The right to purchase additional shares of stock to maintain one's percentage of ownership when new shares are issued is called a ______ right.

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

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?

cash

When stock splits or stock dividends result in fractional shares, companies issue payments along with the additional shares to compensate for the fractions.

issuing cash payments for the fractional shares

When stock splits or stock dividends result in fractional shares, the situation is handled by

retained earnings

Which item is included in shareholders' equity?

participating

Which preferred stock feature allows preferred shareholders to receive additional dividend distributions above the amount stated on the preferred stock certificate?

state where the corporation is incorporated

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

the company has a deficit

A debit balance in retained earnings indicates that ____.

dividend

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

retained earnings

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

earnings price ratio

Because the return on shareholders' equity is based on the book value of equity, analysts often supplement their understanding of the return to shareholders with the ______.

exdividend date

Date before which investors must purchase stock in order to receive a dividend

record date

Date that a determination is made as to recipients of a dividend

payment date

Date that corporate assets are transferred to shareholders

government regulation and double taxation

Disadvantages of the corporate form of business are ___.

stock dividend

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

debt

For U.S. GAAP reporting purposes, mandatorily redeemable preferred stock is classified as

common stock $2,000 ($@ x 1,000) paid in capital $8,000 ($10,000 - $2,000)

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 credits?

reverse stock split

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

credit common stock $25,000 ($5 x 5000) credit preferred stock $10,000 ($10 x 1000) credit paid-in capital in excess of par - common stock $75,000 credit paid-in capital in excess of par - preferred stock $40,000

Niles Corp. issues 1,000 shares of $10 par value preferred stock and 5,000 shares of $5 par value common stock for $150,000. The fair value of the preferred stock is $50 per share, and the fair value of the common stock is $20 per share. The journal entry to record the transaction will include which of the following entries?

debit dividends payable $12,000

On April 1, 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?

no entry is required

On March 1, Fresh Corp. declared a dividend of $3,000. The record date is March 20, and the payment date is April 1. What is the journal entry required on March 20?

individual investors may not bind the corporation to a contract

One advantage of investing in a corporation is the lack of mutual agency, which means that:

nonparticipating

Preferred shareholders receive a dividend equal to the amount stated in the preferred stock certificate.

IFRS- equity US GAAP- liability

Relate the common financial statement classification of non-mandatory redeemable preferred stock with the IFRS and US GAAP accounting standards.

debt

Represents a creditors interest that must be repaid.

equity

Represents an ownership interest in the company.

as a single amount

Retained earnings is typically reported on the balance sheet

retained earnings, distributions of assets

Salisbury Company retires shares for the first time. It repurchases the shares at an amount more than the original issue price. Salisbury Company should debit ______ because the additional payment represents a ______ to shareholders.

voting for board of directors

Shareholders influence a company by ____.

amounts invested and earned by the corporation

Shareholders' equity consists of which of the following items?

reserves

Shareholders' equity is classified under IFRS into two categories: share capital and ____.

par

The _____ value method of accounting for treasury stock is essentially identical to formally retiring shares and is rarely used in practice.

subtracted from the proceeds of issuing stock

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

redemption

The right to return preferred stock.

profit and not for profit

The two types of corporations are:

class a b and c, common or preferred stock, and common versus capital stock

What are some common terms that companies use to differentiate between share types?

number of shares increases par value decreases

What are the effects of a stock split?

balance sheet

What financial statement does accumulated other comprehensive income appear on?

comprehensive income statement

What financial statement does other comprehensive income appear on?

reduces

When a share repurchase is viewed as treasury stock, the cost of the treasury stock ______ shareholders' equity.

class a b c and common or preferred stock

Which of the following are designations for different classes of stock?

fair value of assets at declaration date

A property dividend is recorded at _____.

increase, smaller

A repurchase of treasury stock will Blank______ a company's return on equity because net income is divided by a Blank______ amount of equity.

disclosure

A restriction of retained earnings is typically indicated by a _____ in the notes to the financial statements.

net losses

An accumulated deficit in retained earnings indicates that the company has ____.

comprehensive income

______ include(s) all changes in equity during a period except those resulting from investments by owners and distributions to owners.

debt, equity

______ represents the creditors' interest in the company, whereas ______ represents the investors' interest in the company.

small

A ______ stock dividend is less than 25% of the outstanding shares of stock.

cost or par value method

Consistent with U.S. GAAP, companies that repurchase shares held as treasury stock may utilize ___.

reduce paid in capital - excess of par

The effect of share issue costs is to ___.

paid in capital, retained earnings, accumulated other comprehensive income, and treasury stock

The four classifications within shareholders' equity are:

shareholders

Who owns and controls a corporation?

debit paid in capital treasury shares $400

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?

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 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?

debit cash credit common stock

Mars Inc. issues 5,000 shares of no par stock for $100,000. Which of the following entries are required?

debit common stock $100, debit retained earnings $200, debit paid in capital in excess of par $900

In year 1, Frill Corp. issued 1,000 shares of $1 par value common stock for $10 per share. In year 3, Frill repurchased and immediately retired 100 shares of the stock at $12 per share. Which of the following entries would be included in the journal entry to retire the shares?

debit cash $4,500 debit paid in capital share repurchase $200 debit retained earnings $300 credit treasury stock $5,000

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?

paid in capital in excess of par $20,000

Miles Corp. declares and distributes a 3-for-1 stock split effected in the form of a 200% stock dividend. Miles had 10,000 shares of $1 par value common stock valued at $8 per share before the stock split. If Miles does not capitalize retained earnings, the journal entry required to record the split would include a debit to

credit common stock $4,000 ($1 x 4000) credit preferred stock $10,000 ($10 x 1000) credit paid in capital in excess of par - common stock $28,000 ($8 x 4000)

Ship Corp. issues 1,000 shares of $10 par value preferred stock and 4,000 shares of $1 par value common stock for $100,000. The fair value of the preferred stock is unknown, but the fair value of the common stock is $8 per share. The journal entry to record the transaction will include which of the following entries?

$82,000 (100000x.08=8000-90000)

Bell Corp. has the following classes of equity: Preferred stock, $10 par, 8% dividend rate $100,000 Common stock, $1 par $50,000 The preferred stock is noncumulative and nonparticipating. No dividends were paid in Year 1 or Year 2. In Year 3, Bell declared a dividend of $90,000. The common stockholders will receive a dividend of

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) _____.

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

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?

retained earnings is reduced by the market value of the shares issued

When a small stock dividend is declared and distributed, ____.

issuing cash payments for fractional shares

When stock splits or stock dividends result in fractional shares, the situation is handled by _____.

reduction in shareholders equity

When treasury stock is purchased, the cost of treasury stock is reported as ___.

LIFO, FIFO, weighted average

If treasury stock on hand was purchased at different times and is subsequently reissued, what cost flow assumptions are acceptable in determining the cost of shares sold?

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

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

paid-in capital and retained earnings

Which of the following are sources of shareholders' equity?

stock dividend or stock split

A distribution of 25% or more of the outstanding shares of stock may be treated as which of the following?

purchase additional shares of stock in proportion to the current percentage of ownership.

A preemptive right is the right to ___.

debit dividends payable $3,000 credit cash $3,000

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

preferred dividends; shareholders' equity attributed to common shareholders

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

False

True or false: The balance sheet should disclose the sources of changes in the stockholders' equity accounts.

believes the market price of the stock is undervalued

A corporation may repurchase its shares of stock because management ___.

mutual agency

A corporation's investors may not bind the corporation to a contract. Therefore, investors of a corporation lack ____.

net income has exceeded the dividends distributed to shareholders

A credit balance in retained earnings indicates that ___.

stock split or stock dividend

A distribution of 25% or more of the outstanding shares of stock is treated as which of the following?

dividends exceed retained earnings

A liquidating dividend means that ___.

$5 par 120,000 shares

Canton has 60,000 shares of $10 par issued and outstanding. Canton declares a 2-for-1 stock split. What is the par value and number of shares outstanding after the stock split?

nonowner

Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from what type of sources?

declaration date

Date that the corporate board of directors announces a dividend

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

Historically, par value indicated ____.

subtract preferred dividends from net income and average common shareholders equity is the denominator

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?

a contra equity account - treasury stock

If a company repurchases its shares of stock and does not retire the shares, the shares are reported as

the fair value of the stock

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

debit common stock $1,000 debit preferred stock $5,000 debit paid in capital in excess of par $9,000 credit cash $15,000

In year 1, Tallon Corp. issued 10,000 shares of $1 par value common stock for $10 per share. In year 2, Tallon repurchased and immediately retired 1,000 shares of the stock at $15 per share. Which of the following entries would be included in the journal entry to retire the shares?

mandatorily redeemable preferred stock

Preferred stock that has contractual rights in which the company is obligated to repurchase the stock at a specified future date is called ____.

market value of common stock

Return on shareholders' equity indicates the percent of corporate earnings for each dollar of total equity invested in the corporation, whereas the earnings-price ratio reflects the percentage earned for each dollar of

issuance of stock, nature of share authorization, and repurchase of stock

State laws regulate which of the following corporate activities?

record date

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

limited liability

The most important advantage to the corporate form of business is ____.

a payment to shareholders is a distribution of corporate assets

The rationale for reducing retained earnings if stock is retired for an amount greater than the original issue price is that

False

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

true

True or false: No journal entry is required on the date of record.

owners' liability is limited to the extent of their initial investment, income and expenses pass through to owners which avoids double taxation, and all members can be involved with management without losing liability protection

What is a benefit of a limited liability corporation?

increases

What is the effect of the repurchase of treasury stock on the return on shareholders' equity ratio?

corporations

Which of the following is subject to double taxation?

liability, reduction of net income

Mandatorily redeemable preferred stock is classified as ______ under U.S. GAAP and related dividends are reported as ______.

retained earnings $20,000

Miles Corp. declares and distributes a 3-for-1 stock split effected in the form of a 200% stock dividend. Miles had 10,000 shares of $1 par value common stock valued at $8 per share before the stock split. If Miles wishes to capitalize retained earnings, the journal entry required to record the stock split would include a debit to

shares issued for stock awards and stock option programs

Stock repurchases are often used to offset the effects of ____.

balance sheet

What reports amounts of shareholders' equity at end of reporting periods?

statement of stockholders equity

What reports sources of the changes in stockholders' equity accounts?

not-for-profit

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

undervalued, decreasing

When a company believes the market price of its stock is ______, it may attempt to support the price by _____ the supply of stock through stock repurchases.

dividend

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

the difference between the fair value and the book value of the assets distributed

When a property dividend is declared, a gain or loss is recognized for ____.

liquidating

When the dividend exceeds the balance in retained earnings, the excess is referred to as a(n) ____ dividend.

credit investment in Rourke securities $1,200,000

On April 1, the board of directors of Waspi Corp. declares a property dividend of 100,000 shares of Rourke Corp.'s preferred stock that Waspi had purchased in January for $10 per share. On April 1, the market value of the shares was $12 per share. The date of record is April 30, and the shares will be distributed on May 15. The journal entry on May 15 will include which of the following entries?

debit dividend payable $3,000 credit cash $3,000

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

debit property dividends payable $60,000 credit investment in Plum $60,000

On September 1, the board of directors of Mayor Corp. declares a property dividend of 10,000 shares of Plum Corp.'s preferred stock that Mayor had purchased in May for $5 per share. On September 1, the market value of the shares was $6 per share. The date of record is September 30, and the shares will be distributed on October 15. The journal entry on October 15 will include which of the following entries?

to support the price of its shares by decreasing the supply in the marketplace or to offset the increase in shares issued under stock compensation programs

Companies may engage in stock repurchases for the following reasons