AC 210 learnsmart ch. 11

A corporation _____ have a legal obligation to pay dividends.

does not

The journal entry to record the payment of a previously declared dividend includes a _____.

credit to cash debit to dividends payable

_____ shares equals the number of shares _____ minus the number of shares repurchased by the company.

Outstanding and issued

______ shares equals the number of shares _____ minus the number of shares repurchased by the company.

Outstanding and issued

At what governmental level are corporate charters issued?

State

Advantages of debt financing over equity financing are that _____.

control is not diluted interest payments on debt are tax deductible

Investors acquire stock because they expect a return on their investment from _____.

increase in stock prices distributions of dividends

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

increases stockholders' equity similar to the issuance of common stock

Reburish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. As a result of this transaction, Refurbish's _____.

stockholders' equity on the balance sheet will be $10,000 higher treasury stock on the balance sheet will equal $4,000

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 a ______.

$10,000 credit to Additional Paid-in Capital - Preferred $100,000 credit to Preferred Stock $110,000 debit to Cash

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 a _____.

$10,000 credit to Common Stock $90,000 credit to Additional Paid-in capital $100,000 debit to cash

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

a loan covenant

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by

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

A(n) _____ public _____ refers to the very first issuance of a company's stock to the public.

initial and offering

Preferred stock that receives its current dividends and dividends in arrears is ____ preferred stock.

cumulative

Before dividends can be paid to common stockholders, the _____ preferred stockholders must be paid _____.

cumulative; dividends in arrears

Investors acquire common stock because they expect a return on their investment from ____.

increases in stock prices distributions of dividends

Refurbish, Inc., bought 1,000 shares of its own stock for $8,000. Later reissued the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n) ______.

$2,000 credit to Additional Paid-in Capital $8,000 credit to Treasury Stock

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

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

In an IPO on May 1, 2009, Timmy Hilfigure purchased 1,000 shares of Abner Crummie, Inc. for $5,000. On April 30, 2018, Timmy Hilfigure sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of the sale on April 30, 2018?

Abner Crummie, Inc., will not be directly affected by this transaction.

_____ capital also called paid-in capital, reports the amount of capital the company received from investors.

Contributed

Identify what is needed to calculate the P/E ratio.

Earnings per share Stock price

Declaration date Date of record Payment date

The board of directors officially approves a dividend Stock records are finalized to determine which stockholders are to receive payment Dividends payable is decreased

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

Treasury Stock Stock issuances Net income dividends Additional Paid-In capital

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

an increase in liabilities a decrease in stockholders' equity

The dividend payment date is when ____.

cash is decreased dividends payable is decreased

The dividend payment date is when _____.

cash is decreased dividends payable is decreased

Ownership structure can vary from one company to another, but the most basic form of corporation offers ____.

common stock

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

credit to Additional Paid-in Capital

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a _____.

debit to cash credit to treasury stock debit to additional paid-in capital

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

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

To raise large amounts of long-term financing, a company issued additional shares of common stock. This form of financing is referred to as _____.

equity financing

Advantages of equity financing over debt financing include that _____.

equity financing does not require repayment dividends are optional

If the application to create a corporation is approved, the state issues a charter, also called the articles of ______, which spells out information about the corporation.

incorporation

accumulated deficit

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

A corporation is a separate ____ entity and can own assets, incur liabilities, and enter into contracts.

legal

A corporation is a separate ______ entity and can own assets, incur liabilities, and enter into contracts.

legal

A corporation that has a loan covenant _______.

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

Stockit Inc. has 1,000 shares 5%, $100 par value, cumulative preferred stock outstanding. In its first two years of business, Stockit did not declare a dividend. Stockit's balance sheets at the end of its first two years of business should include _____.

no dividends payable

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

option

A common stock's _____ value is typically set at a low amount and has little meaning today other than being used to by some states to assess fees.

par

A current dividend preference requires that _____.

preferred dividends must be paid before any dividends are paid to common stockholders

Retained Earnings represents cumulative ______ by the business.

profits retained net income kept

Treasury Stock _____.

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

A corporation is a separate legal entity that can _____.

sue or be sued enter into contracts own assets

Why might a company issue a stock dividend?

to demonstrate commitment to stockholders while conserving cash during difficult times to signal an expectation of significant future earnings to lower the market price per share

Some states allow corporations to issue no-par value common stock

true

When a shareholder of Limited, Inc. sells its shares to another investor on the stock exchange, Limited, Inc.'s accounting equation ______.

is not affected because the corporation is separate from its owners

Advantages of a corporation are ______.

it can raise large amounts of money by issuing stock ownership interests are easily transferable

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

$10,000 credit to cash $10,000 debit to treasury stock

Dividends on preferred stock ______.

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

Dividends Payable is recorded as a credit on the _____.

declaration date

When Diva, Inc., declared a $10,000 cash dividend, it recorded a debit to ____ and a credit to Dividends _____.

Dividends and Payable

When Diva, Inc., declared a $10,000 cash dividend, it recorded a debit to _____ and a credit to Dividends _____.

Dividends and Payable

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

Retained Earnings

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

Retained Earnings

Which of these is a separate legal entity?

corporation

Which form of financing has a tax advantage?

debt financing

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000. The effect of this transaction on the accounting equation includes a(n)______.

decrease in assets decrease in stockholders' equity

A stock dividend ______.

decreases retained earnings has no effect on total stockholder's equity increases common stock

A stock dividend _____.

decreases retained earnings has no effect on total stockholders' equity increases common stock

If a business cannot pay its debts, creditors can expect the owner(s) to pay the debts with their personal assets if the business is a ____.

general partnership sole proprietorship

Shares outstanding equals shares _____ minus ____ shares.

issued; treasury

An advantage of _____ financing is interest is tax deductible.

debt

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.

debt

An advantage of ______ financing is that dividends are optional.

equity

When a company needs a large amount of long-term financing, it may issue stock, which is referred to as _____ financing, or it may borrow from lenders, which is referred to as ____ financing.

equity and debt

The requisition of preferred stock is referred to as a redemption because the stocks are _____.

formally retired

EPS is a good predictor of

future stock prices

Squid Roe inc's ROE increased two percentage points to 12%. This increase may have happened because Squid Roe __________

generated more profits than the interest incurred on its borrowed funds replaced its 12% debt with 10% debt

If a corporation goes bankrupt, its stockholders _____.

have residual claim to the assets after the creditors' claims have been satified

Corporations can raise large amounts of money because _______.

shares of stock in public companies can easily be bought and sold by investors

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

similar to the issuance of common stock increases stockholders' equity

The number of shares issued represents the number of shares _____.

sold

the creation and oversight of all corporations are regulated by

state laws

The statement of ______ reports the changes in retained earnings as well as paid-in capital

stockholders' equity

Contributed capital of $1,000,000 represents ______.

the amount stockholders have invested in exchange for stock

Before the board of directors declares a cash dividend, it should consider whether _____.

there are sufficient retained earnings there is sufficient cash

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

dividends

Preferred stockholders ______.

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

The repurchase of treasury stock will cause earnings per share (EPS) to _____.

increase

A company's past profits that are kept instead of being paid to stockholders are _____.

retained earnings

When a stockholder sells its shares to another person for more than its original cost, the corporation ______.

does not make a journal entry

Common stock's par value ______.

has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies was introduced to prevent bankrupt companies from unfairly distributing company resources affects how common stock is recorded

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.

100,000

Lox, Stock and 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

Reburish, Inc., reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, _______.

Additional Paid-in capital will be increased by $2,000 Treasury Stock will equal $4,000

Stock splits Stock splits and stock dividends Stock dividends

Cause the par value per share to change Cause total stockholders' equity to remain the same Require a journal entry

______ capital, also called paid-in capital, reports the amount of capital the company received from investors.

Contributed

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

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

Sea the World Cruises issued 400,000, $1 par value shares of the 1,000,000 shares authorized for $1,000,000. The entry to record the issuance of the stock includes _____.

credit Common Stock $400,000 debit Cash $1,000,000 credit Additional Paid-in Capital $600,000

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

arrears

What is the effect on the accounting equation of the entry to record the payment of dividends that were previously declared?

assets decrease liabilities decrease

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

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

issued minus the number of shares in treasury

Dividends Payable is a(n) _____ account with a normal _____ balance and is initially recorded on the ____ date.

liability, credit, and declaration

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

record

Risk from Financial Leverage

-increases when the cost of borrowing is greater than the return -decreases when a company issues new shares of stock

A higher ROE means ______.

-stockholders may enjoy higher returns -the company used financial leverage to its stockholder's advantage

What are the benefits of common stock?

Voting rights A residual claim on assets after creditors and preferred stockholders have been satisfied The right to receive dividends if they are declared A preemptive right to buy newly-issued stock before it is offered to others

Treasury Stock is _____ account.

a contra-equity

A corporation may be restricted from paying a dividend if _____.

a creditor's loan agreement is violated the dividend is greater than the amount of retained earnings

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

a debit to Dividends a credit to Dividends Payable

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

a decrease in stockholders' equity an increase in liabilities