Accounting Chapter 10 Review

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

retained earnings

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

stockholders

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

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

The amount of dividends paid out relative to the share price is referred to as: A. return on dividends B. dividend margin C. dividend yield D. dividend payout ratio

C. dividend yield

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

A. dividend.

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

B. retained earnings.

Another common term for stockholders' equity is: A. retained equity B. shareholders' equity C. investment equity D. undistributed equity

B. shareholders' equity

Which of the following will decrease the par value of shares? A. both a stock split and a stock dividend B. large stock dividend C. stock split

C. stock split

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: A. $90,000 debit to Cash. B. $10,000 credit to Preferred stock. C. $100,000 credit to Preferred stock. D. $90,000 credit to Additional paid-in capital. E. $100,000 debit to Cash.

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

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

B. Preferred stock

The journal entry to record the declaration of a dividend includes _____. A. a credit to Dividends declared B. a debit to Dividends C. a credit to Dividends payable D. a credit to Cash E. a credit to Retained earnings

B. a debit to Dividends C. a credit to Dividends payable

Disadvantages of the corporate form of business are A. less paperwork. B. additional taxation. C. ease of raising capital. D. more paperwork

B. additional taxation. D. more paperwork

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

A. the value of the company's shares of stock.

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

B. limited to the amount of the investment.

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. A. 1,000,000 B. 90,000 C. 100,000 D. 910,000 E. 10,000

C. 100,000

Dividends payable is recorded as a credit on the A. date of record. B. last day of the fiscal year. C. date of payment. D. declaration date.

D. declaration date.

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

D. limited liability.

Large stock dividends are recorded at _____ and small stock dividends are recorded at _____. A. cost; par value B. par value; par value C. cost; cost D. par value; market value E. stock price; market value

D. par value; market value

A 2-for-1 stock split increases the marketability of the stock because A. shareholders receive cash. B. the new shares are restricted. C. investors have twice as many shares to sell. D. the market price per share decreases.

D. the market price per share decreases.

Match the magnitude of the stock dividend with the correct measurement. Small stock dividend Large stock dividend ______________________________ Recognized at par value Recognized at market value

Small stock dividend: Recognized at market value Large stock dividend: Recognized at par value

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

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

dividend

Positive _____ represent the key to a company's long-run survival. (Enter only one word.)

earnings

Return on _____ measures the ability of company management to generate earnings from the resources provided by owners.

equity

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

par value

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

retained

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

stockholders

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? A. Corporate charter B. Corporate proxy C. Corporate tax return D. Articles of incorporation

A. Corporate charter D. Articles of incorporation

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

A. Preferred stock

Preferred stock is advantageous in that it: A. has priority over common stock when dividends are declared. B. has priority over common stock at liquidation. C. receives dividends before creditors are to receive any interest payments. D. has priority over creditors at liquidation.

A. has priority over common stock when dividends are declared. B. has priority over common stock at liquidation.

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

A. invested capital

Which of the following are included in the rights of common stockholders? A. Right to dividend payment each year. B. Right to vote on certain matters. C. Right to purchase assets of the corporation. D. Right to restrict preferred stock.

B. Right to vote on certain matters.

Which financial statement summarizes the changes in the balance of each stockholders' equity account? A. Both the balance sheet and the statement of stockholders' equity B. Statement of stockholders' equity only C. Balance sheet - stockholders' equity section only

B. Statement of stockholders' equity only

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

B. The right to redeem the preferred shares for cash C. The right to convert the shares to common shares

The number of shares authorized is set forth in the company's: A. general ledger B. articles of incorporation C. general journal

B. articles of incorporation

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

B. corporation

Distributions of stock to current shareholders of a corporation are called what type of distribution? (Select all that apply.) A. Stock split B. Property dividend C. Stock dividend D. Treasury stock

A. Stock split C. Stock dividend

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

A. Appoint officers to manage the corporation. D. Establish corporate policies.

Which of the following ratios measures the ability of company management to generate earnings from the resources owners provide? A. Return on equity B. Return on assets C. Dividend yield D. Earnings per share

A. Return on equity

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

A. True

When a business incorporates, it must file its _____ with the state in which it incorporates. A. articles of incorporation B. initial public offering C. proxy statement D. federal tax return

A. articles of incorporation

Stock dividends have the following effects on stockholders' equity A. decrease in retained earnings B. no change to total stockholders' equity C. increase in retained earnings D. increase in total stockholders' equity E. decrease in total stockholders' equity F. increase in common stock

A. decrease in retained earnings B. no change to total stockholders' equity F. increase in common stock

The advantages to the corporate form of business include A. ease of raising capital. B. double taxation for the corporation. C. transferability of ownership.

A. ease of raising capital. C. transferability of ownership.

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

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

Which of the following reports net income relative to average stockholders' equity in dollars? A. P/E ratio B. EPS C. ROA D. Debt/equity ratio E. ROE

E. ROE

Match the source of capital with the account in which it is recognized. Earned capital Invested capital ________________________________ Common stock Retained earnings

Earned capital: Retained earnings Invested capital: Common stock

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

A. first right to specified amount of dividends C. preference in distribution of assets during dissolution of corporation

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

B. Corporation

The declaration and payment of a cash dividend ultimately causes a(n): A. decrease in Retained earnings. B. increase in Treasury stock. C. decrease in stockholders' equity. D. decrease in Cash. E. decrease in Treasury stock.

A. decrease in Retained earnings. C. decrease in stockholders' equity. D. decrease in Cash.

Evaluation of the company's profitability requires consideration of the amount of a company's earnings in relation to the size of the A. investment. B. market share. C. debt.

A. investment.

Earned capital increases _____. A. retained earnings B. accumulated other comprehensive income C. common stock

A. 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 A. declaration date. B. record date. C. payment date. D. ex-dividend date.

B. record date.

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

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

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

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

Preferred stock tends to have attributes of A. common stock only. B. treasury stock. C. both bonds and common stock. D. bonds only.

C. both bonds and common stock.

Match stock splits and stock dividends with their characteristics. Stock splits Stock splits and stock dividends Stock dividends _________________________________ Cause total stockholders' equity to remain the same Cause the par value per share to change Require a journal entry

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

ROE relates _____. A. net income to the average stockholders' equity B. net income to the price per share C. total assets to the average stockholders' equity D. average stockholders' equity to the price per share E. EPS to the average stockholders' equity

A. net income to the average stockholders' equity

The number of shares issued represents the number of shares: A. sold B. the company is allowed to sell C. sold less repurchased D. repurchased

A. sold

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

A. treasury stock.

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. $100,000 debit to Cash. B. $10,000 credit to Additional paid-in capital - preferred. C. $110,000 debit to Cash. D. $100,000 credit to Preferred stock. E. $5,000 credit to Preferred stock.

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

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

B. False

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

B. Right to distribution of assets in liquidation. C. Right to dividends when declared. D. Right to vote for corporate directors.

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

B. both for dividends and at dissolution

Special contractually granted features can make preferred stock: A. extraordinary B. cumulative C. convertible D. redeemable

B. cumulative C. convertible D. redeemable

The dividend yield is calculated by dividing: A. total dividends for the year by the book value of stockholders' equity B. earnings per share by dividends per share C. dividends per share by the stock price per share D. dividends per share by earnings per share

C. dividends per share by the stock price per share

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

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

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

D. cause the market price per share to decline.

Stock splits have the following effects on stockholders' equity A. increase in retained earnings B. increase in total stockholders' equity C. increase in common stock D. decrease in retained earnings E. decrease in total stockholders' equity F. no change to total stockholders' equity

F. no change to total stockholders' equity

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

Invested

The term treasury stock refers to A. a class of stock that is subordinate to common stock. B. a security that is held as a long-term investment. C. government securities that are held for sale. D. stock that is repurchased by the issuing corporation.

D. stock that is repurchased by the issuing corporation.

Match the term with the preferred stock characteristic. Convertible Redeemable Cumulative _________________________________ Stocks can be turned in or re-purchased on demand Shares can be converted for common stock Dividends not declared during one year are payable when declared in subsequent periods

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