Accounting Chapter 11

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

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...

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

Stock Splits cause...

The par value per share to change

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000 and recorded the entry with a debit to...

Treasury stock and a credit to cash of $8,000

True or false: Dividends on preferred stock are attractive to some investors, such as retirees or company founders, who want stable income from their investments.

True

Retained Earnings represents cumulative _______ by a business

Net income kept and profits retained

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

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

All transactions between a company and its stockholders do not affect...

The income statement. Dividends do not effect net income

Stock splits and stock dividends cause...

Total stockholders' equity to remain the same

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 debit to Treasury Stock and $10,000 credit to Cash

Treasures, Inc. repurchased 1,000 shares of its $1 par value common stock for $100,000. The journal entry to record this transaction includes a ______.

$100,000 credit to Cash and $100,000 debit to Treasury Stock

Treasures, Inc. repurchased 1,000 shares of its $1 par value common stock for $100,000. The journal entry to record this transaction includes a...

$100,000 credit to Cash and $100,000 debit to 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...

$110,000 debit to Cash, $10,000 credit to Additional Paid-in Capital - Preferred, and $100,000 credit to Preferred 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 assets and $50,000 increase in stockholders' equity

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

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

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares it is allowed to issue. Stockit has repurchased 10,000 of its own shares. The number of shares authorized equals...

1,000,000 shares

A stock dividend...

Causes retained earnings to decrease and distributes additional shares of stock to existing stockholders on a pro rata basis.

Canton, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. Mr. Smart, the bookkeeper, recorded this transaction with a $100,000 debit to Cash and a $100,000 credit to Common stock. As a result of this entry...

Common stock will be overstated and additional paid-in capital will be understated

The effect of repurchasing stock using the cost method is to...

Decrease assets and stockholders' equity and increase treasury stock

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

Does not make a journal entry

Earnings per share (EPS) appears on the...

Income Statement

Advantages of debt financing over equity financing are that...

Interest payments on debt are tax deductible and control is not diluted

If you own stock in a corporation that goes bankrupt, you...

Only stand to lose what you paid to buy the stock

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

Large stock dividends are recorded at _______ and small stock dividends are recorded at ______.

Par Value: Market Value

Which of the following reports net income relative to average common stockholders' equity?

ROE

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

Record

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

Stock price and earnings per share

Refurbish, 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 and treasury stock on the balance sheet will equal $4,000

Treasury Stock on the balance sheet is...

Subtracted from stockholders' equity

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

True

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

Common stock's par value...

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

Treasure This, Inc. had total assets of $100,000, liabilities of $60,000 and stockholders' equity of $40,000 before repurchasing 1,000 shares of its $1 par value common stock for $5 each. After this repurchase, total assets equal _____, liabilities equal ______ and stockholders' equity equals ______.

$95,000, $60,000, and $35,000

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

A credit to Dividends Payable and a debit to Dividends

Common stock's par value is...

An insignificant amount specified in the corporate charter

The statement of ________ _______ reports the changes in retained earnings as well as paid-in capital.

Stockholders' Equity

Shares that were previously issued to and owned by stockholders but have been reacquired and now held by the corporation are called...

Treasury stock

Transactions between a company and its stockholders affect the company's...

Balance sheet only

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 or sole proprietorship

Preferred stock generally ______ preference as to dividends...

Has

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

Increases stockholders' equity and similar to the issuance of common stock

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

Increasing total stockholders' equity and increasing total assets

Treasury Stock...

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

When a corporate charter does not specify a legal value per share, then the stock issued is referred to as...

No par value stock

When does a corporation record an increase in Dividends Payable?

On the declaration date

Which of the following line items would be found on a statement of stockholders' equity that would not be on the statement of retained earnings?

Treasury Stock Additional Paid-in Capital Common Stock

What would be found on a statement of stockholders' equity?

Treasury Stock Stock Issuances Dividends Net Income Additional Paid-in Capital

Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity?

Net Income Dividends: Common Dividends: Preferred

Select those statements below that are true about cash dividends...

On the payment date, current assets are decreased and on the declaration date, liabilities are increased.

Diva, Inc. declared and paid $10,000 of dividends. Dividends of $10,000 may be found on the...

Statement of Retained Earnings

Contributed capital of $1,000,000 is found in the ______ section of the _______

Stockholders' equity; balance sheet

Accumulated Deficit...

Is shown in parentheses on the balance sheet, means that Retained earnings has a debit balance, and indicates accumulated net losses

A corporation that has a loan covenant...

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

_____ is an insignificant value per share of capital stock specified in the corporate charter.

Par Value

Stock options are expensed...

When granted and are recorded at the estimated cost of the options

The money a corporation receives from investors by issuing stock is called...

Contributed Capital

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 P/E ratio is calculated by...

Dividing the stock price by EPS

Refurbish, 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...

Treasury Stock will equal $4,000 and additional Paid-in Capital will be increased by $2,000

A dividend date of record is the date on which the corporation...

Makes no entry

Refurbish, 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...

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

X-Co issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes a...

$100,000 debit to Cash and $100,000 credit to Preferred Stock

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

Retained Earnings

In an IPO, Ima Rich purchased 1,000 shares of BMI, Inc. for $5,000. Five years later, Ima Rick sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of this sale?

BMI, Inc., will not be directly affected by this transaction

The date of record is the date on which the corporation...

Finalizes its list of stockholders' who will receive dividends

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...

45,000 shares

An accumulated deficit means a company has...

Accumulated more net losses than net income

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding. (Assume no preferred stock has been issued.)

Net Income

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

Debit to Cash, debit to Additional Paid-in Capital, and a credit to Treasury Stock

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

Debit to additional paid in capital

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

The amount stockholders have invested in exchange for stock

Treasury stock represents...

The amount paid for stock reacquired and currently held in treasury and it's a contra-equity account

When a company has both common and preferred stock, its ROE must be adjusted by...

Subtracting the preferred stock balance from total stockholders' equity and subtracting preferred stock dividends from net income

Dividends payable is recorded as the...

Declaration date

The declaration and payment of a cash dividend ultimately causes a...

Decrease in Cash, decrease in stockholders' equity, and a decrease in 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...

Decrease in additional paid-in capital of $1,000 and increase in total assets of $10,000

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...

Decrease in assets and stockholders' equity

Advantages of equity financing over debt financing include that...

Dividends are optional and equity financing doesn't require repayment

Preferred stock is advantageous in that it...

Has priority over common stock at liquidation and has priority over common stock when dividends are declared

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

Increases in stock prices and distributions of dividends

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

Issued minus the number of shares in treasury

A major advantage of the corporate form of ownership is ________ legal liability.

Limited

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 issue

Dividends on preferred stock...

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

Stock Dividends require...

No journal entry