Accounting Chapter 11

When the board of directors formally declares a cash dividend, a legal liability must be recorded.

True

Capital stock to which the charter has assigned a value per share is called

par value stock.

***ch. 11 hw***

***ch. 11 hw***

No-par value stock is quite rare today.

False

The corporation is an entity separate and distinct from its owners.

True

Treasury stock may be repurchased

all of these answer choices are correct. to reissue the shares to officers and employees under bonus and stock compensation plans. to signal to the stock market that management believes the stock is underpriced. to have additional shares available for use in the acquisition of other companies.

Costs incurred in the formation of a corporation

are expensed as incurred.

The dividing line between a small stock dividend and a large stock dividend is

20 - 25 % of a corporation's issued stock.

The declaration of a stock dividend results in a decrease in retained earnings and an increase in a liability account.

False. The declaration of a stock dividend results in a decrease in retained earnings and an increase in another stockholders' equity account.

When a company sells treasury stock below its cost, it usually debits the excess of cost over selling price to

Paid-in Capital from Treasury Stock.

When preferred stock is cumulative, preferred dividends not declared in a period are

called dividends in arrears.

Total assets will be decreased by

cash dividends.

Entries for cash dividends are required on the

declaration date and the payment date.

Both a stock dividend and a stock split will

increase the number of shares outstanding.

The authorized stock of a corporation

is indicated in its charter.

Each of the following decreases retained earnings except a cash dividend. stock split. stock dividend.

stock split.

Stockholders of a corporation directly elect

the board of directors.

Preferred stock may have priority over common stock in assets in the event of liquidation. dividends distribution. cumulative dividend features. but not in....

voting rights

Corporations issue stock dividends for which of the following reasons?

All of these answer choices are correct To satisfy stockholders' dividend expectations To increase the marketability of its stock To emphasize that part of stockholders' equity has been permanently reinvested

When a cash dividend is declared and the company has both cumulative preferred stock and common stock, which of the following must be paid first?

Dividends in arrears, preferred stock (Dividends in arrears on preferred stock are always paid first)

A privately held corporation usually has only a few stockholders, and does not offer its stock for sale to the general public.

True

The liability of stockholders is normally limited to their investment in the corporation.

True

There is no journal entry to record the authorization of capital stock.

True

Treasury stock is a corporation's own stock that has been issued and reacquired by the corporation but not retired.

True

Preferred stockholders have a priority over common stockholders as to

both dividends and assets in the event of liquidation.

Which of the following statements about small stock dividends is true? A debit to Retained Earnings for the par value of the shares issued should be made. A small stock dividend decreases total stockholders' equity. Fair value per share should be assigned to the dividend shares. A small stock dividend ordinarily will have no effect on book value per share of stock.

Fair value per share should be assigned to the dividend shares.

The relative lack of government regulation is an advantage of the corporate form of business.

False

Advantages of a corporation include limited liability of stockholders and lower taxes.

False Corporate income is subject to double taxation―once at the corporate level and again at the individual level.

Preferred stockholders have a priority as to earnings (dividends) but not to assets in the event of liquidation.

False Preferred stockholders have a priority as to both earnings and assets in the event of liquidation.

Common stockholders have the right to share in the distribution of corporate income before preferred stockholders.

False Preferred stockholders have the right to share in the distribution of corporate earnings before common stockholders.

The stockholders' equity section of a corporation's balance sheet consists of only common stock and retained earnings.

False The stockholder's equity section of a corporation's balance sheet consists of paid-in (contributed) capital and retained earnings (earned capital).

When no-par stock does not have a stated value, the corporation credits the entire proceeds to Common Stock.

True

For a cash dividend to occur, a corporation must have all of the following adequate cash. retained earnings. a declaration of dividends. but does not necessarily need....

net income.

Stockholders have all of the following rights except to share in assets upon liquidation. vote for the corporate officers. share corporate earnings through receipt of dividends. keep the same percentage ownership when new shares of stock are issued.

vote for the corporate officers.