Acct 205 Ch 11- PowerPoint

What rights do stockholders have?

- vote in election of board of directors -share the corporate earnings through receipt of dividends - keep the same % ownership when new shares of stock are issued (preemptive right) - share in assets upon liquidation in proportion to their holdings (residual claim)

reasons for stock dividends

-A pro rata (proportional to ownership) distribution of the corporation's own stock to stockholders

What are the 3 types of dividend dates?

-Declaration date -Record date -Payment date

Return on common stockholders' equity means what 2 things?

-Return on assets -Leverage (debt to assets ratio)

Reasons why corporations issue stock dividends

-Satisfy stockholders' dividend expectations without spending cash -Increase marketability of corporation's stock -Emphasize a portion of stockholders' equity has been permanently reinvested in business

For dividends, companies make accounting entries on the _______ date and the _________date.

-declaration -payment

What are 3 advantages of bond financing?

-stockholder control is not affected -tax saving results -return on common stockholders' equity may be higher

Large stock dividend greater than ______-_______% of corporation's issued stock

20-25%

Small stock dividend less than ______-_______% of corporation's issued stock

20-25%

How many kind of dividend dates are there?

3

Characteristics of a Corporation; Advantage or disadvantage? Separate legal existence

Advantage

What are the two components of paid-in capital?

Capital Stock Additional paid-in capital

Hydro-Slide, Inc. issues 1,000 shares of $1 par value common stock. Prepare Hydro-Slide's journal entry if (a) 1,000 share are issued for $1 per share

Cash 1,000 Common Stock 1,000

Cayman Corporation begins operations on March 1 by issuing 100,000 shares of $1 par value common stock for cash at $12 per share. Journalize the issuance of the common shares.

Cash 1,200,000 Common Stock 100,000 Paid-in capital excess par value common stock 1,000,000

Stine Corporation issues 10,000 shares of $10 par value preferred stock for $12 cash per share. Journal entry to record the issuance

Cash 120,000 Preferred Stock 100,000 Paid-in capital excess par value preferred stock 20,000

Hydro-Slide, Inc. issues no-par stock that has no stated value. The company issues 5,000 shares at $8 per share for cash.

Cash 40,000 Common Stock 40,000

On March 28, Cayman issues 1,500 shares of $10 par value preferred stock for cash at $30 per share. Journalize the issuance of preferred shares.

Cash 45,000 Preferred Stock 15,000 Paid-in capital excess par value preferred stock 30,000

Hydro-Slide, Inc. issues $5 of no-par value stock with a stated value of $1 and the company issues 5,000 shares at $8 per share for cash.

Cash 5,000 Common Stock 1,000 Paid in capital in excess par value 4,000

Hydro-Slide, Inc. issues 1,000 shares of $1 par value common stock. Prepare Hydro-Slide's journal entry if (b) 1,000 shares are issued for $5 per share

Cash 5,000 Common Stock 1,000 Paid in capital in excess par value 4,000

Recording Cash Dividends On December 1, the directors of Media General declare a $0.50 per share cash dividend on 100,000 shares of $10 par value common stock. The dividend is payable on January 20 to shareholders of record on December 22. Journalize entries:

Cash Dividends 50,000 Dividends Payable 50,000 No entry-Date of Declaration Dividends Payable 50,000 Cash 50,000

_______ treasury stock for price paid to reacquire shares.

Debit

The following are types of what? •Cash •Property •Stock •Scrip (promissory note)

Dividends

___________ are a distribution of cash or stock to stockholders on a pro rata (proportional to ownership) basis.

Dividends

Cumulative Dividend Scientific Leasing has 5,000 shares of 7%, $100 par value, cumulative preferred stock outstanding. Each $100 share pays a $7 dividend (.07 × $100). The annual dividend is $35,000 (5,000 × $7 per share). If dividends are two years in arrears, preferred stockholders are entitled to receive the following dividends.

Dividends in arrears 70,000 Current year dividends 35,000 Total preferred dividends 105,000

True or False: 5.All states require a par value per share for capital stock.

False

True or False: Similar to partners in a partnership, stockholders of a corporation have unlimited liability.

False

True or False: The journal entry to record the authorization of capital stock includes a credit to the appropriate capital stock account.

False

True or False: The separation of ownership and management is an advantage of the corporate form of business.

False

Net income is recorded in Retained Earnings by a closing entry that debits Income Summary and credits. Retained Earnings. Assuming that net income for Delta Robotics in its first year of operations is $130,000, the closing entry is

Income 130,000 Retained Earning 130,000

At the end of its first year of operation, Doral Corporation has $750,000 of common stock and net income of $122,000. Prepare the closing entry for net income.

Income Summary 122,000 Retained Earnings 122,000

What is the effect of 4-for-1 stock split for stockholders?

Number of shares owned increases, but % of company owned remains the same

_______________stock appears before common stock because of its preferential rights

Preferred

MasterMind Corporation has 2,000 shares of 6%, $100 par value preferred stock outstanding at December 31, 2022. At December 31, 2022, the company declared a $60,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders if Preferred stock is noncumulative, and the company has not missed any dividends in previous years. Preferred stockholders are paid only this year's dividend

Preferred stockholders = $12,000 (2,000 x .06 x $100) Common stockholders = $48,000 ($60,000 − $12,000)

preferred stock outstanding at December 31, 2022. At December 31, 2022, the company declared a $60,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders if Preferred stock is noncumulative, and the company did not pay a dividend in each of the two previous years. Past unpaid dividends do not have to be paid

Preferred stockholders = $12,000 (2,000 x .06 x $100) Common stockholders = $48,000 ($60,000 − $12,000)

MasterMind Corporation has 2,000 shares of 6%, $100 par value preferred stock outstanding at December 31, 2022. At December 31, 2022, the company declared a $60,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders if Preferred stock is cumulative, and the company did not pay a dividend in each of the two previous years. Past unpaid dividends do not have to be paid

Preferred stockholders = $36,000 (3 × 2,000 × .06 × $100) Common stockholders = $24,000 ($60,000 − $36,000)

Medland Corporation declares a 10% stock dividend on its 50,000 shares of $10 par value common stock. The current fair market value of its stock is $15 per share. Record the entry on the declaration date

Stock Dividends 75,000 Common stock dividends distributable 50,000 Paid-in capital in excess of par value 75,000

At the end of its first year of operation, Doral Corporation has $750,000 of common stock and net income of $122,000. Prepare the stockholders' equity section at year-end.

Stockholders' equity Common Stock $750,000 Retained earnings 122,000 Total stockholders' equity $872,000

What are retained earnings?

The net income of a company retains in the business

___________ _________ is a corporation's own stock that it has reacquired from shareholders but not retired

Treasury Stock

Issuance of Stock Santa Anita Inc. purchases 3,000 shares of its $50 par value common stock for $180,000 cash on July 1. It expects to hold the shares in the treasury until resold. Journalize the treasury stock transaction.

Treasury Stock 180,000 Cash 180,000

Purchase of Treasury Stock On February 1, 2022, Mead acquires 4,000 shares of its stock at $8 per share.

Treasury Stock 32,000 Cash 32,000

True or False: It is relatively easy for a corporation to obtain capital through the issuance of stock.

True

Characteristics of a Corporation; Advantage or disadvantage? Ability to acquire capital

advantage

Characteristics of a Corporation; Advantage or disadvantage? Continuous life

advantage

Characteristics of a Corporation; Advantage or disadvantage? Limited liability of stockholders

advantage

Characteristics of a Corporation; Advantage or disadvantage? Transferable ownership rights

advantage

Which of these statements about stock dividends is true? a. Stock dividends reduce a company's cash balance. b. A stock dividend has no effect on total stockholders' equity. c. A stock dividend decreases total stockholders' equity. d. A stock dividend ordinarily will increase total stockholders' equity.

b. A stock dividend has no effect on total stockholders' equity.

Characteristics of a Corporation; Advantage or disadvantage? Corporation management

both

What is no-par value stock?

common stock that has not been assigned a par value

When accounting for treasury stock, companies generally us _____ method?

cost

U-Bet Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021. If U-Bet wants to pay $375,000 of dividends in 2022, common stockholders will receive a. $0. b. $295,000. c. $215,000. d. $135,000.

d. $135,000.

Which of these statements is false? a. Ownership of common stock gives the owner a voting right. b. The stockholders' equity section begins with paid-in capital. c. The authorization of capital stock does not result in a formal accounting entry. d. Legal capital is intended to protect stockholders.

d. Legal capital is intended to protect stockholders.

Treasury stock may be repurchased a. to reissue the shares to officers and employees under bonus and stock compensation plans. b. to signal to the stock market that management believes the stock is underpriced. c. to have additional shares available for use in the acquisition of other companies. d. More than one of the above.

d. More than one of the above.

Entries for cash dividends are required on the: a. declaration date and the record date. b. record date and the payment date. c. declaration date, record date, and payment date. d. declaration date and the payment date

d. declaration date and the payment date

Debit balance in Retained Earnings is identified as a ________

deficit

Characteristics of a Corporation; Advantage or disadvantage? Additional Taxes

disadvantage

Characteristics of a Corporation; Advantage or disadvantage? Government regulations

disadvantage

S corporations don't have ________ taxation and cannot have more than ______ shareholders.

double 100

Small stock dividends are recommended to be recorded at ________ market value of the stock

fair

For stock splits, no _______ ________ is recorded and no on any ___________ in stockholders' equity

journal entry balance

Restrictions on Retained Earnings can come from what 3 kinds of restrictions?

legal, contractual, voluntary

Retained earnings is______ __________ that a corporation retains for future use.

net income

Comparison of accounts reported on the balance sheet as ________ _______ and ______ _______

owners' equity stockholder's equity

What are the two primary sources of equity?

paid in capital and retained earnings

Large stock dividends are normally recorded at _______ value

par

Many states do not require a ______ value?

par

Per share dividend amount is stated as a ____________ of preferred stock's par value or as a specified amount

percentage

Cumulative Dividend Preference

preferred §stockholders must be paid current-year dividends and any unpaid prior-year dividends before common stockholders receive dividends

Corporations are classified by _________ and by __________.

purpose ownership

Stock splits __________ market value of shares

reduce

A corporation is an entity ___________ and distinct from its owners.

separate

What is par value stock?

stock with an assigned face value

When accounting for treasury stock, _______ equity is reduced?

stockholders'

Retained earnings is part of the _________________ _________on the total assets of the corporation

stockholders' claim

What are authorized stocks?

the maximum numbers of shares of stock that the corporate charter allows the corporation to issue

Paid-in capital is the ________ amount of cash and other assets the corporation receives from its stockholders in exchange for its stock.

total

•Excess amounts paid in over par or stated value and paid-in capital from ____________ stock

treasury

Typically, preferred stockholders have a priority as to

•Distributions of earnings (dividends) •Assets in event of liquidation •Generally do not have voting rights

For a corporation to pay a cash dividend, it must have what 3 things?

•Sufficient retained earnings •Adequate cash •A declaration of dividends by Board of Directors