Acct 5312 Chap 8

Stockholders' equity captions usually seen in a balance sheet include:

Accumulated other comprehensive income (loss) Retained earnings Preferred stock common stock treasury stock additional paid-in capital

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components?

Changes in certain pension or other postretirement benefit items Unrealized gains or losses on available-for-sale investments

Identify the similarities between preferred stock and bonds payable.

Preferred stock and bonds payable are both usually callable and may be convertible. Dividends (for preferred) and interest (for bonds) both normally represent a fixed claim to income. Liquidating value (for preferred) and maturity value (for bonds) both represent a fixed claim to assets.

Identify the true effects on the financial statements of a company if it purchases treasury stock.

There will be no effect on its total liabilities. Its total assets will decrease.

Paid-in capital includes:

additional paid-in capital preferred stock common stock

The effects on the financial statements of the sale of treasury stock for a price greater than the treasury shares were purchased for include:

an increase to cash. an increase to total stockholders' equity.

Additional paid-in capital:

is sometimes referred to as capital in excess of par. is a component of stockholders' equity.

Some firms assign a (slate/stated/legal) value per share, which is essentially par value by a different name.

stated

The issuance of additional shares of common stock to stockholders in proportion to the number of shares each currently owns is referred to as a (scrip/stock/bond) dividend.

stock

The entry to record the sale of treasury stock for a price greater than the treasury shares were purchased for is:

Dr. Cash Cr. Treasury Stock Cr. Additional Paid-in Capital

Immediately after the issuance of a stock dividend, the market value per share of common stock for the company should normally:

decrease because more shares of stock are now outstanding, but the total market value of all shares remains the same.

The portion of equity in a subsidiary not attributable, directly or indirectly, to the parent company (reporting entity) is referred to as the (unusual/noncontrolling/extraordinary) interest.

noncontrolling

The number of (authorized/outstanding/treasury) shares will be less than the number of issued shares if the firm has (authorized/outstanding/treasury) stock.

outstanding treasury

The stockholder of record is the person to whom the dividend check is made payable and mailed to on the (declaration/record/payment/ex-dividends) date.

payment

The financial statements prepared by the not-for-profit organizations focus on the requirement of _____.

resource providers

A firm's own stock that has been acquired from its stockholders is called (authorized/issued/outstanding/treasury) stock.

treasury

Identify the true impact of a stock split.

After a stock split, the number of shares authorized, issued, and outstanding increase proportionately. After a stock split, no accounting entry is required. After a stock split, existing stockholders receive additional shares of stock in ratios such as 2:1 or 3:1 or 4:1 (as some common examples). After a stock split, the Common Stock caption of stockholders' equity indicates a drop in the par value per share (if appropriate). After a stock split, the total market value of the company's outstanding stock usually does not change.

Which of the following statements regarding net income (loss) and retained earnings are correct?

Dividends declared during the period decrease retained earnings. Net loss for the period decreases retained earnings.

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components?

Gains or losses on certain derivative instruments Cumulative foreign translation adjustments

If a company issues a stock dividend, identify the true effects on the financial statements of the company.

Its total assets are not affected. Its retained earnings is decreased. Its total stockholders' equity is not affected.

Which of the following statements regarding net income (loss) and retained earnings are correct?

Retained earnings represent the cumulative earnings the corporation has retained for use in the business. Net income for the period increases retained earnings.

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes:

a debit to Retained Earnings account for the market price per dividend share issued. a credit to Common Stock account for the par value per dividend share issued.

Common stockholders:

are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset. experience no upper limit to the value of their ownership interests.

The number of (authorized/issued/outstanding/treasury) shares is stated in the corporate charter that is filed with the state of incorporation.

authorized

Additional Paid-in Capital account is (debited/credited) for the excess of the market value per share over the par value per share.

credited

Common stockholders:

do not have any personal liability for corporate debts and thus cannot be forced by creditors to invest additional amounts to make up for losses. have a claim to all assets that remain in the entity after all liabilities and preferred stock claims have been satisfied.

The (declaration/payment/ex-dividends) date occurs two business days before the record date; this gives buyers and sellers of publicly traded stocks sufficient time to pay for the purchase and to deliver the stock certificate, respectively.

ex-dividends

Cash account is debited for the (market/par) value per share of common stock issued.

market

The market value per share of common stock for a company decreases immediately after it issues a stock dividend because _____.

more number of shares of stock are now outstanding, and the total market value of the company's total shares do not change

Not-for-profit and governmental organizations normally report to resource providers rather than investors because:

these types of organizations do not have owners who have direct financial interests in the entities.

Any salary paid to the proprietor of a firm is _____.

treated as reduction to the proprietor's capital

Identify the true statements regarding noncontrolling interest.

It is sometimes called minority interest. It signifies that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties.

The maximum number of shares the corporation is legally approved to issue is the number of shares (authorized/issued/outstanding).

authorized

Firm A has 8 percent, $50 par value cumulative preferred stock, 30,000 shares authorized, issued, and outstanding. Dividends are paid semiannually, and no dividends are in arrears. The semiannual dividend requirement is:

30,000 x $50 x 8% x 6/12 = $60,000

Firm B has $3, $50 par value cumulative preferred stock, 50,000 shares authorized and issued, and 40,000 shares outstanding. Dividends are paid quarterly, and no dividends are in arrears. The quarterly dividend requirement is:

40,000 x $3 x 3/12 = $30,000

Firm C has 10 percent, $80 par value cumulative preferred stock, 9,000 shares authorized, 7,000 issued, and 6,000 shares outstanding. Dividends are paid annually. Dividends were not paid in the prior three years. The total dividend requirement in the current year to pay dividends in arrears as well as the current year's preferred dividend is:

6,000 x $80 x 10% x 4 = $192,000

The entry to record the issuance of common stock for a price greater than the par value per share includes which of the following?

A debit to Cash account for the market value (price) per share. A credit to Common Stock account for the par value per share. A credit to Additional Paid-in Capital account for the excess of the market value (price) over the par value per share.

Identify the similarities between preferred stock and bonds payable.

Liquidating value (for preferred) and maturity value (for bonds) both represent a fixed claim to assets. Dividends (for preferred) and interest (for bonds) both normally represent a fixed claim to income. Preferred stock and bonds payable are both usually callable and may be convertible.

Which of the following statements are true regarding owners' equity and ownership rights held in noncorporate entities?

No distinction is made between invested capital and retained earnings for a proprietorship or a partnership. Neither proprietorships or partnerships issue stock. Owners' equity for proprietorships and partnerships is usually referred to as capital.

Identify the differences between preferred stock and bonds payable.

Preferred dividends may be legally skipped; bond interest must be paid, or the firm faces legal action, possibly leading to bankruptcy. Preferred dividends are not an expense and are not deductible for tax purposes; bond interest is an expense and is deductible for tax purposes. Preferred stock has no maturity date; bond principal must be paid at maturity.

Identify the differences between preferred stock and bonds payable.

Preferred dividends may be legally skipped; bond interest must be paid, or the firm faces legal action, possibly leading to bankruptcy. Preferred stock has no maturity date; bond principal must be paid at maturity. Preferred dividends are not an expense and are not deductible for tax purposes; bond interest is an expense and is deductible for tax purposes.F

Which of the following statements are true regarding common stock terminology?

Some firms assign a stated value per share, which is effectively treated the same as the par value per share. In most states, stockholders' equity cannot be reduced below the legal capital of the corporation by paying dividends or purchasing treasury stock.

In the context of determining the ending balance of retained earnings within the statement of changes in retained earnings which of the following is true?

Stock dividends need to be subtracted (negative amount) Cash dividends for common and preferred stock need to be subtracted (negative amount) The beginning balance of Retained Earnings account needs to be added (positive amount) Treasury stock purchases have no effect on retained earnings. Net income needs to be added (positive amount) to retained earnings Stock splits have no effect on retained earnings

The effects on the financial statements of the purchase of treasury stock include:

a decrease to cash. a decrease to total stockholders' equity.

Common stock is an example of what is sometimes referred to as (contributed/earned) capital.

contributed

If the stock dividend percentage is less than 20 to 25 percent (i.e., a small stock dividend), the (par/market) value of additional common shares issued is transferred from retained earnings to common stock for the par value and to additional paid-in capital for the market value minus the par value.

market

Preferred stock is different from common stock in that preferred stock:

must be paid dividends before any dividends can be paid on common stock. has historically been viewed as having less risk than common stock. may be callable and/or convertible.

Additional paid-in capital is a stockholders' equity category that reflects the excess of the amount received from the sale of preferred or common stock over the (surplus/market/par) value per share.

par

Companies reacquire their own common stock and hold it as treasury stock:

to later be resold for cash if additional capital is needed. for future use for employee stock purchase plans. because the management of these companies believe that the market price for their common stock is temporarily low and will soon recover.