ACCT ch 10 smart book

Which of the following ratios measures the ability of company management to generate earnings from the resources owners provide?

return on equity

The number of shares issued represents the number of shares:

sold

Shareholders' equity consists of which of the following items?

Amounts earned by the corporation Amounts invested by shareholders

Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?

The right to redeem the preferred shares for cash The right to convert the shares to common shares

Preferred stock carries priority over common stock:

both for dividends and at dissolution

A frequent reason for a stock split is to

cause the market price per share to decline.

Dividends payable is recorded as a credit on the

declaration date

The amount of money paid into a company by its owners is referred to as:

invested capital or paid in capital

A corporate charter:

names the board of directors. specifies the shares of stock to be issued. describes the business activities.

Treasury Stock

A company's own issued stock that it has purchased

Earnings per share (EPS)

Net income available to common shareholders divided by average shares of common stock outstanding. p. 516

Return on equity (ROE)

Net income divided by average stockholders' equity; measures the income generated per dollar of equity. p. 515

Issued Stock

Shares sold to investors; includes treasury shares. p. 496

A stock dividend reduces Retained Earnings (-SE) and increases Common Stock (+SE) so that SE remains the same.

true

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:

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

On April 1, 2021, Rawlings declares a dividend of $0.30 per share. Rawlings has 100,000 shares authorized, and 40,000 issued and outstanding. The date of record is April 28, and the payment date is May 15. Which of the following entries is included in the journal entry on May 15?

Debit dividends payable $12,000. Reason: 40,000 x $.30 = $12,000

When a cash dividend is declared and paid in the same year, the total effects on the balance sheet include which of the following?

Decrease stockholders' equity. Decrease assets.

Articles of incorporation/ corporate character

Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors. p. 492

Outstanding stock

Issued shares that currently are held by investors; does not include treasury shares. p. 496

Similar to a stock split, a _______ also distributes additional shares of stock to existing stockholders on a pro rate basis at no cost to the stockholders.

dividend

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

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

Special contractually granted features can make preferred stock:

redeemable convertible cumulative

Corporations will declare a stock split in order to _____.

reduce the market price of a share of stock and make it more attractive to some investors

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:

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

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

- preference in distribution of assets during dissolution of corporation - first right to specified amount of dividends

True or false: An asset's book value is usually equal to its market value.

FALSE: That is only true on the date of purchase; subsequent to purchase, book value and market value frequently are not identical.

At the date of purchase, an asset's book value typically is equal to its:

Market Value

The rights of common stockholders typically include...

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

authorized stock

Shares available to sell, as stated in the company's articles of incorporation. p. 496

Which financial statement summarizes the changes in the balance of each equity over time?

Statement of stockholders' equity only

The number of shares authorized is set forth in the company's:

articles of incorporation

On March 1, 2021, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2021, and the payment date is April 1, 2021. The journal entry required on April 1, 2021, will include which of the following entries?

debit to dividends payable credit to cash (Payment date)

Preferred stock generally (has/does not have) Blank______ voting rights and (has/does not have) Blank______ preference as to dividends.

does not have; has

Positive _______ represent the key to a company's long-run survival.

earnings

The advantages to the corporate form of business include

ease of raising capital. transferability of ownership. Limited liability

A stock dividend Blank______.

has no effect on each stockholder's ownership percentage

A stock dividend ______

has no effect on each stockholders ownership percentage

Preferred stock:

has preference as to dividends. generally does not have voting rights. is useful for raising capital without reducing common stockholders' control.

Preferred stock is advantageous in that it:

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

Preferred stockholders:

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

A credit balance in retained earnings indicates that

net income has exceeded the dividends distributed to shareholders.

An accumulated deficit in retained earnings indicates that the company has

net losses.

Retained earnings of $100,000 represent a corporation's cumulative earnings _______ and is shown on the ______.

not paid out by dividends; balance sheet and statement of retained earnings

Distributions of stock to current shareholders of a corporation are called what type of distribution? (Select all that apply.)

stock dividend and stock split

The statement of shareholders' equity reports

the changes in each shareholder equity account balance for the period.

A debit balance in retained earnings indicates that

the company has an accumulated deficit.

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

issued minus the number of shares in treasury

When a company declares and pays a cash dividend, what are the financial statement effects?

Stockholders' equity decreases.