CH 11: Stockholders equity

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.

dividends

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

Increase Treasury StockDecrease stockholders' equityDecrease Assets

Retained Earnings represents cumulative ______ by the business.

net income kept profits retained

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 a stockholder sells its shares of ABC Co. to another person at a price higher than what the stockholder purchased it for, ABC records ______.

nothing

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 ______ shares.

45,000; 45,000 shares outstanding equals the number issued of 50,000 minus the 5,000 shares bought back by the company.

Which of the following accounts is used to record a small stock dividend on common stock but is not used to record a large stock dividend on common stock?

Additional Paid-in Capital

Which of the following would be found on a statement of stockholders' equity?

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

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.

ROE relates ______.

Net Income / Average Stockholders' Equity

An accumulated deficit means a company has ______.

accumulated more net losses than net income

The effect on the accounting equation of declaring a cash dividend includes ______.

an increase in liabilities a decrease in stockholders' equity Reason: the entry to record the declaration of a dividend is a debit to Dividends (-SE) and a credit to Dividends Payable (+L). Assets will later decrease when the dividends are paid.

The P/E ratio is calculated by:

dividing the stock price by EPS

Preferred stockholders ______.

receives dividends before common stockholders

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

Treasury Stock

Earnings per share (EPS) may be determined by ______.

dividing the stock price by the P/E ratio dividing net income less preferred dividends by the average common shares outstanding

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

kept; balance sheet and statement of retained earnings

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

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

only stand to lose what you paid to buy the stock

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

Dividends: Preferred Dividends: Common Net Income

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

A common stock's _____ value is typically set at a low amount and has little meaning today other than being used to by some states to assess fees.

par

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. $50,000 increase in total stockholders' equity. Reason: the entry includes a $50,000 debit to Cash (+A) and a $10,000 credit to Common Stock (+SE) and $40,000 to Additional Paid-In Capital (+SE). Liabilities are not affected.

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 ______.

Additional paid-In capital will be understated Common stock will be overstated

Why is Additional Paid-in Capital recorded for a small stock dividend?

Because small stock dividends are recorded at market value.

Daffy Duct Inc. declared a small stock dividend and issued 1,000 shares of $1 par value common stock when the price of the stock was $4 each. Identify all appropriate account titles that may be used to record this issuance of stock.

Common Stock Additional Paid-in Capital Retained Earnings

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

Common Stock Treasury Stock Additional Paid-in Capital

__capital, also called paid-in capital, reports the amount of capital the company received from investors.

Contributed

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

Net Income

When does a corporation record an increase in Dividends Payable?

On the declaration date

_____stock carries priority over common stock with regard to dividends.

Preferred

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

ROE

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

Stock price Earnings per share

The maximum number of shares a corporation is allowed to sell in accordance with its corporate charter are called

authorized shares

When a company issues of shares of $0.10 par value common stock for $10 per share, it will record a ______.

credit to Additional Paid-in Capital for the difference between the $10 price and the $0.10 par value

Which form of financing has a tax advantage?

debt financing

When does the company record the dividend?

declaration date

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(n) ______.

decrease in assets decrease in stockholders' equity Reason: The entry includes an $8,000 debit to Treasury Stock (-SE) and $8,000 credit to Cash (-A).

Retained earning are:

decreased by dividends sometimes called earned capital increased by net income all of the company's earnings kept rather than distributed to stockholders

A stock dividend ______.

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

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

increases in stock prices distributions of dividends

Accumulated Deficit ______

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

Investors earn a return on stock investments by ______.

selling the stock for more than its cost receiving dividends

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

stockholder's equity

Treasury stock is reported in the ______.

stockholders' equity section of the balance sheet

Contributed capital of $1,000,000 is found in the

stockholders' equity; balance sheet

Common stock's par value ______.

was introduced 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 affects how common stock is recorded

Stock options are expensed ______.

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