CH 18

Distributions of stock to current shareholders of a corporation are called what type of distribution?

stock dividend

When a corporation issues shares of common stock for an amount above par, which of the following entries occur?

credit to additional paid-in capital credit to common stock

When a company repurchases shares held as treasury stock, the number of shares outstanding _____.

decreases

When a corporation repurchases its stock as treasury stock, the number of shares outstanding

decreases.

Disadvantages of the corporate form of business are

double taxation. government regulation.

A company that repurchases its own securities accounts for the shares of stock a

retired shares or treasury shares.

Which of the following accounts are classified as shareholders' equity?

Additional paid-in capital Preferred stock Net unrealized holding gains on investments

When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded?

Credit common stock for the par amount.

True or false: A corporation is owned by debt and equity holders.

False

True or false: Treasury stock represents investments in treasury securities of the U.S. government.

False

True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.

False

What type of corporations include churches, hospitals, universities, and charities?

Not-for-profit

When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction?

The shares can be formally retired. The shares can be called treasury shares.

Which account is a stockholders' equity account?

additional paid in capital

Which of the following accounts are classified as shareholders' equity?

additional paid-in capital retained earnings common stock

A frequent reason for a stock split is to

cause the market price per share to decline.

A restriction of retained earnings

communicates the portion of retained earnings not available for dividends indicates management's intention to withhold assets for a specified purpose

If preferred shares must be redeemed by a certain date, they should be classified as

debt.

A liquidating dividend means that

dividends exceeds

When a corporation repurchases its stock as treasury stock, the number of shares authorized

does not change.

Corporations raise equity capital by

issuing stock operating at a profit.

The most important advantage to the corporate form of business is

limited liability.

In a corporation, shareholders' liability is

limited to the amount of the investment.

The effect of share issue costs is to

reduce paid-in capital in excess of par.

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as

retained earning

A corporation is owned by its

shareholders

The costs for legal, promotional, and accounting services to issue stock should be

subtracted from the proceeds of issuing stock.

Shares of stock previously sold by the corporation that are repurchased are called

treasury stock.

When a corporation distributes assets of the company to its investors, it is referred to as a(n)

dividend.

Preferred stockholders usually have preference over common stockholders with respect to which items?

dividends distribution of assets in liquidation

A liquidating dividend means that

dividends exceed retained earnings.

When a company repurchases its stock and immediately retires the stock, which of the following occurs?

The equity accounts are reduced for the amount in which the shares were originally sold.

Which of the following accounts might a corporation use to record changes in its ownership interests during a reporting period?

accumulated other comprehensive income retained earnings common stock

Retained earnings is typically reported on the balance sheet

as a single amount.

A business that has equity accounts labeled "common stock" and "retained earnings" is a

corporation.

The date on which a cash dividend becomes a liability to a corporation is the

declaration date.

In year 1, Rim Corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Credit treasury stock $5,000 Debit cash $4,500 Debit retained earnings $300. Debit paid-in capital—share repurchase $200.

Which of the following items are included in other comprehensive income?

deferred gains and losses on derivatives gains and losses from amendments to postretirement programs net holding gains and losses on certain types of investments

If more than one class of shares is authorized, what type of information must be specified?

designation to distinguish each class specific rights for each class

A company that is distributing liquidating dividends tends to be in the process of:

dissolving

When a company issues different classes of shares, it must

distinguish the rights for each class of stock.

A distribution of assets to shareholders is referred to as a

dividend

Which type of stock usually has a high par value and a percentage of par value dividend rate?

Preferred stock

The two types of corporations are

profit and not-for-profit.

Which of the following items are included in other comprehensive income?

net holding gains and losses on certain types of investments adjustments from foreign currency translations

Which of the following may be a source of paid-in capital?

Share-based compensation activities Company repurchases some of its outstanding common stock Company sells stock to investors

Preferred stock is similar to a bond when it has which of the following features?

a dividend rate a mandatory redeemable feature

When investors purchase shares of stock, it is classified as

paid-in capital.

The ownership interests of the investors in a corporation are referred to as

shareholders' equity.

Historically, par value was considered to be

the amount of net assets that were not available for distribution to shareholders.

The statement of shareholders' equity reports

the changes in each shareholder equity account for the period.

Which of the following is subject to double taxation?

Corporations

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?

The fair value of the stock

Mandatorily redeemable preferred stock is reported as

a liability on the balance sheet.

A restriction of retained earnings signifies that

a portion of retained earnings is not available for dividends.

When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction?

an independent appraisal of the value of the asset the amount of cash that would be paid to purchase the asset the quoted market price for the shares

In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?

Debit paid-in capital—treasury shares $400.

Which of the following transactions are classified as a stock dividend?

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

When a corporation repurchases its stock as treasury stock, the number of shares issued

remains the same.

The purpose of the statement of shareholders' equity is to

report the changes and the sources of the changes in shareholder equity accounts.

A corporation's accumulated, undistributed net income or loss is referred as

retained earnings.

When the dividend exceeds the balance in retained earnings, the excess is referred to as a

liquidating dividend

Which of the following accurately describes shareholders' equity?

Ownership interests of the shareholders

A 2-for-1 stock split increases the marketability of the stock because

the market price per share decreases.

A company originally issues par value common stock at an amount above par. Subsequently, the company reacquires the shares for more than the issue price and immediately retires the shares. The company has no previous transactions for stock repurchases. Which of the following accounts would be reduced for the repurchase and retirement of the shares?

common stock paid-in capital in excess of par retained earnings

When does a dividend become a liability to a corporation?

When it is declared by the board of directors

Corporations raise capital by

operating at a profit. issuing stock issuing debt.

Amounts earned by the corporation on behalf of its shareholders are referred to as

retained earnings.

A company that repurchases its own securities accounts for the shares of stock as

retired shares or treasury shares.

Historically, par value indicated

the amount of net assets that were not available for distribution to shareholders. the issue price of all shares the real value of shares