Ch. 18 Concepts & Vocab

What two ways can a stock distribution of 25%+ be accounted for?

1.) As a large stock dividend (stock split effected in the form of a stock dividend), or 2.) As a stock split

Why do companies issue stock dividends?

1.) To try to give shareholders the illusion that they are receiving a real dividend 2.) To enable the corporation to take advantage of the accepted accounting practice of capitalizing retained earnings

A stock dividend is small if it is less than ______%

25

How are cash dividends for preferred stock usually stated?

As a percentage of par or stated value

Issued Shares

Authorized shares that have been sold

Unissued Shares

Authorized shares that have never been sold

Retired shares have the same status as _______________ but ______________ shares

Authorized; unissued

Declaration Date

Board of directors declares a cash dividend

What type of dividends may be cumulative or noncumulative?

Cash dividends for preferred stock

What kind of account is treasury stock?

Contra-account

PIC-Stock repurchase is a __________ account and therefore cannot carry a ____________ balance

Credit, debit

True/False: Journal entries are required for stock splits

False

True/False: Stock dividends affect the assets and liabilities of a firm

False

Outstanding Shares

Issued shares owned by stockholders

Treasury Shares

Issued shares that have been reacquired by the corporation

Common stock is equal to what?

Issued x par value

Why account for large stock distribution as a large stock split effected in the form of a stock divided ?

It avoids the change to the records by recording an entry to change the balance in the stock account

Treasury stock is similar to inventory in what way?

It comes out at cost

How does shareholders proportional interest in the firm change when stock dividends are issued?

It doesn't

What is the stock market reaction to stock distributions?

Market price per share declines in proportion to the increase in number of shares distributed in a stock dividend

What entry must be made for stock splits?

No journal entry, make memo entry

Property Dividend

Noncash asset distributed to shareholders as a dividend

Dividends in arrears are liabilities, and the per share and aggregate amounts must be disclosed

Not liabilities, disclosure is true

Treasury shares are considered to be issued but not ______________

Outstanding

What is shareholder's equity made up of?

Paid-in-capital, retained earnings, AOCI, and treasury stock

Stated Value is treated like what?

Par value

Date of Payment

Record the dividend payment to stockholders

Issued and outstanding are always the same for ____________ stock

Retired

What are the two ways to account for share buyback?

Shares can be formally retired or shares can be called treasury stock

Date of Record

Stockholders holding shares on this date will receive the divided (no entry)

Ex-Dividend Date

The first day the shares trade without the right to receive the declared dividend (no entry)

Authorized Shares

The maximum number of shares of capital stock that can be sold to the public

When more than one security is issued for a single price, cash received is the sum of what?

The separate market values of the securities

Does the market price per share increase when a reverse stock split occurs?

Theoretically, yes

What is the objective of stock splits and large stock dividends? Why?

To induce the per share market price decline that follows To increase the stock's marketability by making it more attractive to a larger number of potential investors

What is the most common reason companies buy back shares?

To offset the increase in shares issued to employers

True/False: Par value does not equal and has nothing to do with market value

True

True/False: Property is any asset other than cash

True

True/False: Purchase of treasury stock and its subsequent resale is considered to be a single transaction

True

True/False: Reverse stock splits are often done by struggling companies trying to increase stock price

True

True/False: Total par value is unaffected by stock splits

True

True/False: When a stock split occurs, all records that refer to the previous amount must be changed to reflect the new amount

True

True/False: there is never a gain or loss on a company's own equity transactions

True

True/False; dividends in arrears on cumulative preferred stock must be paid in full before any distributions to common stock

True

What are dividends in arrears?

Unpaid dividends

When does a reverse stock split occur?

When a company decreases its outstanding shares

When does the allocation of the cost of treasury shares occur?

When the shares are resold

How should property dividends be recorded?

at Fair Value (as in any noncash transaction)

Treasury stock is a contra-account and therefore never carries a ___________balance

credit

When a cash dividend is declared, a ____________ is created

liability

The number of shares issued is equal to what?

outstanding + treasury, OR total par divided by par value per share

Stock splits change the _________ ___________ per share and the number of ____________ _____________.

par value; shares outstanding

The number of shares unissued is equal to what?

shares never issued + retired stock