Ch.11 Learnsmart
Shares outstanding equals shares ____ minus ___ shares
issued; treasury
A stock dividend causes a stockholder's % ownership in a company to
remain the same
How is the P/E ratio calculated?
stock price/earnings per share
Contributed Capital Represents
the amount stockholders have invested in exchange for stock
T or F: A corporation does not have a legal obligation to pay dividends
True
T or F: Some states allow corporations to issue no-par value common stock
True
Preferred Stock carries priority over common stock
both for dividends and at liquidation
EPS is a good predictor of ___
future stock prices
Treasury stock is reported
in the equity section of the balance sheet
Where does EPS appear?
income statement
What does the ROE do?
report NI relative to average common stockholder's equity in dollars
Stock Dividends
require a journal entry
A company's past profits that are kept instead of being paid to stockholder's are
retained earnings
Date of Record
stock records are finalized to determine which stockholder's are to receive payment
Treasury Stock
1. is shares of stock no longer outstanding 2. reduces total stockholder's equity 3. is a contra-equity account
Accumulated Deficit (3 things)
1. is shown in () on the balance sheet 2. indicates accumulated net losses 3. means that RE has a debit balance
Stock Options
1. provide the holder with the option to purchase stock at a specified price during a specific period of time 2. are often given to employees as part of their compensation
Advantages of debt financing over equity financing
1. stockholder's control will not be diluted 2. interest payments are tax deductible
Stock Splits
cause the par value per share to change; does not reduce retained earnings
Stock Splits and Stock Dividends
cause total stockholder's equity to remain the same
A stock dividend causes the stock price per share to
decrease
What does a cash dividend do?
decreases current assets and RE
What does a stock dividend do?
distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders
Journal Entry Declaration of Dividends
Debit: Dividends Credit: Dividends Payable
Payment Date
Dividends payable is decreased
Dividends are closed into _____ at the end of the year
retained earnings
Declaration Date
the day when the board of directors officially approves a dividend
Why would lenders impose a dividend restriction?
to prevent the corporation from paying out too much to stockholders
When is a stock dividend considered large?
when it's more than 25% of the outstanding shares and recorded at the par value of the additional shares