Chapter 11 Smartbook

______ stock is the number of shares that a corporation's charter allows it to sell.

Authorized

stock is the number of shares that a corporation's charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.

Authorized

The account that consists of a company's cumulative net income less any losses and dividends declared is called _________.

Retained Earnings

Stock that typically includes preference for receiving dividends and for distribution of corporate assets during a liquidation is called (common/preferred)

preferred or preferred stock

A charter application usually must be signed by the prospective stockholders called incorporaters or

promoters

Identify the disadvantages of the corporate form of business.

Corporate taxation Government regulation

Josie Inc.'s charter authorizes 1,000 shares of stock with no par value. Josie Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit)

Field 1: credit Field 2: 500

Stockholders do not have the power to bind the corporation to contracts. This is referred to as lack of mutual agency.

True

The board of directors of Visor, Inc. authorize a-----______, a distribution of additional shares of the corporation's own stock, to existing shareholders.

stock dividend

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate

taxation

A corporation is created by obtaining a charter from:

the state government

Stockholders have the right to-----at stockholders' meetings.

vote

Gomez Inc.'s charter authorizes 1,000 shares of stock at a par value of $1 per share. Gomez sells 200 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include which of the following entries?

Credit to Common Stock, $1 par for $200. Debit to Cash for $200.

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries?

Debit to Cash for $500. Credit to Paid-In Capital, in Excess of Stated Value for $450. Credit to Common Stock for $50.

John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts?

Paid-in Capital in Excess of Par Value Common Stock

Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to

Paid-in Capital, in Excess of Par; $8,000

A______ is the distribution of cash to its owners. This is determined by the board of directors.

cash dividend

______ is an entity created by law that is separate from its owners. owners are called stockholders or shareholders. these entities can be privately or publicly held.

corporation

Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) Blank______ to Common Stock for Blank______.

credit; $500

The board of directors authorizes a cash-------or distribution of cash to its investors.

dividend

The______ lists the beginning and ending balances of key equity accounts and describes the changes that occur during the period.

statement of stockholders' equity

is an account that consists of a company's cumulative net income less any losses and dividends declared since its inception.

Field 1: Retained Field 2: Earnings

Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit)------to Common Stock, $1 par for $------

Field 1: credit Field 2: 100 or $100

Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit)----to Common Stock, $1 par for $

Field 1: credit Field 2: 100 or $100

Avery, Inc. held 100 shares of its own $10 par value common stock purchased for $15 per share. On December 1, Avery sold 10 shares at $15 per share. The journal entry to record the sale of treasury stock would include a (debit/credit)-----to Treasury Stock in the amount of $

Field 1: credit Field 2: 150

Riley Inc.'s charter authorizes 1,000 shares of stock at a stated value of $10 per share. Riley issues 50 shares of stock at its initial offering for $20 per share. The journal entry to record this transaction will include a (debit/credit)----to Common Stock, $----

Field 1: credit Field 2: 500

Dane, Inc. purchased 10 shares of its own $5 par value common stock for $20 per share. The journal entry to record this transaction would include a (debit/credit)to the Treasury Stock account in the amount of $---

Field 1: debit Field 2: 200

Identify the advantages of the corporate form of business.

Limited liability of stockholders Ease of capital accumulation Continuous life

Identify which of the following is not generally a right of common stockholders.

Manage operations

Corporations purchase and hold their own stock, known as treasury stock, for several reasons. Identify which of the following is not a reason that a corporation would buy treasury stock.

To reduce the market value of the common shares outstanding