Chapter 18 Smartbook
When a company issues its shares of stock for a non cash asset, which of the following may provide evidence of fair value of the transaction?
The amount of cash that would be paid to purchase the asset The quoted market price for the shares
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.
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 Common stock Retained earnings
Carnival issues 10,000 shares of $1 par value common stock for $10 per share. Stock issue costs are $3,000. The journal entry to record the issuance of stock will include a credit to
Additional paid-in capital for $87,000
Net assets are calculated as:
Assets less liabilities
A business that has equity accounts labeled "common stock" and "retained earnings" is a
Corporation
Which of the following is subject to double taxation?
Corporations
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.
Ex-dividend date
Date before which investors must purchase stock in order to receive a dividend.
If preferred shares must be redeemed by a certain date, they should be classified as
Debt
The date on which the board of directors announces that a dividend will be paid is referred to as the
Declaration date
The date on which a cash dividend becomes a liability to a corporation is the
Declaration date.
A liquidating dividend means that
Dividends exceed retained earnings
Disadvantages of the corporate form of business are
Double taxation Government regulation
True or false: The return on shareholders' equity ratio is calculated as net income divided by common stock.
False; Return on shareholders' equity is net income divided by average total shareholders' equity.
True or false: A corporation is owned by debt and equity holders.
False; a corporation is owned by its shareholders, who are equity holders.
State laws regulate which of the following corporate activities?
Issuance of stock Repurchase of stock Nature of share authorization
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 return on shareholders' equity ratio is computed by dividing
Net income by average shareholders' equity
A reverse stock split requires
No journal entry
Which of the following accurately describes shareholders' equity?
Ownership interests of the shareholders
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
A nonreciprocal transfer to owners is referred to as a
Property dividend.
The date on which a company determines the registered owners of the stock who will receive a dividend is referred to as the
Record date
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?
Retained Earnings Common stock PIC in excess of par
A corporation's accumulated, undistributed net income or loss is referred as
Retained earnings
Amounts earned by the corporation on behalf of its shareholders and recorded as a single amount are referred to as:
Retained earnings.
A company that repurchases its own securities accounts for the buyback as:
Retired shares or treasury shares.
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 stocks to investors
A corporation is owned by its __________.
Shareholders
Net Assets equals
Shareholders' equity
The ownership interests of the investors in a corporation are referred to as
Shareholders' equity
If more than one class of shares is authorized, what type of information must be specified?
Specific rights for each class Designation to distinguish each class
Which of the following dividends has no effect on total owners' equity?
Stock dividend
When a corporation issues two securities for a single price and the market value of only one security is known, how is the cash received allocated?
The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.
The statement of shareholders' equity reports
The changes in each shareholder equity account for the period
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.
Shares of stock previously sold by the corporation that are repurchased are called
Treasury stock.
When does a dividend become a liability to a corporation?
When it is declared by the board of directors
The effect of share issue costs is to
reduce paid-in capital in excess of par.
Historically, par value was considered to be
the amount of net assets that were not available for distribution to shareholders.
A frequent reason for a stock split is to
Cause the market price per share to decline
Which of the following accounts might a corporation use to record changes in its ownership interests during a reporting period?
Common stock Retained earnings Accumulated other comprehensive income
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 PIC - Treasury shares $400
When a corporation repurchases its stock as treasury stock, the number of shares outstanding
Decreases
Which of the following items are included in other comprehensive income?
Deferred gains and losses on derivatives Net holding gains and losses on certain types of investments Gains and losses from amendments to postretirement programs Adjustments from foreign currency translations Net holding gains and losses on investments that are available for sale
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.
True or false: Treasury stock represents investments in treasury securities of the US government.
False; represents shares of stock previously issued by the corporation that are repurchased by the corporation.
True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.
False; when investors purchase shares of stock in a corporation, the corporation records the transaction as *paid-in capital*
A restriction of retained earnings
Indicates management's intention to withhold assets for a specified purpose Communicates the portion of retained earnings not available for dividends
A property dividend
Is a non cash distribution to owners. Reduces retained earnings.
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 income that has not been distributed as dividends to shareholders is referred to as _______ earnings.
Retained
Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?
S Corporation
Distributions of stock to current shareholders of a corporation are called what type of distribution?
Stock dividend
Which type of dividend does not reduce the assets of the firm or create a liability?
Stock dividend
The term treasury stock refers to
Stock that is repurchased and not retired.
The costs for legal, promotional, and accounting services to issue stock should be
Subtracted from the proceeds of issuing stock
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.
If a corporation issues its shares of stock for a non cash asset, at what amount should the transaction be recorded?
The fair value of the stock.
A 2-for-1 stock split increases the marketability of the stock because
The market price per share decreases.
Declaration Date
Date that the corporate board of directors announces a dividend
When a company repurchases shares held as treasury stock, the number of shares outstanding:
Decreases
When a corporation repurchase its stock as treasury stock, the number of shares outstanding:
Decreases
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
Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders?
The state in which the corporation is incorporated
Which 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.
When a corporation issues shares of common stock for an amount above par, which of the following entries occur?
Credit to common stock Credit to additional paid-in capital
Mandatorily redeemable preferred stock is reported as
A liability on the balance sheet.
Preferred stock is similar to a bond when it has which of the following features?
A mandatory redeemable feature A dividend rate
A restriction of retained earnings signifies
A portion of retained earnings is not available for dividends.
Retained earnings is typically reported on the balance sheet
As a single amount
Record Date
Date that a determination is made as to recipients of a dividend
Payment Date
Date that corporate assets are transferred to shareholders
ABrandon issues 1,000 shares of $5 par value common stock for $20 per share. Stock issue costs are $500. The journal entry to record the issuance of stock will include which of the following entries? (Select all that apply.)
Debit Cash $19,500 Credit common stock $5,000 Credit APIC $14,500
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?
Debit PIC - Share repurchase $200. Debit Retained Earnings $300. Debit Cash $4,500 Credit Treasury Stock $5,000
Corporations can raise capital by:
Issuing stock Operating at a profit Borrowing
What type of corporations include churches, hospitals, universities, and charities?
Not-for-profit
Corporations raise equity capital by
Operating at a profit Issuing stock
When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 20 shares, this is referred to as a(n)
Reverse stock split
Owners of _____ corporations have the limited liability of a corporation, but income and expenses are passed through the owners as in a partnership, avoiding double taxation.
S
When a corporation issues two securities for a single price, how is the issue price usually allocated?
The cash received is allocated based on the relative market value of each security.
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.