Stockholders' Equity WileyPlus
A corporation was organized in January 2018 with authorized capital of $10 par value common stock. On February 1, 2018, shares were issued at par for cash. On March 1, 2018, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on February 1,2018 or March 1, 2018
March 1, 2018
What feature of preferred stock makes it more like a debt than an equity instrument?
Redeemable
Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders
bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership
A primary source of stockholders' equity is
both income retained by the corporation and contributions by stockholders
The residual interest in a corporation belongs to the
common shareholders
What effect does the issuance of a 2-for-1 stock split have on par value per share and retained earnings
decrease on par value per share and no effect on retained earnings
Stockholder's equity is generally classified into two major categories:
earned capital and contributed capital
Stock issues in non-cash transactions should be recorded at the
fair market value of the stock issued or the property received, whichever is more readily determinable
According to the FASB, redeemable preferred stock should be
included as a liability
A dividend which is a return to stockholders of a portion of their original investments is a
liquidating dividend
Additional paid-in capital is not affected by the issuance of
no-par stock
How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet
note disclosure
Cash dividends are paid on the basis of the number of shares
outstanding
At the date of the financial statements, common stock shares issues would exceed common stock shares outstanding as a result of the
purchase of treasury stock
The cumulative feature of preferred stock
requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders
The preemptive right of a common stockholder is the right to
share proportionately in any new issues of stock of the same class
In a corporate form of business organization, legal capital is best defined as
the par value of all capital stock issued
Dividends are not paid on
treasury common stock
What does not decrease Retained Earnings
Stock Splits
What is not a legal restriction related to profit distributions by a corporation?
The amount distributed in any one year can never exceed the net income reported for that year
Total stockholder' equity represents
a claim against a portion of the total assets of the company
Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as
a footnote
The balance in Common Stock Dividend Distributable should be reported as an
addition to capital stock
Common stock dividends distributable is reported on the balance sheet as
an addition to common stock
Noncumulative preferred dividends in arrears
are not paid or disclosed
Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital 2. an expense of the period in which the stock is issued 3. an intangible asset
1
Which one of the following is not a right of common stockholders? 1. To share proportionately in all management decisions 2. To share proportionately in profits and losses. 3 To share proportionately in corporate assets upon liquidation 4. To share proportionately in any new issues of stock of the same class
1. To share proportionately in all management decisions
Which of the following statements related to dividends is incorrect? 1. Before declaring a dividend, management must consider availability of funds to pay the dividend 2. Distribution to owners must be in compliance with the state laws 3. Dividends must be paid in the period declared 4. Dividends must be declared by the Board of Directors
3. Dividends must be paid in the period declared
All of the following statements are true regarding preferred stock except: 1. companies usually issue preferred stock with a par value 2. the dividend preference for preferred stock is expressed as a percentage of the par value 3. a company often issues preferred stock instead of debt, because of a high debt-to-equity ratio 4. a preference as to dividends assures the payment of dividends
4. a preference as to dividends assures the payment of dividends
Characteristics of the corporate form of organization include all of following except: 1. capital stock or share system 2. facility for attracting and accumulating large amounts of capital 3. variety of ownership interests 4. unlimited liability of stockholders
4. unlimited liability of stockholders
What represents the total number of shares that a corporation may issue under the terms of its charter?
Authorized shares
A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect additional paid-in capital and retained earnings
Decrease additional paid-in capital and decrease retained earnings