2252 CH 18

A company that is distributing liquidating dividends tends to be in the process of:

dissolving

Preferred stockholders usually have preference over common stockholders with respect to which items?

dividends distribution of assets in liquidation

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 Bonds payable Investments in common stock Lease obligations

Additional paid-in capital

Brandon 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?

Credit additional paid-in capital $14,500. Credit common stock $5,000. Debit cash $19,500.

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 paid-in capital—treasury shares $400. (Reason: The shares were originally purchased for $10 per share. They were sold for $8 per share. Therefore the debit to paid-in capital is $400 (($10-$8) x 200 shares))

True or false: A corporation is owned by debt and equity holders.

False (Reason: A corporation is owned by its shareholders, who are equity holders.)

Which type of stock usually has a high par value and a percentage of par value dividend rate?

Preferred stock

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.

When does a dividend become a liability to a corporation?

When it is declared by the board of directors

Mandatorily redeemable preferred stock is reported as

a liability on the balance sheet.

A restriction of retained earnings signifies that

a portion of retained earnings is not available for dividends.

Which of the following accounts are classified as shareholders' equity?

additional paid-in capital retained earnings treasury stock accumulated other comprehensive income

Retained earnings is typically reported on the balance sheet

as a single amount.

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

common stock for 10,000 additional paid-in capital for $87,000.

A business that has equity accounts labeled "common stock" and "retained earnings" is a

corporation.

If preferred shares must be redeemed by a certain date, they should be classified as

debt.

Cash and property dividends ______ total equity, and stock dividends _______ total equity.

decrease; do not effect

When a company issues different classes of shares, it must

distinguish the rights for each class of stock.

A distribution of assets to shareholders is referred to as a _____.

dividend

When a corporation repurchases its stock as treasury stock, the number of shares authorized

does not change.

Disadvantages of the corporate form of business are

double taxation. government regulation.

The most important advantage to the corporate form of business is

limited liability.

Treasury shares are the same as shares that have never been issued; therefore, treasury shares

may not vote or receive cash dividends.

State laws regulate which of the following corporate activities?

nature of share authorization issuance of stock repurchase of stock conditions for distributions to shareholders

Corporations raise capital by

operating at a profit. issuing stock issuing debt.

The two types of corporations are

profit and not-for-profit.

A nonreciprocal transfer to owners is referred to as a

property dividend.

A property dividend

reduces retained earnings. is a noncash distribution to owners.

When a corporation repurchases its stock as treasury stock, the number of shares issued

remains the same.

A company that repurchases its own securities accounts for the shares of stock as

retired shares or treasury shares.

Mueller Company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a:

reverse stock split

A corporation is owned by its _____.

shareholders

Net assets equals

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

Distributions of stock to current shareholders of a corporation are called what type of distribution?

stock dividend

The costs for legal, promotional, and accounting services to issue stock should be

subtracted from the proceeds of issuing stock.

Historically, par value was considered to be

the amount of net assets that were not available for distribution to shareholders.

Shares of stock previously sold by the corporation that are repurchased are called

treasury stock.

Corporations raise equity capital by

issuing stock operating at a profit.

A reverse stock split requires

no journal entry.

The effect of share issue costs is to

reduce paid-in capital in excess of par.

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as _____ earnings.

retained

Indicate the effect of each type of dividend on the financial statements.

Cash dividend - Reduce retained earnings; reduce a current asset. Property dividend - Reduce retained earnings, recognize gain on appreciation on income statement. Small stock dividend - Reduce retained earnings for fair value; increase common stock by par value; increase additional paid-in capital. Large stock dividend - Reduce retained earnings by par; increase common stock by par.

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.

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?

The fair value of the stock

A frequent reason for a stock split is to

cause the market price per share to decline

In a corporation, shareholders' liability is

limited to the amount of the investment

A liquidating dividend means that

dividends exceed retained earnings.

Which of the following items are included in other comprehensive income?

net holding gains and losses on available for sale investments in debt securities gains and losses from amendments to postretirement programs deferred gains and losses on derivatives adjustment from foreign currency translation

A corporation's accumulated, undistributed net income or loss is referred as

retained earnings.

The statement of shareholders' equity reports

the changes in each shareholder equity account for the period.

Historically, par value indicated

1. the real value of shares 2. the issue price of all shares 3. the amount of net assets that were not available for distribution to shareholders.

A 2-for-1 stock split increases the marketability of the stock because

the market price per share decreases.

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 retained earnings $300. Debit cash $4,500 Debit paid-in capital—share repurchase $200. Credit treasury stock $5,000

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

The term treasury stock refers to

stock that is repurchased and not retired.

When a corporation distributes assets of the company to its investors, it is referred to as a(n)

dividend.

The purpose of the statement of shareholders' equity is to

report the changes and the sources of the changes in shareholder equity accounts.

When a corporation issues shares of common stock for an amount above par, which of the following entries occur?

debit to cash credit to common stock credit to additional paid-in capital

Amounts earned by the corporation on behalf of its shareholders are referred to as

retained earnings.

When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this is referred to as a(n)

reverse stock split.

Which of the following is subject to double taxation?

Corporations

Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?

S corporation

When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction?

1. the quoted market price for the shares 2. an independent appraisal of the value of the asset 3. the amount of cash that would be paid to purchase the asset

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.

True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.

False (Reason: When investors purchase shares of stock in a corporation, the corporation records the transaction as paid-in capital.)

True or false: Treasury stock represents investments in treasury securities of the U.S. government.

False (Reason: Treasury stock represents shares of stock previously issued by the corporation that are repurchased by the corporation.)

What type of corporations include churches, hospitals, universities, and charities?

Not-for-profit

Which of the following accurately describes shareholders' equity?

Ownership interests of the shareholders

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 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.

The date on which a cash dividend becomes a liability to a corporation is the

declaration date.

Which of the following accounts might a corporation use to record changes in its ownership interests during a reporting period?

retained earnings accumulated other comprehensive income common stock

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 paid-in capital in excess of par

The ownership interests of the investors in a corporation are referred to as

shareholders' equity.

When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction?

The shares can be called treasury shares. The shares can be formally retired.

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

Net assets is

assets less liabilities.