Accounting Chapter 10

If the stated cash dividend on cumulative preferred stock has been unpaid for a period of one year or more, it is referred to as a dividend ______

in arrears

A disadvantage of the corporate form of business entity is

corporations are subject to more governmental regulations

A corporation issues 1,500 shares of common stock for 32,000. The stock has a par value of $10 per share. The journal entry to record the stock issuance would include a credit to common stock for:

15,000

Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding What is the effect of a 2 for 1 stock split if the market value of the common stock is $20 per share at the time the stock split is declared?

A stock split has no impact on any of the stockholders equity account balances

The excess sales price of treasury stock over its cost should be credited to:

Additional Paid - In Capital

_____ is the name of the account credited when a corporation issues common stock for a price greater than par.

Additional Paid-In Capital

Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding What is the effect on on the accounting equation of issuing 1,000 additional shares of common stock at $15 per share.

Assets increase 15,000 Liabilities remain unaffected Equity increases 15,000

When is a liability for cash dividends created?

At the date of declaration

____ shares are the maximum number of shares a corporation can legally issue

Authorized

Additional Paid in Capital from treasury stock transactions are what type of account?

Stockholder's Equity

When a corporation decides whether to pay a cash dividend, which of the following is an important consideration?

The balances in the corporations cash account to determine cash available for dividends

Dividends in arrears are required to be reported in?

The notes to the financial statements

Magnum Corporation had 60,000 of it $3 par common stock issued before its recent 3-for-1 split. The market price of the stock was $30 per share before the split. Which of the following is true as a result of the split?

The par value of the stock decreased to $1 per share.

What is the primary reason for a stock split?

To decrease the market value of the stock

A distribution of profits to owners is called

dividend

The ability of a corporation to obtain capital is

enhanced because of the limited liability and the ease of share transferability

Authorized shares represent the

maximum number of shares of stock that a company can legally issue

To compute the return on the equity ratio, the numerator includes ______ and the denominator is the average stockholders equity.

net income

The ____ is a preferred stock having a feature that provides for the current year dividends only to be paid to preferred stockholders before they are paid to common stockholders.

noncumulative preferred stock

On the statement of cash flows, the cash flows from financing activities section would include:

receipts from the issuance of capital stock

Issued stock that is repurchased by the corporation but not retired is

treasury stock

Porter Hardware Inc issues $2 par common stock. What is true about this?

$2 per share is presented on the balance sheet in the common stock account.

On June 1, 2011, Donner Technologies declared a $50,000 cash dividend to be distributed to its common stockholders of record on June 15, 2011. The dividend will be paid on July 1, 2011. The required journal entry on June 15 Includes a:

50,000 debit to dividends payable

On June 1, 2011, Donner Technologies declared a $50,000 cash dividend to be distributed to its common stockholders of record on June 15, 2011. The dividend will be paid on July 1, 2011. The required journal entry on June 1 Includes a:

50,000 debit to retained earnings.

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding.

50,000 shares

The Stockholders Equity account of Jamison Corporation include $37,500 of common stock with a par value of $.50 and 5,000 shares of treasury stock with a total cost of $25,000. The total number of of shares outstanding are:

70,000 shares

When a corporation declares a small stock dividend, which of the following is false? A. Cash decreases B. Total stockholders equity remains the same C. The capital stock accounts increase D. Retained earnings decreases

A. Cash decreases

Which of the following is TRUE regarding a corporations purchase of treasury stock? A. The cost of treasury stock is a reduction in stockholders equity B. Dividends must still be paid on treasury stock because it is still issued C. Treasury stock is reported as an asset because it is considered an investment in the corporations own stock D. Treasury stock is no longer considered issued once it is back in the hands of the issuer

A. The cost of treasury stock is a reduction in stockholders equity

Brumfield Inc issued 7,000 shares of $1 par common stock for $20 per share. In addition to the increase in cash, what effect does this transaction have on Brumfields accounting equation?

Common stock increase by 7,000 and additional paid in capital in excess of par increases 133,000

Treasury Stock from treasury stock transactions are what type of account?

Contra Accounts

After a corporation declares a cash dividend, what takes place on the date of the record? A. Cash decrease B. Liabilities decrease C. Equity decrease D. No entry is necessary

D. No entry is necessary

On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of its 2010 fiscal year. The entry to pay the dividends includes a debit to:

Dividends Payable and a credit to cash

Treasury shares represent the?

Number of previously issued shares that have been repurchased by the corporation

Par Value represents the:

arbitrary amount that establishes a minimum price for the stock when it is first issued

The ____ ratio is computed by dividing dividends by net income

dividend payout

The ___ ratio is computed by dividing dividends per share by market price per share.

dividend yield

One of the main disadvantages of the corporate firm is the

double taxation of dividends

Cash paid for preferred stock dividends should be shown on the statement of cash flows under:

financing activities

The number of shares sold to stockholders are ____ shares.

issued

Under the corporate form of business organization:

ownership rights are easily transferred

An arbitrary monetary amount that determines an entity's legal capital is the

per value

Characteristics of a corporations include

shareholders who have limited liability

When stockholders exchange their shares of stock for additional shares, and there is a corresponding reduction in the par value of the stock, a stock ____ has occurred.

split

Outstanding shares represent:

number of shares that are currently held by stockholders

The _____ is a preferred stock having a feature that provides for the current stated dividends plus dividends in arrears before any dividends are paid to the common stockholders.

cumulative preferred stock

Many stockholders choose to invest in preferred stock because:

dividends are distributed to preferred stockholders before common stockholders

When a corporation declares a cash dividend, which of the following is true? A. Cash decreases B. Liabilities decrease C. Equity decreases D. No entry is necessary

C. Equity decreases

Which of the following is NOT a characteristic of a corporation? A. The financial loss that a stockholder may suffer from owning stock in a public company is limited B. Cash dividends paid by a corporation are deductible as expenses by the corporation C. A corporation can own property in its name D. Corporations are required to file federal income tax returns

B. Cash dividends paid by a corporation are deductible as expenses by the corporation

If a corporation declares a 2 for 1 stock split, which of the following is true? A. A new class of stock must be authorized with twice the number of issued shares B. The number of outstanding shares is half the number that was outstanding before the split C. The number of outstanding shares is twice the number that was outstanding before the spit D. The number of authorized shares is doubled, while the par value is reduced to half of the pre split par value.

C. The number of outstanding shares is twice the number that was outstanding before the split

Petry Corporation issues 20,000 shares of $.50 par common stock for $6 per share. The common stock account will increase by what amount when this transaction is recorded?

Cash 120,000 Common Stock 10,000 Additional P.I.C 110,000 10,000 is your answer

Which one of the following would NOT be considered an advantage of the corporate form of organization? A. Government Regulation B. Separate Legal Existence C. Continuous Life D. Limited Liability of stockholders

Government Regulation

When a corporation pays a previously declared cash dividend, which of the following is true? A. Cash increases B. Liabilities decrease C. Equity Increases D. No entry is necessary

Liabilities decrease

What is the appropriate general journal entry to record the declaration of cash dividends?

Retained Earnings Dividends Payable

Which of the following statements is FALSE regarding the issuance of stock versus bonds to raise capital for a corporation? A. The declaration of dividends reduces the amount of the corporations taxable income B. Interest accrues; whereas, dividends do not accrue C. The payment of bond interest is a contractual requirement D. The declaration of dividends is at the discretion of the board of directors

A. The declaration of dividends reduced the amount of the corporations taxable income

Which of the following statements is true with regard to equity capital? A. The number of shares actually in the hands of stockholders are called outstanding shares B. It is unusual for corporations to have more than one class of stock outstanding at any point in time C. Preferred stock represents the shares of stock that have been permanently retired D. Issued shares represent the maximum number of shares that can be issued by a corporation

A. The number of shares actually in the hands of stockholders are called outstanding shares

When a corporation declares a stock dividend, which of the following is true? A. Cash decreases B. Equity remains the same C. Equity decreases D. Retained earnings increases

B. Equity remains the same

All of the following are reasons that a corporation may purchase treasury stock EXCEPT: A. If it needs the dock its employee stock bonus program B. If it desires to make an investment in its own stock and is reported as an asset C. To buy out the ownership of stockholders D. Maximum number of shares that can be sold by the corporation

B. If it desires to make an investment in its own stock and is reported as an asset

If a corporation declares a 2 for 1 stock split, which of the following is true? A. A journal entry is required to show the effect on the stockholders equity accounts B. The stockholders will have a higher proportionate ownership share after the split C. The par value will be reduced to half of the pre-split par value D. The market price of the stock is expected to increase after the split

C. The par value will be reduced to half of the pre-split par value

Petry Corporation issues 20,000 shares of $.50 par common stock for $6 per share. The account for Additional Paid in Capital in excess of par will increase by:

Cash 120,000 Common Stock 10,000 Additional P.I.C 110,000 110,000 is your answer

Alma corp issues 1000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, a credit or credits are made to:

Cash 16,000 Common Stock 10,000 Additional P.I.C 6,000

The journal entry to issue 1,000,000 shares of $6 par common stock for $8.00 per share on January 2nd would be:

Cash 8,000,000 Common stock 6,000,000 Additional P.I.C 2,000,000

In which of the following organization forms are the owners' legal responsibility for the debt of the business limited to the amount they invested in the business.

Corporation

Type of business that is most likely to obtain large amounts of resources by issuing stock

Corporation

Which of the following is NOT a characteristic of a corporation? A. Corporations are organized as a separate legal taxable entity B. Ownership is divided into shares of stock C. Corporations experience an ease in obtaining large amounts of resources by issuing stock D. A corporations resources are limited to their individual stockholders resources

D. A corporations resources are limited to their individual stockholders resources

If a corporation declares a 2 for 1 stock split, which of the following is true? A. The amount of stockholders equity doubles as a result of the split B. The amount of capital stock doubles as a result of the split C. The price of each share will be doubled as a result of the split D. A stockholder who previously held 100 shares will have 200 shares after the split

D. A stockholder who previously held 100 shares will have 200 shares after the split

The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $70 per share. The entry to record the transaction will consist of a debit to cash 700,000 and credit or credits to:

Preferred stock for $500,000 and Additional Paid in Capital for $200,000

Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding What is the effect of a 10% stock dividend if the market price of the common stock is $30 per share when the stock dividend is declared

Retained Earning decreases by 225,000

If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the rights of the preferred stockholders?

They have the right to receive current year dividends and all unpaid dividends from prior years

Issued shares represent the:

number of shares that the corporation has distributed to owners to date

The number of shares issued less the number of shares of treasury stock is the ____ shares.

outstanding

Cash dividends paid on common stock would be reported in the statement of cash flows in:

the cash flows from financing activities section

Earnings per share in an indication of how much:

the company earned for each share of outstanding common stock