Accounting Chapter 10 Learnsmart
Large stock dividends are recorded at _______ and small stock dividends are recorded at ______.
par value; market value
A business that is co-owned by two or more persons, and whose investors have unlimited liability, is called a
partnership.
Earnings per share measures the net income earned
per share of common stock.
Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:
preference in distribution of assets during dissolution of corporation first right to specified amount of dividends
Evaluation of the company's profitability requires consideration of the amount of a company's earnings in relation to the size of the
investment
Preferred stock has a mixture of attributes of both equity and _______________.
liability
Dividends payable is a(n) ______________ account with a normal _____________ balance and is recorded on the declaration date.
liability credit
The most important advantage to the corporate form of business is
limited liability.
In a corporation, the stockholders' potential loss is
limited to the amount of the investment.
Match the term with the preferred stock characteristic. Convertible <-> Redeemable <-> Cumulative <->
Shares can be converted for common stock Stocks can be turned in or re-purchased on demand Dividends not declared during one year are payable when declared in subsequent periods
A ______ stock dividend is less than 25% of the outstanding shares of stock.
small
The legal capital per share of stock that is assigned when the corporation is first established is referred to as ____________ ___________.
par value
Corporations will declare a stock split in order to ______.
reduce the market price of a share of stock and make it more attractive to some investors
A corporate charter:
specifies the shares of stock to be issued. describes the business activities. names the board of directors.
An IPO:
stands for initial public offering. is when a private company goes public.
AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. The number of shares issued equals ______ shares.
100,000
A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?
Corporate charter Articles of incorporation
True or false: A corporation is owned by debt and equity holders.
False
Which type of corporation is regulated by the Securities and Exchange Commission?
Public
Which of the following reports net income relative to average stockholders' equity in dollars?
ROE
Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?
The right to redeem the preferred shares for cash The right to convert the shares to common shares
When a company repurchases its own securities, the stock is recorded in which account?
Treasury stock
The effect of a large stock dividend on the accounting equation includes ______ in retained earnings.
a decrease
Proceeds from issuing new par value common stock are credited to
additional paid in capital common stock
Preferred stock tends to have attributes of
both bonds and common stock.
Preferred stock carries priority over common stock:
both for dividends and at dissolution
The dividend payment date is when ______.
cash is paid to satisfy the dividend liability
A business that is organized as a separate legal entity with limited liability for its owners is a
corporation
Preferred stock is advantageous in that it:
has priority over common stock at liquidation. has priority over common stock when dividends are declared.
Investors who acquire preferred stock:
have preference as to dividends. do not have voting rights.
Preferred stockholders:
have the right to receive dividends only in the years the board of directors declares dividends.
Stock splits have the following effects on stockholders' equity
no change to total stockholders' equity
Retained earnings of $100,000 represent a corporation's cumulative earnings ______ and is shown on the ______.
not paid out by dividends; balance sheet and statement of retained earnings
The purpose of the statement of shareholders' equity is to
report the changes and the sources of the changes in shareholder equity accounts.
A company's past profits that are not paid out in dividends are ______.
retained earnings
Shares of stock previously sold by the corporation that are repurchased are called
treasury stock.
Which account is a stockholders' equity account?
Additional paid-in capital
If Squid Roe Inc.'s P/E ratio is 12 and Bagel's is 20, then investors expect ______.
Bagel's earnings to grow at a faster rate than Squid Roe's
Match stock splits and stock dividends with their characteristics. Stock splits <-> Stock splits and stock dividends <-> Stock dividends <->
Cause the par value per share to change Cause total stockholders' equity to remain the same Require a journal entry
Identify what is needed to calculate the PE ratio.
Earnings per share Stock price
Squid Roe Inc.'s P/E ratio is 12. Which of the following statements is true?
Investors are willing to pay 12 times the current year's earnings per share of stock.
The effect of a large stock dividend on the accounting equation includes:
an increase in common stock. a decrease in retained earnings. no effect on total stockholders' equity.
The declaration of a dividend results in ______.
an increase in liabilities an increase in Dividends
The amount of dividends paid out relative to the share price is referred to as:
dividend yield
Which of the following will decrease the par value of shares?
stock split
Historically, par value was considered to be
the value of the company's shares of stock.
When a cash dividend is declared and paid in the same year, the total effects on the balance sheet include which of the following?
Decrease stockholders' equity. Decrease assets.
Match the date with the related event. Declaration date <-> Date of record <-> Payment date <->
The board of directors officially approves a dividend Stock records are finalized to determine which stockholders are to receive payment Dividends payable is decreased
The advantages to the corporate form of business include
ease of raising capital. transferability of ownership.
ROE relates ______.
net income to the average stockholders' equity
An accumulated deficit in retained earnings indicates that the company has
net losses.
Special contractually granted features can make preferred stock:
redeemable cumulative convertible
The contra account used to record a company's repurchase of its own common stock is the _____________ stock account.
treasury
Who owns and controls a corporation?
Shareholders
A corporation is owned by its ________________.
shareholders
Which of the following ratios measures the ability of company management to generate earnings from the resources owners provide?
Return on equity
A(n) ______________ corporation is considered closely held with few owners, whereas a(n) ______________ corporation is available to any investor who wants to purchase shares of stock on the stock exchange. (Enter one word per blank)
private public
A business that is organized, owned, and managed by one person and has unlimited liability is called a
proprietorship.
Corporations may be ___________ held or ___________ held.
publicly privately
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
______________ stock dividends are recorded at market value, while _______________ stock dividends are recorded at par value.
small large
The P/E ratio is calculated by ______.
dividing the stock price by EPS
Additional shares issued to existing owners without an exchange of cash may be in the form of stock _____________ or stock _______________.
dividends splits
Limited liability and ease of raising outside capital are advantages of this business form:
Corporation
On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on April 1, 2018, will include which of the following entries?
Credit cash $3,000. Debit dividends payable $3,000.
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.
Which of the following accounts are classified as shareholders' equity?
Retained earnings Additional paid-in capital Common stock
Which of the following are sources of shareholders' equity?
Retained earnings Paid-in capital
Which of the following is included in the rights of common stockholders?
Right to vote
When a business incorporates, it must file its ______ with the state in which it incorporates.
articles of incorporation
Positive ______________ represent the key to a company's long-run survival. (Enter only one word.)
earnings
Return on ___________ measures the ability of company management to generate earnings from the resources provided by owners.
equity
Stock dividends have the following effects on stockholders' equity
increase in common stock decrease in retained earnings no change to total stockholders' equity
Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by: (Select all that apply.)
increasing total assets. increasing total stockholders' equity.
Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by: (Select all that apply.)
increasing total stockholders' equity. increasing total assets. increasing additional paid-in capital.
The amount of money paid into a company by its owners is referred to as:
invested capital
Earnings per share measures the ______ earned per share of common stock
net income
Shareholders influence a company by
voting for the board of directors.
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.
The dividend yield is calculated by dividing:
dividends per share by the stock price per share
Retained earnings are:
increased by net income. decreased by dividends. all of the company's earnings not distributed to stockholders. sometimes called earned capital.
Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a:
$50,000 increase in total assets. $50,000 increase in total stockholders' equity.
A small stock dividend is usually less than ______% of the number of shares of stock outstanding.
25
Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals ______ shares.
45,000 (Reason: The 45,000 shares outstanding equals the number issued of 50,000 minus the 5,000 shares bought back by the company.)
Which of the following occurs on the date of record?
A list of shareholders that are entitled to receive a dividend is made.
Shareholders' equity consists of which of the following items?
Amounts invested by shareholders Amounts earned by the corporation
Which of the following are included in the duties of the board of directors?
Appoint officers to manage the corporation. Establish corporate policies.
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
On April 1, 2018, Rawlings declares a dividend of $0.30 per share. Rawlings has 100,000 shares authorized, and 40,000 issued and outstanding. The date of record is April 28, and the payment date is May 15. Which of the following entries is included in the journal entry on May 15?
Debit dividends payable $12,000. (Reason: 40,000 x $.30 = $12,000)
The acronym "IPO" stands for
Initial public offering
________________ capital is the amount of money paid into a company by its owners.
Invested
Match the preferred stock feature with the correct description. Convertible <-> Redeemable <-> Cumulative <->
Marcus turn in his preferred stock and receives common shares in exchange. Nurbert Inc. demands return of preferred stock at the pre-specified amount During the current year, Petra Inc. pays dividends that were not declared last year
Match the business form with the correct description. Sole proprietorship <-> Corporation <->
Most common form of business Highest volume of total sales, earnings, assets, and employees
The rights of common stockholders typically include which of the following?
Right to dividends when declared. Right to vote for corporate directors. Right to distribution of assets in liquidation.
When a company declares and pays a cash dividend, what are the financial statement effects?
Stockholders' equity decreases.
Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock for $5 per share. Which statement is true regarding the effect of this transaction on Stockits' financial statements?
Stockholders' equity on the balance sheet increases.
Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common stock. Which of the following is true?
This entry is correct.
True or false: Some states allow corporations to issue no-par value common stock.
True
True or false: The board of directors is responsible for establishing corporate policies.
True
When does a dividend become a liability to a corporation?
When it is declared by the board of directors
Additional taxes and more paperwork are the two primary disadvantages of this business form:
corporation
A ______ balance in retained earnings indicates an accumulated deficit.
debit
The date on which a cash dividend becomes a liability to a corporation is the
declaration date
A distribution of a company's accumulated prior earnings is a(n) ______.
dividend
When a corporation distributes assets of the company to its investors, it is referred to as a(n)
dividend.
The dividend payment date is when:
dividends payable is decreased. cash is decreased.
Disadvantages of the corporate form of business are
more paperwork additional taxation.
The statement of shareholders' equity reports
the changes in each shareholder equity account.
A 2-for-1 stock split increases the marketability of the stock because
the market price per share decreases.