Accounting Chapter 11 SmartBook

Fontaine Incorporated issued a 10% stock dividend on its $20 par value common stock. On the distribution date, there were there were 12,000 shares of stock issued and 10,000 shares of stock outstanding. The market value of the stock was $25. As a result of the stock dividend, the amount of retained earnings decreased by ______.

$25,000

Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock that has a current market value of $5.20 per share. Based on this The book value per share of the stock is ______.

$3.20 (50,000 stock / 30,000 retained earnings)/25,000 shares of stock

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. What was the amount of dividends paid to common stockholders?

$6,000

stockholder's equity stock order

1. par value preferred stock 2. stated value common stock 3. class b common stock 4. paid capital in excess of par value preferred stock 5. paid capital in excess of stated value common stock 6. retained earnings 7. unappropriated re 8. treasury stock

if a company has net earnings of 6,300,000; earnings per share of $3.71; sales of 108,000,000; dividend per share of $0.48; and common stock with a current market price of $71.37 per share, its price-earnings ratio is __________.

19.2 (71.37/3.71)

Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. immediately after the issue, base line's balance sheet reported ________ of paid-in capital in excess of par value

90,000 $24 issue price - $15 par value = $9 in excess of par x $10,000 shares =90,00

authorized stock

The maximum number of shares a company can legally have

Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury stock for $30 per share,

a $500 increase in additional paid in capital from treasury stock will be recorded assets will increase by $3000

cumulative dividends

accumulate for future payment when unpaid may also be called dividends in arrears

purchasing treasury stock is a _______ transaction

asset use

when a corporation buys treasury stock, the number of shares of stock

authorized is not affected outstanding decreases

a partner's capital account will appear in what financial statement

balance sheet

rex corporation declared a cash dividend on june 1 year 1. date of record for the dividend is october 1. how will the financial statements be affected on october 1

balance sheet and cash flows will not be affected

what financial statements are affected when a corporation issues a stock dividend

balance sheet, statement of changes in stockholder's equity

when a company issues no par common stock, the

cash inflow is called a financing activity and entire proceeds are recorded in the common stock account

_____ stockholders bear the highest risk of losing their investment if a company is forced to liquidate

common

it is easiest to transfer ownership to

corporation

_________ are able to generate billions of dollars of capital by pooling the resources of millions of owners through public stock and bond offerings

corporations

continuity of existence is an advantage of

corporations

JE to record issue of $10 state value stock for $25 cash

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

the je to record an appropriation of retained earnings

debit retained earnings credit app. re

JE to purchase treasury stock

debit treasury stock credit cash

the journal entry to record the issue of no par value stock for $25 cash includes a ________ to cash and a ________ to common stock

debit, credit

a corporation becomes legally obligated to pay a cash dividend on the _________ date

declaration

a stock split will cause a _________ in the par value of the stock, ________ in the number of shares outstanding and a _______ in the market value per share of the stock

decrease, increase, decrease

the journal entry to record the cash payment for a previously declared dividend includes a debit to ________ and a credit to ________

dividends payable

appropriating retained earnings is a

equity exchange event

t/f: a forecast of projected profitability is normally included in the articles of incorporation

false

t/f: common stock is listed before preferred on the balance sheet

false

t/f: the stock of closely held companies are sold on major stock exchanges

false, they are not

double taxation refers to the fact that

income is taxed first at the corporate level and a second time when stockholders receive dividends

common reasons corporations purchase treasury stock include to

keep the price of the stock high when it appears to be falling have stock available to satisfy the requirements of employee stock option plans avoid a hostile takeover

a chief advantage of the corporate form of business is

limited liability

positives of preferred stock

liquidation value dividends are paid before common stock dividend guarantee

If Pepper Company has a price-earnings ratio of 32 and Squash Company has a price-earnings ratio of 24, this may suggest that the stock market is ______ optimistic about Pepper Company's future earnings potential compared to Squash Company's.

more investors are willing to pay more for current earnings (high p/e ratio) when they believe future earnings will grow

transferring ownership of a proprietorship is difficult because

most are owner operated and a buyer must purchase the entire business

par value

multiplied by the # of shares of stock issued represents legal capital the max.liability of the investors

stock dividends have no effect on

net income cash flows total assets

How will paying a cash dividend that was previously declared affect a corporation's financial statements?

net income will not be affected cash flow from financing activities will decrease

how will declaring a cash dividend affect a corporation's financial statements?

net income will not be affected cash flow from financing activities will not be affected total liabilities will increase total stockholder's equity will decrease

double taxation refers to

paying taxes on profits at the corporate level and stockholders when receiving dividends

what is the simplest form of business organization to organize and operate

proprietorship

owner contributions and retained earnings are combined in a single capital account on the balance sheets of

proprietorships

the party that owns the stock on the date of _________ is legally entitled to a cash dividend

record

common stockholders have the right to

share in the distribution of profits participate in the election of directors vote on significant matters that affect the corporate charter

an arbitrary amount established by the board of directors of a corporation assigned to no-par stock is called

stated value

outstanding stock

the number of shares currently owned by investors

treasury stock

the number of shares of stock that a company has repurchased from the investors

issued stock

the total number of shares the company has sold to investors

when a corporation appropriates retained earnings

total assets and liabilities are not affected

how will paying a cash dividend that was previously declared affect a corporation's financial statements?

total assets and total liabilities will decrease

Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue, ______.

total assets increased by 240,000 income statement wasn't affected cash flow from financing activities increased by 240,000

when a company makes a cash payment for a dividend that was previously declared

total assets will decrease total liabilities will decrease

t/f: corporations are not legally required to declare cash dividends

true

t/f: if a company skips a dividend on noncumulative preferred stock, the dividend is lost forever

true

t/f: owner's capital account can be founded on the balance sheet of a proprietorship

true

t/f: owners withdrawals are shown in the capital statement of proprietorship

true

t/f: preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders

true

t/f: trading on a stock exchange is limited to the stockbrokers who are members of the exchange

true

_______ held companies can generally be controlled with smaller percentages of ownership than _______ held companies

widely, closely

distributions to owners of proprietorships are called ________

withdrawals