ACCT for Corporations
True or False: A corporation has agreed to pay a $0.10 cash dividend on shares of common stock. On the date of record, no formal journal entry is required
True
_____ stock typically includes preference for receiving dividends and for the distribution of corporate assets during liquidation
Preferred
A corporation with a (debit/credit) ______ balance for retained earnings is said to have a retained earnings deficit. This can arise when a company incurs cumulative losses or pays more dividends than total earnings.
debit
The ____ value per share is the price at which a stock is bought and sold
market
Martin's Inc.'s charter authorizes 50,000 shares of stock with a par value of $1 per share. 1,000 shares of stock are issued at a market value to $5 per share. This means that the shares of stock are issued at a (premium/discount)
premium
Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders
$2,500; 10,000 shares x $5 x .05 = $2,500
Limited Liability of Stockholders
ADVANTAGE: Stockholders are not liable for corporate acts or corporate debts. If corporation is not able to pay it's debt, Creditors cannot go after personal assets
Transferable Ownership Rights
ADVANTAGE: Stockholders can sell their stock, which evidences their ownership interest.
____ stock is a general term that refers to any shares issued to obtain owner financing
Capital
Government Regulation
DISADVANTAGE: A corporation much meet requirements of a state's information laws, which subjects the corporation to state regulation and control. Partnerships and Proprietorships avoid many of these regulations
Long, Inc. purchased 50 shares of its own $10 par value common stock for $50 per share. The journal entry to record this transaction would include a debit to the _______ Stock account in the amount of _____
Treasury $2,500; 50 shares x $50 = $2,500
On June 1, the board of directors of Big, Inc. declare a 20% stock dividend. On this date, there were 10,000 shares of $1 par value stock issued and outstanding and the market value was $5 per share. The entry to record this transaction include a (debit/credit) ______ to Retained Earnings in the amount of _____
Debit; $10,000
Corporations can be separated into two types. A ________ held corporations does NOT offer its stock to the public sale and usually has few stockholders. A ______ held corporation offers its stock for public sale and can have thousands of stockholders
Privately Publicly
The account that consists of a company's cumulative net income less any losses and dividends declared since its inception is called
Retained Earnings
Vernon, Inc.'s charter did NOT assign a par-value to its authorized stock. However, Vernon's directors assigned a(n) _____ value per share. This value becomes a minimum legal capital per share in this case.
Stated
Stated Value
The value per share is assigned by the board of directors
Which of the following characteristics applies to both a sole proprietor and a general partnership but not a corporation?
Unlimited Life
Peas, Inc. has 1,000 shares of $5 par value common stock outstanding. The annual cash dividend per share was $6.00; market value per share was $30; and net income during the period was $65,000. Dividend yield equals _____%
20
The board of directors of Anchor, Inc. authorizes at $0.50 cash dividends to its 100,000 shares of common stock issued and outstanding. On the date of payment, a journal entry will include which of the following accounts?
Debit to Common Dividend Payable Credit to Cash
Zion, In. declares a 10% stock dividend when there are 10,000 shares of $1 per value stock issued and outstanding and the market value is $5 per share. on the date of payment, Zion will issue the stock and record the translation with which of the following entries?
Debit to Common Stock Dividend Distributable for $1,000 Credit to Common Stock for $1,000
On June 1, the board of directors of Dylan Inc. declare a cash dividend of $1 per share. On June 1, there are 1,000 shares of stock issued and outstanding. The journal entry require on the date of declaration will include a
credit to the Common Dividend Payable account
Visor, Inc. had net income during the period of $10,000. Preferred dividends were $2,000 and the weighted-average common shares outstanding were 500. Basic earnings per share equal.
$16
Capital ____ is a general term that refers to any shares issued to obtain capital (owner financing)
stock
____ _____ is an account that consists of company's cumulative net income less any losses and dividends declared since its inception
Retained Earnings
On January 1, the board of directors of Shante, Inc. declared a 10% stock dividend. On this date, there were 10,000 shares of $1 par value stock issued and outstanding and the market value was $5 per share. The entry to record this transaction would include a debit to _____ in the amount of _____
Retained Earnings; $5,000
Which of the following is not a reason that a corporation would issue preferred stock?
To obtain a tax advantage over corporations with no preferred stock
Nonparticipating Preferred Stock
Annual dividends are limited
______ stock is the number of shares that a coloration's charter allows it to sell
Authorized
Corporate Taxation
Corporate income is subject to federal and state income taxes. Also, double taxation might occur - they pay corporate pays taxes on their income and then stockholders pay dividends on the corporation.
What is the accounting treatment for corporate organization costs?
Corporate organization costs are debited to an expense account when they are incurred
Outstanding Stock
Issued stock that is currently held by stockholders
Authorized & Issued
Issued to stockholders to evidence their interest in the corporation
Callable Preferred Stock
Issuing corporation has the right, or option, to retire its stock
Identify which of the following is NOT generally a right of common stockholders.
Manager operations
_____ preferred stock confers no right to prior period unpaid dividends
Noncumulative
_______ stock refers to issued stock that is currently held by stockholders
Outstanding
A _____ dividend, declared a corporation's directors, is a distribution of addition shares of the corporation's own stock
Stock
The board of directors of Visor, Inc. authorize a _____, a distribution of addition shares of the corporation's own stock, to existing shareholders.
Stock Dividend
Key's Inc. purchases 100 shares of its own common stock for $10 per share. The stock is now classified as ____ stock, a contra equity account, reported on the statement of stockholder's equity.
Treasury
No-par value stock not assigned a value per share by the corporation charter. Its advantage is that it can be issued _____ without the possibility of minimum legal capital
at any price
A ______ dividend, declares by a corporation's directors, is a distribution of addition shares of the corporation's own stock
stock
Stockholders have the right to _____ at stockholders' meetings
vote
Identify the disadvantage of the corporate form of business.
Government Regulation Corporate Taxation
Crystal, Inc. has 500 shares of outstanding $10 par common stock, with a current market value of $20 per share. Earnings per share is $2.99. The price earnings ratio is
10
Mario Hernandez owns 25 shares at $100 par, 5% cumulative preferred stock. During the current year, no dividends are declared or paid. The unpaid amount of _______ is considered dividends in ______
125; arrears
Blink, Inc. has a 1,000 shares of $10 par, %5 preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total
19500; $10 x .05 x 1,000 shares = 500. Total dividend is $20,000. $20,000 - $500 = 19,500 common shareholders
Josie Inc.'s charter authorizes 1,000 shares of stock with no par value. Josie sells 100 shares of stock at its initial offering for $5 per share. The journal entry would include a
Credit to Common Stock for $500
Dean Inc.'s charter indicates a par value of $1 per share. Dean issues a 100 shares at a market value of $8 per share. The journal entry to record this transaction will be include
Debit to Cash account for $800
Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries?
Debit to Cash for $500 Credit to Common Stock for $50 Credit to Paid-In Capital, In Excess of Stated Value for $450
Preferred sock usually carries a preference of dividends, meaning that:
dividends are allocated to preferred stockholders before they are issued to common stockholders
A stock dividend that is greater than 25% of the previously outstanding shares of stock is considered to be a ____ stock dividend
large
The formula for the price-earnings ratio is _______ value per share/earnings per share
market
A company has 10,000 shares of $100 par, 6% cumulative preferred stock outstanding. If the company declares a total of $200,000 of cash dividends for the year for both its common and preferred stock and the preferred stock is two years in arrears, how much will be allocated to the (1) preferred stockholders and (2) the common stockholders?
(1) $180,000 and $20,000 Compute the annual dividend requirement for the preferred stock and then multiply it by the number of years owed. Deduct this amount from $200,000 to get the amount allocated to the common stockholders
A small stock dividend is a distribution of __% of less of previously outstanding shares
25
_____ reflects the amount of equity applicable to common shares on a per share basis. It is computed by taking stockholders' equity applicable to common hares and dividing it by the number of share outstanding.
Book Value Per Common Share
On January 1, Lang Inc. has 100,000 shares of stock issued and outstanding. The board of directors of Lang wants to authorize a large stock dividend. This means that they must authorize a stock dividend of at least ____ shares of stock
25,001 - A large stock dividend is a distribution of 25% of previously issued outstanding shares
Stock splits are different from stock dividends but both of them result in an increase in the number of outstanding shares. A corporation has 10,000 shares of outstanding stock. Which of the following pairs of numbers will yield the same number of new shares outstanding?
A 5 for 4 stock split is the same as a 25% stock dividend. Calculate the number of shares outstanding after the stock split by multiplying 10,000 x 5/4. Then, calculate the number of shares outstanding after the stock dividend by multiplying the stock dividend percentage by 10,000 shares and adding the result to 10,000
Separate Legal Entity
ADVANTAGE: A corporation conducts its affairs with the same rights, duties, and responsibilities of a person. It takes actions through its agents (its officers and managers)
Continuous Life
ADVANTAGE: A corporation's life continues indefinitely - not tied to the physical lives of its owners
Ease of Capital Accumulation
ADVANTAGE: Buying stock is attractive to investors.
Lack of Mutual Agency for Stockholders
ADVANTAGE: Stockholders, who are not corporate officers or managers, do not have the power to bind the corporation to contracts
Organizations expenses, or the costs to organize a corporation, include which of the following?
Charter fees Legal fees
The board of directors of Chester Inc. authorizes a $0.10 cash dividend to its 10,000 shares of common stock issued and outstanding. On the date of payment, a journal entry will debit which of the following accounts?
Common Dividend Payable for $1,000
John Kim agrees to contribute equipment with a fair market value or $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts?
Common Stock Paid-In Capital In Excess of Par Value
J. Flores owns a business and is trying to decide whether to incorporate. While researching corporations, she has determined the following facts. Which of these facts is INCORRECT?
Corporations dissolve when owners transfer rights
The entry to close a Income Summary account, when a company has net income, will include a _____ to the Retained Earnings account
Credit
Avery, Inc. held 100 share sof its own $10 par value common stock purchased for $15 per share. On December 1, Avery sold 10 shares for $15 per share. The journal entry to record the sale of treasury stock would include (debit/credit) _____ to Treasury Stock in the amount of $_____
Credit to Treasury Stock of $150
In January, Stripe, Inc. purchased 50 shares of its own $10 par value common stock for $20 per share. In March, Stripe sold 10 shares at $25 per share. The journal entry to record the sale of treasury stock using the cost method would include a (debit/credbit) _____ to Treasury Stock in the amount of _____
Credit; 200
(Cumulative/noncumulative) preferred stockholders have the right to be paid both the current and all prior periods' unpaid dividend's before any dividend is paid to common stockholders
Cumulative
Fortune, Inc. holds 50 shares of treasury stock purchased for $20 per share. In March, Fortune sold 10 shares for $50 per share. In December, Fortune sold another 5 shares at only $10 per share. The journal entry to rector the transaction for December will include a (debit/credit) _____ to the Paid-In Capital, Treasury Stock account in the amount of _____
Debit; $50 (20-10) x 5
Bryce, Inc. declared a 50% stock dividend on March 15, when there were 1,000 shares of $1 par value stock issued and outstanding, and the market value was $5. The entry to record the declaration will include a _____ to the Retained Earnings accounting, in amount of
Debit; $500 - 50% is a large stock dividend. Therefore, retained earnings is debited for the par value of stock issued. $1,000 x $1 x 50% = $500
Franz Inc. declared a 50% stock dividend when there were 10,000 shares of $1 par value stock issued and outstanding, and the market value was $5 per share. on the date of payment, the entry to record distribution of stock will include a (debit/credit) _____ to common stock dividend distributable account, in the amount of $0.
Debit; 5,000 - %50 is considered a large stock dividend which is recorded at par value. When the stock is issued, the common stock dividend distributable account is debited and common stock is credited at par value. $10,000 x $1 x 50% = $5,000
Participating Preferred Stock
Excess dividends are shared with common stockholders
True or False: To record a stock split, debit Retained Earnings and credit Common Stock
False
Capital Stock
General term that refers to any shares issued to obtain owner financing
Authorized Stock
Number of shares a corporation's charter allows it to sell. No formal journal entry needed, exceeds the number of Authorized Stock Issued
Philips Inc. reports stockholder's equity on its financial statement. The two items reported in the stockholder's equity section of Philip's balance sheet are _____ Capital and Retained Earnings
Paid-In
Stockholder's equity, reported on the balance sheet, consists of which of the following accounts?
Paid-In Capital Retained Earnings
Stockholder's Equity consists of
Paid-In Capital and Retained Earnings
The market value per share is the price at which stock is bought and sold. Which of the following factors does NOT influence market value?
Par Value
Carin, Inc. declared a 50% stock dividend on January 15, when there were 10,000 shares of $1 par value stock issued and outstanding, and the market value was $20. The entry to record the declaration will include debit to the ______ account, in the amount of ______
Retained Earnings; $5,000
A stock _____ is the _____ distribution of additional shares to stockholders according to their percent ownership. When this occurs, the corporation "calls in" its outstanding shares and issues more than one new share in exchange for each old share
Split
When _____ value stock is issued, the value per share is assigned by the board of directors
Stated
Which of the following statements if FALSE regarding stock splits?
Stock splits increase retained earnings
Authorized, Issued & Oustanding
Stock that exceeds the issued shares
Convertible Preferred Stock
Stockholder can exchange preferred shares for common shares
A ______ is the distribution of cash to its owners. This is determined by the board of directors
cash dividend
When all authorized shares of stock have the same rights and characteristics, the stock is called
common stock
Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a
credit to Common Stock for $500
Rush Inc.'s charter authorized 500,000 shares of stock with a par value of $1 per share. Rush issues 10 shares at a market value of $10 per share. The journal entry to record this transaction will include
credit to Common Stock, $1 par account in the amount of $10
Logan, Inc. held 500 shares of treasury stock with a cost of $10 per share. In December, Logan sold 10 shares at $20 per share. The journal entry to record the sale of treasury stock using the cost method would include a (debit/credit) ______ to Treasury Stock in the amount of ______
credit; $100
Jordan Inc.'s charter states that there are 50,000 shares of stock authorized with a par value of $5 per share. This typically means that investors must pay a _____ of $5 per share to invest in the corporation
minimum
Stockholder's equity consists of _____ and retained earnings
paid-in capital
When the board of directors authorizes a cash dividend to investors, there are three important dates involved - the date of declaration, date of record, and date of...
payment