ACCTG 472 Chap 18

Net assets equals assets plus liabilities. shareholders' equity. retained earnings. liabilities plus stockholders' equity. common stock.

shareholders' equity.

A corporation's accumulated, undistributed net income or loss is referred as comprehensive income. corporate dividends. retained earnings. accumulated comprehensive income.

retained earnings

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? (Select all that apply.)

retained earnings common stock paid-in capital in excess of par

Select all that apply 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? (Select all that apply.) the book value of the existing shares the quoted market price for the shares an independent appraisal of the value of the asset the net book value of the asset the amount of cash that would be paid to purchase the asset

the quoted market price for the shares an independent appraisal of the value of the asset 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 proceeds. Credit common stock for the amount in excess of par. Credit common stock for the par amount.

Credit common stock for the par amount.

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

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

False

Select all that apply Which of the following accounts are classified as shareholders' equity? Net unrealized holding gains on investments Investments in securities Preferred stock Additional paid-in capital

Net unrealized holding gains on investments Preferred stock Additional paid-in capital

Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from what type of sources? Investor Nonowner Owner

Nonowner

Which of the following accurately describes shareholders' equity? Proceeds from the issuance of bonds Ownership interests of the shareholders Amounts owed to shareholders Amounts repaid to investors

Ownership interests of the shareholders

Which type of stock usually has a high par value and a percentage of par value dividend rate? Common stock Preferred stock Both preferred and common stoc

Preferred stock

large stock dividend

Reduce retained earnings by par; increase common stock by par.

small stock dividend

Reduce retained earnings for fair value; increase common stock by par value; increase additional paid-in capital.

property dividend

Reduce retained earnings, recognize gain on appreciation on income statement.

cash dividend

Reduce retained earnings; reduce a current asset.

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

S corporation

Select all that apply 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. The shares are a contra-asset. The shares can be treated as an investment security.

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

When does a dividend become a liability to a corporation? When it is declared by the board of directors At the end of each quarter On the ex-dividend date On the last day of the fiscal year

When it is declared by the board of directors

Select all that apply Preferred stock is similar to a bond when it has which of the following features? a noncumulative feature a participating feature a mandatory redeemable feature a dividend rate

a mandatory redeemable feature a dividend rate

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

debt.

The date on which a cash dividend becomes a liability to a corporation is the declaration date. ex-dividend date. payment date. record date.

declaration date.

A company that is distributing liquidating dividends tends to be in the process of: dissolving reorganizing starting up

dissolving

When a corporation distributes assets of the company to its investors, it is referred to as a(n) warrant. expense. option. dividend.

dividend.

A distribution of assets to shareholders is referred to as a ______

dividends

Select all that apply Preferred stockholders usually have preference over common stockholders with respect to which items? (Select all that apply.) issuance of additional shares dividends issuance of additional debt distribution of assets in liquidation

dividends distribution of assets in liquidation

The most important advantage to the corporate form of business is regulation. limited liability. double taxation. ease of formation.

limited liability.

The return on shareholders' equity ratio is computed by dividing net income by earnings per share. net income by average shareholders' equity. earnings per share by dividends per share. total shareholders' equity by total assets.

net income by average shareholders' equity.

Select all that apply Corporations raise capital by operating at a profit. issuing stock issuing debt. repurchasing treasury stock.

operating at a profit. issuing stock issuing debt.

When a corporation repurchases its stock as treasury stock, the number of shares issued decreases. increases. remains the same.

remains the same.

The purpose of the statement of shareholders' equity is to reconcile net income with taxable income and retained earnings. report the additional expenses of the company that were not accrued during the year. reconcile the balance sheet with the statement of cash flows. report the changes and the sources of the changes in shareholder equity accounts.

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

A corporation is owned by its _________.

shareholders

A 2-for-1 stock split increases the marketability of the stock because shareholders receive cash. the market price per share decreases. the new shares are restricted. investors have twice as many shares to sell.

the market price per share decreases.

Select all that apply Which of the following may be a source of paid-in capital? (Select all that apply.) Company generates profit from its operations Company repurchases some of its outstanding common stock Company sells stock to investors Share-based compensation activities

Company repurchases some of its outstanding common stock Company sells stock to investors Share-based compensation activities

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

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 Municipality of origin of the corporation Treasury Department Securities and Exchange Commission

The state in which the corporation is incorporated

Select all that apply Corporations raise equity capital by borrowing money. issuing stock operating at a profit.

issuing stock operating at a profit.

The effect of share issue costs is to reduce net income for the period. increase the common stock account. reduce retained earnings when the stock is issued. reduce paid-in capital in excess of par.

reduce paid-in capital in excess of par.

Select all that apply When a corporation issues shares of common stock for an amount above par, which of the following entries occur? (Select all that apply.) credit to revenue credit to additional paid-in capital credit to retained earnings credit to common stock

credit to additional paid-in capital credit to common stock

When a company issues different classes of shares, it must charge more for higher classes of stock. reduce the additional paid-in capital account for the new class of stock. distinguish the rights for each class of stock. designate which classes have preference over debt in liquidation.

distinguish the rights for each class of stock.

Net assets is retained earnings. liabilities plus stockholders' equity. assets plus liabilities. assets less liabilities.

assets less liabilities.

Amounts earned by the corporation on behalf of its shareholders are referred to as common stock. paid-in capital. shareholders' equity. retained earnings.

retained earnings.

Select all that apply Which of the following may be a source of paid-in capital? (Select all that apply.) Company sells stock to investors Company repurchases some of its outstanding common stock Share-based compensation activities Company generates profit from its operations

Company sells stock to investors Company repurchases some of its outstanding common stock Share-based compensation activities

Which of the following accounts are classified as shareholders' equity? investments in securities additional paid-in capital retained earnings common stock

additional paid-in capital retained earnings common stock

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) equity revaluation. reverse stock split. treasury stock repurchase. reverse dividend.

reverse stock split.

The two types of corporations are federal and state. profit and not-for-profit. government and nongovernment. investing and financing.

profit and not-for-profit.

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? (Select all that apply.)

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

True or false: The return on shareholders' equity ratio is calculated as net income divided by common stock.

false

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

false

Select all that apply State laws regulate which of the following corporate activities? (Select all that apply.) issuance of stock nature of share authorization amount of debt allowed repurchase of stock acquisition of assets

issuance of stock nature of share authorization repurchase of stock

Shares of stock previously sold by the corporation that are repurchased are called available for sale securities. treasury stock. additional paid-in capital. investments in securities.

treasury stock.

When a company repurchases its stock and immediately retires the stock, which of the following occurs? An asset is recorded for the amount of the stock repurchased. The equity accounts are reduced for the amount in which the shares were originally sold. Retained earnings is reduced for the amount of the repurchase. Stock expense is recorded for the amount of the repurchase.

The equity accounts are reduced for the amount in which the shares were originally sold.

Retained earnings is typically reported on the balance sheet as a single amount. as a multi-line item. showing its various components.

as a single amount.

The ownership interests of the investors in a corporation are referred to as retained earnings. shareholders' equity. net income. assets.

shareholders' equity.

When a company repurchases shares held as treasury stock, the number of shares outstanding _____.

decreases

A restriction of retained earnings signifies that a portion of retained earnings is not available for dividends. retained earnings is negative. no cash is available for investment purchases. cash may not be used for stock repurchases.

a portion of retained earnings is not available for dividends.

Historically, par value was considered to be the amount of retained earnings that must be appropriated for future dividends. the maximum amount of money the company could borrow. the amount of net assets that were not available for distribution to shareholders. the amount of cash that must be maintained in the corporation for contingencies.

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

Select all that apply Historically, par value indicated (select all that apply) the amount of net assets that were not available for distribution to shareholders. the real value of shares the amount of retained earnings that must be set aside for future dividends. the issue price of all shares

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

The statement of shareholders' equity reports the changes in each shareholder equity account for the period. assets, liabilities, and owners' equity for the period. the changes to assets over the period.

the changes in each shareholder equity account for the period.

Which of the following transactions are classified as a stock dividend? A distribution of stock to corporate executives as an inducement to extend their contract with the corporation. A distribution of additional shares of a corporation's stock to current shareholders of the corporation. A distribution of stock options to current employees as incentive compensation. A distribution of shares of stock held as an investment to stockholders of the corporation.

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

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 to each security based on the number of shares issued. Each security is valued at par value with the remainder recorded in additional paid-in capital. 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. The cash received is allocated first to common stock based on its prorated par value, and the remainder is allocated to the other security.

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

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

The fair value of the stock

Select all that apply Which of the following accounts might a corporation use to record changes in its ownership interests during a reporting period? (Select all that apply) accumulated other comprehensive income owner's capital account common stock retained earnings

accumulated other comprehensive income common stock retained earnings

A frequent reason for a stock split is to issue more shares of stock so investors have more value. cause the market price per share to decline. shift amounts from retained earnings to other equity accounts. give the investors an extra dividend for the year.

cause the market price per share to decline.

Select all that apply Which of the following accounts might a corporation use to record changes in its ownership interests during a reporting period? (Select all that apply) common stock owner's capital account accumulated other comprehensive income retained earnings

common stock accumulated other comprehensive income retained earnings

Select all that apply A restriction of retained earnings (select all that apply) indicates that cash has been set aside for future dividends. communicates the portion of retained earnings not available for dividends signifies cash may not be used for stock repurchases. indicates management's intention to withhold assets for a specified purpose

communicates the portion of retained earnings not available for dividends indicates management's intention to withhold assets for a specified purpose

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources is called distributions to owners. assets. net income. comprehensive income.

comprehensive income.

A business that has equity accounts labeled "common stock" and "retained earnings" is a corporation. proprietorship. partnership.

corporation.

Cash and property dividends ______ total equity, and stock dividends _______ total equity. decrease; decrease decrease; do not effect decrease; increase do not effect; decrease

decrease; do not effect

liquidating dividend means that net income exceeds dividends. dividends exceed retained earnings. dividends exceed net income for the period. dividends are paid on treasury stock.

dividends exceed retained earnings.

When a corporation repurchases its stock as treasury stock, the number of shares authorized decreases. does not change. increases.

does not change.

Select all that apply Disadvantages of the corporate form of business are (Select all that apply.) less paperwork. double taxation. ease of raising capital. government regulation.

double taxation. government regulation.

In a corporation, shareholders' liability is limited to the amount of aggregate corporate earnings. unlimited with responsibility for all corporate losses. limited to the amount of the investment.

limited to the amount of the investment.

Treasury shares are the same as shares that have never been issued; therefore, treasury shares must be subtracted from retained earnings. may not vote or receive cash dividends. must be accounted for as a trading security. may not be reissued at a later date.

may not vote or receive cash dividends.

A reverse stock split requires a debit to treasury stock. a credit to other comprehensive income. a debit to retained earnings. no journal entry.

no journal entry.

A nonreciprocal transfer to owners is referred to as a stock split. stock dividend. property dividend. treasury stock.

property dividend.

Fantastic Gold Inc. declares and distributes to its shareholders 1 gram of gold in lieu of a cash dividend. Fantastic Gold is distributing a(n) inventory dividend stock dividend fair value dividend property dividend.

property dividend.

A company that repurchases its own securities accounts for the shares of stock as an expense on the income statement. a contra-asset on the balance sheet. a reduction of retained earnings. retired shares or treasury shares.

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 initial public offering stock split large stock dividend

reverse stock split

Select all that apply If more than one class of shares is authorized, what type of information must be specified? (Select all that apply) specific rights for each class designation to distinguish each class annual dividends per share issued to each class

specific rights for each class designation to distinguish each class

The costs for legal, promotional, and accounting services to issue stock should be subtracted from the proceeds of issuing stock. treated as an expense on the income statement. treated as an asset and expensed over the life of the stock. added to the additional paid-in capital account.

subtracted from the proceeds of issuing stock.