ch 11 practice

Which of the following statements is true?

- withdrawals may be found in the financial statements of both proprietorships and partnerships - partnerships do not have a retained earnings accounts because all earnings are distributed directly to each partner's capital account immediately

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. Stanley reissues 100 shares of the treasury stock for $20 per share. Assume there were no previous treasury stock transactions. Then...

Losses are not recognize on the sale of treasury stock - corporations do NOT recognize gains or losses on the sale of treasury stock there would be no impact on the income statement

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.

purchasing treasury stock is a

asset use

The number of shares ________ is the maximum number of shares of stock corporations are legally permitted to issue.

authorized

a partner's capital account will appear in which of the following financial statements

balance sheet

rex corporation declared a cash dividend on June 1, year1 to be paid to stockholders on record at October 1 yr1. how will the financial statement be affected on oct 1 yr1

balance sheet and statement of cash flows will not be affected

A stock split will cause a(n) _________ in the par value of the stock, a(n) _________ in the number of shares outstanding, and a(n) _________ in the market value per share of the stock.

decrease increase decrease

which of the following is a chief advantage of the corporate form of business

limited liability

The price-earning ratio is calculated by dividing ... ... per share by ... per share

market price earnings

companies that had paid dividends in the past are _____ likely to pay dividends in the future

more

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

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

an organization owned by a single individual who is responsible for making business and profit distributions decisions is called

proprietorship

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

record

An arbitrary amount assigned by the board of directors to each share of a given class of no-par stock

stated value

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'?

$12,000: 5,000 shares x $20 x 6% = $6,000 annual x 3 years = $18,000 due to preferred stockholders'. $30,000 total dividend - $18,000 preferred stock distribution = $12,000 common stock distribution.

Cloud company has 5,000 shares of 6%, $20 PV cumulative preferred stock outstanding. The company lso had 8,000 shares of $10 pv common stock outstanding. Cloud paid no div in Year 1 or 2. In year 3, Cloud paid $30,000 of cash div. What was the amount of div paid to preferred stock holders?

$18,000 5,000x $20x 6%= $6,000 6,000x 3= 18,000

Fontaine Inc decide to issue a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25; there were 12,000 shares of stock issued; and 10,000 shares of stock outstanding. Recognizing the stock dividend will cause an increase in the amount of additional paid-in capital in excess of par value of

$5,000 $25 market value - $20 par value = $5 additional paid-in capital in excess of par value X (10,000 shares x 10% dividend) = $5,000

Cloud company has 5K shares of 6% , $20 par value cumulative preferred stock outstanding. The company has also 8K shares of $10 par value common stock outstanding. Cloud paid no dividends in Y! or Y2. In Y3, Cloud paid $30K of cash dividends in a year when no dividends were in arrears. Based on this info

$6,000 would be paid to preferred stockholders and $24,000 would be paid to common stockholders 5,000 shares x $20 x 6% = $6,000 annual due to preferred stockholders. $30,000 total dividend - $6,000 preferred stock distribution = $24,000 common stock distribution

Which of the following statements are true?

- The stock of closely held companies is not sold on major stock exchanges. - Trading on a stock exchange is limited to the stockbrokers who are members of the exchange.

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Which of the following financial statements would be affected by the stock issue?

- balance sheet - statement of cash flows

The issue of no-par common stock affects the ______.

- balance sheet - statement of cash flows

the journal entry to record an appropriation of retained earnings will include a ... to the appropriated retained earnings account, a ... to the retained earnings account

- credit - debit

the journal entry to record the declaration of a cash dividend will include a ______ to the dividends payable account, a ______ to the dividends account

- credit - debit

the journal entry to record the purchase of treasury stock will include a

- credit to cash - debit to treasury stock

the journal entry to record the issue of $10 stated value stock for $25 cash will include a _____ to the cash account, a _____ to the common stock account, and a _____ additional paid in capital in excess of stated value account

- debit - credit - credit

the journal entry to record a 10% stock dividend on $10 par value when the market value is $30 a share will include a

- debit to retained earnings - credit to common stock - credit to the additional paid in capital in excess of par value account

cumulative dividends

- may also be called dividends in arrears - are dividends that accumulate for future payment

book value per share is

- measured in historical dollars - calculated by dividing total stockholder's equity by the number of shares of stock owned by investors

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. At the time this treasury stock is purchased, the amount of Stanley's

- net income not affected - cash flow from financing decreased by $5,000

which of the following characteristics make transferring the ownership of a proprietorship difficult

- proprietor must find someone willing to purchase the entire business - most proprietorships are owner operated

par value is

- represents the maximum liability of the investors - multiplied by the number of shares of stock issued represents legal capital

when a corporation appropriates retained earnings

- total liabilities are not affected - total assets are not affected

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. At the time this treasury stock is purchased, the amount of Stanley's

- total stockholder's equity would decrease $5,000 - total assets would decrease by $5,000

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

- widely - closely

match the account title with definition

1. Par Value Preferred Stock 2. Stated Value Common Stock 3. Class B Common Stock 4. Paid-in Capital in Excess of Par Value in Preferred Stock 5. Paid-Capital in Excess of Stated Value Common Stock 6. Retained Earnings

stockholders equity section of a balance sheet

1. par value preferred stock 2. stated value common stock 3. class b no-par common stock 4. paid-in capital in excess of par value-- preferred stock 5. paid-in capital in excess of stated value-- common stock 6. appropriated retained earnings 7. unappropriated retained earnings 8. treasury stock

The number of shares ________ is the maximum number of shares of stock corporations are legally permitted to issue.

cash inflow from financing activities increased by $240,000

if stock ownership is concentrated in the hands of a few persons, a company is ______ held. The greater its number of stockholders, the more ______ held a company is.

closely widely

_______stockholders have the greatest potential for rewards when a corporation prospers.

common

which of the following business forms offers the benefit of continuity existence

continuity

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

corporations

______ are usually operated by professional executives

corporations

The journal entry to record the payment of a previously declared dividend includes a _____.

credit to cash debit to dividends payable

the journal entry to record the issue of no par value stock for $25 cash will include a ... to the cash account, a ... to the common stock account

debit credit

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

total assets and total liabilities will decrease

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

total assets will decrease total liabilities will decrease

when a corporation purchases its own stock, the stock purchased is called ... stock

treasury

distribution to owners of proprietorships are called

withdrawals