LearnSmart 11
The number of shares issued represents the number of shares ______________. a) the company is allowed to sell b) sold less repurchased c) repurchased d) sold
d) sold
A higher ROE means _____________________. (select all that apply) a) stockholders may enjoy higher returns b) the company used financial leverage to its stockholders' advantage c) more shares of stock have been issued d) the P/E ratio must have decreased
a) stockholders may enjoy higher returns b) the company used financial leverage to its stockholders' advantage
A cash dividend differs from a 2-for-1 stock split in that a cash dividend ________________. (select all that apply) a) decreases the par value per share b) decreases Retained Earnings c) decreases current assets d) increases the number of shares outstanding
b) decreases Retained Earnings c) decreases current assets
The reacquisition of preferred stock is typically referred to as a _________________ because the stocks are formally retired. a) Treasury Stock - preferred b) repurchase c) redemption d) re-issuance
c) redemption
The statement of (1)_____________ (2)_____________ reports the changes in retained earnings as well as paid-in capital.
Stockholders' equity
Before the board of directors declares a cash dividend, it should consider whether ________________. a) there is sufficient cash b) the current liabilities are too low c) there are enough shares authorized d) there are sufficient retained earnings
a) there is sufficient cash d) there are sufficient retained earnings
A stock dividend causes a stockholder's percentage ownership in a company to _________________. a) decrease b) remain the same c) increase
b) remain the same
Dividends is closed into (1)__________________ (2)_______________ at the end of the fiscal year.
Retained Earnings
Treasury stock is __________ account. a) a contra-equity b) a contra-asset c) an asset d) a liability e) an equity f) a contra-liability
a) a contra- equity
Retained Earnings represents cumulative _____________ by the business. (check all that apply). a) profits retained b) net income kept c) cash retained d) cash earned e) paid-in capital
a) profits retained b) net income kept
Stockit, Inc. issued 100,000 shares of the 1,000,000 shares authorized. Stockit has repurchased 10,000 of its shares. The number of shares authorized represent the _____________________. a) number of shares that have been repurchased b) maximum number of shares Stockit is allowed to issue c) number of shares issued
b) maximum number of shares Stockit is allowed to issue.
If a company's EPS falls from $5 to $3, then investors may expect ________________. a) that the company will increase its financial leverage b) that the company will reissue treasury shares c) a reduction in the stock price
c) a reduction in the stock price
Earnings per share (EPS) may be determined by ____________. (select all that apply) a) dividing the stock price by the P/E ratio b) dividing net income less preferred dividends by the average common shares outstanding c) multiplying the stock price by the P/E ratio d) dividing the P/E ratio by the stock price
a) dividing the stock price by the P/E ratio b) dividing net income less preferred dividends by the average common shares outstanding
Preferred stock that receives its current dividend and dividends in arrears is ______________________ preferred stock. a) cumulative b) arrearage c) redemptive d) non-cumulative
a) cumulative
A stock dividend _______________________________. a) provides no economic value for current stockholders b) causes total stockholders' equity to increase c) causes total stockholders' equity to decrease d) increases each stockholder's percentage ownership
a) provides no economic value for current stockholders
Preferred stockholders _______________. a) have the right to receive dividends only in the years the board of directors declares dividends. b) have the right to receive dividends only if there are enough dividends to pay common stockholders too c) must receive more dividends per share than the common stockholders d) must receive dividends every year
a) have the right to receive dividends only in the years the board of directors declares dividends
The entry to record the issuance of preferred stock is _________________. (check all that apply) a) increases stockholders' equity b) decreases stockholders' equity c) different than common stock in that a dividend is recorded at the time of issuance d) similar to the issuance of common stock.
a) increases stockholders' equity d) similar to the issuance of common stock
True or False: A corporation exists separate and apart from its owners, which means it doesn't die when its owners die.
True - A corporation has an unlimited life and exists beyond the lives of its stockholders.
A company may be restricted from paying dividends if it has ____________. a) dividends in arrears b) a loan covenant c) treasury stock d) preferred stock
b) a loan covenant
The repurchase of treasury stock will cause earnings per share (EPS) to ________________. a) remain the same b) increase c) decrease
b) increase
Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The effect of this transaction on the accounting equation, using the cost method, includes a _____________. (check all that apply) a) $10,000 decrease in cash b) $1,000 increase in stockholders' equity c) $9,000 decrease in additional paid-in capital d) $10,000 increase in treasury stock
a) $10,000 decrease in cash d) $10,000 increase in treasury stock
Treasury stock ___________________. (select all that apply) a) is a contra-equity account b) is the number of shares authorized minus the number of shares issued c) reduces total stockholders' equity d) is shares of stock no longer outstanding
a) is a contra-equity account c) reduces total stockholders' equity d) is shares of stock no longer outstanding
Which of the following reports net income relative to average common stockholders' equity in dollars? a) P/E ratio b) EPS c) ROE d) Debt/ equity ratio e) ROA
c) ROE
A stock dividend _____________. (select all that apply) a) has no effect on total stockholders' equity b) increases Common Stock c) decreases total stockholders' equity d) decreases Retained Earnings e) decreases Cash
a) has no effect on total stockholders' equity b) increases common stock d) decreases Retained Earnings
Investors who acquire preferred stock _____________________. a) have preference over creditors b) have preference as to dividends c) will always receive more dividends than common stockholders d) have preference over common stockholder
b) have preference as to dividends d) have preference over common stockholders
Double Vision, Inc. had 10,000 shares issued and outstanding of its $1 par value common stock. At December 31, Common stock equaled $10,000, retained earnings equaled $20,000 and Total stockholders' equity equaled $50,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, ___________. a) the number of shares outstanding equals 5,000 b) retained earnings equals $40,000 c) the common stock equals $20,000 d) par value equals $0.50
d) par value equals $0.50
which of the following line items would be found on a statement of stockholders' equity that would not be on the statement of retained earnings? (select all that apply) a) common stock b) dividends payable c) treasury stock d) net income e) dividends f) additional paid-in capital
a) common stock c) treasury stock f) additional paid-in capital
Comparing EPS across companies is not advised because _________________________. (select all that apply) a) the number of shares outstanding may vary b) the accounting methods used may vary c) the price per share may vary d) retained earnings may vary
a) the number of shares outstanding may vary b) the accounting methods used may vary
Shares that were previously issued to and owned by stockholders but have been reacquired and now held by the corporation are called ________________ stock
Treasury
Sources of financing for corporations include _____________________. (check all that apply) a) issuing stock b) borrowing c) collecting accounts receivable d) fixed asset retirements
a) issuing stock b) borrowing
The reacquisition of preferred stock is referred to as a redemption because the stock are __________________. a) formally retired b) able to be reissued c) able to be redeemed at a higher price d) sold at a higher price than the original cost
a) formally retired
When a corporate charter does not specify a legal value per share, then the stock issued is referred to as ________________. a) no-par value stock b) par value stock c) paid-in capital d) treasury stock
a) no-par value stock
The entry to record the redemption of preferred stock includes a _____________. a) debit to Treasury Stock b) credit to Preferred Stock c) debit to Preferred Stock d) credit to Treasury stock
c) debit to Preferred Stock
Which type of investment would retirees wanting a stable income prefer? a) growth investment b) interest investment c) income investment d) stock split investment
c) income investment
A corporation is a separate ________________________ entity and can own assets, incur liabilities, and enter into contracts.
legal
match: - Declaration date, date of record, payment date to: - dividends payable is decreased - stock records are finalized to determine which stockholders are able to receive payment - the board of directors officially approves a dividend
- Declaration date: the board of directors officially approves a dividend - Date of record: stock records are finalized to determine which stockholders are to receive payment - Payment date: dividends payable is decreased
_______________ capital, also called paid-in capital, reports the amount of capital the company received from investors
Contributed
When Diva, Inc.., declared a $10,000 cash dividend, it recorded a debit to (1)____________________ and a credit to Dividends (2)____________________________. (enter one word per blank).
(1) Dividends (2) Payable
(1)____________________ shares equals the number of shares (2) ______________________ minus the number of shares repurchased by the company.
(1) Outstanding (2) issued
The Date of _______________ is the cut-off date for determining which specific stockholders are to be paid the dividend.
Record
What is the effect on the accounting equation of the entry to record the payment of dividends that were previously declared? (select all that apply) a) assets decrease b) stockholders' equity decreases c) assets increase d) stockholders' equity increases e) liabilities increase f) liabilities decrease
a) assets decrease f) liabilities decrease
A stock ________________________, typically given to employees as part of their compensation that gives them the opportunity to buy the company's stock at a predetermined price, is recorded as an expense at the time it is granted.
options
Squid Roe, Inc.s' ROE increased two percentage points to 12% . This increase may have happened because Squid ROE _______________. (select all that apply) a) had an increase in interest expense relative to profits b) generated more profits than the interest incurred on its borrowed funds c) replaced its 10% debit with 12% debt d) borrowed more funds at 12% e) replaced its 12% debt with 10% debt
b) generated more profits than the interest incurred on its borrowed funds e) replaced its 12% debt with 10% debt
An increase in EPS is an indicator of ___________________. a) lower profitability b) higher profitability c) lower return on equity d) lower financial leverage
b) higher profitability
Wyanot Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. The journal entry to record this transaction includes a ____________________. (select all that apply) a) $10,000 credit to additional paid-in capital -- preferred b) $100,000 debit to cash c) $110,000 debit to cash d) $5,000 credit to preferred stock e) $100,000 credit to preferred stock
a) $10,000 credit to additional paid-in capital - preferred b) $110,000 debit to cash e) $100,000 credit to preferred stock
Dividends on preferred stock ________________. (select all that apply) a) are more attractive than common stock dividends to investors who want a stable income b) may be paid at a fixed rate, such as 7% c) are paid before dividends on common stock d) are attractive to investors who want an investment that keeps up with inflation because the dividend rate is increased during inflationary times.
a) are more attractive than common stock dividends to investors who want a stable income b) may be paid at a fixed rate, such as 7% c) are paid before dividends on common stock
Common stock's par value ______________. (check all that apply) a) has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies. b) affects how common stock is recorded c) was introduced to prevent bankrupt companies from unfairly distributing company resources d) equals the amount of cash contributed by shareholders
a) has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies b) affects how common stock is recorded c) was introduced to prevent bankrupt companies from unfairly distributing company resources
Atomic, Inc. had 100,000 shares authorized, and 10,000 shares issued and outstanding of its $2 par value common stock. At December 31, Common Stock equaled $20,000 and total stockholders' equity equaled $100,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, _______________. (select all that apply) a) the number of shares outstanding equals 5,000 b) par value equals $1 c) stockholders' equity equals $100,000 d) par value equals $4 e) the Common Stock equals $20,000 f) the number of shares outstanding equals 20,000
b) par value equals $1 c) stockholders' equity equals $100,000 e) the Common Stock equals $20,000 f) the number of shares outstanding equals 20,000
An accumulated deficit means a company has _____________. a) a contra-asset account due to losses b) treasury stock that it repurchased at a cost that was higher than the issuance price c) accumulated more net losses than net income d) dividends in arrears
c) accumulated more net losses than net income
Atomic Inc, had 10,000 shares of $1 par value common stock outstanding prior to a 2-for-1 stock split. As a result of the stock split _________________________. a) the number of shares authorized is halved b) 5,000 shares are outstanding with a $2 par value c) the common stock balance doubles d) the journal entry includes a debit to Common stock for $10,000 e) 20,000 shares are outstanding with a $0.50 par value
e) 20,000 shares are outstanding with a $0.50 par value
(1)______________ (2)___________________ represents the earned capital and (3)__________________ Capital represents the paid-in capital.
(1) -(2): Retained Earnings (3): Contributed
Match stock splits and stock dividends with their characteristics: (1) stock splits (2) stock splits and stock dividends (3) stock dividends with: - cause total stockholders' equity to remain the same - cause the par value per share to change - require a journal entry
(1) Stock Splits: cause the par value per share to change (2) Stock splits and stock dividends: cause total stockholders' equity to remain the same. (3) Stock dividends: require a journal entry
Dividends Payable is a(n) (1)____________________ account with a normal (2) ____________________ balance and is initially recorded on the (3)____________ date.
(1) liability (2) credit (3) declaration
(1)_________________ (2) _______________________________ reports the cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began.
Retained Earnings
Refurbish, Inc. bought 1,000 shares of its own stock at $8 a share. Later, it reissued the shares for $10,000. The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n) ___________. a) $10,000 increase in stockholders' equity b) $10,000 decrease in stockholders' equity c) $8,000 increase in stockholders' equity d) $8,000 decrease in stockholders' equity
a) $10,000 increase in stockholders' equity
A current dividend preference requires that _______________________. a) preferred dividends must be paid before any dividends are paid to common stockholders. b) the preferred stockholders who have held the shares longest must be paid before those who more recently acquired preferred stock c) preferred dividends be paid before paying any interest to creditors
a) preferred dividends must be paid before any dividends are paid to common stockholders
A corporation may want to repurchase its stock from existing stockholders to ______________________. a) reduce the number of shares outstanding to increase the earnings per share and value of stock. b) increase the number of shares outstanding to increase the earnings per share and decrease stock price. c) increase its cash position and make the stock more attractive d) reduce the amount of Treasury Stock and increase total shareholders' equity
a) reduce the number of shares outstanding to increase the earnings per share and value of stock
An IPO__________________. (check all that apply) a) stands for initial public offering b) stands for independent public obligations c) stands for issued private options d) is when a private company goes public
a) stands for initial public offering d) is when a private company goes public
Corporations can raise large amounts of money because ________. a) the unlimited liability feature makes corporate ownership attractive to investors b) all investments in corporate stock earn money for investors c) corporate earnings are not taxed d) shares of stock in public companies can easily be bought and sold by investors
d) shares of stock in public companies can easily by bought and sold by investors
Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the re-issuance, the treasury stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. As a result, of this transaction, Refurbish's ___________. (check all that apply). a) stockholders' equity on the balance sheet will be $10,000 higher b) stockholders' equity on the balance sheet will be $8,000 higher c) net income on the income statement will be $2,000 higher d) treasury stock on the balance sheet will equal $4,000
a) stockholders' equity on the balance sheet will be $10,000 higher d) treasury stock on the balance sheet will equal $4,000
Why might a company issue a stock dividend? (select all that apply) a) to demonstrate commitment to stockholders while conserving cash during difficult times b) to signal an expectation of significant future earnings c) to reduce the number of shares outstanding d) to lower the market price per share e) to reduce the Treasury Stock balance
a) to demonstrate commitment to stockholders while conserving cash during difficult times b) to signal an expectation of significant future earnings d) to lower the market price per share
Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000 and recorded the entry with a debit ________. a) treasury stock and a credit to cash of $8,000 b) common stock and a credit to cash of $8,000 c) Common stock for $1,000 and additional paid-in capital of $7,000 and a credit to cash of $8,000 d) cash of $8,000 and credit to common stock for $1,000 and additional paid-in capital of $7,000 e) treasury stock for $1,000 and additional paid-in capital of $7,000
a) treasury stock and a credit to cash of $8,000 - the entry includes an $8,000 debit to treasury stock (-SE) and $8,000 credit to cash (-A)
Prior to a $4,000 stock dividend, total stockholders' equity equaled $50,000. After the stock dividend, total stockholders' equity equals _______________. a) $54,000 b) $50,000 c) $48,000 d) $46,000 e) $52,000
b) $50,000 - A stock dividend decreases retained earnings and increases common stock and additional paid-in capital (in total) by the same amount, so there is no change in total stockholders' equity.
ABC, Inc. has 1,000 shares of 5%, $100 par value cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding. If ABC did not pay a dividend in the prior year and the common stockholders received $0.50 per share in dividends this year, then the total dividend declared and paid to both preferred and common stockholders this year was _____________. a) $50,000 b) $60,000 c) $55,000 d) $50,000
b) $60,000 - The preferred stockholders received $10,000 (=1,000 x $100 par x 5% x 2 years) and common stockholders received $50,000 for a total of $60,000.
Wok N Roll, Inc. began on January 1, 2017 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in 2017 or 2018. In 2019, Wok N Roll declared and paid a $0.50 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in 2019 equals________________. a) $55,000 b) $65,000 c) $50,500 d) $50,000
b) $65,000
Common stock's par value is _____________. a) the same as a bond's par value b) an insignificant amount specified in the corporate charter c) the common stock's average price d) the same as the common stock's market price
b) an insignificant amount specified in the corporate charter.
A corporate charter is the same as its __________________. a) annual report filed with the SEC b) articles of incorporation c) annual report to stockholders
b) articles of incorporation
The effect of issuing 1,000,000 new shares of common stock will ______________________ EPS. a) increase b) decrease c) have no effect on
b) decrease
Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity? a) treasury stock b) dividends: preferred c) additional paid-in capital d) net income e) stock issuances f) dividend: common
b) dividends: preferred d) net income f) dividends: common
When a shareholder of Limited, Inc. sells its shares to another investor on the stock exchange, Limited, Inc.'s accounting equation__________________________________. a) will show a decrease in total assets and total stockholders' equity b) is not affected because the corporation is separate from its owners. c) is not affected because of the cost principle. d) will show an increase in total assets and total stockholders' equity
b) is not affected because the corporation is separate from its owners.
Lox, Stock and 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. a) 55,000 b) 50,000 c) 45,000 d) 95,000 e) 105,000
c) 45,000 - The 45,000 shares outstanding equals the number issued of 50,000 minus the 5,000 shares bought back by the company
Transactions between a company and its stockholders affect the company's _________ accounts only. a) asset b) income statement c) balance sheet d) liability
c) balance sheet
The risk from financial leverage _____________________. (select all that apply) a) increases when a company's current ratio increases b) increases when a company reduces its borrowing c) decreases when a company issues new shares of stock d) increases when the cost of borrowing is greater than the return.
c) decreases when a company issues new shares of stock d) increases when the cost of borrowing is greater than the return
EPS appears on the _____________. a) balance sheet b) statement of stockholders' equity c) income statement
c) income statement
Under IFRS, if the company issuing preferred stock is contractually obligated to pay dividends or to redeem the shares at a future date, then the preferred stock is classified as ____________________. a) stockholders' equity b) a long-term asset c) retained earnings d) a liability
d) a liability
A corporation's board of directors could prefer a stock split to a stock dividend because a stock split ______________. a) increases total stockholders' equity and allows the corporation more flexibility b) reduces retained earnings, so the company pays less taxes c) increases the market price of the stock d) does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future.
d) does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future.
Nova, Inc. is considering declaring a $100,000 cash dividend. Nova has a cash balance of $20,000 and retained earnings balance of $100,000. Nova should _______________________________. a) not declare a cash dividend because it does not have enough retained earnings b) declare a cash dividend because it has enough retained earnings and cash c) declare a cash dividend because it has enough retained earnings d) not declare a cash dividend because it does not have enough cash
d) not declare a cash dividend because it does not have enough cash
Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes $5,000 ____________________ to treasury stock.
debit
Similar to a stock split, a stock _________________ also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.
dividend