AC 210 Chapter 11
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) ______.
$10,000 increase in stockholders' equity
The money a corporation receives from investors by issuing stock is called ______.
Contributed Capital
Any difference between the cost of the treasury stock and the price when it is re-issued is recorded as a ______.
debit to Additional Paid-in Capital when the price is below the cost
Which form of financing has a tax advantage?
debt financing
A stock dividend ______.
distributes additional shares of stock to existing stockholders on a pro rata basis. causes retained earnings to decrease.
Investors acquire common stock because they expect a return on their investment from ______.
distributions of dividends increases in stock prices
Distribution of a company's accumulated prior earnings is a(n) ______.
dividend
Preferred stock generally ______ preference as to dividends.
has
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 represents the ______.
maximum number of shares Stockit is allowed to issue
Retained Earnings represents cumulative ______ by the business.
net income kept profits retained
Stock options ______.
provide the holder with the option to purchase stock at a specified price during a specified period of time are often given to employees as part of their compensation
Investors earn a return on stock investments by ______.
selling the stock for more than its cost receiving dividends
Treasury Stock on the balance sheet is ______.
subtracted from total stockholders' equity
Contributed capital of $1,000,000 represents ______.
the amount stockholders have invested in exchange for stock
Which of the following would be found on a statement of stockholders' equity?
Stock Issuances Dividends Treasury Stock Additional Paid-in Capital Net Income
The number of shares outstanding equals the number of shares ______.
issued minus the number of shares in treasury
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
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.
45,000
Stock options are expensed ______.
when granted and are recorded at the estimated cost of the options
True or false: Some states allow corporations to issue no-par value common stock.
True
Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes a ______.
$100,000 debit to Cash $10,000 credit to Common Stock $90,000 credit to Additional Paid-in Capital
When does a corporation record an increase in Dividends Payable?
On the declaration date
After a 3-for-1 stock split, the par value of each stock is ______ the par value prior to the split.
one third
Preferred stockholders ______.
receives dividends before common stockholders
Diva, Inc. declared and paid $10,000 of dividends. Dividends of $10,000 may be found on the ______.
statement of retained earnings
Treasury stock is reported in the ______.
stockholders' equity section of the balance sheet
True or false: When a corporation declares a dividend its Net Income on the income statement is reduced.
False
Stockit, Inc. issued 100,000 shares of the 1,000,000 shares it is allowed to issue. Stockit has repurchased 10,000 of its own shares. The number of shares authorized equals ______ shares.
1,000,000
When a company issues of shares of $0.10 par value common stock for $10 per share, it will record a ______.
credit to Additional Paid-in Capital for the difference between the $10 price and the $0.10 par value
Refurbish, Inc., bought 1,000 shares of its own stock for $8,000. Later it reissued the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n) ______.
$2,000 credit to Additional Paid-in Capital $8,000 credit to Treasury Stock
The declaration of a dividend results in ______.
a decrease in Retained Earnings after temporary accounts are closed an increase in liabilities an increase in Dividends
The maximum number of shares a corporation is allowed to sell in accordance with its corporate charter are called _________ shares.
authorized
Preferred stock is advantageous in that it ______.
has priority over common stock when dividends are declared has priority over common stock at liquidation
Investors who acquire preferred stock ______.
have preference as to dividends have preference over common stockholders
Earnings per share (EPS) appears on the ______.
income statement
Retained Earnings of $100,000 represent a corporation's cumulative earnings ______ and is shown on the ______.
kept; balance sheet and statement of retained earnings
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 ______.
$10,000 increase in Treasury Stock $10,000 decrease in Cash
Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a ______.
$50,000 increase in total stockholders' equity. $50,000 increase in total assets.
Refurbish, Inc., reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury Stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, ______.
Additional Paid-in Capital will be increased by $2,000 Treasury Stock will equal $4,000
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?
Common Stock Treasury Stock Additional Paid-in Capital
_____ is an insignificant value per share of capital stock specified in the corporate charter.
Par Value
reports the cumulative amount of net income earned by the company less the cumulative amount of dividends since the corporation began
Retained Earnings
The statement of __________ reports the changes in retained earnings as well as paid-in capital.
Stockholders Equity
Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock from Stockits for $5 per share. Which statements are true regarding the effect of this transaction on Stockits' financial statements?
Stockholders' equity on the balance sheet increases. The financing activities section of the statement of cash flows increases.
When a corporation buys back its own stock, the stock is reported on the balance sheet as ______.
Treasury Stock
Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000 and recorded the entry with a debit to ______.
Treasury Stock and a credit to Cash of $8,000
True or false: All transactions between a company and its stockholders do not affect the income statement. Dividends do not affect Net Income.
True
Transactions between a company and its stockholders affect the company's _____ accounts only.
balance sheet
When does the company record the dividend?
declaration date
The effect of repurchasing stock using the cost method is to ______.
decrease assets increase Treasury Stock decrease stockholders' equity
T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a(n) ______
decrease in additional paid-in capital of $1,000 increase in total assets of $10,000
Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000. The effect of this transaction on the accounting equation includes a(n) ______.
decrease in assets decrease in stockholders' equity
Earnings per share (EPS) may be determined by ______.
dividing the stock price by the P/E ratio dividing net income less preferred dividends by the average common shares outstanding
Dew Drop Inn, Inc. has a current ratio of 0.9 to 1.0 and $4 of debt for every $1 of equity. If Dew Drop Inn needs additional financing, it would best improve its financial situation with ______.
equity financing
Advantages of equity financing over debt financing include that ______.
equity financing does not require repayment dividends are optional
Common stock's par value ______. (
has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies affects how common stock is recorded was introduced to prevent bankrupt companies from unfairly distributing company resources
Advantages of debt financing over equity financing are that ______.
interest payments on debt are tax deductible control is not diluted
Preferred stock ______.
is useful for raising capital without reducing common stockholders' control has preference as to dividends
When a corporate charter does not specify a legal value per share, then the stock issued is referred to as ______.
no-par value stock
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.
option
A common stock's ________ value is typically set at a low amount and has little meaning today other than being used to by some states to assess fees.
par