accounting 100 final

outstanding stock =

# of shares issued - # in treasury

times interest earned

(net income +interest expense+ income tax expense)/interest expense

earnings per share ratio

(net income - preferred dividends)/ weighted avg common shares outstanding

avg collection perdio

365/accounts receivable turnover

days in inventory

365/inventory turnover

How does a corporation compare to an individual?

Both are tax-paying entities.

John owns 10% of Hat Trick Manufacturing. He wishes to exercise his preemptive right. What should he do?

Buy 10% of any new stock offerings.

T/F: The initial market price of a stock is affected by the par value of stock.

False

T/F: The par value of a stock reflects the most recent market price.

False

Which two accounts are regularly used with Retained Earnings during the closing process?

Income Summary and Dividends.

is total stockholder's equity affected by a stock split?

No

A company pays quarterly dividends to their shareholders. If the dividends increase in one quarter compared to the previous quarter, what likely happened?

The company purchased treasury stock.

T/F: A net loss decreases retained earnings.

True

T/F: An obligation for dividends in arrears exists only after the board of directors declares payment.

True

An investor is looking to purchase common stock for a low price with the hope that the stock price will increase dramatically over the next few years. What type of company would this investor be most likely to invest in?

a company that does not pay dividends out of their retained earnings

Treasury stock should be reported in the financial statements of a corporation as a ________ from ________ and ___________.

a deduction from total paid-in capital and retained earnings.

An investor is looking to invest in companies that do not pay regular dividends now but instead reinvest their retained earnings back into the company. What is one likely goal of this investor?

achieving capital gains on the stock purchases

How should treasury stock be reported in the financial statements of a corporation?

as a deduction from total paid-in capital and retained earnings

Downtrodden Corporation has been experiencing consistent net losses for the past five years. How does the company report the resulting deficit?

as a deduction on the stockholders' equity section of the balance sheet

basic accounting equation

assets= liabilities +stockholders' equity

How does the purchase of treasury stock affect current shareholders?

by increasing earnings per share

payout ratio

cash dividends declared on common stock/net income

What is a cause for occasional restrictions of retained earnings?

contractual loan restrictions

Preferred stock has ________ __________ that give it priority over common stock in certain areas.

contractual provisions

inventory turnover

cost of a good sold/avg. inventory

working capital

current assets-current liabilities

current ratio

current assets/current liabilities

journal entry for a declaration of dividends

debit: cash dividends credit: dividends payable

journal entry for a payment of dividends

debit: dividends payable credit: cash

journal entry to record net income

debit: income summary credit: retained earnings

3 solvency ratios

debt to assets ratio, times interest earned, free cash flow

A corporation purchases 3,000 shares of its own $5 par common stock for $8 per share, recording it at cost. What will be the effect on total stockholders' equity?

decrease of $24,000

A corporation purchases 4,000 shares of its own $5 par common stock for $8 per share, recording it at cost. What will be the effect on total stockholders' equity?

decrease of $32,000

stock dividend leads to a ______ in retained earnings and a ______ in paid-in capital

decrease; increase

net loss occurs when...

expenses exceed revenues

issuance of stock dividends causes the market price to do what?

go down

gross profit rate

gross profit/net sales

Treasury shares plus outstanding shares equal ___________.

issued stock

What is one requirement of the corporate form of business?

issuing quarterly and annual reports

Closeknit Corporation has a limited number of stockholders. As a privately held corporation, Closeknit is exempt from

issuing reports to the SEC.

If no-par value stock does not have a stated value, then the entire proceeds from the issuance of the stock become

legal capital.

s corporation

legal treatment of corporation but tax treatment as a partnership (no taxation) // cannot have more than 100 stockholders

causes for retained earnings restrictions

legal, contractual, voluntary

Briggs Industries issued preferred stock for the first time during its most recent fiscal year. On its balance sheet for this fiscal year, Briggs should

list the firm's common stock after its preferred stock.

price-earnings ratio

market price per share/earnings per share

free cash flow =

net cash provided by operating activities - capital expenditures - cash dividends

accounts receivable turnover

net credit sales/ avg net accounts receivable

return on assets =

net income / total assets

return on common stockholders' equity

net income-preferred dividends/ avg common stockholders' equity

profit margin

net income/net sales

return on assets

net income/total assets

gross profit =

net sales - cost of goods sold

asset turnover

net sales/avg total assets

does the stock dividend affect the par value?

no

is total stockholder's equity affected by an issuance of a stock dividend?

no

The entire proceeds from the issuance of common stock becomes legal capital if ________ stock is issued ________ a stated value.

no-par; without

Which two items comprise the major components of stockholders' equity on the corporate balance sheet?

paid-in capital and retained earnings

legal capital is based on the _____ value of the stock issued

par

The stated value is treated the same way as ________ value for accounting purposes.

par value

What amounts involving common stock are considered "legal capital"?

par value and stated value

How does a company determine the amount to record as "legal capital"?

par value or stated value

What constitutes capital stock on the stockholders' equity section of the balance sheet?

preferred and common stock at par

If a company would like to increase earnings per share for their shareholders, which action should they take?

purchase treasury stock

retained earnings =

revenues - expenses - dividends

Two classifications appearing in the paid-in capital section of the balance sheet are capital stock and

stockholders' liability.

a stock dividend reduces retained earnings by ______ x______

the number of shares used x market price per share

When Catawba Corporation purchases treasury stock, which amount is debited to the treasury stock account?

the price paid to reacquire the shares

debt-to-assets ratio

total liabilities/total assets

Leary Manufacturing Corporation purchased 5,000 shares of its own previously issued $10 par common stock for $125,000. As a result of this event, _____ decreased $125,000.

total stockholders' equity

Identifying the type of account involved and whether to make a debit or a credit to the account is the purpose of

transaction analysis

Which of the following is listed under the total paid-in capital and retained earnings section of the balance sheet?

treasury stock

Where does the listing for treasury stock appear in the stockholders' equity section of the balance sheet?

under the total of paid-in capital and retained earnings

liquidity ratios (6)

working capital, current ratio, inventory turnover, days in inventory, accounts receivable turnover, avg collection period