Accounting 230 Final Study Guide

True or False: the total net income earned by a corporation on behalf of its shareholders and not paid out as dividends is called retained earnings

True

The term "dividends in arrears" refers to preferred stock dividends that are:

Not paid in a given year

When a company declares and pays a cash dividend, what are the financial statement effects?

Stockholders' equity decreases

Retained earnings are:

All of the company's earnings not distributed to stockholders, increased by net income, decreased by dividends, and sometimes called earned capital

Refurbish, Inc. bought 1,000 shares of its own stock for $8,000. Later it resold the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n):

$8,000 credit to treasury stock $2,000 credit to additional paid-in capital

Which of the following will change the balance of a stockholders' equity account category?

Cash dividends Treasury stock is resold at cost Preferred stock is issued

Which accounts are classified as shareholders' equity?

Common stock Additional paid-in capital Retained earnings

Justin Corp. issues 10,000 shares of $1 par value common stock for $5 per share. The journal entry to record this transaction will include:

Credit to additional paid-in capital $40,000 Credit to common stock $10,000

Knorr issues 1,000 shares of $2 par value common stock for $10 per share. The journal entry to record this transaction will include which of the following?

Credit to common stock $2,000 Credit to additional paid-in capital $8,000

Peter Inc. issues 15,000 shares of no par stock for $500,000. Common stock should be:

Credited for $500,000

Bank, Rupp & Baroque, Inc. began on January 1, 2018 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6% cumulative preferred stock. No dividends were declared in 2018. In 2019, Bank, Rupp & Baroque declared and paid a $1.00 dividend to its common stockholders. Which of the following is true?

Dividends in arrears should be disclosed in the notes to the 2018 financial statements

Which of the following are included in the rights of common stockholders?

Right to vote on certain matters

The contra account used to record a company's repurchase of its own common stock is the ________ stock account

Treasury

True or False: no gain or loss is reported when treasury stock is reissued because GAAP does not consider transactions between a corporation and its owners to be profit-making activities

True; GAAP does not allow gains or losses to be reported when a corporation reissues its treasury stock

Dividends ________ paid on treasury shares

are not

Limited liability and ease of raising outside capital are advantages of this business form:

corporation

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as ___________ earnings.

invested

__________ capital is the amount of money paid into a company by its owners

invested

The most important advantage of the corporate form of business is

limited liability

If we multiply the current stock price per share and the number of shares outstanding, we will be able to calculate the ______ value of equity.

market

An accumulated deficit in retained earnings indicates that the company has ____________

net losses

Which of the following are sources of shareholders' equity: Assets Paid-in capital Retained earnings Liabilities

paid-in capital retained earnings

A(n) ___________ corporation is considered closely held with few owners, whereas a(n) ________ corporation is available to any investor who wants to purchase shares of stock on the stock exchange

private; public

A company's past profits that are not paid out in dividends are ___________

retained earnings

A corporation's accumulated, undistributed net income or loss is referred to as:

retained earnings

Amounts earned by the corporation and not paid out in dividends are referred to as:

retained earnings

Earned capital increases __________

retained earnings

If a corporation repurchases its own common stock, the stock is referred to as:

treasury stock

_______ ___________ represents a corporation's own stock that it has reacquired

treasury stock

When should a corporation record a liability for dividends in arrears on its cumulative preferred stock?

when the dividends have been declared

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes:

$10,000 debit to treasury stock $10,000 credit to cash

The journal entry to record the resale of treasury stock below cost will result in a debit to cash and:

Additional paid-in capital

When treasury shares are reissued for an amount greater than cost, the amount over the cost increases:

Additional paid-in capital

Only _____ common shares are eligible to receive dividends

outstanding

Mars Inc. issues 5,000 shares of no par stock for $100,000. Which entry is required?

Credit common stock

The advantages to the corporate form of business include:

Ease of raising capital Transferability of ownership

Preferred stock is "preferred" over common stock by providing preferred stockholders with these rights:

Preference in distribution of assets during dissolution of corporation First right to specified amount of dividends

Albert Inc. has both common and preferred stock outstanding. Which should be listed first in the stockholders' equity section of the balance sheet?

Preferred stock

Which type of corporation is regulated by the Securities and Exchange Commission?

Public

Match the business form with the correct description: Sole proprietorship Corporation

Sole proprietorship --> most common form of business Corporation --> highest volume of total sales, earnings, assets, and employees

How should cash dividends be reported on the statement of shareholders' equity?

As a reduction of retained earnings

Which financial statement summarizes the changes in the balance of each stockholders' equity account?

Statement of stockholders' equity only

Unpaid dividends on cumulative preferred stock are called dividends in ____________.

arrears

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 a $5,000 ________ to Treasury stock.

debit

Dividends payable is recorded as a credit on the _____________

declaration date

Preferred stock generally (has/does not have) _________ voting rights and (has/does not have) _______ preference as to dividends

does not have; has

Preferred stockholders:

have the right to receive dividends only in the years the board of directors declares dividends

Retained earnings of $100,000 represent a corporation's cumulative earnings _______ and is shown on the ___________.

not paid out by dividends; balance sheet and statement of retained earnings

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:

$110,000 debit to cash $10,000 credit to additional paid-in capital - preferred $100,000 credit to preferred stock

In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries:

Debit additional paid-in capital $400

Gosling Corp. has 100,000 shares of common stock authorized, 80,000 shares issued, and 20,000 shares of treasury stock. Gosling declares a dividend of $0.10 share. Which entries are required at the date of declaration?

Debit dividends $6,000

The journal entry to record reissuing treasury stock as a price below the cost of the treasury stock includes:

Debit to additional paid-in capital Debit to cash Credit to treasury stock

Match the source of capital with the account in which it is recognized: Earned Capital Invested Capital

Earned Capital --> retained earnings Invested Capital --> common stock

Additional taxes and more paperwork are the two primary disadvantages of the business form:

corporation

Disadvantages of the corporate form of business are:

Additional taxation and more paperwork

Which of the following shares are eligible to receive dividends?

Outstanding shares

Shareholders' equity consists of which items? Amounts of assets purchased by the corporation Amounts invested by shareholders Amounts borrowed by the corporation Amounts earned by the corporation

Amounts invested by shareholders Amounts earned by the corporation

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document? Articles of incorporation Corporate tax returns Corporate proxy Corporate charter

Articles of incorporation Corporate charter

For a specific corporation, the total number of shares available to sell are referred to as:

Authorized

Match the preferred stock feature with the correct description Convertible Redeemable Cumulative

Convertible --> Marcus turns in his preferred stock and receives common shares in exchange Redeemable --> Nurbert Inc. demands return of preferred stock at the pre-specified amount Cumulative --> during the current, Petra Inc. pays dividends that were not declared last year

A corporate charter:

Describes the business activities Specifies the shares of stock to be issued Names the board of directors

The journal entry to record the declaration of a dividend includes _______________

a debit to dividends & a credit to dividends payable

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. As a result of this transaction, Refurbish's:

Stockholders' equity on the balance sheet will be $10,000 higher Treasury stock on the balance sheet will equal $4,000

The amount of money paid into a company by its owners is referred to as:

invested capital

In a corporation, the stockholders' potential loss is:

limited to the amount of the investment

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n):

decrease in stockholders' equity & an increase in liabilities

X-Co issued 1,000 shares of its 5%, $10 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes:

$100,000 debit to cash $10,000 credit to preferred stock $90,000 credit to additional paid-in capital

Preferred stock:

-generally, does not have voting rights -is useful for raising capital without reducing common stockholders' control -has preference as to dividends

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):

Increase in total assets of $10,000 Decrease in additional paid-in capital of $1,000

Stockit Inc. has 1,000 shares of 5%, $100 par value, cumulative preferred stock outstanding. In its first 2 years of business, Stockit did not declare a dividend. Stockit's balance sheet at the end of its first 2 years of business should include:

No dividends payable

True or False: Typically, the balance in the additional paid-in capital account will be larger than the common stock account of a company that issues par value stock.

True

A business that is co-owned by two or more persons, and whose investors have unlimited liability, is called a:

partnership

Dafty Duct, Inc. issues 10,000 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes:

$10,000 credit to common stock $90,000 credit to additional paid-in capital $100,000 debit to cash

Refurbish, Inc. bought 1,000 shares of its own stock for $8,000. Later it resold the shares for $10,000. The effect of the sale of treasury stock on the accounting equation includes a(n)

$10,000 increase in stockholders' equity

For most companies that issue par-value common stock, which account balance is typically the highest?

Additional paid-in capital

Match each term with its definition: Authorized shares Issued shares Outstanding shares

Authorized shares --> total number of shares available to sell as indicated in the company's articles of incorporation Issued shares --> total number of shares of stock issued (sold) to investors Outstanding shares --> the number of shares issued less treasury shares repurchased by the corporation

Canton, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. Mr. Smart, the bookkeeper, recorded this transaction with a $100,000 debit to Cash and a $100,000 credit to Common stock. As a result of this entry:

Common stock will be overstated Additional paid-in capital will be understated

The market value of equity is equal to the product of these two factors:

Current stock price Number of shares outstanding

On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on March 1, 2018, will include which entries?

Debit dividends $3,000 Credit dividends payable $3,000

On April 1, 2018, Rawlings declares a dividend of $0.30 per share. Rawlings has 100,000 shares authorized, and 40,000 issued and outstanding. The date of record is April 28, and the payment date is May 15. Which entry is included in the journal entry on May 15?

Debit dividends payable $12,000

On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on April 1, 2018, will include which entries?

Debit dividends payable $3,000 Credit cash $3,000

When a cash dividend is declared and paid in the same year, the total effects on the balance sheet include which of the following?

Decrease assets & decrease stockholders' equity

Investors who acquire preferred stock:

Do not have voting rights Have preference as to dividends

The rights of common stockholders typically include which of the following? Right to vote for corporate directors Right to distribution of assets in liquidation Right to dividends when declared Right to receive a percentage of net income each year

Right to vote for corporate directors Right to distribution of assets in liquidation Right to dividends when declared

Which account is a stockholders' equity account?

additional paid in capital

The statement of shareholders' equity reports the ______.

changes in each shareholder equity account

Match the term with the preferred stock characteristic: convertible redeemable cumulative

convertible --> shares can be converted for common stock redeemable --> stocks can be turned in or re-purchased on demand cumulative --> dividends not declared for one year are payable when declared in subsequent periods

If dividends are not paid during a specific year, the amount of preferred stock dividends in arrears should be:

disclosed in the financial statement notes

The purpose of the statement of shareholders' equity is to:

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