Accounting CH 11

Visor, Inc. had net income during the period of $10,000. Preferred dividends were $2,000 and the weighted-average common shares outstanding were 500. Basic earnings per share equal $ ______

$16 10,000-2,000 / 500 = 16 Basic earnings per share= Net Income - Preferred dividends / Weighted-average common shares outstanding

Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total ______. $2,500 $500 $750

$2,500 Reason: 10,000 shares x $5 x .05 = $2,500.

The board of directors authorizes a cash or distribution of cash _________ to its investors.

dividend

Stockholders have the right to ___________ at stockholders' meetings.

vote

In the computation of basic earnings per share, a company will use the ______. weighted-average common shares outstanding year-end common shares outstanding beginning-year common shares outstanding weighted-average preferred shares outstanding

weighted-average common shares outstanding

Identify the formula to compute basic earnings per share. Weighted-average common shares outstanding/net income (Net income - preferred dividends)/weighted-average common shares outstanding Net income/weighted-average common shares outstanding

(Net income - preferred dividends)/weighted-average common shares outstanding

Aviation Incorporated has 142,000 shares authorized, 132,000 shares issued and no treasury stock. Determine the number of shares outstanding: 142,000. 132,000. 10,000. 0. None of the above.

132,000.

Blink, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $__________

19,500

A small stock dividend is a distribution of Blank______% or less of previously outstanding shares. 25 15 20

25

On January 1, Lang, Inc. has 100,000 shares of stock issued and outstanding. The board of directors of Lang wants to authorize a large stock dividend. This means that they must authorize a stock dividend of at least ______ shares of stock. 50,001 20,001 30,001 25,001

25,001

Treasury stock is classified as: An asset account. A contra asset account. A revenue account. A contra equity account. A liability account.

A contra equity account.

The dividend yield is computed by dividing: Annual cash dividends per share by earnings per share. Earnings per share by cash dividends per share. Annual cash dividends per share by the market value (price) per share. Par value per share by cash dividends per share. Cash dividends per share by retained earnings.

Annual cash dividends per share by the market value (price) per share.

______ stock is the number of shares that a corporation's charter allows it to sell. Issued Authorized Outstanding

Authorized

John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts? Paid-in Capital in Excess of Land Common Stock Cash Equipment Paid-in Capital in Excess of Par Value

Common Stock Paid-in Capital in Excess of Par Value

When all authorized shares of a corporation's stock have the same rights and characteristics, the stock is called: Preferred stock. Common stock. Par value stock. Stated value stock. No-par value stock.

Common stock.

Identify the disadvantages of the corporate form of business. Limited liability Corporate taxation Transferable ownership rights Lack of mutual agency Government regulation

Corporate taxation Government regulation

Gomez Inc.'s charter authorizes 1,000 shares of stock at a par value of $1 per share. Gomez sells 200 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include which of the following entries? Credit to Common Stock, $1 par for $200. Debit to Cash for $200. Debit to Common Stock, $1 par for $200. Credit to Cash for $200.

Credit to Common Stock, $1 par for $200. Debit to Cash for $200.

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries? Debit to Common Stock for $100. Credit to Paid-In Capital, in Excess of Stated Value for $450. Credit to Cash for $500. Debit to Cash for $500. Credit to Common Stock for $500. Credit to Common Stock for $50.

Credit to Paid-In Capital, in Excess of Stated Value for $450. Debit to Cash for $500. Credit to Common Stock for $50.

The date for identifying the stockholders to receive dividends is called the: Date of stockholders' meeting. Date of declaration. Date of record. Date of payment. Liquidating date.

Date of record.

Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common stock outstanding. The journal entry to record the dividend payment is: Debit Retained Earnings $4,000; credit Common Dividend Payable $4,000. Debit Common Dividend Payable $4,000; credit Cash $4,000. Debit Retained Earnings $4,500; credit Common Dividend Payable $4,500. Debit Common Dividend Payable $4,500; credit Cash $4,500. Debit Retained Earnings $10,000; credit Common Dividend Payable $10,000.

Debit Common Dividend Payable $4,000; credit Cash $4,000.

The amount of annual cash dividends distributed to common shareholders relative to the common stock's market value is the: Return on assets. Dividend yield. Price-earnings ratio. Current yield. Earnings per share.

Dividend yield.

The board of directors of a corporation: Is elected by the corporate registrar. Are responsible for day-to-day operations of the business. Does not have the power to bind the corporation to contracts, due to lack of mutual agency. May not also be executive officers of the corporation, due to the separate entity principle. Is responsible for overseeing corporate activities.

Is responsible for overseeing corporate activities.

Identify which of the following is not generally a right of common stockholders. Sell stock Vote at stockholders' meetings Receive dividends if issued Share any remaining assets if the corporation is liquidated Purchase proportional shares if new stock is issued Manage operations

Manage operations

Stated value stock is: Another name for redemption value. An amount assigned to par value stock by the state of incorporation. The market value of the stock on the date of issuance. The difference between the par value of stock and the amount below or above par value paid-in by the stockholder. No-par stock that has an assigned "stated" value per share.

No-par stock that has an assigned "stated" value per share.

A corporation's distribution of additional shares of its own stock to its stockholders without any payment in return is called a: Stock dividend. Stock subscription. Premium on stock. Discount on stock. Treasury stock.

Stock dividend.

Which of the following statements regarding stock dividends is false? Directors can use stock dividends to keep the market price of the stock affordable. Stock dividends provide evidence of management's confidence that the company is doing well. Stock dividends do not reduce assets or equity. Stock dividends decrease the number of shares outstanding. Stock dividends transfer a portion of equity from retained earnings to contributed capital.

Stock dividends decrease the number of shares outstanding.

A corporation with $10 par common stock issues a large stock dividend. The capitalization of retained earnings is equal to: The par value of the shares to be distributed. The par value of the shares outstanding. The market value of the shares to be distributed. The market value of the shares outstanding. There is no capitalization of retained earnings in the case of a large stock dividend.

The par value of the shares to be distributed.

Stockholders do not have the power to bind the corporation to contracts. This is referred to as lack of mutual agency. T/F

True

A Blank______ is the distribution of cash to its owners. This is determined by the board of directors. common stock dividend cash dividend withdrawal

cash dividend

Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called ______ stock.

common

Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called __________ stock.

common

When all authorized shares of stock have the same rights and characteristics, the stock is called ______ stock. preferred common corporate general

common

Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) _______ to Common Stock for _______. credit; $2,500 debit; $2,500 credit; $500 debit; $500

credit; $500

Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit) _________to Common Stock, $1 par for $ ___________.

credit; 100

On August 20, Max, Inc. issues 100 shares of $1 par value preferred stock for $3,000 cash. The entry to record this transaction would include a (debit/credit) __________to the preferred stock account in the amount of $________

credit; 100

Avery, Inc. held 100 shares of its own $10 par value common stock purchased for $15 per share. On December 1, Avery sold 10 shares at $15 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) _________to Treasury Stock in the amount of $_________

credit; 150

Josie Inc.'s charter authorizes 1,000 shares of stock with no par value. Josie Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) ___________to Common Stock, for $_________

credit; 500

Riley Inc.'s charter authorizes 1,000 shares of stock at a stated value of $10 per share. Riley issues 50 shares of stock at its initial offering for $20 per share. The journal entry to record this transaction will include a (debit/credit) __________to Common Stock, $__________

credit; 500

The amount of income earned per each share of a company's outstanding common stock is known as: earnings per share price-earnings ratio book value per share

earnings per share

A stock dividend that is greater than 25% of the previously outstanding shares of stock is considered to be a (small/large) ___________stock dividend.

large

The ______ value per share is the price at which a stock is bought and sold. equity market par stated

market

Jordan Inc.'s charter states that there are 50,000 shares of stock authorized with a par value of $5 per share. This typically means that investors must pay a (minimum/maximum) __________ of $5 per share to invest in the corporation.

minimum

A statement of stockholders' equity lists balances of: net income common stock shares retained earnings accrued dividends cash dividends earnings per share

net income common stock shares retained earnings cash dividends

The _____ value of stock is an amount assigned per share by the corporation in its charter. In many states, this amount establishes the minimum legal capital, which refers to the least amount that the buyers of stock must contribute or be subject to paying at future dates. par common general market

par

Stock that typically includes preference for receiving dividends and for distribution of corporate assets during a liquidation is called (common/preferred) ___________ stock.

preferred

A ______ dividend, declared by a corporation's directors, is a distribution of additional shares of the corporation's own stock. preferred cash stock

stock

The board of directors of Visor, Inc. authorize a ______, a distribution of additional shares of the corporation's own stock, to existing shareholders. dividend declaration dividend authorization stock dividend cash dividend

stock dividend

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate __________

taxation

A corporation is created by obtaining a charter from: the federal government initial stockholders the state government an attorney

the state government

When a corporation purchases shares of its own stock, it is called Blank______ stock. callable convertible treasury preferred

treasury

Long, Inc. purchased 50 shares of its own $10 par value common stock for $50 per share. The journal entry to record this transaction would include a debit to the _______ Stock account in the amount of $______

treasury; 2500

_____ stock is the number of shares that a corporation's charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.

Authorized

The number of shares that a corporation's charter allows it to sell is referred to as: Issued stock. Outstanding stock. Common stock. Preferred stock. Authorized stock.

Authorized stock.

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the dividend declaration is: Debit Retained Earnings $104,500; credit Common Dividend Payable $104,500. Debit Common Dividend Payable $104,500; credit Cash $104,500. Debit Retained Earnings $100,100; credit Common Dividend Payable $100,100. Debit Common Dividend Payable $100,100; credit Cash $100,100. Debit Retained Earnings $110,000; credit Common Dividend Payable $110,000.

Debit Retained Earnings $100,100; credit Common Dividend Payable $100,100.

Eastline Corporation had 15,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 6,000 shares. At the time of the stock dividend, the market value per share was $22. The entry to record this dividend is: Debit Retained Earnings $132,000; credit Common Stock Dividend Distributable $132,000. No entry is needed. Debit Common Stock Dividend Distributable $132,000; credit Retained Earnings $132,000. Debit Retained Earnings $60,000; credit Common Stock Dividend Distributable $60,000. Debit Retained Earnings $132,000; credit Common Stock Dividend Distributable $60,000; credit Paid-In Capital in Excess of Par Value, Common Stock $72,000.

Debit Retained Earnings $60,000; credit Common Stock Dividend Distributable $60,000.

Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries? Debit to Cash for $500. Credit to Common Stock for $50. Credit to Cash for $500. Credit to Common Stock for $500. Credit to Paid-In Capital, in Excess of Stated Value for $450. Debit to Common Stock for $100.

Debit to Cash for $500. Credit to Common Stock for $50. Credit to Paid-In Capital, in Excess of Stated Value for $450.

Ivers, Inc. purchased 100 shares of its own $10 par value common stock for $20 per share. The journal entry to record this transaction would include which of the following entries? Debit to Treasury Stock; credit to Common Stock. Debit to Treasury Stock; credit to Cash. Debit to Cash; credit to Treasury Stock. Debit to Common Stock; credit to Treasury Stock.

Debit to Treasury Stock; credit to Cash.

The amount of income earned per share of outstanding common stock is known as: Restricted retained earnings per share. Earnings per share. Continuing operations per share. Dividends per share. Return on assets per share.

Earnings per share.

Identify the advantages of the corporate form of business. Ease of capital accumulation Corporate taxation Government regulation Limited liability of stockholders Continuous life

Ease of capital accumulation Limited liability of stockholders Continuous life

Dividend yield is a comparison of a company's earnings per share and its market value per share. T/F

False

Stocks that pay little or no cash dividends but are attractive to investors because of expected stock price increases are known as: Small capital stocks. Mid capital stocks. Growth stocks. Large capital stocks. Income stocks.

Growth stocks.

A premium on stock: Occurs when a corporation sells its stock for more than par or stated value. Is the difference between par value and issue price when the amount paid is below par. Represents revenue from issuing stock. Is listed as a gain on the income statement. Is prohibited in most states.

Occurs when a corporation sells its stock for more than par or stated value.

Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to ______ in the amount of ______. Cash; $10,000 Paid-in Capital, in Excess of Par; $8,000 Common Stock; $10,000 Paid-in Capital, in Excess of Par; $10,000

Paid-in Capital, in Excess of Par; $8,000

The market value per share is the price at which stock is bought and sold. Which of the following factors does not influence market value? Par value Expected future earnings Growth Dividends

Par value

______ has/have special rights that give it priority over other types of stock in one or more areas. . Employee options Common stock Preferred stock Corporate stock

Preferred stock

A dividend preference for preferred stock means that: Preferred stockholders are paid their dividends before any dividends are paid to common stockholders. Preferred shareholders are guaranteed dividends. Dividends are paid quarterly. Common stockholders receive dividends more frequently than preferred stockholders. Dividends must be declared on preferred stock.

Preferred stockholders are paid their dividends before any dividends are paid to common stockholders.

The account that consists of a company's cumulative net income less any losses and dividends declared since its inception is called ______. Stockholders' Equity Net Income Common Stock Retained Earnings

Retained Earnings

A stock dividend is recorded with a transfer from: Contributed capital to retained earnings. Retained earnings to contributed capital. Retained earnings to assets. Contributed capital to assets. Assets to contributed capital.

Retained earnings to contributed capital.

Prior period adjustments are reported in the: Multiple-step income statement. Balance sheet. Statement of retained earnings. Statement of cash flows. Single-step income statement.

Statement of retained earnings.

Market value per share is: The price at which a stock is bought and sold. A contractual commitment by an investor to purchase unissued shares of stock. Stock not assigned a value per share. The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation. An amount assigned to no-par stock.

The price at which a stock is bought and sold.

Which of the following is not a reason that a corporation would issue preferred stock? To boost the return earned by common stockholders To raise capital without sacrificing control To obtain a tax advantage over corporations with no preferred stock To appeal to certain investors who want less risk

To obtain a tax advantage over corporations with no preferred stock

Corporations purchase and hold their own stock, known as treasury stock, for several reasons. Identify which of the following is not a reason that a corporation would buy treasury stock. To show management confidence in the price To reduce the market value of the common shares outstanding To reissue them to employees To use their shares to acquire another corporation

To reduce the market value of the common shares outstanding

Stock shares that are reacquired by the issuing corporation are called: Capital stock. Treasury stock. Redeemed stock. Preferred stock. Callable stock.

Treasury stock.

A common contractual restriction is a loan agreement that restricts paying dividends beyond a specified amount of retained earnings. T/F

True

Preferred stock can be issued to raise money without giving up control. T/F

True

A ______ is an entity created by law that is separate from its owners. Owners are called stockholders or shareholders. These entities can be privately or publicly held. corporation sole proprietorship partnership limited liability partnership

corporation

On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry to record this transaction would include a (debit/credit) _______ to the preferred stock account in the amount of _______. debit; $5,000 credit; $5,000 debit; $1,000 credit; $1,000

credit; $1,000

Cameron, Inc. held 1,000 shares of its own $10 par value common stock purchased for $20 per share. In March, Cameron sold 10 shares at $20 per share. The journal entry to record the sale of treasury stock would include a (debit/credit) _____ to Treasury Stock in the amount of ______. credit; $200 credit; $100 debit; $100 debit; $200

credit; $200 Reason: Under the cost method, they will credit the Treasury Stock account for the price paid, $20 per share x 10 shares = $200.

Corporations can be separated into two types. A (privately/publicly) _______held corporation does not offer its stock for public sale and usually has few stockholders. A (privately/publicly) __________ held corporation offers its stock for public sale and can have thousands of stockholders.

privately; publicly

A charter application usually must be signed by the prospective stockholders called incorporaters or ___________ . Then, it is filed with the appropriate state official.

promoters

________ ________________is an account that consists of a company's cumulative net income less any losses and dividends declared since its inception.

retained earnings

Carefree, Inc. has 20,000 shares issued and outstanding. On August 1, the board authorizes a 20% stock dividend. This is considered a (large/small) ________ stock dividend.

small

A stock ______ is the distribution of additional shares to stockholders according to their percent ownership. When this occurs, the corporation "calls in" its outstanding shares and issues more than one new share in exchange for each old share. split conversion dividend

split

Mario, Inc. declares a 2-for-1 stock _________. This means that Mario will "call in" its outstanding shares and issue two shares in exchange for each old share of stock.

split

The ______ lists the beginning and ending balances of key equity accounts and describes the changes that occur during the period. income statement statement of retained earnings statement of stockholders' equity

statement of stockholders' equity