ACCT 251 - Chapter 10

AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. The number of shares issued equals ______ shares. a. 100,000 b. 1,000,000 c. 910,000 d. 10,000 e. 90,000

a. 100,000

Shares of stock that are repurchased are referred to as ____ stock.

treasury

The date on which a company determines the registered owners of the stock who will receive a dividend is referred to as the a. record date. b. ex-dividend date. c. declaration date. d. payment date.

a. record date.

Which of the following will decrease the par value of shares? a. stock split b. both a stock split and a stock dividend c. large stock dividend

a. stock split

A corporation is owned by its ____.

stockholders, shareholders, or investors

Match the business form with the correct description

Sole proprietorship - Most common form of business Corporation - Highest volume of total sales, earnings, assets, and employees

Select all that apply 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? a. Corporate proxy b. Articles of incorporation c. Corporate charter d. Corporate tax return

b. Articles of incorporation c. Corporate charter

When a business incorporates, it must file its ______ with the state in which it incorporates. a. articles of incorporation b. federal tax return c. initial public offering d. proxy statement

a. articles of incorporation

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

Invested, Contributed, or Paid-in

Select all that apply Which of the following are sources of shareholders' equity? a. Retained earnings b. Paid-in capital c. Assets d. Liabilities

a. Retained earnings b. Paid-in capital

Select all that apply The rights of common stockholders typically include which of the following? a. Right to vote for corporate directors. b. Right to receive a percentage of net income each year. c. Right to dividends when declared. d. Right to distribution of assets in liquidation.

a. Right to vote for corporate directors. c. Right to dividends when declared. d. Right to distribution of assets in liquidation.

A ______ balance in retained earnings indicates an accumulated deficit. a. debit b. credit

a. debit

A business that is co-owned by two or more persons, and whose investors have unlimited liability, is called a a. partnership. b. proprietorship. c. corporation.

a. partnership.

True or false: A corporation is owned by debt and equity holders. a. True b. False

b. False

Select all that apply Identify what is needed to calculate the PE ratio. a. Average stockholders' equity b. Common stock dividends declared c. Earnings per share d. Stock price e. Return on equity

c. Earnings per share d. Stock price

Additional taxes and more paperwork are the two primary disadvantages of this business form: a. sole proprietorship b. partnership c. corporation

c. corporation

The P/E ratio is calculated by ______. a. dividing net income by average stockholders' equity b. dividing stockholders' equity by net income c. dividing the stock price by EPS d. dividing EPS by the stock price

c. dividing the stock price by EPS

Preferred stock generally (has/does not have) ______ voting rights and (has/does not have) ______ preference as to dividends. a. has; has b. does not have; does not have c. has; does not have d. does not have; has

d. does not have; has

ROE relates ______. a. net income to the price per share b. total assets to the average stockholders' equity c. average stockholders' equity to the price per share d. EPS to the average stockholders' equity e. net income to the average stockholders' equity

e. net income to the average stockholders' equity

An accumulated deficit in retained earnings indicates that the company has a. net losses. b. no liabilities. c. fewer assets than stockholders' equity. d. net income for the period.

a. net losses

Which financial statement summarizes the changes in the balance of each stockholders' equity account? a. Balance sheet - stockholders' equity section only b. Statement of stockholders' equity only c. Both the balance sheet and the statement of stockholders' equity

b. Statement of stockholders' equity only

Preferred stockholders: a. have the right to receive dividends only if there are enough dividends to pay the common stockholders too. b. have the right to receive dividends only in the years the board of directors declares dividends. c. must receive dividends every year. d. must receive more dividends per share than the common stockholders.

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

The most important advantage to the corporate form of business is a. regulation. b. double taxation. c. ease of formation. d. limited liability.

d. limited liability.

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. 50,000 b. 55,000 c. 95,000 d. 45,000 e. 105,000

d. 45,000

In a corporation, the stockholders' potential loss is a. limited to the amount of net income. b. unlimited with responsibility for all corporate losses. c. limited to the amount of the investment.

c. limited to the amount of the investment.

Which of the following reports net income relative to average stockholders' equity in dollars? a. P/E ratio b. ROE c. Debt/equity ratio d. ROA e. EPS

b. ROE

Select all that apply Select those statements below that are true about cash dividends. a. On the declaration date, liabilities are increased. b. On the date of record, retained earnings is decreased. c. On the payment date, retained earnings is decreased. d. On the payment date, current assets are decreased.

a. On the declaration date, liabilities are increased. d. On the payment date, current assets are decreased.

Select all that apply Distributions of stock to current shareholders of a corporation are called what type of distribution? (Select all that apply.) a. Stock dividend b. Stock split c. Treasury stock d. Property dividend

a. Stock dividend b. Stock split

Select all that apply The declaration of a dividend results in ______. a. an increase in liabilities b. an increase in Dividends c. no effect, since dividends are not d. recorded until the date of record

a. an increase in liabilities b. an increase in Dividends

The purpose of the statement of shareholders' equity is to a. report the additional expenses of the company that were not accrued during the year. b. reconcile the balance sheet with the statement of cash flows. c. report the changes and the sources of the changes in shareholder equity accounts. d. reconcile net income with taxable income and retained earnings.

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

The number of shares issued represents the number of shares: a. the company is allowed to sell b. repurchased c. sold d. sold less repurchased

c. sold

Positive ____ represent the key to a company's long-run survival. (Enter only one word.)

earnings, income, profit, or earning

Select all that apply Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights: a. first right to specified amount of dividends b. guaranteed dividends c. consistently higher return than earned by common stockholders d. preference in distribution of assets during dissolution of corporation

a. first right to specified amount of dividends d. preference in distribution of assets during dissolution of corporation

Select all that apply Retained earnings are: a. increased by net income. b. sometimes called earned capital. c. equal to cash. d. decreased by dividends. e. decreased by purchases of land. f. all of the company's earnings not distributed to stockholders.

a. increased by net income. b. sometimes called earned capital. d. decreased by dividends. f. all of the company's earnings not distributed to stockholders.

Limited liability and ease of raising outside capital are advantages of this business form: a. Sole Proprietorship b. Corporation c. Partnership

b. Corporation

Which of the following is included in the rights of common stockholders? a. Right to restrict preferred stock. b. Right to dividend payment every year. c. Right to purchase assets of the corporation. d. Right to vote on certain matters.

d. Right to vote on certain matters.

A company's past profits that are not paid out in dividends are ______. a. cash b. dividends c. reported as income for the current year d. retained earnings

d. retained earnings

The term treasury stock refers to a. a security that is held as a long-term investment. b. government securities that are held for sale. c. a class of stock that is subordinate to common stock. d. stock that is repurchased by the issuing corporation.

d. stock that is repurchased by the issuing corporation.

Match stock splits and stock dividends with their characteristics.

Stock splits - Cause the par value per share to change Cause the par value per share to change Stock splits and stock dividends - Cause total stockholders' equity to remain the same Stock dividends - Require a journal entry

Which of the following occurs on the date of record? a. A list of shareholders that are entitled to receive a dividend is made. b. The board of directors announces that a dividend will be paid. c. Dividends are paid to shareholders. d. A liability is recorded for the future dividend payment.

a. A list of shareholders that are entitled to receive a dividend is made.

Select all that apply Shareholders' equity consists of which of the following items? a. Amounts earned by the corporation b. Amounts of assets purchased by the corporation c. Amounts invested by shareholders d. Amounts borrowed by the corporation

a. Amounts earned by the corporation c. Amounts invested by shareholders

Select all that apply Disadvantages of the corporate form of business are a. less paperwork. b. additional taxation. c. more paperwork d. ease of raising capital.

b. additional taxation. c. more paperwork

Select all that apply Preferred stock is advantageous in that it: a. has priority over creditors at liquidation. b. has priority over common stock at liquidation. c. has priority over common stock when dividends are declared. d. receives dividends before creditors are to receive any interest payments.

b. has priority over common stock at liquidation. c. has priority over common stock when dividends are declared.

Evaluation of the company's profitability requires consideration of the amount of a company's earnings in relation to the size of the a. debt. b. investment. c. market share.

b. investment

Select all that apply The advantages to the corporate form of business include a. double taxation for the corporation. b. transferability of ownership. c. ease of raising capital.

b. transferability of ownership. c. ease of raising capital

The statement of shareholders' equity reports a. the changes to assets over the period. b. assets, liabilities, and owners' equity for the period. c. the changes in each shareholder equity account. d. the revenues and expenses for the period.

c. the changes in each shareholder equity account.

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