ACCT Ch 11
Fontaine Incorporated issued a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25. There were 12,000 shares of stock issued and 10,000 shares of stock outstanding. The stock dividend increased the amount of additional paid-in capital in excess of par value by $_____.
5,000
Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. This stock issue affects the ______.
Balance Sheet Statement of Cash Flows
The issue of no-par common stock affects the ______.
Balance Sheet Statement of Cash Flows
When a company issues no-par common stock, the ______.
entire amount of the proceeds is placed into the Common Stock account cash inflow is classified as a financing activity
The Public Company Accounting Oversight Board (PCAOB) is empowered to ______.
impose disciplinary and remedial sanctions for violations of its rules, securities law and professional auditing and accounting standards
Declaring a cash dividend ______.
increases liabilities and decreases stockholders' equity
Recording the cash payment of a previously declared dividend decreases ______.
liabilities assets
A chief advantage of the corporate form of business is ______.
limited liability
If a business ceases to operate, its remaining assets are sold and the proceeds are returned to creditors and investors through a process called business _____.
liquidation
When a corporation buys treasury stock, the ______.
number of shares of stock outstanding decreases number of shares of stock authorized is not affected
Stock dividends have no effect on ______.
ownership interest in assets the statement of cash flows total assets net income
When a company appropriates retained earnings, total retained earnings ______.
remains unchanged
When compared to closely held corporations, a widely held corporation generally requires a ______ percentage of ownership to exercise control.
smaller
No legal ownership agreement is required for ______.
sole proprietorships
The Public Company Accounting Oversight Board (PCAOB) was created by the
Sarbanes-Oxley Act of 2002
Partners capitals account appear on the the ______.
balance sheet only
The party that owns the stock on the date of ______ is legally entitled to a cash dividend.
record
When par or stated value stock is issued, the total amount received is ______.
split between two equity accounts
Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value preferred stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue ______.
total assets increase by $240,000 the income statement was not affected cash flow from financing activities increased by $240,000
Two or more individuals share ownership in ______.
partnerships
Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's balance sheet would show $_____ of paid-in capital in excess of par value.
90,000
Diddins, Inc. was forced to liquidate when total assets (cash on hand) equaled $600. Diddins had an outstanding Notes Payable for $400 and outstanding Common Stock of $400. As a result of the liquidation, ______
creditors received $400 and investors received $200
Which of the following is not normally included in the articles of incorporation?
A forecast of projected profitability
Paying a previously declared dividend affects the ______.
Balance Sheet Statement of Cash Flows
Which form of business organization offers the greatest ease of transferring ownership?
Corporation
Which form of business organization offers the greatest opportunity to raise capital?
Corporations
Which of the following statements is true?
Corporations are not legally required to declare cash dividends.
True or false: A company may have different classes of preferred stock, but only one class of common stock.
False
True or false: Profitable companies cannot be forced into bankruptcy.
False
Which of the following statements are true?
S Corporation income is taxed at the individual level. Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships or proprietorships.
Small companies can avoid double taxation by electing ______ status.
S corporation LLC
Which of the following statements are true?
To minimize the amount of assets that owners must maintain in the business,many corporations issue stock with very low par values. Many states allow corporations to issue no-par stock.
Stock with a stated value is accounted for exactly the same way as stock with ______ value.
a par
At the time treasury stock is purchased, total assets ______.
and total stockholders' equity both decrease
Cumulative dividends ______.
are dividends that accumulate for future payment when a company fails to pay a periodic dividend may also be called dividends in arrears
It is assumed under the _____ _____ doctrine that a business is able to continue its operations into the foreseeable future.
going concern
Corporations purchase treasury stock to ______.
have stock available to satisfy the requirements of employee stock option plans keep the price of the stock high when it appears to be falling avoid a hostile takeover
The date that a company settles its dividend liability is called the _____ date.
payment
The date that a company settles its dividend liability is the _____ date.
payment
Corporations are usually managed on a daily basis by ______.
professional executives
Price-earnings (P/E) ratios reported in the financial press are often based on _____ earnings per share.
projected
The term withdrawal may appear in the financial statements of a ______.
proprietorship partnership
A company's financial statements are not impacted on the date of ______ of a cash dividend.
record
In predicting the declaration of cash dividend payments a stockholder can examine ______.
the cash account to assess sufficiency for dividend declarations retained earnings to assess sufficiency for dividend declarations
Which of the following characteristics make transferring the ownership of a proprietorship difficult?
Most proprietorships are owner operated. A buyer must purchase the entire business.
Purchasing treasury stock affects the ______.
Statement of Cash Flows Balance Sheet
Which of the following statements are true?
The balance sheet of a proprietorship contains a single Owner's Capital account. Owner withdrawals are shown in the capital statement of a proprietorship.
Like par value, _____ value is an arbitrary amount assigned by the board of directors to a share of stock.
stated
Book value per share is ______.
measured in historical dollars calculated by dividing total stockholders' equity by the number of shares of stock owned by investors
Compton, Inc. was forced to liquidate when total assets (cash on hand) equaled $400. Compton had an outstanding Notes Payable for $300 and outstanding Common Stock of $200. As a result of the liquidation, the creditor received $_____ and investors received $_____.
300, 100
Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's balance sheet would show $_____ of paid-in capital in excess of par value
90,000
Which of the following statements are true?
Different classes of stock may have different rights and privileges. A company may have different classes of common stock.
Which of the following statements are true?
Trading on a stock exchange is limited to the stockbrokers who are members of the exchange. The stock of closely held companies is not sold on major stock exchanges.
Creditors cannot claim owners' personal assets as payment for the company's debts if the company is organization as a(n) _____.
corporation
The Securities and Exchange Commission (SEC) has the authority to ______.
defer its rule-making authority to independent, private sector organizations such as the Financial Accounting Standards Board (FASB) establish accounting principles for corporations registered on a stock exchange enforce securities law
Stock splits have no effect on ______.
total assets total stockholders' equity total liabilities
When a corporation purchases its own stock, the stock purchased is called _____ stock.
treasury
Fontaine Incorporated issued a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25. There were 12,000 shares of stock issued and 10,000 shares of stock outstanding. As a result of he stock dividend, retained earnings earnings decreased by ______.
$25,000; $25 market value × 10,000 shares outstanding × 10% = $25,000
Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line would show $_____ of cash inflow from _____ activities.
240,000; financing
Which of the following statements are true?
Partnerships do not have a Retained Earnings account because all earnings are distributed directly to each partner's capital account immediately. The term withdrawals may be found in the financial statements of both proprietorships and partnerships.
Issuing a stock dividend impacts the ______.
Statement of Changes in Stockholders' Equity Balance Sheet
Which of the following statements are true?
The number of shares outstanding may be less than the number of shares issued. Treasury stock is stock that a company has repurchased from its investors.
True or false: Acme Company reported significant growth in 2019 which was less growth than analysts expected. Under these conditions, Acme's stock may decline.
True
True or false: Partnerships and proprietorships are usually managed by their owners.
True
True or false: Relationships between shareholders are critically important when assessing the capacity to control a corporation through stock ownership.
True
True or false: The appropriation of retained earnings restricts the amount of retained earnings available for the distribution of dividends.
True
The sale of treasury stock is a(n) ______ transaction.
asset source
Purchasing treasury stock is a(n) ______ transaction.
asset use
The maximum number of shares of stock corporations are legally permitted to issue is the ______ number of shares.
authorized
If a company is forced to liquidate, the highest risk of losing their investment rests with ______ stockholders.
common
Diddins, Inc. was forced to liquidate when total assets (cash on hand) equaled $300. Diddins had an outstanding Notes Payable for $400 and outstanding Common Stock of $400. As a result of the liquidation, ______
creditors received $300 and investors received $0
A corporation becomes legally obligated to pay a cash dividend on the_____ date.
declaration
A stock split ______.
decreases the market value per share has no effect on cash flow increases the number of shares outstanding
ABC Corporation paid $15,000 to the Internal Revenue Service (IRS) on profits earned and their stockholders paid an additional $6,000 to the IRS for the dividends received from ABC. This phenomenon is commonly called _____ _____.
double taxation
Double taxation refers to the fact that ______.
income is taxed first at the corporate level and a second time when stockholders receive dividends
Par value represents the ______.
maximum liability of the investors minimum amount of assets that must be retained in the company as protection for creditors
Common rights assigned to investors who own common stock include the right to ______.
participate in the election of directors share in the distribution of profits vote on significant matters that affect the corporate charter
Clear agreements about authority, risks and sharing profits are needed when a business is organized as a(n) _____.
partnership
Declaring a cash dividend affects ______.
retained earnings liabilities
A business owned by a single individual that is usually be established simply by obtaining a local business license is a(n) _____ _____.
sole proprietorship
Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue, ______.
total assets increased by $240,000 the income statement was not affected
Distributions to owners of proprietorships are called _____.
withdrawls
Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. How much of the distributions will go to the preferred stockholders?
$18,000 5,000 shares × $20 × 6% = $6,000 annual preferred dividend. The preferred stockholders will receive two years of dividends that are in arrears plus the dividend due for the current year for a total of $18,000 ($6,000 × 3 years).
Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock that has a current market value of $5.20 per share. Based on this The book value per share of the stock is ______.
$3.20; ($50,000 stock + $30,000 retained earnings) ÷ 25,000 shares of stock = $3.20 per share.
Compton, Inc. was forced to liquidate when total assets (cash on hand) equaled $250. Compton had an outstanding Notes Payable for $300 and outstanding Common Stock of $200. As a result of the liquidation, the creditor received $_____ and investors received $_____.
250, 0
Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid $30,000 of cash dividends in a year when no dividends were in arrears. Based on this information, the preferred stockholders received $_____ and the common stockholders received $_____.
6,000; 24,000
Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. This stock issue affects the ______.
Statement of Cash Flows Balance Sheet
Corporations ______.
are established under rules that vary from state to state are separate legal entities created by the authority of a state government
Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury stock for $30 per share, the $500 excess of the resale price over the purchase price will be recorded _______.
as paid-in capital from treasury stock transactions
Billions of dollars of capital may be generated by pooling the resources of millions of owners through public stock and bond offerings for companies organized as _____.
coorporations
The benefit of continuity of existence is an advantage of being organized as a(n) _____.
corporation
The life of a ______ continues even after the owner(s) have departed.
corporation
Stock certificates are used as evidence of ownership in ______.
corporations
In a business liquidation, priority rests with ______.
creditors
Preferred stock ______.
dividends are usually paid before dividends are distributed to common stockholders usually has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders
A company can show a high price-earnings (P/E) ratio, even when the market is not optimistic if ______.
earnings per share is very low
Companies that had paid dividends in the past are _____ (less/more) likely to pay dividends in the future.
more
When considering published financial statements and forecasts, stock prices are influenced ______.
more by forecasts
When par or stated value stock is issued, the amount received above the par or stated value is recorded in the ______ account.
paid-in capital in excess of par (or stated) value
