Ch. 18 Concepts & Vocab
What two ways can a stock distribution of 25%+ be accounted for?
1.) As a large stock dividend (stock split effected in the form of a stock dividend), or 2.) As a stock split
Why do companies issue stock dividends?
1.) To try to give shareholders the illusion that they are receiving a real dividend 2.) To enable the corporation to take advantage of the accepted accounting practice of capitalizing retained earnings
A stock dividend is small if it is less than ______%
25
How are cash dividends for preferred stock usually stated?
As a percentage of par or stated value
Issued Shares
Authorized shares that have been sold
Unissued Shares
Authorized shares that have never been sold
Retired shares have the same status as _______________ but ______________ shares
Authorized; unissued
Declaration Date
Board of directors declares a cash dividend
What type of dividends may be cumulative or noncumulative?
Cash dividends for preferred stock
What kind of account is treasury stock?
Contra-account
PIC-Stock repurchase is a __________ account and therefore cannot carry a ____________ balance
Credit, debit
True/False: Journal entries are required for stock splits
False
True/False: Stock dividends affect the assets and liabilities of a firm
False
Outstanding Shares
Issued shares owned by stockholders
Treasury Shares
Issued shares that have been reacquired by the corporation
Common stock is equal to what?
Issued x par value
Why account for large stock distribution as a large stock split effected in the form of a stock divided ?
It avoids the change to the records by recording an entry to change the balance in the stock account
Treasury stock is similar to inventory in what way?
It comes out at cost
How does shareholders proportional interest in the firm change when stock dividends are issued?
It doesn't
What is the stock market reaction to stock distributions?
Market price per share declines in proportion to the increase in number of shares distributed in a stock dividend
What entry must be made for stock splits?
No journal entry, make memo entry
Property Dividend
Noncash asset distributed to shareholders as a dividend
Dividends in arrears are liabilities, and the per share and aggregate amounts must be disclosed
Not liabilities, disclosure is true
Treasury shares are considered to be issued but not ______________
Outstanding
What is shareholder's equity made up of?
Paid-in-capital, retained earnings, AOCI, and treasury stock
Stated Value is treated like what?
Par value
Date of Payment
Record the dividend payment to stockholders
Issued and outstanding are always the same for ____________ stock
Retired
What are the two ways to account for share buyback?
Shares can be formally retired or shares can be called treasury stock
Date of Record
Stockholders holding shares on this date will receive the divided (no entry)
Ex-Dividend Date
The first day the shares trade without the right to receive the declared dividend (no entry)
Authorized Shares
The maximum number of shares of capital stock that can be sold to the public
When more than one security is issued for a single price, cash received is the sum of what?
The separate market values of the securities
Does the market price per share increase when a reverse stock split occurs?
Theoretically, yes
What is the objective of stock splits and large stock dividends? Why?
To induce the per share market price decline that follows To increase the stock's marketability by making it more attractive to a larger number of potential investors
What is the most common reason companies buy back shares?
To offset the increase in shares issued to employers
True/False: Par value does not equal and has nothing to do with market value
True
True/False: Property is any asset other than cash
True
True/False: Purchase of treasury stock and its subsequent resale is considered to be a single transaction
True
True/False: Reverse stock splits are often done by struggling companies trying to increase stock price
True
True/False: Total par value is unaffected by stock splits
True
True/False: When a stock split occurs, all records that refer to the previous amount must be changed to reflect the new amount
True
True/False: there is never a gain or loss on a company's own equity transactions
True
True/False; dividends in arrears on cumulative preferred stock must be paid in full before any distributions to common stock
True
What are dividends in arrears?
Unpaid dividends
When does a reverse stock split occur?
When a company decreases its outstanding shares
When does the allocation of the cost of treasury shares occur?
When the shares are resold
How should property dividends be recorded?
at Fair Value (as in any noncash transaction)
Treasury stock is a contra-account and therefore never carries a ___________balance
credit
When a cash dividend is declared, a ____________ is created
liability
The number of shares issued is equal to what?
outstanding + treasury, OR total par divided by par value per share
Stock splits change the _________ ___________ per share and the number of ____________ _____________.
par value; shares outstanding
The number of shares unissued is equal to what?
shares never issued + retired stock