Chapter 11
Refurbish, Inc. bought 1000 shares of its own stock at $8 a share. Later, it reissued the shares for $10,000. The effect of the entry to record the sale of the treasury stock on the accounting equation includes a...
$10,000 increase in stockholder's equity
Why might a company issue a stock dividend?
1) to lower the market price per share 2) to demonstrate commitment to stockholders while conserving cash during difficult times 3) to signal an expectation of significant future earnings
Atomic, Inc. had 10,000 shares of $1 par value common stock outstanding prior to a 2-for-1 stock split. As a result of the stock split...
20,000 shares are outstanding with a $0.50 par value
The journal entry to record the declaration of dividends includes...
A debit to Dividends and a credit to Dividends Payable
A stock dividend...
causes retained earnings to decrease AND distributes additional shares of stock to existing stockholders on a pro rata basis
When a company issues shares of a $0.10 par value common stock for $10 per share, it will record a...
credit to Additional Paid-In Capital for the difference between the $10 price and the $0.10 par value
Any difference between the cost of the treasury stock and the price when it is re-issued is recorded as a...
debit to Additional Paid-in Capital when the price is below cost
The declaration and payment of a cash dividend ultimately causes a...
decrease in Cash, decrease in Retained Earnings, decrease in Stockholder's Equity
The effect of repurchasing stock using the cost method is to...
decrease stockholder's equity, decrease assets, and increase Treasury Stock
Stockholders receive a share of the corporation's profits when it distributes...
dividends
Payment date (of dividends)
dividends payable is decreased
When shares of stock that were issued to the public are later bought and sold among investors on the stock exchange, the issuing corporation...
does not record any entry because it does not receive or give anything of value
A corporation's board of directors could prefer a stock split to a stock dividend because a stock split...
does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future
Dew Drop Inn, Inc has a current ratio of 0.9 to 1.0 and $4 debt for every $1 of equity. If Dew Drop Inn needs additional financing, it would best improve its financial situation with...
equity financing
What type of investment would retirees wanting a stable income prefer?
income investment
A stock dividend...
increases Common Stock, decreases Retained Earnings, and has NO EFFECT on total stockholder's equity
Small stock dividends are recorded at...
market value
If a business cannot pay its debts, creditors can expect the owner(s) to pay the debts with their personal assets if the business is a...
sole proprietorship or general partnership
Date of record (of dividends)
stock records are finalized to determine which stockholders are to receive payment
Treasury Stock on the balance sheet is...
subtracted from total stockholder's equity
Declaration date (of dividends)
the Board of Directors officially approves of a dividend
Before the Board of Directors declares a cash dividend, it should consider whether...
there is sufficient cash AND there are sufficient retained earnings
Why might a corporation want to repurchase its stock from existing shareholders?
to obtain shares to reissue to employees as part of employee stock purchase plans
Laws governing corporations...
vary from state to state
Stock options are expensed...
when granted and are recorded at the estimated cost of the options
Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock from Stockits for $5 per share. Which statements are true regarding the effect of this transaction on Stockit's financial statements?
Stockholder's equity on the balance sheet will increase, AND the financing activities section of the statement of cash flows increases
Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000 and recorded the entry as a debit to...
Treasury Stock and a credit to Cash of $8,000
A distribution of a company's accumulated prior earnings is...
a dividend
Large stock dividends are recorded at...
par value
A stock dividend...
provides no economic value for current stockholders
Retained Earnings
reports the cumulative amount of net income earned by the company, less the cumulative amount of dividends since the corporation began
Corporations can raise large amounts of money because...
shares of stock in public companies can easily be bought and sold by investors