Chapter 18

In a corporation, shareholders' liability is Multiple choice question. unlimited with responsibility for all corporate losses. limited to the amount of aggregate corporate earnings. limited to the amount of the investment.

limited to the amount of the investment.

a portion of retained earnings is not available for dividends.

A restriction of retained earnings signifies that Multiple choice question. cash may not be used for stock repurchases. a portion of retained earnings is not available for dividends. no cash is available for investment purchases. retained earnings is negative.

the market price per share decreases.

A 2-for-1 stock split increases the marketability of the stock because Multiple choice question. the new shares are restricted. shareholders receive cash. investors have twice as many shares to sell. the market price per share decreases.

Shareholders

A corporation is owned by its ____________ . (

Which account is a stockholders' equity account? Multiple choice question. Investments in common stock Additional paid-in capital Lease obligations Bonds payable

Additional paid-in capital

True or false: Treasury stock represents investments in treasury securities of the U.S. government. True false question.TrueFalse

False

True or false: The balance sheet should disclose the sources of changes in the stockholders' equity accounts. True false question.

False Reason: The balance sheet discloses the annual balances in equity accounts, while the statement of stockholders' equity reports the sources of the changes in those accounts.

Blank 1: S

Owners of ____________ corporations have the limited liability of a corporation, but income and expenses are passed through the owners as in a partnership, avoiding double taxation.

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

Which of the following transactions are classified as a stock dividend? Multiple choice question. A distribution of shares of stock held as an investment to stockholders of the corporation. A distribution of stock options to current employees as incentive compensation. A distribution of additional shares of a corporation's stock to current shareholders of the corporation. A distribution of stock to corporate executives as an inducement to extend their contract with the corporation.

Preferred stock

Which type of stock usually has a high par value and a percentage of par value dividend rate? Multiple choice question. Preferred stock Common stock Both preferred and common stock

The state in which the corporation is incorporated

Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders? Multiple choice question. Treasury Department Municipality of origin of the corporation The state in which the corporation is incorporated Securities and Exchange Commission

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources is called Multiple choice question. assets. distributions to owners. net income. comprehensive income.

comprehensive income.

Noncash assets received as consideration for the issue of stock shares are always valued based on the fair value of the stock. Group startsTrue or False

false

The financial statements of some companies include a Statement of Retained Earnings rather than a Statement of Shareholders' Equity.

true

As an increase in comprehensive income.

A company has available-for-sale debt securities in its portfolio that have increased in value at year-end. How should the unrealized gain on the available-for-sale securities be reported on the statement of shareholders' equity? (Assume the fair value option is not elected.) Multiple choice question. As an increase in retained earnings. As an increase in treasury stock. As an increase in common stock. As an increase in comprehensive income.

dissolving

A company that is distributing liquidating dividends tends to be in the process of: Multiple choice question. dissolving reorganizing starting up

Blank 1: retained or reinvested

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as __________ earnings.

Nonowner

Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from what type of sources? Multiple choice question. Investor Owner Nonowner

stock dividend

Distributions of stock to current shareholders of a corporation are called what type of distribution? Multiple choice question. property dividend treasury stock stock dividend cash dividend

Cash dividends become a binding liability as of the record date. Group startsTrue or False

False

Which of the following statements about a Statement of Retained Earnings is not true? Multiple Choice It usually includes only one column. It typically reports only increases for net income and decreases for dividends. It is used to supplement the Statement of Shareholders' Equity. All of these answer choices are true.

It usually includes only one column

a liability on the balance sheet. Mandatorily redeemable preferred stock is reported on the balance sheet as a liability, it is not reported as an equity item.

Mandatorily redeemable preferred stock is reported as Multiple choice question. a liability on the balance sheet. other comprehensive income. a contra account to retained earnings. a contra account to common stock.

reverse stock split

Mueller Company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a: Multiple choice question. reverse stock split large stock dividend stock split initial public offering

reduce the deficit in retained earnings. write down inflated assets.

Select all that apply The purposes of a quasi reorganization are to (Select all that apply.) Multiple select question. file for bankruptcy. acquire additional investment from stockholders. reduce the deficit in retained earnings. write down inflated assets.

limited liability. Reason: Double taxation is a disadvantage for corporations. Regulation is a disadvantage to the corporate form of business.

The most important advantage to the corporate form of business is Multiple choice question. regulation. double taxation. ease of formation. limited liability.

shareholders' equity.

The ownership interests of the investors in a corporation are referred to as Multiple choice question. retained earnings. assets. shareholders' equity. net income.

Treasury stock

When a company repurchases its own securities without formally retiring them, the stock is recorded in which account? Multiple choice question. Common stock Investments Trading securities Treasury stock

A reverse stock split requires Multiple choice question. a debit to retained earnings. a credit to other comprehensive income. a debit to treasury stock. no journal entry.

no journal entry.

Shares of stock previously sold by the corporation that are repurchased are called Multiple choice question. treasury stock. additional paid-in capital. available for sale securities. investments in securities.

treasury stock

Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth. Group startsTrue or False

true

write-down inflated assets and reduce an accumulated deficit

A quasi-reorganization allows a firm that is undergoing financial difficulties to Multiple choice question. increase the market value of its common shares outstanding increase depressed asset values and reduce a retained deficit write-down inflated assets and reduce an accumulated deficit

retired shares or treasury shares.

A company that repurchases its own securities accounts for the shares of stock as Multiple choice question. a reduction of retained earnings. an expense on the income statement. retired shares or treasury shares. a contra-asset on the balance sheet.

retained earnings.

A corporation's accumulated, undistributed net income or loss is referred as Multiple choice question. corporate dividends. accumulated comprehensive income. retained earnings. comprehensive income.

dividend

A distribution of assets to shareholders is referred to as a(n) _____________ .

cause the market price per share to decline.

A frequent reason for a stock split is to Multiple choice question. shift amounts from retained earnings to other equity accounts. issue more shares of stock so investors have more value. give the investors an extra dividend for the year. cause the market price per share to decline.

dividends exceed retained earnings.

A liquidating dividend means that Multiple choice question. dividends exceed net income for the period. dividends exceed retained earnings. dividends are paid on treasury stock. net income exceeds dividends.

True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities. True false question.

False Reason: When investors purchase shares of stock in a corporation, the corporation records the transaction as paid-in capital.

property dividend.

Fantastic Gold Inc. declares and distributes to its shareholders 1 gram of gold in lieu of a cash dividend. Fantastic Gold is distributing a(n) Multiple choice question. stock dividend fair value dividend inventory dividend property dividend.

the amount of net assets that were not available for distribution to shareholders.

Historically, par value was considered to be Multiple choice question. the maximum amount of money the company could borrow. the amount of retained earnings that must be appropriated for future dividends. the amount of cash that must be maintained in the corporation for contingencies. the amount of net assets that were not available for distribution to shareholders.

As a reduction of retained earnings.

How should cash dividends be reported on the statement of shareholders' equity? Multiple choice question. As a reduction of retained earnings. As a reduction of treasury stock. As a reduction of common stock. As a reduction of comprehensive income.

The fair value of the stock

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded? Multiple choice question. The book value of the asset The fair value of the stock The par value of the stock

debt.

If preferred shares must be redeemed by a certain date, they should be classified as Multiple choice question. equity. debt.

limited to the amount of the investment.

In a corporation, shareholders' liability is Multiple choice question. unlimited with responsibility for all corporate losses. limited to the amount of the investment. limited to the amount of aggregate corporate earnings.

treasury stock for $2,000.

In year 1, Clark purchased 1,000 shares of treasury stock for $10 per share. In year 2, Clark reissued 200 shares of treasury stock for $14 per share. The journal entry to record the transaction in year 2 will include a credit to Multiple choice question. retained earnings for $800. treasury stock for $2,800. treasury stock for $2,000. common stock for $2,000.

treasury stock for $2,000.

In year 1, Clark purchased 1,000 shares of treasury stock for $10 per share. In year 2, Clark reissued 200 shares of treasury stock for $14 per share. The journal entry to record the transaction in year 2 will include a credit to Multiple choice question. treasury stock for $2,000. retained earnings for $800. common stock for $2,000. treasury stock for $2,800.

reduces retained earnings. is a noncash distribution to owners.

Select all that apply A property dividend (Select all that apply.) Multiple select question. reduces the common stock account. reduces retained earnings. is a noncash distribution to owners. is the issuance of common stock to investors.

Balance sheet: Reports amounts of shareholders' equity at end of reporting periods. Statement of stockholders' Equity: Reports sources of the changes in stockholders' equity accounts.

Match the financial statement with respect to the reporting of stockholders' equity. Balance sheet Statement of stockholders

paid-in capital in excess of par $20,000.

Miles Corp. declares and distributes a 3-for-1 stock split effected in the form of a 200% stock dividend. Miles had 10,000 shares of $1 par value common stock valued at $8 per share before the stock split. If Miles does not capitalize retained earnings, the journal entry required to record the split would include a debit to Multiple choice question. stock investment $30,000. retained earnings $30,000. common stock $20,000. paid-in capital in excess of par $20,000.

retained earnings $20,000.

Miles Corp. declares and distributes a 3-for-1 stock split effected in the form of a 200% stock dividend. Miles had 10,000 shares of $1 par value common stock valued at $8 per share before the stock split. If Miles wishes to capitalize retained earnings, the journal entry required to record the stock split would include a debit to Multiple choice question. retained earnings $20,000. common stock $20,000. retained earnings $30,000. stock investment $30,000. paid-in capital in excess of par $20,000.

as a single amount.

Retained earnings is typically reported on the balance sheet Multiple choice question. as a single amount. as a multi-line item. showing its various components.

retained earnings paid-in capital in excess of par common stock

Select all that apply A company originally issues par value common stock at an amount above par. Subsequently, the company reacquires the shares for more than the issue price and immediately retires the shares. The company has no previous transactions for stock repurchases. Which of the following accounts would be reduced for the repurchase and retirement of the shares? (Select all that apply.) Multiple select question. retained earnings paid-in capital in excess of par common stock other comprehensive income investment in securities

indicates management's intention to withhold assets for a specified purpose. communicates the portion of retained earnings not available for dividends.

Select all that apply A restriction of retained earnings (select all that apply) Multiple select question. indicates management's intention to withhold assets for a specified purpose. signifies cash may not be used for stock repurchases. indicates that cash has been set aside for future dividends. communicates the portion of retained earnings not available for dividends.

has no effect on the par value of the stock. reduces paid in capital - excess of par.

Select all that apply A stock split effected in the form of a large stock dividend (select all that apply) Multiple select question. has no effect on the par value of the stock. reduces paid in capital - excess of par. increases retained earnings by the fair value of the dividend. decreases the par value of the stock.

reduces paid in capital - excess of par. has no effect on the par value of the stock.

Select all that apply A stock split effected in the form of a large stock dividend (select all that apply) Multiple select question. increases retained earnings by the fair value of the dividend. reduces paid in capital - excess of par. has no effect on the par value of the stock. decreases the par value of the stock.

issuing debt. issuing stock. operating at a profit.

Select all that apply Corporations raise capital by Multiple select question. issuing debt. issuing stock. repurchasing treasury stock. operating at a profit.

issuing debt. operating at a profit. issuing stock.

Select all that apply Corporations raise capital by Multiple select question. issuing debt. operating at a profit. issuing stock. repurchasing treasury stock.

issuing debt. issuing stock. operating at a profit.

Select all that apply Corporations raise capital by Multiple select question. issuing debt. repurchasing treasury stock. issuing stock. operating at a profit.

issuing stock. operating at a profit.

Select all that apply Corporations raise equity capital by Multiple select question. borrowing money. issuing stock. operating at a profit

operating at a profit. issuing stock.

Select all that apply Corporations raise equity capital by Multiple select question. borrowing money. operating at a profit. issuing stock.

the amount of net assets that were not available for distribution to shareholders. the real value of shares the issue price of all shares

Select all that apply Historically, par value indicated (select all that apply) Multiple select question. the amount of net assets that were not available for distribution to shareholders. the amount of retained earnings that must be set aside for future dividends. the real value of shares the issue price of all shares

designation to distinguish each class specific rights for each class

Select all that apply If more than one class of shares is authorized, what type of information must be specified? (Select all that apply) Multiple select question. designation to distinguish each class annual dividends per share issued to each class specific rights for each class

credit treasury stock for $5,000. credit to paid-in capital from treasury stock for $3,000.

Select all that apply In year 1, Boise purchased 10,000 shares of treasury stock for $5 per share. In year 3, Boise reissued 1,000 shares of treasury stock for $8 per share. The journal entry to record the transaction in year 3 will include (Select all that apply.) Multiple select question. credit to retained earnings for $3,000. credit treasury stock for $8,000. credit treasury stock for $5,000. debit to common stock for $2,000. credit to paid-in capital from treasury stock for $3,000.

distribution of assets in liquidation dividends

Select all that apply Preferred stockholders usually have preference over common stockholders with respect to which items? (Select all that apply.) Multiple select question. distribution of assets in liquidation issuance of additional shares dividends issuance of additional debt

The par value will not change. The number of shares outstanding increases.

Select all that apply Royce has 100,000 shares of $10 par issued and outstanding. Royce declares a 2-for-1 stock split in the form of a stock dividend. Which of the following are true? (Select all that apply) Multiple select question. A loss is recorded for the amount of the stock dividend. The par value will not change. The number of shares outstanding increases. Treasury stock increases.

repurchase of stock nature of share authorization issuance of stock

Select all that apply State laws regulate which of the following corporate activities? (Select all that apply.) Multiple select question. acquisition of assets repurchase of stock amount of debt allowed nature of share authorization issuance of stock

debit to retained earnings credit to common stock debit to paid-in-capital

Select all that apply The journal entry to record a stock split effected in the form of dividends may include which of the following? (Select all that apply.) Multiple select question. debit to retained earnings credit to common stock debit to common stock credit to paid-in-capital debit to paid-in-capital

reserves share capital

Select all that apply Under IFRS, shareholders' equity typically is classified under two categories referred to as: Multiple select question. allowances reserves additional contributed capital share capital

an independent appraisal of the value of the asset the quoted market price for the shares the amount of cash that would be paid to purchase the asset

Select all that apply When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction? Multiple select question. the book value of the existing shares the net book value of the asset an independent appraisal of the value of the asset the quoted market price for the shares the amount of cash that would be paid to purchase the asset

The shares can be called treasury shares. The shares can be formally retired.

Select all that apply When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction? Multiple select question. The shares can be called treasury shares. The shares are a contra-asset. The shares can be treated as an investment security. The shares can be formally retired.

credit to additional paid-in capital credit to common stock

Select all that apply When a corporation issues shares of common stock for an amount above par, which of the following entries occur? (Select all that apply.) Multiple select question. credit to additional paid-in capital credit to retained earnings credit to common stock credit to revenue

Preferred stock Additional paid-in capital Net unrealized holding gains on investments Common Stock

Select all that apply Which of the following accounts are classified as shareholders' equity? Multiple select question. Preferred stock Additional paid-in capital Investments in securities Net unrealized holding gains on investments

Capitalize retained earnings. Reduce the paid-in capital in excess of par account.

Select all that apply Which of the following describe the ways in which companies may record stock splits effected in the form of dividends? (Select all that apply.) Multiple select question. Capitalize retained earnings. Increase the treasury stock account. Reduce the paid-in capital in excess of par account. Record the stock dividend at fair value and recognize a gain.

Blank 1: reserves or reserve

Shareholders' equity is classified under IFRS into two categories: share capital and ______________.

subtracted from the proceeds of issuing stock.

The costs for legal, promotional, and accounting services to issue stock should be Multiple choice question. treated as an asset and expensed over the life of the stock. added to the additional paid-in capital account. subtracted from the proceeds of issuing stock. treated as an expense on the income statement.

declaration date.

The date on which a cash dividend becomes a liability to a corporation is the Multiple choice question. payment date. record date. ex-dividend date. declaration date.

reduce paid-in capital in excess of par.

The effect of share issue costs is to Multiple choice question. reduce net income for the period. reduce retained earnings when the stock is issued. increase the common stock account. reduce paid-in capital in excess of par.

stock that is repurchased and not retired.

The term treasury stock refers to Multiple choice question. a class of stock that is subordinate to common stock. a security that is held as a long-term investment. stock that is repurchased and not retired. government securities that are held for sale.

profit and not-for-profit.

The two types of corporations are Multiple choice question. investing and financing. profit and not-for-profit. government and nongovernment. federal and state.

False Reason: A corporation is owned by its shareholders, who are equity holders.

True or false: A corporation is owned by debt and equity holders. True false question.TrueFalse

Not-for-profit

What type of corporations include churches, hospitals, universities, and charities? Multiple choice question. Federal Business Professional Not-for-profit

distinguish the rights for each class of stock.

When a company issues different classes of shares, it must Multiple choice question. distinguish the rights for each class of stock. reduce the additional paid-in capital account for the new class of stock. designate which classes have preference over debt in liquidation. charge more for higher classes of stock.

The equity accounts are reduced for the amount in which the shares were originally sold.

When a company repurchases its stock and immediately retires the stock, which of the following occurs? Multiple choice question. An asset is recorded for the amount of the stock repurchased. Stock expense is recorded for the amount of the repurchase. Retained earnings is reduced for the amount of the repurchase. The equity accounts are reduced for the amount in which the shares were originally sold.

decreases

When a company repurchases shares held as treasury stock, the number of shares outstanding Blank______. Multiple choice question. increases decreases remains the same

dividend.

When a corporation distributes assets of the company to its investors, it is referred to as a(n) Multiple choice question. option. dividend. expense. warrant.

The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.

When a corporation issues two securities for a single price and the market value of only one security is known, how is the cash received allocated? Multiple choice question. Each security is valued at par value with the remainder recorded in additional paid-in capital. The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security. The cash received is allocated to each security based on the number of shares issued. The cash received is allocated first to common stock based on its prorated par value, and the remainder is allocated to the other security.

The cash received is allocated based on the relative market value of each security.

When a corporation issues two securities for a single price, how is the issue price usually allocated? Multiple choice question. The cash received is allocated based on the relative market value of each security. The cash received is allocated equally to each security. The cash received is allocated to the security with the highest classification. The cash received is allocated based on the par value of each security.

decreases.

When a corporation repurchases its stock as treasury stock, the number of shares outstanding Multiple choice question. increases. decreases. remains the same.

Credit common stock for the par amount.

When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded? Multiple choice question. Credit common stock for the proceeds. Credit common stock for the par amount. Credit common stock for the amount in excess of par.

When it is declared by the board of directors

When does a dividend become a liability to a corporation? Multiple choice question. When it is declared by the board of directors On the last day of the fiscal year On the ex-dividend date At the end of each quarter

Ownership interests of the shareholders

Which of the following accurately describes shareholders' equity? Multiple choice question. Amounts owed to shareholders Proceeds from the issuance of bonds Ownership interests of the shareholders Amounts repaid to investors

S corporation

Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation? Multiple choice question. C corporation proprietorship S corporation partnership

Corporations

Which of the following is subject to double taxation? Multiple choice question. Corporations and partnerships Sole Proprietorships Partnerships Corporations

Select all that apply Disadvantages of the corporate form of business are (Select all that apply.) Multiple select question. less paperwork. government regulation. ease of raising capital. double taxation.

government regulation. double taxation.

When investors purchase shares of stock, it is classified as Multiple choice question. net income. retained earnings. other comprehensive income. paid-in capital.

paid-in capital.

Amounts earned by the corporation on behalf of its shareholders are referred to as Multiple choice question. retained earnings. common stock. shareholders' equity. paid-in capital.

retained earnings.

Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions. Group startsTrue or False

true