Exam 2-CH 18
A restriction of retained earnings
indicates management's intention to withhold assets for a specified purpose communicates the portion of retained earnings not available for dividends
A limitation of the return on shareholders' equity ratio is that
it uses the book value of equity
Mandatorily redeemable preferred stock is classified as _____ under U.S. GAAP and related dividends are reported as ______.
liability; reduction of net income
When a company believes the market price of its stock is _______, it may attempt to support the price by ______ the supply of stock through stock repurchases
undervalued; decreasing
Shareholders influence a company by
voting for the board of directors.
What is the effect of the repurchase of treasury stock on the return on shareholders' equity ratio?
increase
The most likely reason for a company to declare a reverse stock split is to
increase the market value of the shares.
Mueller Company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a:
reverse stock split
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
treasury stock for $2,000.
The four classifications within shareholders' equity are
treasury stock. accumulated other comprehensive income. retained earnings. paid-in capital.
Ragle Corp. issues 1,000 shares of its $5 par value common stock in exchange for equipment. The book value of the equipment on the investor's books was $40,000, and its catalog list price was $45,000. The equipment could be purchased in the market for $42,000. The stock was not publicly traded. Which of the following entries will be included in the journal entry to record the issuance of the stock?
Debit equipment $42,000.
Why do companies declare stock dividends?
To capitalize retained earnings into the common stock and paid-in-capital accounts To give shareholders the illusion they are receiving a real dividend
A business that has equity accounts labeled "common stock" and "retained earnings" is a
corporation.
A liquidating dividend means that
dividends exceed retained earnings.
A limited liability partnership (LLP) is similar to a limited liability company (LLC), except it
does not have the same limited liability protection.
Disadvantages of the corporate form of business are
government regulation. double taxation.
A reverse stock split requires
no journal entry
The _______ value method of accounting for treasury stock is essentially identical to formally retiring shares and is rarely used in practice.
par
A distribution of assets to shareholders is referred to as a
dividend
Property dividends are valued at
fair value
Treasury stock is reported in the financial statements as
a contra equity account.
If more than one class of shares is authorized, what type of information must be specified?
designation to distinguish each class specific rights for each class
The earnings-price ratio is calculated as ______ divided by the market price per share.
earnings per share
The number of shares a specific corporation is authorized to issue is set forth in
its articles of incorporation.
A corporation with shares held by only a few individuals is referred to as:
privately held
Place the steps for a quasi reorganization in the proper order.
revalue the firm's assets eliminate the deficit balance in retained earnings date retained earnings
When a property dividend is declared, a gain or loss is recognized for
the difference between the fair value and the book value of the assets distributed.
For IFRS reporting, the critical feature that distinguishes a liability from equity is if
the issuer is required to deliver cash or another financial instrument to the holder.
Historically, par value indicated
the real value of shares the amount of net assets that were not available for distribution to shareholders. the issue price of all shares
Reynolds Corp. has 100,000 shares of $1 par value common stock issued and outstanding. Reynolds declares a 20% stock dividend when the fair value of the stock is $8 per share. The debit to retained earnings for the stock dividend is
$160,000.
Linx Corp. has the following classes of equity: Preferred stock, $10 par, 8% dividend rate $100,000 Common stock, $1 par $50,000 The preferred stock is cumulative and nonparticipating. No dividends were paid in 2016 or 2017. In 2018, Linx declared a dividend of $90,000. The common stockholders will receive a dividend of
$66,000.
Which of the following transactions are classified as a stock dividend?
A distribution of additional shares of a corporation's stock to current shareholders of the corporation.
Which of the following is reported on the balance sheet?
Accumulated other comprehensive income
How should cash dividends be reported on the statement of shareholders' equity?
As a reduction of retained earnings.
The _________ Business Corporation Act is designed to serve as a guide for states in developing their corporate laws.
Model
When a company repurchases its stock and immediately retires the stock, which of the following occurs?
The equity accounts are reduced for the amount in which the shares were originally sold.
Comprehensive income may be presented as part of a combined income/comprehensive income statement, or separately immediately following the income statement.
True
When stock splits or stock dividends result in fractional shares, companies issue _______ payments along with the additional shares to compensate for the fractions.
cash
Newly issued stock may be exchanged for
cash services non-cash assets
Shareholders' equity is classified under IFRS into two categories: share capital and
reserves
A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as earnings.
retained
A corporation's accumulated, undistributed net income or loss is referred as
retained earnings.
Net assets equals
shareholders' equity.
Stock repurchases are often used to offset the effects of
shares issued for stock awards and stock option programs.
The term treasury stock refers to
stock that is repurchased and not retired.
A 2-for-1 stock split increases the marketability of the stock because
the market price per share decreases.
Clam Corp. issues 1,000 shares of $10 par value preferred stock and 3,000 shares of $1 par value common stock for $48,000. The fair value of the preferred stock is $20 per share, and the fair value of the common shares is $10 per share. What is the amount allocated to the paid in capital—excess of par, common stock?
$25,800
The effect of share issue costs is to
reduce paid-in capital in excess of par.
The most important advantage to the corporate form of business is
limited liability.
When investors purchase shares of stock, it is classified as
paid-in capital.
When treasury shares are reissued for an amount greater than cost, the amount over the cost increases
paid-in capital—treasury shares.
In order for a dividend to be declared, a corporation must have sufficient
retained earnings.
The Model Business Corporation Act
serves as the model for corporate laws in most states.
What are the effects of a stock split?
the number of shares outstanding increases par value decreases
Which feature of preferred stock requires that, when a dividend is declared, all previous undeclared dividends must be paid on preferred stock?
Cumulative
Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?
S corporation
Which of the following is true regarding the issuance of a stock dividend?
Shareholders will still own the same percentage of the company as before the distribution The fair value per share decreases in proportion to the additional shares issued
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?
articles of incorporation corporate charter
The ex-dividend date is usually 1 day
before the date of record.
A corporation may repurchase its shares of stock because management
believes the market price of the stock is undervalued.
When stock splits or stock dividends result in fractional shares, companies issue payments along with the additional shares to compensate for the fractions.
cash
Which of the following are sources of shareholders' equity?
paid-in capital retained earnings
Preferred stock that has contractual rights in which the company is obligated to repurchase the stock at a specified future date is called
mandatorily redeemable preferred stock.
A corporation's investors may not bind the corporation to a contract. Therefore, investors of a corporation lack
mutual agency.
The return on shareholders' equity ratio is computed by dividing
net income by average shareholders' equity.
Other common terms for shareholders' equity include
stockholders' investment stockholders' equity
Which of the following terms refer to the ownership interests of a corporation?
stockholders' investment stockholders' equity shareholders' equity
A repurchase of treasury stock will ______ a company's return on equity because net income is divided by a _______ amount of equity.
increase; smaller
Placid Corp. issues 1,000 shares of its $1 par value common stock in exchange for equipment. The book value of the equipment on the investor's books was $20,000, and its catalog list price was $23,000. The quoted market price of the stock in The Wall Street Journal was $22 per share. Which of the following entries will be included in the journal entry to record the issuance of the stock?
Credit additional paid-in capital $21,000.
Farley Corp. has 50,000 shares of $1 par value common stock issued and outstanding. Farley declares a 10% stock dividend when the fair value of the stock is $9 per share. Which of the following entries will be included in the entries required to record the declaration and payment of the stock dividend?
Credit common stock $5,000. Credit additional paid-in capital $40,000. Debit retained earnings $45,000.
Cumulative Noncumulative
Dividends, if not declared, accumulate and must be paid in the future when a dividend is declared. Dividends are paid in the current year only if declared.
Cash dividends are paid on treasury shares.
False
When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.
False
If a company repurchases its shares of stock and does not retire the shares, the shares are reported as
a contra equity account—treasury stock.
Mandatorily redeemable preferred stock is reported as
a liability on the balance sheet.
Preferred stock is similar to a bond when it has which of the following features?
a mandatory redeemable feature a dividend rate
A stock split effected in the form of a large stock dividend
reduces paid in capital - excess of par. has no effect on the par value of the stock.
Items that under U.S. GAAP are reported under the heading of "accumulated other comprehensive income" would be reported by a IFRS-based entity under the heading of ____.
reserves
Historically, par value was considered to be
the amount of net assets that were not available for distribution to shareholders.
In year 1, Sofia Corp. issued 1,000 shares of $1 par value common stock for $10 per share. In year 4, Sofia repurchased and immediately retired 100 shares of the stock at $6 per share. Which of the following entries would be included in the journal entry to retire the shares?
Credit paid-in capital—share repurchase $400. Debit paid-in capital in excess of par $900. Debit common stock $100.
The purposes of a quasi reorganization are to
reduce the deficit in retained earnings. write down inflated assets.
One advantage of investing in a corporation is the lack of mutual agency, which means that:
Individual investors may not bind the corporation to a contract
State laws regulate which of the following corporate activities?
issuance of stock repurchase of stock nature of share authorization
On April 1, the board of directors of Waspi Corp. declares a property dividend of 100,000 shares of Rourke Corp.'s preferred stock that Waspi had purchased in January for $10 per share. On April 1, the market value of the shares was $12 per share. The date of record is April 30, and the shares will be distributed on May 15. The journal entry on May 15 will include which of the following entries?
Credit investment in Rourke securities $1,200,000.
Niles Corp. issues 1,000 shares of $10 par value preferred stock and 5,000 shares of $5 par value common stock for $150,000. The fair value of the preferred stock is $50 per share, and the fair value of the common stock is $20 per share. The journal entry to record the transaction will include which of the following entries?
credit to preferred stock $10,000 credit to paid-in capital in excess of par—common stock $75,000 credit to paid-in capital in excess of par—preferred stock $40,000 credit to common stock $25,000
The date on which the board of directors announces that a dividend will be paid is referred to as the
declaration date.
When a company issues different classes of shares, it must
distinguish the rights for each class of stock.
Companies may engage in stock repurchases for the following reasons:
to offset the increase in shares issued under stock compensation programs to support the price of its shares by decreasing the supply in the marketplace
Although the Model Business Corporation Act has eliminated the concept of legal capital, par value is still disclosed because
most companies had par value shares outstanding before the Model Act was adopted.
Accountants must be familiar with issues of legal capital and par value, even though such concepts have been eliminated from the Model Business Corporation Act, because
most companies have par value shares and continue to issue previously authorized par value shares
The statement of shareholders' equity reports
the changes in each shareholder equity account for the period.
In order to receive a dividend, investors must purchase shares of stock before the
ex-dividend date.
A company that is distributing liquidating dividends tends to be in the process of:
dissolving
Consistent with U.S. GAAP, companies that repurchase shares held as treasury stock may utilize
either the cost or par value method
Balance sheet Statement of stockholders' Equity
Reports amounts of shareholders' equity at end of reporting periods. Reports sources of the changes in stockholders' equity accounts.
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?
The number of shares outstanding increases. The par value will not change.
When a corporation issues shares of common stock for an amount above par, which of the following entries occur?
credit to common stock credit to additional paid-in capital
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
paid-in capital in excess of par $20,000.
The purpose of the statement of shareholders' equity is to
report the changes and the sources of the changes in shareholder equity accounts.
Formally retiring shares reduces these accounts to their pre-issuance condition:
paid-in capital in excess of par common stock
If treasury stock on hand was purchased at different times and is subsequently reissued, what cost flow assumptions are acceptable in determining the cost of shares sold?
weighted-average FIFO LIFO
Bell Corp. has the following classes of equity: Preferred stock, $10 par, 8% dividend rate $100,000 Common stock, $1 par $50,000 The preferred stock is noncumulative and nonparticipating. No dividends were paid in 2016 or 2017. In 2018, Bell declared a dividend of $90,000. The common stockholders will receive a dividend of
$82,000.
Corporations raise equity capital by
-operating at a profit. -issuing stock
A small stock dividend is usually less than ______% of the number of shares of stock outstanding.
25
Brandon issues 1,000 shares of $5 par value common stock for $20 per share. Stock issue costs are $500. The journal entry to record the issuance of stock will include which of the following entries?
Credit additional paid-in capital $14,500. Debit cash $19,500. Credit common stock $5,000.
In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?
Debit paid-in capital—treasury shares $400.
On September 1, the board of directors of Mayor Corp. declares a property dividend of 10,000 shares of Plum Corp.'s preferred stock that Mayor had purchased in May for $5 per share. On September 1, the market value of the shares is $6 per share. The date of record is September 30, and the shares will be distributed on October 15. The journal entry on September 1 will include which of the following entries?
Debit retained earnings $60,000. Credit gain on appreciation of securities $10,000.
Treasury stock represents investments in treasury securities of the U.S. government.
False
The characteristics of a limited liability company include which of the following features?
Owners are liable to the extent of their investment. Income and expenses are passed through to the owners. All members can be involved with management without losing liability protection.
What is a benefit of a limited liability corporation?
Owners' liability is limited to the extent of their initial investment. Income and expenses pass through to owners, avoiding double taxation.
Which type of stock usually has a high par value and a percentage of par value dividend rate?
Preferred stock
When a corporation issues two securities for a single price, how is the issue price usually allocated?
The cash received is allocated based on the relative market value of each 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?
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 company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction?
The shares can be called treasury shares. The shares can be formally retired.
Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders?
The state in which the corporation is incorporated
If a company has preferred stock outstanding, a variation of calculating return on shareholders' equity can be made by making which adjustments to the ratio?
Use average common shareholders' equity in the denominator. Subtract preferred dividends from net income.
Carnival issues 10,000 shares of $1 par value common stock for $10 per share. Stock issue costs are $3,000. The journal entry to record the issuance of stock will include a credit to
additional paid-in capital for $87,000.
Retained earnings is typically reported on the balance sheet
as a single amount.
A share buyback can be viewed as a distribution of company profits to shareholders, which are taxed at ________, which are ________ than the rates for dividends.
capital gains rates; lower
The two items that are required for a cash dividend to be declared are
cash. a sufficient balance in retained earnings.
For U.S. GAAP reporting purposes, mandatorily redeemable preferred stock is classified as
debt.
If preferred shares must be redeemed by a certain date, they should be classified as
debt.
The date on which a cash dividend becomes a liability to a corporation is the
declaration date.
Preferred stockholders usually have preference over common stockholders with respect to which items?
distribution of assets in liquidation dividends
When stock splits or stock dividends result in fractional shares, the situation is handled by
issuing cash payments for the fractional shares.
In a corporation, shareholders' liability is
limited to the amount of the investment.
A share buyback can be viewed as a distribution of company profits, and distributions to investors may be eligible for
lower capital gains tax rates on their individual tax returns.
Return on shareholders' equity indicates the percent of corporate earnings for each dollar of total equity invested in the corporation, whereas the earnings-price ratio reflects the percentage earned for each dollar of
market value of common stock.
The return to common shareholders' equity is calculated by subtracting ______ from net income and dividing that amount by average ____________.
preferred dividends; shareholders' equity attributed to common shareholders
Which of the following are designations for different classes of stock?
preferred stock, common stock Class A, Class B, Class C
The two types of corporations are
profit and not-for-profit.
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)
property dividend.
Who owns and controls a corporation?
shareholders
A ______ stock dividend is less than 25% of the outstanding shares of stock.
small
Distributions of stock to current shareholders of a corporation are called what type of distribution?
stock dividend
Which of the following dividends has no effect on total owners' equity?
stock dividend
A corporation is owned by its
stockholders, shareholders, or investors
A reason for using stock dividends is
to capitalize retained earnings into the common stock and paid-in capital accounts
A quasi-reorganization allows a firm that is undergoing financial difficulties to
write-down inflated assets and reduce an accumulated deficit
Which of the following describe the ways in which companies may record stock splits effected in the form of dividends?
Capitalize retained earnings. Reduce the paid-in capital in excess of par account.
Which of the following may be a source of paid-in capital?
Company sells stock to investors Share-based compensation activities Company repurchases some of its outstanding common stock
Which of the following is subject to double taxation?
Corporations
Declaration date Record date Ex-dividend date Payment Date
Date that the corporate board of directors announces a dividend Date that a determination is made as to recipients of a dividend Date before which investors must purchase stock in order to receive a dividend Date that corporate assets are transferred to shareholders
On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. What is the journal entry required on March 20, 2018?
No entry is required.
What type of corporations include churches, hospitals, universities, and charities?
Not-for-profit
Which item is included in shareholders' equity?
Retained earnings
When a small stock dividend is declared and distributed,
earned capital is reclassified as invested capital. or retained earnings is reduced by the market value of the shares issued
Which account is a stockholders' equity account?
Additional paid-in capital
On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on April 1, 2018, will include which of the following entries?
Credit cash $3,000. Debit dividends payable $3,000.
On April 1, 2018, Rawlings declares a dividend of $0.30 per share. Rawlings has 100,000 shares authorized, and 40,000 issued and outstanding. The date of record is April 28, and the payment date is May 15. Which of the following entries is included in the journal entry on May 15?
Debit dividends payable $12,000.
In year 1, Pride Corp. issued 10,000 shares of $1 par value common stock for $8 per share. In year 3, Pride repurchased and immediately retired 1,000 shares of the stock at $6 per share. Which of the following entries would be required to retire the shares?
Debit paid-in capital in excess of par $7,000.
Which of the following are steps involved in a quasi-reorganization?
Revalue the firm's assets to reflect fair values Eliminate the retained deficit against additional-paid in capital
The rights of common stockholders typically include which of the following?
Right to dividends when declared. Right to distribution of assets in liquidation. Right to vote for corporate directors.
Conversion Redemption
Right to exchange preferred stock for common stock Right to return preferred stock
Which of the following are included in the rights of common stockholders?
Right to vote on certain matters.
If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?
The fair value of the stock
Cash and property dividends ______ total equity, and stock dividends _______ total equity.
decrease; do not effect
The earnings-price ratio is ________ divided by __________.
earnings per share; market price per share
A preemptive right is the right to
purchase additional shares of stock in proportion to the current percentage of ownership.
When a share repurchase is viewed as treasury stock, the cost of the treasury stock _______ shareholders' equity.
reduces
Which of the following accounts are classified as shareholders' equity?
retained earnings common stock Preferred stock Additional paid-in capital Net unrealized holding gains on investments
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?
retained earnings common stock paid-in capital in excess of par
Amounts earned by the corporation on behalf of its shareholders and recorded as a single amount are referred to as:
retained earnings.
In year 1, Rim Corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?
Debit retained earnings $300. Debit paid-in capital—share repurchase $200. Credit treasury stock $5,000 Debit cash $4,500
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.
S
When treasury shares are reissued for an amount less than cost and no paid-in capital from treasury shares account exists, the amount that is less than the cost decreases
retained earnings.
A company that repurchases its own securities accounts for the buyback as:
retired shares or treasury shares.
Which type of dividend does not reduce the assets of the firm or create a liability?
stock dividend
Other common terms for shareholders' equity include
stockholders' equity stockholders' investment
On March 1, 2018, Fresh Corp. declared a dividend of $3,000. The record date is March 20, 2018, and the payment date is April 1, 2018. The journal entry required on March 1, 2018, will include which of the following entries?
Credit dividends payable $3,000. Debit retained earnings $3,000.
Which type of corporation is regulated by the Securities and Exchange Commission?
Public
When does a dividend become a liability to a corporation?
When it is declared by the board of directors
If a company wishes to increase its stock price, it might declare a ______ stock split.
reverse
Canton has 60,000 shares of $10 par issued and outstanding. Canton declares a 2-for-1 stock split. What is the par value and number of shares outstanding after the stock split?
$5 par; 120,000 shares
Salisbury Company retires shares for the first time. It repurchases the shares at an amount more than the original issue price. Salisbury Company should debit _________ because the additional payment represents a ___________ to shareholders.
retained earnings; distribution of assets
When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this is referred to as a(n)
reverse stock split.
Under IFRS, shareholders' equity typically is classified under two categories referred to as:
share capital reserves
Brian Corp. issues 5,000 shares of $10 par value preferred stock and 20,000 shares of $1 par value common stock for $150,000. The fair value of the preferred stock is $20 per share, and the fair value of the common shares is unknown. What is the amount allocated to the paid in capital—excess of par, common stock?
$30,000
U.S. GAAP IFRS
Accumulated other comprehensive income items Reserves
Any portion of a dividend that does not represent a distribution of earnings is debited to which account?
Additional paid-in capital
The portion of a dividend that is a liquidating dividend reduces which account?
Additional paid-in capital
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.)
As an increase in comprehensive income.
Other comprehensive income Accumulated other comprehensive income
Comprehensive income statement Balance Sheet
When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded?
Credit common stock for the par amount.
On April 1, the board of directors of Waspi Corp. declares a property dividend of 100,000 shares of Rourke Corp.'s preferred stock that Waspi had purchased in January for $10 per share. On April 1, the market value of the shares is $12 per share. The date of record is April 30, and the shares will be distributed on May 15. The journal entry on April 1 will include which of the following entries?
Credit gain on appreciation of securities $200,000.
Ziegler Corp. has a deficit in retained earnings of $150,000 after revaluing all accounts in a quasi reorganization. Prior to the quasi reorganization, Ziegler had balances of $100,000 in the common stock account and $120,000 in the paid-in capital in excess of par account. The journal entry required to eliminate the deficit in retained earnings would include which of the following?
Debit common stock for $30,000
Linwood Corp. has a deficit in retained earnings of $100,000 after revaluing all accounts in a quasi reorganization. Prior to the quasi reorganization, Linwood had balances of $75,000 in the common stock account and $120,000 in the paid-in capital in excess of par account. The journal entry required to eliminate the deficit in retained earnings would include which of the following?
Debit paid-in capital in excess of par $100,000.
On September 1, the board of directors of Mayor Corp. declares a property dividend of 10,000 shares of Plum Corp.'s preferred stock that Mayor had purchased in May for $5 per share. On September 1, the market value of the shares was $6 per share. The date of record is September 30, and the shares will be distributed on October 15. The journal entry on October 15 will include which of the following entries?
Debit property dividends payable $60,000. Credit investment in Plum $60,000.
In year 1, Frill Corp. issued 1,000 shares of $1 par value common stock for $10 per share. In year 3, Frill repurchased and immediately retired 100 shares of the stock at $12 per share. Which of the following entries would be included in the journal entry to retire the shares?
Debit retained earnings $200. Debit common stock $100. Debit paid-in capital in excess of par $900.
In year 1, Tallon Corp. issued 10,000 shares of $1 par value common stock for $10 per share. In year 2, Tallon repurchased and immediately retired 1,000 shares of the stock at $15 per share. Which of the following entries would be included in the journal entry to retire the shares?
Debit retained earnings $5,000. Credit cash $15,000. Debit paid-in capital in excess of par $9,000. Debit common stock $1,000.
Gosling Corp. has 100,000 shares of common stock authorized, 80,000 shares issued, and 20,000 shares of treasury stock. Gosling declares a dividend of $0.10 share. Which of the following entries is required at the date of declaration?
Debit retained earnings $6,000.
______ represents the creditors' interest in the company, whereas ______ represents the investors' interest in the company.
Debt; equity
Formally retiring shares has what effect on total shareholders' equity?
Decrease
A distribution of 25% or more of the outstanding shares of stock is treated as which of the following?
Either a stock dividend or a stock split
U.S.GAAP IFRS
Equity Liability
A corporation is owned by debt and equity holders.
False
Newly issued stock may be exchanged only for cash.
False
Stock dividends typically are paid on treasury shares.
False
The balance sheet should disclose the sources of changes in the stockholders' equity accounts.
False
The return on shareholders' equity ratio is calculated as net income divided by common stock.
False
Which of the following are characteristics of treasury stock?
It has no voting rights. It is stock that is repurchased by the company. It does not receive a dividend.
When treasury stock is acquired at different times for different amounts and is subsequently sold, what cost flow assumptions are acceptable?
LIFO, FIFO, or weighted-average
Which of the following accurately describes shareholders' equity?
Ownership interests of the shareholders
Which preferred stock feature allows preferred shareholders to receive additional dividend distributions above the amount stated on the preferred stock certificate?
Participating
Participating Nonparticipating
Preferred shareholders may receive additional dividends above that amount stated in the preferred stock certificate. Preferred shareholders receive a dividend equal to the amount stated in the preferred stock certificate.
Cash dividend Property dividend Small stock dividend Large stock dividend
Reduce retained earnings; reduce a current asset. Reduce retained earnings, recognize gain on appreciation on income statement. Reduce retained earnings for fair value; increase common stock by par value; increase additional paid-in capital. Reduce retained earnings by par; increase common stock by par.
No journal entry is required on the date of record.
True
The rationale for reducing retained earnings if stock is retired for an amount greater than the original issue price is that
a payment to shareholders is a distribution of corporate assets.
A restriction of retained earnings signifies that
a portion of retained earnings is not available for dividends.
When treasury stock is purchased, the cost of treasury stock is reported as
a reduction in shareholders' equity.
Shareholders' equity consists of which of the following items?
amounts earned by the corporation amounts invested by shareholders
Consistent with U.S. GAAP, comprehensive income may be reported as
an expanded version of the income statement a separate statement immediately following the income statement
When a business incorporates, it must file its ______ with the state in which it incorporates.
articles of incorporation
Corporations can raise capital by:
borrowing. operating at a profit. issuing stock.
Under IFRS, the critical feature that distinguishes a liability is if the issuer can be required to deliver ________ or another financial instrument to the holder.
cash
A frequent reason for a stock split is to
cause the market price per share to decline
What are some common terms that companies use to differentiate between share types?
class A, class B and class C shares common or preferred stock common versus capital stock
The right of a shareholder to exchange their preferred stock for another class of stock is referred to as a right of _______ , whereas the right of the preferred shareholder to have their stock repurchased by the corporation for cash is referred to as a __________ privilege.
conversion; redemption
Justin Corp. issues 10,000 shares of $1 par value common stock for $5 per share. The journal entry to record this transaction will include which of the following?
credit to additional paid-in capital $40,000 credit to common stock $10,000
Knorr issues 1,000 shares of $2 par value common stock for $10 per share. The journal entry to record this transaction will include which of the following?
credit to additional paid-in capital $8,000 credit to common stock $2,000
Ship Corp. issues 1,000 shares of $10 par value preferred stock and 4,000 shares of $1 par value common stock for $100,000. The fair value of the preferred stock is unknown, but the fair value of the common stock is $8 per share. The journal entry to record the transaction will include which of the following entries?
credit to common stock $4,000 credit to preferred stock $10,000 credit to paid-in capital in excess of par—common stock $28,000
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
credit treasury stock for $5,000. credit to paid-in capital from treasury stock for $3,000.
The journal entry to record a stock split effected in the form of dividends may include which of the following?
debit to paid-in-capital credit to common stock debit to retained earnings
When a corporation issues a stock dividend, the fair value of the shares should normally
decrease.
When a company repurchases shares held as treasury stock, the number of shares outstanding:
decreases
When a corporation repurchases its stock as treasury stock, the number of shares outstanding:
decreases.
A restriction of retained earnings is typically indicated by a ______ in the notes to the financial statements.
disclosure
When a corporation distributes assets of the company to its investors, it is referred to as a(n)
dividend.
When a corporation repurchases its stock as treasury stock, the number of shares authorized
does not change.
Because the return on shareholders' equity is based on the book value of equity, analysts often supplement their understanding of the return to shareholders with the ____________.
earnings-price ratio
Which of the following items are included in other comprehensive income?
net holding gains and losses on certain types of investments gains and losses from amendments to postretirement programs deferred gains and losses on derivatives net holding gains and losses on investments that are available for sale adjustments from foreign currency translations
A credit balance in retained earnings indicates that
net income has exceeded the dividends distributed to shareholders.
An accumulated deficit in retained earnings indicates that the company has
net losses.
In a limited liability partnership,
owners are liable for their own actions, but not entirely liable for the actions of other partners
The right to purchase additional shares of stock to maintain one's percentage of ownership when new shares are issued is called a ______ right.
preemptive
A nonreciprocal transfer to owners is referred to as a
property dividend.
The feature that shares of preferred stock may be exchanged for cash at the option of the corporation or the shareholders is referred to as what?
redeemable
When a corporation repurchases its stock as treasury stock, the number of shares issued
remains the same.
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
retained earnings $20,000.
A distribution of 25% or more of the outstanding shares of stock may be treated as which of the following?
stock split stock dividend
The costs for legal, promotional, and accounting services to issue stock should be
subtracted from the proceeds of issuing stock.
A debit balance in retained earnings indicates that
the company has a deficit.
If retained earnings is restricted, the disclosure is usually found in
the notes to financial statements.
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?
the quoted market price for the shares the amount of cash that would be paid to purchase the asset
Shares of stock previously sold by the corporation that are repurchased are called
treasury stock.
