Exam 5 - Chapter 11 & 12
Bill and Ted have a partnership in Excellent Adventure, Inc. Bill wants to form a corporation, but Ted disagrees. Which of the following would best support Ted's argument?
The stockholders would not be personally liable for the company's obligation. ( The company could be subject to greater government regulation.) The company could continue without either or both of their involvement in the day-to-day operations. The company would have the ability to acquire capital as its own entity.
MayDay Movers uses the indirect method to determine net cash provided by operating activities. During 2017, MayDay experienced a decrease in Accounts Receivable of $10,000, an increase in Accounts Payable of $15,000, Depreciation Expense of $3,000, and an increase in Common Stock of $25,000. What should be reported as the net cash provided by operating activities if net income was reported at $100,000?
$103,000 $153,000 $108,000 ($128,000) do everything
What are the three major categories that comprise the stockholders' equity section of the balance sheet?
( Capital stock, additional paid-in capital, and retained earnings ) Capital stock, retained earnings, and treasury stock Retained earnings, treasury stock, and dividends Capital stock, additional paid-in capital, and net income
SEPARATE LEGAL ENTITY
1. An entity separate and distinct from owners. 2. Acts under its own name rather than name of stockholders. 3. May buy, own, and sell property; borrow money; and enter into legally binding contracts; may sue or be sued; and pays its own taxes. 4. Owners (stockholders) cannot bind corporation unless owners are agents of the corporation.
Preferred stockholders have a priority in relation to:
1. dividends 2. assets in the event of liquidation
STOCK DIVIDENDS
A stock dividend is pro rata distribution of the corporation's own stock to stockholders. A stock dividend is paid in shares of stock. A stock dividend results in a decrease in retained earnings and an increase in paid-in capital.
________ dividends are said to be ________ if undeclared for more than one year.
All; past due Common; in arrears ( Cumulative preferred; in arrears ) Current; in arrears
What is underwriting?
An arrangement to directly issue shares of stock to existing investors The buying and selling of shares of stock in a corporation by individuals A method for reducing taxes owed by corporations ( An arrangement where an investment banking firm assists a corporation in selling its shares of stock)
Computer Services Company's balance sheets indicate:
An increase in Land An increase in Buildings An increase in Equipment An increase in Bonds Payable An increase in Common Stock An increase in Retained Earnings
Which of the following individuals would be most willing to purchase preferred stock?
An investor who is willing to pay a premium to secure enhanced voting rights in a firm An investor who is unwilling to pay a premium in exchange for receipt of regular dividends An investor who is more interested in having a voice in a firm's operations than in receiving regular dividends (An investor who is more interested in receiving regular dividends than in having a voice in a firm's operations)
When common stock has no-par or stated value and is issued for cash, ________ is debited and ________ is credited.
Common Stock; Cash ( Cash; Common Stock ) Common Stock; Retained Earnings Cash; a revenue account
ISSUING PAR VALUE COMMON STOCK FOR CASH When the issuance of common stock for cash is recorded, and the issue price is the **same** as the par value of the stock, the par value of the shares is credited to Common Stock and debited to Cash. If Hydro-Slide, Inc. issues 1,000 shares of $1 par value common stock at par for cash, the entry to record this transaction is:
Debit: Cash 1000 Credit: Common Stock 1000
SALE OF TREASURY STOCK """""BELOW"""""" COST Assume that Mead Inc., sells an additional 800 shares of treasury stock on October 1 at $7 per share, the entry is:
Debit: Cash 5,600 Debit: Paid-in Capital from Treasury Stock 800 Credit: Treasury Stock 6,400
When the issuance of common stock for cash is recorded, and the par value of the shares is ***NOT*** the same as the cash price, the par value is credited to common stock, and the portion of the proceeds that is above or below par value is recorded in a separate paid-in-capital account.
Debit: Cash 5000 Credit: Common Stock 1000 Credit: Paid-in Capital in Excess of Par Value 4000
Treasury stock T-Account If Mead, Inc. has 100,000 shares of $5 par value common stock outstanding (all issued at par value) and on February 1, 2022 it decides to acquire 4,000 shares of its stock at $8 per share, the entry is:
Debit: Treasury stock Credit: Cash
Thomas Briarwood, Dawn Cooper, and Neil Dunn intend to form a corporation that will provide consulting services to start-up companies. Place in chronological order the first few steps they will need to take in forming the corporation.
Establish by-laws; seek a charter; determine the state of incorporation; obtain necessary licenses. ( Determine the state of incorporation; seek a charter; establish by-laws; obtain necessary licenses. ) Seek a charter; determine the state of incorporation; obtain necessary licenses; establish by-laws. Obtain necessary licenses; seek a charter; determine the state of incorporation; establish by-laws.
ABILITY TO ACQUIRE CAPITAL
Limited liability of stockholders coupled with transferable ownership rights make it easier for corporations to raise capital.
When does a corporation record a dividend-related liability?
On the payment date (When dividends are in arrears) On the declaration date On the record date
CHARACTERISTICS OF A CORPORATION A number of characteristics distinguish a corporation from proprietorships and partnerships. The most important of these characteristics are:
Separate legal existence Limited liability of stockholders Transferable ownership rights Ability to acquire capital Continuous life Corporation management Government regulations Additional taxes
Three dates are important in connection with dividends:
The declaration date. The record date. The payment date.
Under which of the following circumstances would the Paid-in Capital from Treasury Stock account be credited?
When a company purchases treasury stock at cost When a company purchases treasury stock above cost When a company sells treasury stock below cost ( When a company sells treasury stock above cost )
When preferred stock is cumulative, preferred dividends not declared in a given period are called
accrued dividends. ( dividends in arrears. ) distributions. liabilities.
Paid-in capital is the
amount of capital that must be retained in the business for the protection of corporate creditors. capital stock that has not been assigned a value in the corporate charter. ( amount of cash or other assets transferred into the corporation by stockholders in exchange for shares of stock. ) amount per share assigned by the board of directors to no-par stock.
Alicia is analyzing the "Financing Activities" portion of TopCo's statement of cash flows. If Alicia wants to further clarify the dividend information provided in this portion of the document, she should compare it against TopCo's
balance sheet. ( retained earnings statement. ) accounts payable statement. income statement.
Dividends on preferred stock
become a liability only if they aren't paid by the end of the current fiscal year. are never considered a liability. ( become a liability only when a firm's board of directors declares a dividend. ) are automatically considered a liability whenever they are in arrears.
Total stockholders' equity is maintained with ________, but stock splits cause the par value of the common stock to ________.
cash dividends; decrease cash dividends; increase stock splits and stock dividends; increase (stock splits and stock dividends; decrease)
A company prepares a ________ primarily to report cash receipts and
cash payments during an accounting period. financing statement dividend statement ( statement of cash flows ) cash investing and financing transaction
Owners of ________ stock are granted preference to corporate assets in case of liquidation.
class B treasury common ( preferred )
When a corporation purchases treasury stock, earnings per share ________.
doubles has no effect decreases ( increases )
Two classifications appearing in the paid-in capital section of the balance sheet are capital stock and
financing activities. ( additional paid-in capital. ) stockholders' liability. dividends declared.
The statement of cash flows is used by readers of financial statements to differentiate between
gross profit and net cash provided by operating activities. ( net income and net cash provided by operating activities. ) total assets and the net change in cash. net sales and net cash provided by operating activities.
Treasury stock
is a corporation's own stock that has been issued, fully paid for, reacquired by the corporation and held in its treasury for future use.
Retained earnings
is net income that a corporation retains for future use.
Paid-in capital
is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock.
In order for a corporation to pay a cash dividend, the corporation needs
legal capital. retained earnings that are higher than the cash balance. ( adequate cash. ) dividends in arrears.
Dividends on cumulative preferred stock that have not been declared for a given period of time are called _________.
long-term dividends ( dividends in arrears ) common stock dividends short-term dividends
If Vivian Corp reported net cash used by operating activities of $500,000, its free cash flow _______ be negative.
must is not might not be might
A company closes ________ to Retained Earnings even if it results in a debit balance.
operating expenses ( net losses ) stock splits net income
The stockholders' equity section of a corporation's balance sheet includes:
paid-in (contributed) capital andBullet 2retained earnings (earned capital). The distinction between paid-in capital and retained earnings is important from both a legal and a financial point of view.
When a firm has dividends in arrears, its
preferred stockholders will not receive dividend payments. (common stockholders are less likely to receive dividends than its preferred stockholders.) common stockholders will not receive dividend payments. preferred stockholders are less likely to receive dividends than its common stockholders.
When preferred ________, companies ________
stock is increasing as a percentage of total equity; pay more in common dividends. ( dividends are in arrears; cannot pay dividends to common stockholders. ) stock is decreasing in market value; are less likely to liquidate. dividends are in arrears; cannot liquidate. CONTINUE
As a firm's amount of dividends in arrears decreases, the firm's
stock price becomes more likely to decrease. total amount of liabilities increases. (common stockholders become more likely to receive dividend payments.) likelihood of liquidation increases.
A debit balance in retained earnings indicates a ________.
stockholder's equity profit ( deficit ) common stock
Owners' equity is identified by various names:
stockholders' equityBullet 2shareholders' equity.Bullet 3corporate capital.
The stockholders' right to share in assets upon liquidation of a corporation is known as the
surplus. profit. ( residual claim.) reserves.
When a company declares a small stock dividend and the stock is trading at a price above par, the declaration will increase
the number of shares outstanding. stockholders' equity. (paid-in capital.) total liabilities.
Comparing a company's income statement to its statement of cash flows can reveal information about the "quality" of the company's reported net income because
the statement of cash flows reflects accrual-based accounting technique and thus relies on more estimates than the income statement. the statement of cash flows reflects accrual-based accounting technique and thus relies on fewer estimates than the income statement. the statement of cash flows reflects cash-based accounting technique and thus relies on more estimates than the income statement. ( the statement of cash flows reflects cash-based accounting technique and thus relies on fewer estimates than the income statement. )
An investor owned 300 shares of stock in a company. Each share was worth $50. After the company announced a 3-for-1 split, the number of the investor's shares tripled and the total market value of the investment
tripled. ( stayed the same. ) halved. doubled.
For external reporting, a company must prepare both an income statement and a
worksheet. cash budget. cash receipts statement. ( statement of cash flows. )
Cooper Communications reports a net change in cash of $48,000 on its statement of cash flows. What is the net cash provided by operating activities if the net cash used from investing activities is $12,000 and the net cash provided by financing activities is $55,000?
$43,000 ( $5,000 ) $36,000 $7,000
If Simon's Eatery incurs a gain of $48,000 for selling equipment with a book value of $210,000, how much should Simon report on the statement of cash flows, and which cash flows activity type should Simon choose?
( $258,000, investing ) $210,000, investing $162,000, operations $48,000, financing
Which of the following would decrease total stockholders' equity on the balance sheet?
( A deficit in retained earnings ) A stock split A stock dividend A restriction on retained earnings
What happens if no-par stock is issued without a stated value?
( The entire proceeds are considered to be legal capital. ) The corporation is automatically in violation of its state charter. There is no legal capital. The par value is automatically $1 per share.
What is the purpose of the record date concerning dividends?
( To determine which stockholders are entitled to the dividend ) To determine the amount of the dividend liability To allow more stockholders to receive the dividend To decrease the market price of the stock
Bentley Motors reported the following selected financial information for fiscal year 2020: net income, $30,000; preferred stock dividends, 1,500; cash dividends declared on common stock, 2,000; beginning stockholders' equity, $120,000; ending stockholders' equity, $160,000. Calculate Bentley's payout ratio.
11.7% 23.7% 5.0% (6.7%)
ISSUANCE OF STOCK
A corporation can issue common stock directly to investors which is typically the case for closely held companies. It can issue common stock indirectly through an investment banking firm which is customary for a publicly held corporation.
GOVERNMENT REGULATIONS
Corporations are subject to numerous state and federal regulations. State laws prescribe the requirements for issuing stock, distributions of earnings permitted to stockholders, and the effects of retiring stock. Federal securities laws govern the sale of capital stock to the general public, the disclosure of financial affairs to the Securities and Exchange Commission through quarterly and annual reports, and the reporting requirements of the various securities markets.
FORMING A CORPORATION
States grant corporate charters. Although a corporation may have operating divisions in a number of states, it will be incorporated in only one state. Some states have laws favorable to the corporate form of business organization. (i.e., In the state of Delaware defense tactics against takeovers can be approved by the board of directors without a vote by shareholders). Costs incurred in the formation of a corporation are called organization costs and are expensed as incurred.
CORPORATION MANAGEMENT
Stockholders manage the corporation indirectly through a board of directors, which they elect. The board of directors formulates operating policies and selects officers to execute policy and to perform daily management functions.
Which of the following statements about cash dividends is true?
A positive balance in retained earnings is not necessary in order for a corporation to pay a nonliquidating cash dividend. Adequate cash is not necessary in order for a corporation to pay a cash dividend. The declaration of dividends by the board of directors is not necessary in order for a corporation to pay a cash dividend. ( Approval of stockholders is not necessary in order for a corporation to pay a cash dividend. )
STOCK SPLITS
A stock split involves the issuance of additional shares to stockholders according to their percentage ownership. In a stock split, the number of shares is increased in the same proportion that par or stated value per share is decreased. A stock split has no effect on total paid-in capital, retained earnings, or total stockholders' equity. It is not necessary to formally journalize a stock split.
ADVANTAGES AND DISADVANTAGES OF A CORPORATION
Advantages: Separate legal existence Limited liability of stockholders Transferable ownership rights Ability to acquire capital Continuous life Corporation management-professional managers ***DisAdvantages: Corporation management-separation of ownership and management Government regulations Additional taxes
ENTRIES FOR STOCK DIVIDENDS Assume that Medland Corporation has a balance of $300,000 in Retained Earnings and declares a 10% stock dividend on its 50,000 shares of $10 par value common stock. The current fair value of its stock is $15 per share and the number of shares to be issued is 5,000 (10% of 50,000). The amount to be debited to Stock Dividends is $75,000 (5,000 × $15).
Stock Dividends75,000 Common Stock Dividends Distributable 50,000 Paid-in Capital in Excess of Par-Common Stock 25,000 (To record declaration of 10% stock dividend)
What is meant by double-taxation?
Corporations pay federal income taxes twice per year. ( Corporate profits are taxed once to the corporation and a second time to stockholders if distributed as dividends. ) Corporations pay both federal and state income taxes. Both corporations and individuals are tax-paying entities.
ADDITIONAL TAXES
Corporations, as separate legal entities, must pay federal and state income taxes. Stockholders must pay taxes on cash dividends. Thus, it may be argued that corporate income is taxed twice - once at the corporate level and again at the individual level. With proprietorships and partnerships, the owner's share of earnings is reported on his or her personal income tax return.
As its operations expanded, Smith Company decided to incorporate and issue shares on a stock exchange in the hopes of acquiring more capital. What is one requirement of the corporate form of business when the stock is publicly traded?
Having two classes of stock Issuing corporate bonds ( Issuing quarterly and annual reports ) Paying dividends at regular intervals
What characteristic of a corporation is shared with individuals?
Holding a public office ( Being a tax-paying entity ) Having voting rights Having agency rights
When a corporation decides to issue stock, it must answer the following questions:
How many shares should be authorized for sale? How should the stock be issued? What value should be assigned to the stock?
RETAINED EARNINGS
In many states, payment of dividends from legal capital is prohibited. Payment of dividends from paid-in capital in excess of par is legal in some states. A dividend declared out of paid-in capital is termed a liquidating dividend since it reduces or "liquidates" the amount originally paid in by stockholders. Payment of dividends from retained earnings is legal in all states. Companies are frequently constrained by agreements with lenders to pay dividends only from retained earnings.
Which of the following statements is true about the stockholders' equity section in the balance sheet?
It will list the names of individuals who are eligible to receive dividends on the date of record. (It will report paid-in capital and retained earnings and identify the specific sources of paid-in capital on the balance sheet date.) It will report paid-in capital on the date of record. It will report paid-in capital and retained earnings and current liabilities on the balance sheet date.
Justin has the authority to buy and sell shares of stock at New Age Beverage, while Julia has the authority to negotiate contracts for New Age Beverage. How do their position's compare?
Julia is a stockholder, while Justin is an agent. They are both stockholders. They are both agents. ( Justin is a stockholder, while Julia is an agent. )
__________ is stock of a company that has been issued then repurchased by the company from stockholders.
Noncumulative stock Common stock Preferred stock ( Treasury stock )
If a company becomes aware of a group of hostile shareholders, what might its next course of action be?
Sell treasury stock to nonhostile shareholders. (Purchase treasury stock from the hostile shareholders. ) Invite the hostile shareholders to a private shareholders meeting. Retire the common stock held by the hostile shareholders.
Continental Bank is deciding whether to loan $100,000 to Apex Manufacturing. Apex's income statement indicates that the firm was quite successful last year, but Continental is unsure how reliable these figures are. Before giving Apex the loan, Continental will want to
get a better idea of the liquidity of Apex's net income by comparing its income statement to its balance sheet. get a better idea of the quality of Apex's net income by comparing its income statement to its balance sheet. get a better idea of the liquidity of Apex's net income by comparing its income statement to its statement of cash flows. ( get a better idea of the quality of Apex's net income by comparing its income statement to its statement of cash flows.)
If Cain Auto Repair purchases equipment for $115,000, how should this be reported on the statement of cash flows?
$115,000 addition in the financing activities section ( $115,000 deduction in the investing activities section ) $115,000 addition in the investing activities section $115,000 addition in the operating activities section
Coughlin Corporation has 10,000 shares authorized and issued of 7%, $60 par preferred stock. What is net income during a year when beginning common stockholders' equity is $6,950,000 and ending common stockholders' equity is $7,240,000 if the return on common stockholders' equity is 16%?
( $1,177,200 ) $1,135,200 $1,112,000 $1,093,200
Foley Manufacturing Corporation purchased 3,000 shares of its own previously issued $10 par common stock for $69,000. A month later, the shares were resold for $70,000. The sale of the treasury stock will
(increase stockholders' equity by $70,000.) increase assets by $1,000. decrease the balance in the Common Stock account by $1,000. decrease the balance in the Paid-in Capital from Treasury Stock account by $70,000.
Preferred stock is listed above common stock in the stockholders' equity section because
(preferred stock has preferential rights to dividends and assets at liquidation.) preferred stock has a higher return. preferred stock has a higher par value. common stock has a higher par value.
Whereas comparing a firm's annual balance sheets can help investors __________, analysis of the firm's statements of cash flows will __________.
(spot any changes in account balances; provide greater insight as to how these changes occurred) understand why any changes in balances have occurred; show the exact amount of each change spot any changes in dividend policies; provide greater insight as to the exact nature of these changes understand why any changes in dividend policies have occurred; show the exact amount of each change
LIMITED LIABILITY OF STOCKHOLDERS
1. Creditors have recourse only to corporate assets to satisfy claims. 2. Liability of stockholders is limited to investment in corporation. 3. Creditors of the corporation have no legal claim on personal assets of owners unless fraud has occurred.
The primary objectives in accounting for the issuance of common stock are:
1. to identify the specific sources of paid-in-capital and 2. to maintain the distinction between paid-in-capital and retained earnings
Which of the following statements is true regarding the rights of stockholders when selling ownership interests in a corporation?
A stockholder must transfer all shares held in the corporation. A stockholder can transfer a certain percentage of shares under the policy of the corporation. ( A stockholder can freely transfer all or part of shares held. ) A stockholder can only transfer shares with the approval of the board of directors.
Which of the following newly formed corporations is an example of correct accounting practices?
Briar Rose Market accounted for promotional expenditures by deducting the costs from paid-in capital. ( Tiana Inc. accounted for legal and state fees related to its charter by expensing the costs as incurred. ) Bella Beauty accounted for promotional expenditures by recording them as a short-term investment. Jasmine Spice Traders accounted for legal and state fees related to its charter by recording the costs as an asset which it amortized over a 10-year period.
PREPARING THE STATEMENT OF CASH FLOWS
Comparative balance sheets. Information in the comparative balance sheets indicates the amount of the changes in asset, liability, and stockholders' equity accounts from the beginning to the end of the period. Current income statement. Information in this statement helps determine the amount of net cash provided or used by operating activities during the period. Additional information. Such information includes transaction data that are needed to determine how cash was provided or used during the period.
Selling of Treasury Stock **above** cost Assume that 1,000 shares of treasury stock of Mead Inc., previously acquired at $8 per share, are sold at $10 per share on July 1. The entry is:
Debit: Cash 10000 Credit: Treasury Stock 8000 Credit: Paid-in Capital from Treasury Stock 2000
Which account balances change as a result of a small stock dividend?
Retained Earnings and Cash. Common Stock, Retained Earnings, and Cash. (Common Stock, Paid-in Capital in Excess of Par—Common Stock, and Retained Earnings.) Common Stock, Paid-in Capital in Excess of Par—Common Stock, Retained Earnings, and Cash.
THE DECLARATION DATE
The board of directors declares the cash dividend and announces it to stockholders. The declaration of a cash dividend commits the corporation to a binding legal obligation that cannot be rescinded. An entry is required to recognize the increase in Cash Dividends and the increase in the liability Dividends Payable.
When a corporation's board of directors declares a cash dividend, on what dates are journal entries required?
The declaration date, record date, and payment date ( The declaration date and payment date ) The record date and payment date The payment date
DIVIDEND PREFERENCES
The first claim to dividends does not guarantee dividends. Dividends depend on factors such as adequate retained earnings and availability of cash. The per share dividend amount of the preferred stock is stated as a percentage of the par value of the stock or as a specified amount. EarthLink specifies a 3% dividend value, whereas Nike pays $.10 per share dividend on its $1 par preferred stock.
True
The issuance of the common stock affects only paid-in capital accounts.
DISPOSAL OF TREASURY STOCK Selling
When the treasury stock is resold and the selling price of the shares is greater than the cost,>>>>>>>>>>> the difference is credited to Paid-in Capital from Treasury Stock. When the selling price is less than cost>>>>>>>>>>>, the excess of cost over selling price is usually debited to Paid-in Capital from Treasury Stock. When there is no remaining balance in Paid-in Capital from Treasury Stock,>>>>>>> the remainder is debited to Retained Earnings.
Which types of transactions can financial statement readers use to better understand changes in long-term liabilities and long-term assets?
financing and operating ( investing and financing ) investing and non-cash transactions investing and operating
A company's statement of cash flows provides its investors with a better picture of the company's growth because it
helps reconcile any discrepancies between the company's net income and dividends paid. helps reconcile any discrepancies between the company's Accounts Receivable and Accounts Payable. helps clarify any discrepancies between the company's current assets and long-term assets. ( helps clarify any discrepancies between the company's net income and its net change in cash. )
Irving the Investor is analyzing companies for the purpose of purchasing shares of stock. On which financial statement will he focus?
income statement balance sheet ( statement of cash flows ) retained earnings statement
A(n) ________ summarizes the operating, financing, and investing activities of a company.
income statement retained earnings statement ( statement of cash flows ) balance sheet
A company's income statement will demonstrate that company's _________, but not its ________.
interest revenue; service revenue ( earned income; cash collected ) dividends; expenses Accounts Receivable; Accounts Payable
A corporation may acquire treasury stock for various reasons. These reasons include:
1. to reissue the shares to officers and employees under bonus and stock compensation plans. 2. To increase trading of the company's stock in the securities market. Companies expect that buying their own stock will signal that management believes the stock is underpriced, which they hope will enhance the market price. 3. To have additional shares available for use in the acquisition of other companies. 4. To reduce the number of shares outstanding and thereby increase earnings per share.
For a corporation to pay a cash dividend, it must have the following:
Retained earnings Adequate cash Declared dividends
Okra Gardens uses the indirect method to determine net cash provided by operating activities. During 2017, Okra experienced an increase in Accounts Receivable of $8,000, an increase in Accounts Payable of $5,000, an increase in Inventory of $4,000, a $20,000 Gain on Disposal of Equipment, Depreciation Expense of $3,000, and a decrease in Equipment of $5,000. What should be reported as the net cash provided by operating activities if net income was reported at $100,000?
$116,000 ($76,000) = - 8,000 + 5,000 - 4,000 - 20,000 + 3,000 $71,000 $79,000
Regency Incorporated recently reported a return on common stockholders' equity of 12% for the most recent fiscal period. What were the company's preferred dividends if net income was $700,000 during the period when beginning common stockholders' equity was $4,750,000 and ending common stockholders' equity was $5,250,000?
$130,000 $70,000 $100,000********* $0
Gemini Group declares a dividend of $275,000 for the quarter ending June 30 of the current year. Relevant stockholders' equity information is listed below: Common Stock: $1 par (100,000 shares authorized, 75,000 shares outstanding) Preferred Stock: $100 par, 8% cumulative (20,000 shares authorized and outstanding) If Gemini has no preferred dividends in arrears, what amount of the total dividends will be distributed to the common stockholders?
$160,000 ( $115,000 ) $217,105 $171,875
Cavoukian Manufacturing has 10,000 outstanding shares of 12%, $60 par value preferred stock. What amount of dividends will be available to the firm's common stockholders at the end of the fiscal year if Cavoukian declares a $350,000 total dividend payment?
$278,000(10,000 * 12% * $60 ) $0 $308,000 $72,000
Trainor Sports recently issued 25,000 shares of its $12 par value common stock for $450,000. Which amounts represent legal capital and total paid-in capital, respectively?
$300,000 and $150,000 $450,000 and $300,000 ( $300,000(25,000*12) and $450,000 ) $450,000 and $150,000
After selling equipment with a book value of $75,000, Wilma's Waffle Bar incurred a gain of $40,000. How much should it report on the statement of cash flows, and which cash flows activity type should it choose?
$35,000, investing $115,000, operating $35,000, operating ( $115,000, investing )
Where is treasury stock listed in the stockholders' equity section of the balance sheet?
As a component of retained earnings As a component of capital stock (Under total paid-in capital and retained earnings) As a component of additional paid-in capital
Peri owns more stock in Aqua Marine Supplies than any of the corporation's other stockholders. Elle is designated as an agent for Aqua Marine Supplies. How do the two compare?
Both Elle and Peri may vote on which inventory Aqua Marine Supplies should purchase. ( Only Elle may purchase inventory for Aqua Marine Supplies. ) Only Peri may purchase inventory for Aqua Marine Supplies. Both Elle and Peri may purchase inventory for Aqua Marine Supplies.
ALLOCATING CASH DIVIDENDS BETWEEN PREFERRED AND COMMON STOCK
Cash dividends must be paid first to preferred stockholders before any common stockholders are paid. When preferred stock is cumulative, any dividends in arrears must be paid to preferred stockholders before allocating any dividends to common stockholders. When preferred stock is not cumulative, only the current year's dividend must be paid to preferred stockholders before paying any dividends to common stockholders.
TRANSFERABLE OWNERSHIP RIGHTS
Ownership evidenced by shares of stock, which are transferable units. Transfer of ownership rights among stockholders has no effect on operating activities of the corporation or on a corporation's assets, liabilities, and total stockholders' equity. Corporation does not participate in transfer of ownership rights after original sale of capital stock.
What amounts involving common stock are considered "legal capital" of the corporation?
Par value and paid-in capital in excess of par of issued shares ( Par value and stated value of issued shares ) Stated value and market price of issued shares Market price and par value of issued shares
PAR AND NO-PAR VALUE STOCKS
Par value stock is capital stock that has been assigned a value per share in the corporate charter. The par value may be any amount selected by the corporation.
CUMULATIVE DIVIDEND
Preferred stock contracts often contain a cumulative dividend feature. If preferred stock is cumulative, preferred stockholders must be paid both current-year dividends and any unpaid prior-year dividends before common stockholders receive dividends. When preferred stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears.
CONTINUOUS LIFE
The life of a corporation, stated in its charter, may be perpetual or limited to specific number of years. If limited, period of existence can be extended through renewal of charter. A corporation is a separate legal entity, thus life not affected by withdrawal, death, or incapacity of stockholder.
What amount should be recognized as cost when a company issues stock in exchange for a noncash asset?
The par value of the stock. The market value of the asset received or the market value of the stock, whichever is more clearly determinable. The adjusted value of the asset received. ( The fair value of the asset received or the fair value of stock, whichever is more clearly determinable. )
STOCK DIVIDENDS
To satisfy stockholders' dividend expectations without spending cash. To increase the marketability of its stock by increasing the number of shares outstanding and thereby decreasing the market price per share to make it easier for smaller investors to purchase the shares. To emphasize that a portion of stockholders' equity has been permanently reinvested in the business and is, therefore, unavailable for cash dividends. --------------------------------------------------- A small stock dividend (less than 20% - 25% of the corporation's outstanding stock) is recorded at the fair value (market price) per share. A large stock dividend (greater than 20% - 25% of the corporation's outstanding stock) is recorded at par or stated value per share.
To prepare a statement of cash flows, a company uses information from a current income statement and
( comparative balance sheets. ) all of the choices are correct. notes about financial statements. adjusted trial balances.
Potential investors and lenders of a company can make decisions by looking at which figure on a statement of cash flows?
( dividends paid ) plant assets purchased plant assets retired extraordinary gains and losses
A statement of cash flows is used primarily to
( provide information about the cash receipts and cash payments during an accounting period. ) show dividends declared. show the amount of cash generated by operating expenses. show the increase in property, plant, and equipment.
The items normally found in a corporation's stockholders' equity section are capital stock, paid-in capital, and
( retained earnings.) dividends payable. dividend in arrears. distributed earnings.
Creditors of a company would be MOST interested in ________ when analyzing a statement of cash flows.
( the entity's ability to meet obligations ) the net change in cash flow financing activities the entity's ability to pay dividends
Bias Industries provides its most recent financial statements to Freedom National Bank. Because of its ________, Freedom will focus on ________.
( transparency; the statement of cash flows ) liquidity; the income statement liquidity; the statement of cash flows transparency; the income statement
McCullough Inc. reported an ending Retained Earnings normal balance of $510,000. What was the net income for the year if the beginning normal balance in Retained Earnings was $425,000 and $45,000 in cash dividends were declared?
($130,000 ) 510,000 - 425,000 + 45,000 ) $50,000 $95,000 $140,000
When shares of stock are issued, where are the proceeds recorded?
In the retained earnings account ( In the paid-in capital accounts ) On the income statement In both the paid-in capital accounts and the retained earnings account
DIVIDEND PREFERENCES
Preferred stockholders have the right to receive dividends before common stockholders. If the dividend rate of preferred stock is $5 per share, common shareholders will not receive any dividends in the current year until preferred stockholders have received $5 per share.
THE RECORD DATE
The record date marks the time when ownership of the outstanding shares is determined for dividend purposes. The purpose of the record date is to identify the persons or entities that will receive the dividend, not to determine the dividend liability.
