ch 10 accounting

All of the following are components of stockholders’ equity, except

notes payable

Earnings not distributed as dividends to stockholders is known as:

retained earnings

When comparing the typical sole proprietorship and corporation

the form of business having higher assets and earnings is the corporation

A corporation’s officers are appointed by the

board of directors

All privately held corporations are regulated by the Securities and Exchange Commission

false

The general public is entitled to invest in a privately held corporation

false, as these corporations do not offer shares to the public.

Dividends paid are allocated according to the percentage of shares owned by each stockholder.

true, as dividends are distributed based on ownership stake

Identify the primary advantages of the corporate form of business compared to a sole proprietorship or partnership.

limited liability, ability to raise capital

Identify the primary disadvantages of the corporate form of business compared to a sole proprietorship or partnership.

double taxation, more paperwork

shares actually sold, which includes treasury stock

issued stock

total number of shares available to sell

authorized stock

shares held by investors

outstanding stock

There is a direct relationship between the par value and market value of common stock: stocks with a low par value have a low market value, while stocks with a high par value have a high market value.

false

Companies usually rely on angel investors and venture capital firms following an initial public offering.

false

When a corporation issues stock to the general public for the first time, it is known as a(n):

initial public offering

Fairfield Corporation issues 100,000 shares of $1 par value common stock for $10 per share. This transaction:

increases assets and increases stockholders’ equity

On January 1, Year 1, Davidson Corporation issues 1,000 shares of $1 par value common stock for $20 per share. In reporting the transaction, Davidson Corporation

increases additonal paid-in capital by $19,000

In comparing the financing alternatives of preferred stock, common stock, and bonds, which security typically offers the highest expected return?

common stock

Preferred stock is “preferred” to common stock in two ways: (1) preferred stockholders have first rights to dividends, and (2) in the event the company is dissolved, preferred stockholders receive preference over common stockholders in the distribution of assets.

true

Innovative Media issues 1,000 shares of 8%, $50 par value preferred stock for $60 per share. Which of the following will be reported at the time of the issue?

an increase in additional paid-in capital of $10,000

Lego, Incorporated, issued 10,000 shares of 8%, $100 preferred stock for $110. The total amount of preferred dividends for the year is

$80,000

The balance in retained earnings equals all net income, less all dividends, since the company began operations

true

If losses exceed income since the company began operations, Retained Earnings will have a positive balance

false

Which of the following dates associated with dividends does not impact the financial statements?

record date

On the date of declaration of the dividend, we

increase dividends

What is the net effect of a dividend declaration and payment?

reduction in both stockholders’ equity and assets

Total assets, total liabilities, and total stockholders' equity do not change as a result of a large stock dividend

true

A company with 10,000 shares outstanding declares a 2-for-1 stock split. After the stock split, the company has 5,000 shares outstanding

false

The stockholders’ equity section of the balance sheet includes which of the following accounts?

Select all answers that apply to this question.

additional paid in capital, common stock, preferred stock, retained earnings, treasury stock

In the stockholders’ equity section of the balance sheet, common stock is listed before preferred stock.

false

For a profitable company that pays little in dividends, the balance in retained earnings will increase over time.

true

When a portion of a company's earnings is used to buy back treasury shares, the action decreases stockholders’ equity.

true

The statement of stockholders' equity summarizes the changes in the balance in each stockholders' equity account over a period of time.

true

Return on equity measures:

the amount of income generated for each $1 of stockholders’ equity

Which of the following is the complete description of the numerator in the equation used to calculate earnings per share?

net income minus dividends on preferred stock

Earnings per share is most useful in comparing earnings performance of one company with another.

false

Value stocks are stocks that are priced high in relation to current earnings.

false

the par value of common stock represents the

legal capital per share of stock assigned when the corporation was first established.

Authorized common stock refers to the total number of shares:

that can be issued

Treasury Stock is normally reported as a(n):

reduction of total stockholders' equity

Outstanding common stock refers to the total number of shares:

issued less treasury stock

Earnings per share (EPS) is

useful in both comparing earnings performance across companies and in comparing earnings performance for the same company over time

When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry to record the issuance would include a

credit to Additional Paid-in Capital for $225,000

Why would a corporation purchase its own stock?

• To distribute surplus cash without paying dividends.

• To boost earnings per share.

• To satisfy employee stock ownership plans.

shareholders’ equity is another common term for

stockholders’ equity

paid-in capital is the amount of money paid into a company

by its owners

The number of shares authorized is set forth in the company's

articles of incorporation

When a corporation acquires shares of its own common stock, it reports a(n)

increase in treasury stock for cost

The Additional Paid-in Capital account increases when treasury stock is resold for

more than its original cost