ACC 301 Vocab Exam 1

Question 1

Common stock

Answer 1

The residual interest in a firm; equity which has voting rights

Question 2

Cumulative P/S

Answer 2

P/S on which missed dividends must be paid prior to payment of a current dividend

Question 3

Treasury stock

Answer 3

Reacquired stock of a firm

Question 4

Preferred stock

Answer 4

Non voting stock on which dividends and assets at liquidation have higher priority for payment than does common stock

Question 5

Liquidating dividend

Answer 5

Dividend not based on R/E of the firm. Reduction in equity

Question 6

Discount on B/P

Answer 6

Represents the increase in interest recognized over the term of a bond because the yield rate is greater than the coupon rate. The decrease in present value of a B/P relative to par at issue due to the relationship

Question 7

Debenture

Answer 7

Unsecured B/P (no collateral)

Question 8

Participating P/S

Answer 8

P/S paid a dividend at a rate greater than that stated on the certificate

Question 9

Preemptive right

Answer 9

Right to maintain ones ownership percentage in a firm before public sale of new C/S

Question 10

Par value

Answer 10

Legal capital; amount recorded in a given security account at sale

Question 11

Moral hazard

Answer 11

Tendency of managers to overstate their performance; may choose more malleable performance indicators. Tendency of buyers to overuse items such as insurance

Question 12

Adverse selection

Answer 12

Tendency of managers to overstate their credentials. Tendency of more reckless individuals to buy items such as insurance

Question 13

Stock dividend

Answer 13

A dividend consisting of additional shares of the underlying stock. Can be larger or small

Question 14

Stock split

Answer 14

A change in the number of outstanding shares by reissuing shares with new par values

Question 15

Dividend

Answer 15

A payment to owners based on stock ownership

Question 16

Ex-dividend

Answer 16

Stock sold after the date of record are said to be sold in this way

Question 17

Limited liability

Answer 17

Creditors are limited in that the assets they can claim to settle obligations must be those of the entity not those of owners or managers.

Question 18

Leverage

Answer 18

Change in return due to use of debt financing

Question 19

Debt extinguishment

Answer 19

Retirement of debt such as B/P

Question 20

Arrears

Answer 20

Missed past dividends

Question 21

Premium B/P

Answer 21

Adjunct account; represents the decrease in interest recognized over the term of a bond because the yield rate is less than the coupon rate

Question 22

Dividend on

Answer 22

Stock sold before the date of record are said to be sold this way

Question 23

Diluted EPS

Answer 23

Includes the effect of all potentially dilutive common shares that were outstanding during the period

Question 24

Paid in capital

Answer 24

Any excess over par value paid in by the stockholders in return for the shares issued to them

Question 25

Liability

Answer 25

Must have a future transfer of assets, implies a transaction or exchange, must be unavoidable