Accounting 201Chapter 10 Key Words

Question 1

Accumulated deficit

Answer 1

A debit balance in Retained Earnings.

Question 2

Additional paid-in capital

Answer 2

The portion of the cash proceeds above par value.

Question 3

Angel investors

Answer 3

Wealthy individuals in the business community willing to risk investment funds on a promising business venture.

Question 4

Articles of incorporation

Answer 4

Describes the nature of the firm’s business activities, the shares to be issued, and the composition of the initial board of directors.

Question 5

Authorized stock

Answer 5

The total number of shares available to sell, stated in the company’s articles of incorporation.

Question 6

Convertible

Answer 6

A bond feature that allows the lender (or investor) to convert each bond into a specified number of shares of common stock. Shares can be exchanged for common stock.

Question 7

Cumulative

Answer 7

Shares receive priority for future dividends, if dividends are not paid in a given year.

Question 8

Declaration date

Answer 8

The day on which the board of directors declares the cash dividend to be paid.

Question 9

Dividends

Answer 9

Cash payments to stockholders. Distributions by a corporation to its stockholders.

Question 10

Dividends in arrears

Answer 10

Unpaid dividends on cumulative preferred stock.

Question 11

Double taxation

Answer 11

A corporation pays income taxes on its earnings, and when dividends are distributed to stockholders, the stockholders pay taxes a second time on the corporate dividends they receive.

Question 12

Earnings per share

Answer 12

Measures the net income earned per share of common stock.

Question 13

Growth stocks

Answer 13

Stocks that tend to have higher price earnings ratios and are expected to have higher future earnings. Stocks that have high expectations of future earnings growth and therefore usually trade at higher PE ratios.

Question 14

Initial public offering

Answer 14

The first time a corporation issues stock to the public.

Question 15

Issued stock

Answer 15

The number of shares sold to investors; includes treasury shares.

Question 16

Limited liability

Answer 16

Stockholders in a corporation can lose no more than the amount they invested in the company.

Question 17

Model Business Corporation Act

Answer 17

Serves as a guide to states in the development of their corporate statutes.

Question 18

Mutual agency

Answer 18

Individual partners each have power to bind the partnership to a contract.

Question 19

No-par value stock

Answer 19

Common stock that has not been assigned a par value.

Question 20

Organization chart

Answer 20

Traces the line of authority for a typical corporation.

Question 21

Outstanding stock

Answer 21

The number of shares held by investors; excludes treasury shares.

Question 22

Paid-in capital

Answer 22

The amount stockholders have invested in the company.

Question 23

Par value

Answer 23

The legal capital assigned per share of stock.

Question 24

Payment date

Answer 24

The date of the actual cash distribution of dividends.

Question 25

Preferred stock

Answer 25

Stock with preference over common stock in the payment of dividends and the distribution of assets.

Question 26

Price-earnings (PE) ratio

Answer 26

Compares a company’s share price with its earnings per share. The stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis.

Question 27

Privately held corporation

Answer 27

Does not allow investment by the general public and normally has fewer stockholders.

Question 28

Publicly held corporation

Answer 28

Allows investment by the general public and is regulated by the Securities and Exchange Commission.

Question 29

Record date

Answer 29

A specific date on which the company will determine the registered owners of stock and, therefore, who will receive the dividend.

Question 30

Redeemable

Answer 30

Shares can be returned to the corporation at a fixed price.

Question 31

Retained earnings

Answer 31

Cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends. Represents all net income, less all dividends, since the company began.

Question 32

Return on equity

Answer 32

Net income divided by average stockholders’ equity; measures the income generated per dollar of equity.

Question 33

Return on the market value of equity

Answer 33

Net income divided by the market value of equity.

Question 34

S corporation

Answer 34

Allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership.

Question 35

Stated value

Answer 35

The legal capital assigned per share to no-par stock.

Question 36

Statement of stockholders’ equity

Answer 36

A financial statement that summarizes the changes in stockholders’ equity over an interval of time. Summarizes the changes in the balance in each stockholders’ equity account over a period of time.