Acct 112 Chap 13

Question 1

Appropriated retained earnings

Answer 1

Retained earnings separately reported to inform stockholders of funding needs.

Question 2

Authorized stock

Answer 2

Total amount of stock that a corporation’s charter authorizes it to issue.

Question 3

Basic earnings per share

Answer 3

Net income less any preferred dividends and then divided by weighted-average common shares outstanding.

Question 4

Book value per common share

Answer 4

Recorded amount of equity applicable to common shares divided by the number of common shares outstanding

Question 5

Book value per preferred stock

Answer 5

Equity applicable to preferred shares (equals its call price [or par value if it is not callable] plus any cumulative dividends in arrears) divided by the number of preferred shares outstanding.

Question 6

Call Price

Answer 6

Amount that must be paid to call and retire a callable preferred stock or a callable bond.

Question 7

Callable preferred stock

Answer 7

Preferred stock that the issuing corporation, at its option, may retire by paying the call price plus any dividends in arrears.

Question 8

Capital stock

Answer 8

General term referring to a corporation’s stock used in obtaining capital (owner financing)

Question 9

Changes in accounting estimates

Answer 9

Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods.

Question 10

Common stock

Answer 10

Corporation’s basic ownership share; also generically called capital stock

Question 11

Complex capital structure

Answer 11

Capital structure that includes outstanding rights or options to purchase common stock, or securities that are convertible into common stock.

Question 12

Convertible preferred stock

Answer 12

Preferred stock with an option to exchange it for common stock at a specified rate.

Question 13

Corporation

Answer 13

Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders

Question 14

Cumulative preferred stock

Answer 14

Preferred stock on which undeclared dividends accumulate until paid; common stockholders cannot receive dividends until cumulative dividends are paid.

Question 15

Dates of declaration

Answer 15

Date the directors vote to pay a dividend.

Question 16

Date of payment

Answer 16

Date the corporation makes the dividend payment.

Question 17

Date of record

Answer 17

Date directors specify for identifying stockholders to receive dividends.

Question 18

Diluted earnings per share

Answer 18

Earnings per share calculation that requires dilutive securities be added to the denominator of the basic EPS calculation.

Question 19

Dilutive securities

Answer 19

Securities having the potential to increase common shares outstanding; examples are options, rights, convertible bonds and convertible preferred stock.

Question 20

Discount on stock

Answer 20

Difference between the par value of stock and its issue price when issued at a price below par value

Question 21

Dividend in arrears

Answer 21

Unpaid dividend on cumulative preferred stock; must be paid before any regular dividends on preferred stock and before any dividends on common stock.

Question 22

Dividend yield

Answer 22

Ratio of the annual amount of cash dividends distributed to common shareholders relative to the common stock market value (price).

Question 23

Earnings per share (EPS)

Answer 23

Amount of income earned by each share of a company’s outstanding common stock; also called net income per share.

Question 24

Financial leverage

Answer 24

Earning a higher return on equity by paying dividends on preferred stock or interest on debt at a rate lower than the return earned with the assets from issuing preferred stock or debt; also called trading on the equity.

Question 25

Large stock dividend

Answer 25

Stock dividend that is more than 25% of the previously outstanding shares.

Question 26

Liquidating cash dividend

Answer 26

Distribution of assets that returns part of the original investment to stockholders; the ducted from contributed capital accounts.

Question 27

Market value per share

Answer 27

Price at which stock is bought or sold.

Question 28

Minimum legal capital

Answer 28

Amount of assets defined by law that stockholders must (potentially) invest in a corporation; usually defined as par value of the stock; intended to protect creditors.

Question 29

Non-cumulative preferred stock

Answer 29

Preferred stock in which the right to receive dividends is lost for any period when dividends are not declared.

Question 30

Nonparticipating preferred stock

Answer 30

Preferred stock on which dividends are limited to a maximum amount each year.

Question 31

No – par value stock

Answer 31

Stock class that has not been assigned a par (or stated) value by the corporate charter.

Question 32

Organization expenses (costs)

Answer 32

Costs such as legal fees and promoter fees to bring in entity into existence.

Question 33

Paid-in capital

Answer 33

Total amount of cash and other assets received from stockholders in exchange for stock; also called contributed capital.

Question 34

Paid-in capital in excess of par value

Answer 34

Amount received from issuance of stock that is in excess of the stock's par value.

Question 35

Participating preferred stock

Answer 35

Preferred stock that shares with common stockholders any dividends paid in excess of the percent stated on preferred stock.

Question 36

Par value

Answer 36

Value assigned a share of stock by the corporate charter when the stock is authorized.

Question 37

Par value stock

Answer 37

Class of stock assigned a par value by the corporate charter.

Question 38

Preemptive right

Answer 38

Stockholders' right to maintain their proportionate interest in a corporation with any additional shares issued.

Question 39

Preferred stock

Answer 39

Stock with a priority status over common shareholders in one or more ways, such as paying dividends or distributing assets.

Question 40

Premium on stock

Answer 40

Difference between the par value of stock and it issue price when issued at a price above par. Also called contributed capital in excess of par value.

Question 41

Price-earnings (PE) ratio

Answer 41

Ratio of a company's current market value per share to its earnings per share; also called price to earnings.

Question 42

Prior period adjustments

Answer 42

Correction of an error in a prior year that is reported in the statement of retained earnings (or statement of stockholders' equity) net of any income tax effects.

Question 43

Proxy

Answer 43

Legal document giving a stockholder's agent the power to exercise the stockholder's voting rights.

Question 44

Restricted retained earnings

Answer 44

Retained earnings not available for dividends because of legal or contractual limitations.

Question 45

Retained earnings

Answer 45

Cumulative income less cumulative losses and dividends.

Question 46

Retained earnings deficit

Answer 46

Debit (abnormal) balance in retained earnings; occurs when cumulative losses and dividends exceed cumulative income; also called accumulated deficit.

Question 47

Reverse stock split

Answer 47

Occurs when a corporation calls in its stock and replaces each share with less than one new share; increases both market value per share and any par or stated value per share.

Question 48

Simple capital structure

Answer 48

Capital structure that consists of only common stock and nonconvertible preferred stock; consists of no dilutive securities.

Question 49

Small stock dividend

Answer 49

Stock dividend that is 25% or less of a corporation's previously outstanding shares.

Question 50

Stated value stock

Answer 50

No-par assigned a stated value per share; this amount is recorded in the stock account when the stock is issued.

Question 51

Statement of stockholders' equity

Answer 51

Financial statement that lists the beginning and ending balances of each major equity account and describes all changes in those accounts.

Question 52

Stock dividend

Answer 52

Corporation's distribution of its own stock to its stockholders without the receipt of any payment.

Question 53

Stock options

Answer 53

Rights to purchase common stock at a fixed price over a specified period of time.

Question 54

Stock split

Answer 54

Occurs when a corporation calls in its stock and replaces each share with more than one new share; decreases both the market value per share and any par or stated value per share.

Question 55

Stockholders' equity

Answer 55

A corporation equity; also called the stockholders' equity or corporate capital.

Question 56

Treasury stock

Answer 56

Corporation's own stock that it reacquired and still holds.