Ch 11 Shareholders' equity

Question 1

Legal Capital

Answer 1

The amount that is recorded in the common share account when shares are first issued.

Question 2

Par value of shares

Answer 2

The specific dollar value assigned in a company’s articles of incorporate to each share.

Question 3

Any amount received from shareholders on share issuance in excess of this par value amount was considered to be _________________

Answer 3

contributed surplus

Question 4

No par value shares

Answer 4

Shares that have no par value assigned to them in the articles of incorporation.

Question 5

Prospectus

Answer 5

A document filed with a securities commission by a corporation when it wants to issue public debt or shares to the public

Question 6

Pre-emptive right

Answer 6

The right of shareholders to share proportionately in new issuances of shares so that their ownership interest will not be diluted by future share issuances. Synonym for anti-dilution provision.

Question 7

Minority Interest

Answer 7

A block of shares owned by an investor that represents less than 50% of the outstanding shares. Synonym for non-controlling interest.

Question 8

Dual class common shares

Answer 8

A class of common shares granting special voting rights so that the holder is entitled to more than one vote for each of the common shares owned. Also known as multiple voting shares or super voting shares.

Question 9

Rate reset preferred shares

Answer 9

Characteristic of preferred shares by which they pay a fixed dividend from their issuance until a pre-established reset date when a new fixed rate will be established.

Question 10

Perpetuals

Answer 10

Preferred shares that pay a fixed dividend for as long as the shares remain outstanding.

Question 11

Floating rate preferred shares

Answer 11

Amount of dividend paid on preferred shares that changes as interest rates change

Question 12

Hybrid securities

Answer 12

Shares or investments that include features of both debt and equity.

Question 13

Cumulative preferred shares

Answer 13

Preferred shares that accumulate dividends in periods even if there are no dividends declared. These accumulated undeclared dividends, called dividends in arrears, must be paid before a dividend can be declared for common shareholders.

Question 14

Dividends in arrears

Answer 14

Dividends on cumulative preferred shares that have not yet been declared from a prior year.

Question 15

Non-cumulative shares

Answer 15

Shares that do not guarantee payments of dividends in arrears if no dividend payment is declared

Question 16

Redeemable Preferred Shares

Answer 16

Preferred shares with a feature that gives the issuer the right to repurchase (or redeem) them from shareholders at specified future dates and amounts.

Question 17

Retractable Preferred Shares

Answer 17

Shares that can be sold back to a company (retired) at the shareholder’s option. The price that must be paid for them and the periods of time within which they can be sold are specified in the articles of incorporation.

Question 18

Convertible Preferred Shares

Answer 18

Preferred shares that are exchangeable or convertible into a specified number of common shares.

Question 19

Participating Preferred Shares

Answer 19

Preferred shares with a feature that increases the dividend rate on the shares so that it results in dividends equivalent to those being paid to common shareholders.

Question 20

4 key dates in dividend declaration process

Answer 20

1) the date of declaration
2) the ex dividend date
3) the date of record
4) the date of payment

Question 21

The date of declaration

Answer 21

The date on which the board of directors votes to declare a dividend. On this date, the dividend becomes legally payable to shareholders and a liability to the company.

Question 22

ex dividend rate

Answer 22

The date on which shares are sold in the market without the most recently declared dividend.

Question 23

date pf record

Answer 23

shareholders on the date of record will be entitled to receive the dividend payment.

Question 24

the date of payment

Answer 24

The date on which a dividend is paid to shareholders.

Question 25

date of declaration journal entry

Answer 25

DR Dividends Declared
CR Dividends Payable

Question 26

date of payment journal entry

Answer 26

DR Dividends Payable
CR Cash

Question 27

Cash dividends

Answer 27

dividends paid in cash

Question 28

Stock dividends

Answer 28

dividends paid in stocks

Question 29

3 step aproach for declaring stock dividends

Answer 29

Step 1.
Determine the number of shares issued and outstanding at the time the stock dividend is declared.

Step 2.
Determine the number of new shares being issued as a result of the stock dividend.

Step 3.
Determine the value of the new shares being issued.

Question 30

date of declaration of stock dividends journal entry

Answer 30

DR Stock Dividends Declared
CR Stock Dividends Issuable

Question 31

date new shares are issued stock dividends journal entry

Answer 31

DR Stock Dividends Issuable
CR Common Shares

Question 32

Stock split

Answer 32

A distribution of new shares to shareholders. The new shares take the place of existing shares, and existing shareholders receive new shares in proportion to the number of old shares they already own.

Question 33

Memorandum Entry

Answer 33

An entry made to record a stock split. No general ledger accounts are affected; only the record of the number of shares issued is affected.

Question 34

Reverse Stock Split

Answer 34

A stock split that decreases the number of outstanding shares and has the effect of increasing share prices. Reverse stock splits are done based on a specified ratio, such as one-for-two or one-for-five. Synonym for consolidation.