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Principles of Accounting - Financial > Chapter 10 > Flashcards

Chapter 10 Flashcards

1
Q

What is the amount stockholders have invested in the corporation?

A

Paid-in Capital

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2
Q

What is the amount of earnings the corporation has retained?

A

Retained Earnings

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3
Q

What is the corporation’s own stock that it has reacquired?

A

Treasury Stock

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4
Q

What is the formula to find retained earnings?

A

Revenues - Expenses - Dividends

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5
Q

In a corporation who controls the company?

A

Stockholders

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6
Q

In a corporation who appoints the CEO?

A

The Board of Directors

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7
Q

In a corporation who runs the company?

A

The CEO

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8
Q

What does CEO stand for?

A

Chief Executive Officer

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9
Q

List the 3 things companies seek investments from in order to grow?

A
  1. Angel investors
  2. Venture capital firms
  3. Initial public offering (IPO)
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10
Q

Who are wealthy investors that are similar to those featured on Shark Tank?

A

Angel investors

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11
Q

Who provide additional funding and business expertise?

A

Venture capital firms

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12
Q

What is the first time a corporation issues stock to the general public called?

A

Initial public offering (IPO)

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13
Q

Are private corporations regulated by the SEC?

A

No

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14
Q

List the 3 rights that Stockholders have

A
  1. Right to vote
  2. Right to receive dividends
  3. Right to share in the distribution of assets
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15
Q

What are the 2 advantages of a corporation?

A
  1. Limited Liability

2. Ability to raise capital and transfer ownership

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16
Q

What are the 2 disadvantages of a corporation?

A
  1. Double taxation

2. More paperwork

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17
Q

Which of the following is a primary advantage of forming a corporation?

a. Reduced taxes
b. Increased personal liability of the owners
c. Increased ability to raise capital and transfer ownership
d. Fewer state and federal reporting requirements

A

c. Increased ability to raise capital and transfer ownership

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18
Q

What are shares that are available to sell called?

A

Authorized Stock

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19
Q

What does authorized stock include?

A

Issued and unissued stock

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20
Q

What are shares that are actually sold called?

A

Issued Stock

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21
Q

Does issued stock include treasury stock?

A

Yes

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22
Q

What are shares that are held by investors called?

A

Outstanding Shares

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23
Q

Does outstanding shares include treasury stock?

A

No

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24
Q

What is the formula to find authorized stock?

A

Issued Stock + Unissued Stock

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25
Q

What is the formula to find issued stock?

A

Outstanding Shares + Treasury Stock

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26
Q

What is the legal capital per share of stock that’s assigned when the corporation is first established?

A

Par Value

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27
Q

Does par value have any relationship to the market value of the common stock?

A

No

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28
Q

Make a journal entry:

Assume Canadian Falcon issues 1,000 shares of no-par common stock at $30 per share.

A

Cash 30,000

Common Stock 30,000

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29
Q

Make a journal entry:

Assume Canadian Falcon issues 1,000 shares of $0.01 par value common stock at $30 per share.

A

1,000 x 30 = 30,000
1,000 x .01 = 10
30,000 - 10 = 29,990

(D) Cash 30,000
(C) Common Stock 10
(C) Additional Paid-in Capital 29,990

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30
Q

When do you put APIC in the debit?

A

When credit > debit

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31
Q

When do you put APIC in the credit?

A

When credit < debit

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32
Q

Company A issues 20,000 shares of $5 par common stock at $12.50 per share. The entry to record the issuance would include which of the following?

a. Debit to cash of $100,000
b. Credit to Common Stock of $250,000
c. Credit to Additional Paid-in Capital of $150,000
d. Credit to Additional Paid-in Capital of $250,000

A 
Cash = 20,000 x 12.50 = 250,000
CS = 20,000 x 5 =  100,000
APIC = 250,000 - 100,000

c. Credit to Additional Paid-in Capital of $150,000

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33
Q

What is the formula to find additional paid-in capital?

A

Total debit - total credit

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34
Q

What does it mean when shares can be exchanged for common stock?

A

They are Convertible

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35
Q

What does it mean when shares can be returned to the corporation at a fixed price?

A

They are Redeemable

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36
Q

What does it mean when shares receive priority for future dividends if dividends are not paid in a given year?

A

They are Cumulative

37
Q

Which of the following is a primary advantage of owning preferred stock?

a. Preferential voting rights in most cases
b. Tax deductibility of payments
c. Preference over common stockholders in the distribution of assets in the event of dissolution
d. Higher risk to investors than owning common stock

A

c. Preference over common stockholders in the distribution of assets in the event of dissolution

38
Q

What is a corporation’s own stock that it has reacquired?

A

Treasury Stock

39
Q

Make a journal entry:

Canadian Falcon repurchases 100 shares of its own $0.01 par value common stock at $30 per share

A

Treasury Stock 3,000

Cash 3,000

40
Q

On the statement of stockholders equity is treasury stock a positive or a negative?

A

A negative

41
Q

List the order of accounts on the statement of stockholders equity?

A 
Preferred Stock
Common Stock
Additional Pain-in Capital
Total Paid-in Capital (PS + CS + APIC)
Retained Earnings
Treasury Stock
Total Stockholders Equity (TPIC + RE - TS)
42
Q

How do you find retained earnings on the statement of stockholders equity?

A

Total Net Income - Total Dividends

43
Q

Make a journal entry:

Canadian Falcon reissues the 100 shares of treasury stock for $35. Recall that these shares originally were purchased for $30 per share

A

(D) Cash 3,500
(C) Treasury Stock 3,000
(C) APIC 500

44
Q

Make a journal entry:

Assume Canadian Falcon reissues the 100 shares of treasury stock for only $25 rather than $35. Recall that these shares originally were purchased for $30 per share.

A

(D) Cash 2,500
(D) APIC 500
(C) Treasury Stock 3,000

45
Q

Treasury Stock:

a. Has a normal credit balance
b. Decreases stockholders’ equity
c. Is recorded as an investment
d. Increases stockholders’ equity

A

b. Decreases stockholders’ equity

46
Q

What is a debit balance in retained earnings?

A

Accumulated deficit

47
Q

What are distributions by a corporation to its stockholders?

A

Cash Dividends

48
Q

What is the date on which board of directors declares the cash dividend to be paid?

A

Declaration date

49
Q

What is the specific date on which the company will determine who will receive the dividend?

A

Record date

50
Q

What is the date of the actual cash distribution?

A

Payment date

51
Q

Do you have to make a journal entry for the declaration date?

A

Yes

52
Q

Do you have to make a journal entry for the record date?

A

No

53
Q

Do you have to make a journal entry for the payment date?

A

Yes

54
Q

Make a journal entry:

On March 15 Canadian Falcon declares a $0.25 per share dividend on its 2,000 outstanding shares.

A

Dividends 500

Dividends Payable 500

55
Q

Make a journal entry:

The dividend declared by Canadian Falcon, $0.25 per share dividend on its 2,000 outstanding shares, is paid on April 15.

A

Dividends Payable 500

Cash 500

56
Q

Does a declaration of cash dividends increase or decrease retained earnings?

A

Decrease

57
Q

On which date would a company record a debit to Dividends and a credit to Dividends Payable?

a. Date of declaration
b. Date of record
c. Date of payment
d. Settlement date

A

a. Date of declaration

58
Q

What are additional shares of a company’s own stock given to stockholders as dividends?

A

Stock Dividends

59
Q

What is a large stock dividend that includes a reduction in the par or stated value per share?

A

Stock Split

60
Q

When you have a 10% stock dividend what do you debit and credit?

A

You debit stock dividends and credit common stock and additional paid in capital

61
Q

When you have a 100% stock dividend what do you debit and credit?

A

You debit stock dividend and credit common stock

62
Q

Do you have to make a journal entry for a 2-in-1 stock split?

A

No

63
Q

When you have a stock dividend how do you find the stock dividend amount that you debit?

A

Market price x ( # of stock dividends declared x % of stock dividend)

64
Q

When you have a stock dividend how do you find the common stock amount that you credit?

A

of stock dividends declared x % of stock dividend

65
Q

A company has 1,000 shares of $20 par stock outstanding and issues a 2-for-1 split. How many shares are outstanding after the split?

a. 1,000
b. 2,000
c. 3,000
d. 500

A

b. 2,000

66
Q

What presents the balance of each equity account at a point in time?

A

The Stockholders’ equity in the balance sheet

67
Q

What summarizes the changes in the balance in each stockholders’ equity account over a period of time?

A

The statement of stockholders equity

68
Q

How does the stockholders’ equity section of the balance sheet differ from the statement of stockholders’ equity?

a. The stockholders’ equity section shows the balances at a point in time and the statement of stockholders’ equity shows activity over time.
b. The stockholders’ equity section shows the activity over time and the statement of stockholders’ equity shows the balances at a point in time.
c. There are no differences.
d. The stockholders’ equity section is more detailed.

A

a. The stockholders’ equity section shows the balances at a point in time and the statement of stockholders’ equity shows activity over time.

69
Q

What measures the ability of company management to generate earnings from the resources that owners provide?

A

Return on Equity

70
Q

What is the formula to find return on equity?

A

Net Income / Average Stockholders’ Equity

71
Q

What measures how much a company pays out in dividends relative to its share price?

A

Dividend Yield

72
Q

What is the formula to find dividend yield?

A

Dividend per share / stock price

73
Q

Do you want a higher or lower return of equity?

A

A higher

74
Q

Do you want a higher or lower dividend yield?

A

A higher

75
Q

What measures net income earned per share of common stock?

A

Earnings per Share

76
Q

What is the formula to find earnings per share?

A

(Net income - dividends) / average share of common stock outstanding

77
Q

What indicates how the stock is trading relative to current earnings?

A

Price-Earnings Ratio

78
Q

What is the formula to find price-earnings ratio?

A

Stock price / earnings per share

79
Q

Do you want a higher or lower price-earnings ratio?

A

A higher

80
Q

The PE ratio:

a. Typically is more than 100
b. Equals the stock price divided by net income
c. Typically is less than 1
d. Indicates how a stock is trading relative to its current earnings

A

d. Indicates how a stock is trading relative to its current earnings

81
Q

Who has stock traded on a stock exchange such as the New York Stock Exchange (NYSE)?

A

Publicly held corporation

82
Q

What traces the line of authority within the corporation?

A

An organization chart

83
Q

What describes the nature of the firm’s business activities, the shares to be issued, and the composition of the initial board of directors?

A

Articles of incorporation

84
Q

What do shareholders have when they can lose no more than the amount they invest in the company?

A

Limited liability

85
Q

What type of corporation allows for legal treatment as a corporation, but tax treatment as a partnership?

A

S Corporation

86
Q

What is like an S corporation, but there are no limitations on the number of owners as in an S corporation?

A

Limited liability company

87
Q

Summit Apparel has the following accounts at December 31: Common Stock, $1 par value, 2,000,000 shares issued; Paid-in Capital, $18 million; Retained Earnings, $11 million; and Treasury Stock, 60,000 shares, $1.32 million. Prepare the stockholders’ equity section of the balance sheet.

A 
Common Stock 2 mil
APIC 18 mil
Total paid-in capital 20 mil (2 +18)
R/E 11 mil
Treasury Stock (1.32 mil)
Total Stockholders Equity 29.68 mil
88
Q

What is the formula to find total paid-in capital on the statement of stockholders’ equity?

A

Preferred stock + common stock + additional paid-in capital

Principles of Accounting - Financial (11 decks)

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