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ACCT 2010 > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

Major Advantage of the Corporate form of Business:

A

Ease of raising capital as both large and small investors can participate in corporate ownership.

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2
Q

Other advantages of the corporate from of business:

A

(1) Simple to become an owner
(2) Easy to transfer ownership
(3) Provides limited liability

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3
Q

Corporations can….

A

(1) Own assets
(2) Incur liabilities
(3) Sue and be sued
(4) Enter into contracts

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4
Q

Stockholder Rights:

A

(1) Voting rights
(2) Dividends
(3) Residual Claims
(4) Preemptive Rights

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5
Q

Ultimate control of a corporation rests with the ____________.

A

Stockholders

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6
Q

Reports the amount of capital the company received from

investors’ contributions, in exchange for the company’s stock

A

Contributed Capital

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7
Q

Reports the cumulative amount of net income earned by the
company less the cumulative amount of dividends declared since the corporation
was first organized.

A

Retained Earnings

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8
Q

Reports shares that were previously owned by stockholders but
have been reacquired and are now held by the corporation

A

Treasury Stock

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9
Q

Reports unrealized gains and losses,
which are temporary changes in the value of certain assets and liabilities the
company holds.

A

Accumulated Other Comprehensive Income

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10
Q

The maximum number of shares of stock that can be issued to the public.

A

Authorized Shares

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11
Q

True or False: The number of authorized shares is identified in the corporate charter of the corporation that is issued by the state.

A

True

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12
Q

Authorized shares can be classified as either:

A

(1) Issued

(2) Unissued

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13
Q

Authorized shares of stock that have been distributed to stockholders.

A

Issued Shares

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14
Q

Authorized shares of stock that have never been issued to stockholders.

A

Unissued Shares

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15
Q

Issued shares can be classified as either:

A

(1) Outstanding Shares

(2) Treasury Shares

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16
Q

Shares that are currently owned by stockholders.

A

Outstanding Shares

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17
Q

Shares that were once owned by stockholders but the corporation repurchased the shares in the stock market.

A

Treasury Shares

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18
Q

Common stock normally has a par value which is usually a very _____ amount, such as _____ per share.

A

(1) Small

(2) One cent

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19
Q

________ is an arbitrary amount assigned to each share of stock in the corporate charter.

A

Par Value

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20
Q

True or False: Par value does NOT equal market price.

A

True

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21
Q

______ is the amount that each share of stock will sell for in the market.

A

Market Price

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22
Q

The first time a corporation issues stock to the public.

A

Initial Public Offering (IPO)

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23
Q

Subsequent issues of new stock to the public.

A

Seasoned New Issue

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24
Q

Transactions between two investors ________ the corporation’s accounting records.

A

Do not affect

25
Q

Corporations often buy their own stock back in the market. A corporation repurchases its stock to:

A

(1) Distribute excess cash to stockholders
(2) Send a signal that the company believes its stock is worth acquiring
(3) Obtain shares to reissue for the purchase of other companies
(4) Obtain shares to reissue to employees as part of stock option plans.

26
Q

_____ can be used as a way to compensate employees and to encourage employees to work hard for a corporation

A

Stock

27
Q

______ are not paid on treasury stock, and a corporation holding its own stock cannot vote using these shares at the annual meeting.

A

Dividends

28
Q

______ is not an asset. It is reported in the Stockholders’ Equity portion of the balance sheet as a reduction from total equity.

A

Treasury Stock

29
Q

True or False: No profit or loss is recognized on treasury stock transactions.

A

True

30
Q

(1) Declared by board of directors
(2) Not legally required
(3) Creates liability at declaration
(4) Requires sufficient retained earnings and cash.

A

Dividends on Common Stock

31
Q

Loan agreements can include restrictions on paying ____ below a certain amount of _________.

A

(1) Dividends

(2) Retained Earnings

32
Q

Three important aspects of dividends:

A

(1) Declaration date
(2) Date of record
(3) Date of payment

33
Q

The date the directors declare the dividend. At this time a liability is created and must be recorded.

A

Date of Declaration

34
Q

The date when the corporation determines the owners of record who will receive the dividend. No entry is required in the accounting records on this date.

A

Date of Record

35
Q

The date the corporation pays the dividend to the stockholders who owned the stock on the record date

A

Date of Payment

36
Q

(1) There is no change in total stockholders’ equity.
(2) Par value per share does not change.
(3) All stockholders retain the same percentage ownership.

A

Stock Dividends

37
Q

(1) All dividends are distributions of retained earnings
(2) Stock dividends transfer an amount from retained earnings to contributed capital
(3) No cash is involved
(4) A rearrangement of the components of stockholders equity
(5) The $ amount transferred depends on the size of the stock dividend

A

Stock Dividends

38
Q

A ______ stock dividend is a distribution of stock that is less than 20 - 25 percent of the outstanding shares.

A

Small

39
Q

______ stock dividends are recorded at the market value of the stock.

A

Small

40
Q

A ______ stock dividend is a distribution of stock that is greater than 20 - 25 percent of the outstanding shares.

A

Large

41
Q

______ stock dividends are recorded at the par value of the stock.

A

Large

42
Q

A _______ is the distribution of additional shares of stock to stockholders according to their percent ownership.

A

Stock Split

43
Q

In the process of a stock split, the _____ of the stock changes.

A

Par Value

44
Q

True of False: No journal entry is required for a stock split.

A

True

45
Q

(1) Different voting rights
(2) Usually has a fixed dividend rate
(3) Priority over a common stock

A

Preferred Stock

46
Q

Journal Entry for issuing shares of preferred stock:

A

dr. Cash
cr. Preferred Stock
cr. Additional paid in capital

47
Q

Journal Entry for redeeming shares of preferred stock:

A

dr. Preferred Stock
dr. Additional paid in capital
cr. Cash

48
Q

(Dividend Rate) x (Total par Value of Preferred Stock) =

A

Amount of Preferred Dividend

49
Q

Must be paid to preferred stockholders before any dividends are paid to common stockholders.

A

Current Dividend Preference

50
Q

Has the right to be paid both the current and all prior periods’ unpaid dividends before any dividends are paid to common stockholders.

A

Cumulative Dividend Preference

51
Q

_______ has no rights to prior periods’ dividends if they were not declared in those prior periods.

A

Noncumulative preferred stock

52
Q

(Cumulative amount of reported net income) - (Net losses + dividends) =

A

Retained Earnings

53
Q

Represents a corporation’s total earnings that have been retained in the business (rather than being distributed to stockholders).

A

Retained Earnings

54
Q

_____ is one of the most widely used ratios.

A

Earnings per share

55
Q

(Net Income - Preferred Dividends) / (Average Number of Common Shares Outstanding) =

A

Earnings per share (EPS)

56
Q

Tells us the amount earned for each dollar invested by common stockholders.

A

Return on Equity (ROE)

57
Q

(Net Income - Preferred Dividends) / (Average Common Stockholders Equity) =

A

Return on Equity (ROE)

58
Q

A measure of the value that investors place on a company’s common stock.

A

Price/Earnings (P/E) Ratio

59
Q

(Current Stock Price) / (Earnings Per Share)

A

Price/Earnings (P/E) Ratio

ACCT 2010 (15 decks)

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