chapter 11

Question 1

Par value

Answer 1

stated value = no par = legal capital

-does not reflect current market value

Question 2

Market Price =

Answer 2

MP = Issue Price = FMV = fair market value = cash received.

Question 3

Authorized stock

Answer 3

(must receive permission to issue these shares from the Secretary of State where the business is incorporated)

Question 4

Issued stock

Answer 4

sold to all investors

Question 5

Outstanding Stock

Answer 5

has been issued and is in the hands of stockholders outside the corporation itself

Question 6

Treasury Stock

Answer 6

stock that has been previously issued and outstanding but now held by the corporation itself

Question 7

5. Corporations may resell (reissue) its Treasury Stock

Answer 7

then it becomes issued and outstanding again.

Question 8

Common Stock

features

Answer 8

vote for the board of directors and auditors, preemptive rights, residual assets

Question 9

Rights of preferred stock

Answer 9

Non-voting, fixed dividends, liquidation preference to assets before common

Question 10

Dividends are not an

Answer 10

expense

Question 11

Points for Dividends

Answer 11

For common stockholders – are at discretion of board of directors but in practice are fairly consistent.

2. Must have available cash and positive retained earnings.
   3. Cash dividends – to outstanding stockholders ONLY. (Outstanding stock = issued

Question 12

Dividends declared does what

Answer 12

reduces Retained earnings

Question 13

Dividends paid

Answer 13

reduces cash

Question 14

● Treasury Stock is a CONTRA

Answer 14

Stockholder’s equity account

Question 15

● Issued shares =

Answer 15

outstanding shares + shares in Treasury

Question 16

● Treasury Stock does not

Answer 16

get dividends, it does not get to vote for board of directors or other issues.

Question 17

● Treasury stock ≠

Answer 17

unissued stock.

Question 18

Unissued stock =

Answer 18

Authorized shares – issued shares

Question 19

New Financing Activities

Answer 19

• Issue Stock
• Purchase of treasury stock or sell Treasury Stock
• Payment of cash dividends

Question 20

statement of retained earnings

Answer 20

Rule: Dividends declared/

Shares Outstanding

Question 21

statement of cash flow

Answer 21

Rule: Dividends paid/

Shares outstanding

Question 22

Overall Entry for This Section

Answer 22

dr: Cash (issue price= market price) step #1
cr: Common stock (PAR) step #2
cr: Additional Paid in capital in excess of par (APIC) Step #3
(difference of MP-par)

Question 23

Date of Declaration Entry

Answer 23

Dr: Retained Earnings or Dividends Declared(XSE)
Cr: Dividends Payable

Question 24

Payment Date Entry

Answer 24

Dr: Dividends Payable
Cr: Cash

Question 25

Dicuss Cumulative vs Non-Cumulative?

Answer 25

check handout

Question 26

Dividend Arrears are not a liability

Answer 26

liability

Question 27

Retained Earnings are

Answer 27

the accumulation of all past net income minus all past dividends declared. It is NOT a pile of money. It represents one of two major sources of funding of assets.

Question 28

Book value ≠

Answer 28

market price

Question 29

Net assets =

Answer 29

net worth = BV = Stockholders’ Equity = assets minus liabilities.

Question 30

Dividends are not an

Answer 30

expense and they do not accrue

Question 31

What balance sheet has?

Answer 31

• par value per share
• # of shares authorized
• # shares issued
• # shares outstanding

Question 32

Why is treasury stock brought back?

Answer 32

• bonuses and stock compensation plans
• feel that its under priced
• increase e.p.s.