Chapter 11

Question 1

corporation

Answer 1

an entity separate and distinct from its owners

Question 2

entities are classified by purpose:

Answer 2

profit or not for profit

Question 3

entities are classified by ownership

Answer 3

publicly held or privately held

Question 4

advantages of entities

Answer 4

separate legal existence
limited liability of stockholders
transferable ownership rights
ability to acquire capital
continuous life

Question 5

disadvantages of entities

Answer 5

corporate management
government regulations
additional taxes

Question 6

stockholders’ rights

Answer 6

1) vote
2) share corp earning thru receipt of dividends
3) keep the same % of ownership when new shares of stock are issued
4) share in assets upon liquidation in proportion to holdings (residual claim)

Question 7

authorized stock

Answer 7

charter indicates the amount of stock that a corp is authorized to sell
(# is often reported in S.H.E. section)

Question 8

par value stock

Answer 8

capital stock that has been assigned a value per share

Question 9

no-par value stock

Answer 9

capital stock that has not been assigned a value per share

Question 10

which type of capital stock is more common today?

Answer 10

no par value stock

Question 11

2 primary sources of equity

Answer 11

1) paid in capital

2) retained earnings

Question 12

paid in capital

Answer 12

the total amount of cash/other assets paid in to the corp by stockholders in exchange for capital stock

Question 13

retained earnings

Answer 13

net income that a corp retains for future use

Question 14

journal entry: issuing stock at par value

Answer 14

dr. cash

cr. common stock

Question 15

journal entry: issuing stock - excess of par

Answer 15

dr cash (for the amt issued @)

cr. common stock (for the par value amt)
cr. paid-in capital in excess of par (dif)

Question 16

treasury stock

Answer 16

corp’s own stock that it has reacquired from shareholders but not retired

Question 17

why purchase outstanding stock?

Answer 17

1) to reissue shares to officers and employees under bonus and stock compensation plans
2) to increase trading of the co’s stock in the securities market
3) to have additional shares available for use in acquiring other co.s
4) to increase earnings per share

Question 18

purchase of treasury stock is generally accounted for by the _____ method

Answer 18

cost

Question 19

journal entry: treasury stock

Answer 19

dr treasury stock

cr. cash

Question 20

treasury stock is a ____-_____ _____ acct, not an _____. Purchase of treasury stock ______ stockholders’ equity

Answer 20

contra-stockholders’ equity; asset; reduces

Question 21

preferred stock

Answer 21

preference as to dividends
preference as to assets in liquidation
non voting

Question 22

preference as to dividends

Answer 22

1) receive before common stockholders
2) per share dividend amt: % of the pref. stock’s par value
3) cumulative dividend: must be paid dividends and dividends in arrears before common stockholders

Question 23

journal entry: preferred stock excess par

Answer 23

dr. cash (total amt)
cr. preferred stock (par value amt)
cr. paid-in capital excess of par-pref. stock (dif)

Question 24

preference as to assets in liquidation

Answer 24

1) preference on corp assets if corp fails

2) preference may be for par value of shares or specified liquidating value

Question 25

dividends in arrears

Answer 25

preferred dividends that were supposed to be declared but were not declared during a given period

Question 26

types of dividends

Answer 26

1) cash dividends 2) stock dividends 3) stock splits

Question 27

for a corp to pay a cash dividend it must have:

Answer 27

1) RE-payment from RE is legal 2) adequate cash 3) declaration by the board of directors

Question 28

3 dates important to dividends

Answer 28

1) declaration date 2) record date 3) payment date

Question 29

journal entry: declaration date (cash dividends)

Answer 29

dr. cash dividends | cr. dividends payable

Question 30

journal entry: record date (cash dividends)

Answer 30

no entry-registered shareholders are eligible for the dividend

Question 31

journal entry: payment date (cash dividends)

Answer 31

dr. dividends payable | cr. cash

Question 32

stock dividends

Answer 32

pro rata distribution of a cos own stock

Question 33

why issue stock dividends?

Answer 33

1) satisfy stockholder's dividend expectations w/o spending cash 2) increase market ability of the corp's stock 3) emphasize that a portion of S.H.E. has been permanently reinvested in the business

Question 34

effects of issuing stock dividends

Answer 34

1) changes composition of SHE but total SHE remains the same 2) no effect on par or stated value per share 3) increases # of shares outstanding

Question 35

journal entry: stock dividend paid in excess (declaration date)

Answer 35

dr. stock dividends ( % declared x # shares x fair market value) cr. common stock dividends distributable (% declared x # shares x par value) cr. paid-in capital excess par (dif)

Question 36

journal entry when stock dividend shares are issued

Answer 36

dr. common stock dividends distributable | cr. common stock

Question 37

stock splits

Answer 37

reduces the mkt value of shares

Question 38

journal entry: stock split

Answer 38

no entry

Question 39

stock splits ___ par value and ____ # of shares

Answer 39

decrease; increase

Question 40

stock splits _____ par value per share but _______ balances in SHE

Answer 40

changes; does not affect

Question 41

total paid in capital changes

Answer 41

``` stock dividend (+) stock split (no change) ```

Question 42

total RE change

Answer 42

``` stock dividend (-) stock split (no change) ```

Question 43

total par value (common stock) change

Answer 43

``` stock dividend (+) stock split (no change) ```

Question 44

par value per share change

Answer 44

``` stock dividend (no change) stock split (-) ```

Question 45

shares outstanding change

Answer 45

``` stock dividend (+) stock split (+) ```

Question 46

total SHE change

Answer 46

``` stock dividend (no change) stock split (no change) ```

Question 47

payout ration

Answer 47

cash dividends distributed on CS/net income

Question 48

return on CSHE ratio

Answer 48

(net income- preferred stock dividends)/average common SHE