Chapter 11 GLOSSARY REVIEW

Question 1

Accumulated Other Comprehensive Income

Answer 1

This account includes the cumulative amount of all previous items reported as other comprehensive income.

Question 2

Charter

Answer 2

A document that describes a corporation’s name and purpose, types of stock and number of shares authorized, names of individuals involved in the formation, and number of shares each individual has agreed to purchase.

Question 3

Corporation

Answer 3

A company organized as a separate legal entity, with most of the rights and privileges of a person.

Question 4

Cumulative Dividend

Answer 4

A feature of preferred stock entitling the stockholder to receive current and unpaid prior-year dividends before common stockholders receive any dividends.

Question 5

Declaration Date

Answer 5

The date the board of directors formally authorizes the dividend and announces it to stock- holders.

Question 6

Deficit

Answer 6

A debit balance in Retained Earnings.

Question 7

Dividend

Answer 7

A distribution by a corporation to its stockholders

on a pro rata (proportional to ownership) basis.

Question 8

Dividends in Arrears

Answer 8

Preferred dividends that were sup- posed to be declared but were not declared during a given period.

Question 9

Legal Capital

Answer 9

The amount of capital that must be retained in the business for the protection of corporate creditors.

Question 10

No-Par Value Stock

Answer 10

Capital stock that has not been assigned a value in the corporate charter.

Question 11

Outstanding Stock

Answer 11

Capital stock that has been issued and is being held by stockholders.

Question 12

Paid-In Capital

Answer 12

The amount stockholders paid in to the corporation in exchange for shares of ownership.

Question 13

Par Value Stock

Answer 13

Capital stock that has been assigned a value per share in the corporate charter.

Question 14

Payment Date

Answer 14

The date cash dividend payments are made to stockholders.

Question 15

Treasury Stock

Answer 15

A corporation’s own stock that has been reacquired by the corporation and is being held for future use.

Question 16

Stock Split

Answer 16

The issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share.

Question 17

Stock Dividend

Answer 17

A pro rata (proportional to ownership) distribution of the corporation’s own stock to stockholders.

Question 18

Stated Value

Answer 18

The amount per share assigned by the board of directors to no-par stock.

Question 19

Return on Common Stockholders’ Equity (ROE)

Answer 19

A mea- sure of profitability from the stockholders’ point of view; computed by dividing net income minus pre- ferred dividends by average common stockholders’ equity.

Question 20

Retained Earnings Restrictions

Answer 20

Circumstances that make a portion of retained earnings currently unavailable for dividends.

Question 21

Retained Earnings

Answer 21

Net income that a company retains in the business.

Question 22

Record Date

Answer 22

Thedatewhenthecompanydeterminesowner- ship of outstanding shares for dividend purposes.

Question 23

Publicly Held Corporation

Answer 23

A corporation that may have thousands of stockholders and whose stock is traded on a national securities market.

Question 24

Privately Held Corporation

Answer 24

A corporation that has only a few stockholders and whose stock is not available for sale to the general public.

Question 25

Preferred Stock

Answer 25

Capital stock that has contractual preferences over common stock in certain areas.

Question 26

Payout Ratio

Answer 26

A measure of the percentage of earnings a company distributes in the form of cash dividends to common stockholders.

Question 27

Cash Dividend

Answer 27

A pro rata (proportional to ownership) distribution of cash to stockholders.

Question 28

Authorized Stock

Answer 28

The amount of stock that a corporation is authorized to sell as indicated in its charter.