Chapter 11 Terms

Question 1

Authorized stock

Answer 1

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

Question 2

Cash dividend

Answer 2

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

Question 3

Charter

Answer 3

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 4

Corporation

Answer 4

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

Question 5

Cumulative dividend

Answer 5

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

Question 6

Declaration date

Answer 6

The date the board of directors formally authorizes the dividend and announces it to stockholders.

Question 7

Deficit

Answer 7

A debit balance in Retained Earnings.

Question 8

Dividend

Answer 8

A distribution by a corporation to its stockholders on a pro rata (proportional to ownership) basis.

Question 9

Dividends in arrears

Answer 9

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

Question 10

Legal capital

Answer 10

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

Question 11

No-par value stock

Answer 11

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

Question 12

Outstanding stock

Answer 12

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

Question 13

Paid-in capital

Answer 13

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

Question 14

Par value stock

Answer 14

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

Question 15

Payment date

Answer 15

The date cash dividend payments are made to stockholders.

Question 16

Payout ratio

Answer 16

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

Question 17

Preferred stock

Answer 17

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

Question 18

Privately held corporation

Answer 18

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

Question 19

Publicly held corporation

Answer 19

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

Question 20

Record date

Answer 20

The date when the company determines ownership of outstanding shares for dividend purposes.

Question 21

Retained earnings

Answer 21

Net income that a company retains in the business.

Question 22

Retained earnings restrictions

Answer 22

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

Question 23

Stated value

Answer 23

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

Question 24

Treasury stock

Answer 24

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