Chapter 13

Question 1

Corporation

Answer 1

Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders

Question 2

Organization Expenses

Answer 2

Costs such as legal fees and promoter fees to bring an entity into existence.

Question 3

Proxy

Answer 3

Legal document giving a stockholder’s agent the power to exercise the stockholder’s voting rights

Question 4

Common Stock

or Capital Stock

Answer 4

Corporations basic ownership share

Question 5

Preemptive Right

Answer 5

Stockholder’s right to maintain their proportionate interest in a corporation with any additional shares issued.

Question 6

Capital Stock

Answer 6

General term referring to a corporation’s stock used in obtaining capital, (owner financing).

Question 7

Authorized Stock

Answer 7

Total amount of stock that a corporation’s charter authorizes it to issue

Question 8

Market Value Per Share

Answer 8

Price at which stock is bought or sold.

Question 9

Par Value Stock

Answer 9

Class of stock assigned a par value by the corporate charter.

Question 10

Par Value

Answer 10

Value assigned a share of stock by the corporate charter when the stock is authorized.

Question 11

Minimum Legal Capital

Answer 11

Amount of assets defined by law that stockholders must (potentially) invest in a corporation; usually defined as par value of the stock; intended to protect creditors.

Question 12

No-Par Value Stock

Answer 12

Stock class that has not been assigned a par (or stated) value by the corporate charter.

Question 13

Stated Value Stock

Answer 13

No-par stock assigned a stated value per share; this is recorded in the stock account when the stock is issued.

Question 14

Stockholder’s Equity

or Corporate Capital

Answer 14

A corporation’s equity

Question 15

Retained Earnings

Answer 15

Cumulative income less cumulative losses and dividends

Question 16

Paid-In Capital In Excess of Par Value

Answer 16

Amount received from issuance of stock that is in excess of the stock’s par value.

Question 17

Discount on Stock

Answer 17

Difference between the par value of stock and it’s issuance when issued at a price below par value.

Question 18

Date of Declaration

Answer 18

Date the directors vote to pay a dividend.

Question 19

Date of Record

Answer 19

Date the directors specify for identifying stockholders to receive dividends.

Question 20

Date of Payment

Answer 20

Date the corporation makes the dividend payment.

Question 21

Retained Earnings Deficit

or Accumulated Deficit

Answer 21

Debit (abnormal) balance in Retained Earnings; occurs when cumulative losses and dividends exceed cumulative income.

Question 22

Liquidating Cash Dividend

Answer 22

Distribution of assets that returns part of the original investment to stockholders; deducted from contributed capital accounts.

Question 23

Stock Dividend

Answer 23

Corporation’s distribution of it’s own stock to it’s stockholders without the receipt of any payment.

Question 24

Small Stock Dividend

Answer 24

Stock dividend that is 25% or less of a corporation’s previously outstanding shares.

Question 25

Large Stock Dividend

Answer 25

Stock dividend that is more than 25% of the previously outstanding shares.

Question 26

Stock Split

Answer 26

Occurs when a corporation calls in it’s stock and replaces each share with more than one new share; decreases both the market value per share and the par or stated value per share.

Question 27

Reverse Stock Split

Answer 27

Occurs when a corporation call in it’s stock and replaces each share with less than one new share; increases both the market value per share and the par or stated value per share.

Question 28

Preferred Stock

Answer 28

Stock with a priority status over common stockholders in one or more ways, such as paying dividends or distributing assets.

Question 29

Cumulative Preferred Stock

Answer 29

Preferred stock on which undeclared dividends accumulate until paid; common stockholders cannot receive dividends until cumulative dividends are paid

Question 30

Dividend in Arrears

Answer 30

Unpaid dividend on cumulative preferred stock; must be paid before any regular dividends on preferred stock and before any dividends on common stock.

Question 31

Noncumulative Preferred Stock

Answer 31

Preferred stock on which the right to receive dividends is lost for any period when dividends are not declared.

Question 32

Nonparticipating Preferred Stock

Answer 32

Preferred stock on which dividends are limited to a maximum amount each year.

Question 33

Participating Preferred Stock

Answer 33

Preferred stock that shares with common stockholders any dividends paid in excess of the percent stated on preferred stock.

Question 34

Convertible Preferred Stock

Answer 34

Preferred stock with an option to exchange it for common stock at a specified rate.

Question 35

Callable Preferred Stock

Answer 35

Preferred stock that the issuing corporation, at it’s option, may retire by paying the call price plus any dividends in arrears.

Question 36

Call Price

Answer 36

Amount that must be paid to call and retire a callable preferred stock or a callable bond.

Question 37

Financial Leverage

or Trading on the Equity

Answer 37

Earning a higher return on equity by paying dividends on preferred stock or interest on a debt at a rate lower than the return earned with the assets from issuing preferred stock or debt

Question 38

Treasury Stock

Answer 38

Corporation’s own stock that it reacquired and still holds

Question 39

Restricted Retained Earnings

Answer 39

Retained Earnings not available for dividends because of legal or contractual limitations.

Question 40

Appropriated Retained Earnings

Answer 40

Retained earnings separately reported to inform stockholders of funding needs.

Question 41

Prior Period Adjustments

Answer 41

Correction of an error in a prior year that is reported in the Statement of Retained Earnings (or Statement of Stockholder’s Equity) net of any income tax effects.

Question 42

Changes in Accounting Estimates

Answer 42

Change in an accounting estimate that results from new information, subsequent developments, or improved judgement that impacts current and future periods.

Question 43

Statement of Stockholder’s Equity

Answer 43

Financial statement that lists the beginning and ending balances of each major equity account and describes all the changes in those accounts.

Question 44

Stock Options

Answer 44

Rights to purchase common stock at a fixed price over a specified period of time.

Question 45

Earnings Per Share

or Net Income Per Share

Answer 45

Amount of income earned by each share of a company’s outstanding common stock