Chapter 14 Flashcards
To review for chapter 13 test
The primary purpose of a stock split
To reduce the market price of the stock per share
The date on which a cash dividend becomes a binding legal obligation is
Declaration Date
Treasury stock should be reported in the financial statements of a corporation as a(n)
Deduction from total paid-in capital and retained earnings
A disadvantage of the corporate form of business entity is
Corporations are subject to more governmental obligations
Under the corporate form of business organization
Ownership rights are easily transferred
Stockholders’ equity
Includes retained earnings and paid-in capital
Rights posessed by common stockholders of a corporation
Right to vote in the election of the board of directors, right to sell their stock to anyone they choose, the right to share in assets upon liquidation
Common Stock, Paid-in Capital in Excess of Par, Retained Earnings
Found in the Stockholders’ Equity section of the balance sheet
Where is Treasury Stock reported
Stockholders’ equity section of balance sheet
The entry to record the issuance of shares of stock at par to an attorney in payment of legal fees for organizing the corporation includes
Debit - Organization Costs
Credit - Common Stock
Under this form of business organization ownership rights are easilty transferred
Corporation
The ability of a corporation to obtain capital is
Enhanced because of limited liability and ease of share transferability
Premium
The excess of issue price over par of common stock
The debit balance in the retained earnings account of a corporation
Deficit
Investors who are most interested in the dividend yield arethose who invest for
Current market flow
Dividend yield is most often computed on
Common Stock
You have 5,000 shares of 5%, $100 par value, cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding. What is the annual dividend on the preferred stock?
$25,000
A corporation has 40,000 shares of $20 par value stock outstanding. If the corporation issues a 5 for 1 stock splki, the par value of the stock will be
$4.00
A corporation issues 1,000 shares of common stock for $30,000. The stock has a stated value of $10 per share. The journal entry to record the stock issue would include a credit to Common Stock for
$10,000
The journal entry to issue 1,000,000 shares of $5 par common stock for $7.00 per share would be
Cash $7,000,000
Common Stock $5,000,000
PIC > Par - CS 2,000,000
Error in the computation of depreciation expense in the preceding year
Prior period adjustment
Paid - in Capital from Sale of Treasury Stock
The excess of cost over sales price of treasury stock
If the board of directors authorizes a restriction of retained earnings for a future plant expansion the effect of this action is to
Reduce the amount of retained earnings available for divident declarations
Your company had 30,000 shares of $10 par valkue common stock issued and outstanding. All shares had been issued in a prior period at $20 per share. In February your company purchased 2,000 shares of treasury stock for $20 per share and later sold the treasury shares and later sold the treasury shares for $22 per share. The journal entry to record the purchase of the treasury stock shares includes a debit to
Treasury Stock for $40,000
What is not a reason for a corporation to buy back its own stock
To increase outstanding shares
Double taxation
A disadvantage of corporations
Where is the authorized stock of a corporation indicated
Charter
A stock split
decreases the market price per share, decreases par value per share
Authorized stock
The amount of shares of stock that a corporation is allowed to issue
How do we determine the total stocdkholders’ equity
Add: Common Stock, PIC > Par + Retained Earnings - Treasury Stock
If your corpoiration has 25,000 shars of stock and issues a 4:1 stock split how many shares of stock are outstanding after the split?
100,000
When a stock dividend is declared we credit
Stock Dividends Distributable
What form of business gives shareholders limited liability
Corporation
What is not a prerequisite to paying a cash dividend?
Market value in excess of par value
The entry to record the issuance of common stock at a price abouve par includes a debit to
Cash
What is not true about a stock split
Total contributed capital increases
Retained earnings statement
Where changes are summarized for retained earnings
Board of Directors
Those most responsible for th emajor policy decisions of a corporation
Declaration of Cash Dividends
Cash Dividends
Cash Dividends Payable
Debit Stock Dividends Distributable
To record the issuance of stock certificates for common stock dividend
Paid-in Capital in Excess of Par
Stock is issued for an amount greater than par value
What types of taxes do corporations pay
Federal and state income taxes
Par value
The monetary value assigned per share in the corporate charter
Reported in the Paid-in Capital/Stockholders’ Equity section of the Corporate Balance Sheet
Preferred Stock
Has no effect on total retained earnings
Restriction/Appropriation of retained earnings
Decreases stockholders’ equity
Treasury Stock
Disadvantage of corporate form of organization
Governmental regulation
Significant changes in stockholders’ equity are reported in
Statement of stockholders’ equity
When common stock is issued in exchange for a noncash asset, the transaction should be recorded at
Fair market value of asset acquired or of the stock whichever can be determined more objectively
A corporation issues 50,000 shares of common stock. 22,500 shars were originally issued and 2,500 were subsequently reacquired. What is the number of shares outstanding?
20,000
