Chapter 15-Stockholder's Equity

Question 1

Additional paid-in capital

Answer 1

The excess over par value paid in by stockholders in return for the shares issued to them.

Question 2

Callable preferred stock

Answer 2

Preferred stock that grants the issuer the right to purchase the stock from stockholders at specified future dates and prices.

Question 3

Cash dividend

Answer 3

When a corporation distributes a dividend in cash to the stockholders.

Question 4

Common stock

Answer 4

The residual corporate interest that bears the ultimate risks of loss and receives the benefits of success.

Question 5

Contributed capital

Answer 5

Capital stock and additional paid-in capital (also called paid-in capital).

Question 6

Convertible preferred stock

Answer 6

Preferred stock that provides for the exchange of preferred stock into common stock at a specified ratio.

Question 7

Cost method

Answer 7

The Treasury Stock account is debited for the cost of the shares acquired and is credited upon reissuance for this same cost.

Question 8

Cumulative feature

Answer 8

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

Question 9

Date of declaration

Answer 9

The date the board of directors meets and approves the declaration of a dividend.

Question 10

Date of payment

Answer 10

The date the board of directors has approved to pay a dividend.

Question 11

Date of record

Answer 11

The date on which owners of the stock are entitled to a declared dividend.

Question 12

Discount on stock

Answer 12

The amount under par value paid in by stockholders in return for the shares issued to them.

Question 13

Dividend

Answer 13

When a corporation distributes assets (or issues additional stock) to the stockholders.

Question 14

Earned capital

Answer 14

Capital that develops if the business operates profitably; it consists of all undistributed income that remains invested in the enterprise.

Question 15

Equity capital

Answer 15

The contributed capital and earned capital of a corporation.

Question 16

Large stock dividend

Answer 16

A stock dividend of more than 20-25% of the number of shares previously outstanding.

Question 17

Liquidating dividend

Answer 17

A dividend not based on retained earnings; implying that stockholders are receiving a return of their investment, rather than profits.

Question 18

No-par stock

Answer 18

Shares issued with no per-share amount printed on the stock certificate.

Question 19

Paid-in capital

Answer 19

Capital stock and additional paid-in capital (also called

contributed capital).

Question 20

Par value stock

Answer 20

Capital stock that has been assigned a value per share in the corporate charter; it establishes the maximum responsibility of a stockholder in the event of insolvency or other involuntary dissolution.

Question 21

Participating dividends

Answer 21

A feature of preferred stock enabling the stockholder to share ratably with common stockholders in any dividends beyond the rate specified on the preferred stock.

Question 22

Preemptive right

Answer 22

A stockholder’s right to share proportionately in any new issues of stock of the same class.

Question 23

Preferred stock

Answer 23

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

Question 24

Property dividend

Answer 24

When a corporation distributes a dividend of an asset other than cash to the stockholders.

Question 25

Redeemable preferred stock

Answer 25

Preferred stock that has a mandatory redemption period or a redemption feature that the issuer cannot control.

Question 26

Retained earnings

Answer 26

Earnings retained for use in the business.

Question 27

Small (ordinary) stock dividend

Answer 27

Stock dividends of less than 20-25%.

Question 28

Stated value

Answer 28

The amount per share assigned by the board of directors to nopar stock that becomes legal capital per share.

Question 29

Statement of stockholders’ equity

Answer 29

The disclosure of changes in the separate accounts comprising stockholders’ equity.

Question 30

Stock dividend

Answer 30

The corporation issues additional stock to its stockholders rather than distributing any assets.

Question 31

Stock split

Answer 31

The corporation will issue additional stock to its stockholders; for example, the terms may indicate a split of 2-for-1 which would indicate that for every one share of stock a shareholder owns, they will receive an additional share of stock.

Question 32

Stockholders’ equity

Answer 32

The cumulative net contributions by stockholders (owners) plus recorded earnings that have been retained.

Question 33

Treasury stock

Answer 33

A corporation’s own stock that has been issued, fully paid for, and reacquired by the corporation but not retired.

Question 34

Return on Common Stock Equity

Answer 34

Net Income-Preferred Dividends divided by Average Common Stockholders’ Equity

Measures profitability from the common stockholders’ viewpoint. Shows how many dollars of net income the company earned for each dollar invested by the owners.

Question 35

Payout Ratio

Answer 35

Cash Dividends divided by Net Income

Ratio of cash dividends to net income.

Question 36

Book Value Per Share

Answer 36

Common Stockholders’ Equity divided by Outstanding Shares

The amount each share would receive if the company were liquidated on the basis of amounts reported on the balance sheet.