Chapter 15 - Stockholders' Equity

Question 1

Does a corporation need to be incorporated in each state that it does business in?

Answer 1

No

Question 2

Who does the residual interest in a corporation belong to?

Answer 2

Common stockholders

Question 3

The class of stock that represents basic ownership interest is _____ stock.

Answer 3

Common

Question 4

Do common stockholders have the right to share proportionately in profits and losses?

Answer 4

Yes

Question 5

Do common stockholders have the right to share proportionately in corporate assets upon liquidation?

Answer 5

Yes

Question 6

Do common stockholders have the right to share proportionately in any new issues of stock of the same class?

Answer 6

Yes

Question 7

Do common stockholders have the right to share proportionately in all management decisions?

Answer 7

No

Question 8

Do corporate stockholders have limited or unlimited liability?

Answer 8

Limited

Question 9

What are the two main categories of stockholders’ equity?

Answer 9

Retained earnings

Contributed capital

Question 10

A claim against a portion of the total assets of an enterprise is known as ____.

Answer 10

Stockholders’ equity

Question 11

Which of the following figures are added and which are subtracted to determine stockholders’ equity?

Common Stock
Preferred Stock
Paid in Capital in Excess of Par
Retained Earnings
Treasury Stock

Answer 11

All of them are added, except Treasury Stock, which is subtracted

Question 12

How are stock issue costs recorded?

Deferred and amortized or subtracted from proceeds received from the sale

Answer 12

Subtracted from proceeds

Question 13

Paid-in capital is not affected by the issuance of ____ stock.

Answer 13

No-par

Question 14

Stock issued in non cash transactions should be recorded at the more determinable of the fair market value of the ____ or the ______.

Answer 14

stock issued

property received

Question 15

Treasury stock is classified on the balance sheet as a(n) _____.

Answer 15

contra-stockholders’ equity account

Question 16

Treasury stock sold for less than its cost decreases net income. (True/False)

Answer 16

False

Question 17

When treasury stock is sold for less than its cost, the excess of the cost over proceeds first reduces _____ and then reduces ____.

Answer 17

Paid-in Capital from Treasury stock

Retained earnings

Question 18

Treasury stock transactions may decrease retained earnings. (True/False)

Answer 18

True

Question 19

Treasury stock transactions may increase retained earnings. (True/False)

Answer 19

False

Question 20

Reacquisition of stock includes a debit to ____ for the cost of the stock.

Answer 20

Treasury stock

Question 21

Do preferred stockholders have voting rights?

Answer 21

No

Question 22

What type of preferred stock requires that if a corporation fails to pay a dividend in any year, it must make it up in a later year before paying any dividends to common stockholders?

Answer 22

Cumulative preferred stock

Question 23

How should cumulative preferred dividends in arrears be shown in a corporation’s balance sheet?

Answer 23

In a footnote

Question 24

What is the most common type of preferred stock?

Answer 24

Cumulative

Question 25

Companies usually issue preferred stock with a par value. (true/false)

Answer 25

True

Question 26

The dividend preference for preferred stock is expressed as a percentage of the par value. (true/false)

Answer 26

True

Question 27

A company often issues preferred stock instead of debt, because of a high debt-to-equity ratio. (true/false)

Answer 27

True

Question 28

A dividend preference assures the payment of dividends. (true/false)

Answer 28

False

Question 29

What feature of preferred stock makes the security more like debt than an equity instrument?

(participating, voting, redeemable, noncumulative)

Answer 29

Redeemable

Question 30

Are cash dividends ever declared on treasury stock?

Answer 30

No

Question 31

Dividends must be paid in the period declared. (true/false)

Answer 31

False

Question 32

A declaration by the Board is required to declare a cash dividend. (true/false)

Answer 32

True

Question 33

The declaration of a ____ dividend will likely generate a gain or loss on the income statement.

Answer 33

Property

Question 34

What effect does a stock dividend have on stockholders’ equity?

Answer 34

None

Question 35

When a property dividend is declared, by how much is Retained Earnings reduced?

Answer 35

By the fair value of the property

Question 36

Cash dividends are paid on the basis of the number of shares ____.

(authorized, issued, outstanding, outstanding less treasure shares)

Answer 36

Oustanding

Question 37

What is the impact of stock splits on shareholders’ equity?

Answer 37

None

Question 38

What is the impact of property dividends on retained earnings?

Answer 38

Decrease

Question 39

What is the impact of cash dividends on retained earnings?

Answer 39

Decrease

Question 40

What is the impact of stock dividends on retained earnings?

Answer 40

Decrease

Question 41

When a stock dividend is issued, at what amount should retained earnings be capitalized for the additional shares?

Answer 41

Par value of the issued shares

Question 42

At the date of declaration of a stock dividend, the entry should include a debit to ____.

Answer 42

Retained earnings

Question 43

How should redeemable preferred stock be classified on the balance sheet?

Answer 43

As a liability

Question 44

The book value per share is based on common shares (issued/outstanding).

Answer 44

Oustanding

Question 45

How are common stock dividends distributable reported on the balance sheet?

Answer 45

As an addition to common stock

Question 46

How is the rate of return on common stock equity computed?

Answer 46

Net income less preferred dividends divided by average common stockholders’ equity