Chapter 15 - Stockholders' Equity Flashcards
Does a corporation need to be incorporated in each state that it does business in?
No
Who does the residual interest in a corporation belong to?
Common stockholders
The class of stock that represents basic ownership interest is _____ stock.
Common
Do common stockholders have the right to share proportionately in profits and losses?
Yes
Do common stockholders have the right to share proportionately in corporate assets upon liquidation?
Yes
Do common stockholders have the right to share proportionately in any new issues of stock of the same class?
Yes
Do common stockholders have the right to share proportionately in all management decisions?
No
Do corporate stockholders have limited or unlimited liability?
Limited
What are the two main categories of stockholders’ equity?
Retained earnings
Contributed capital
A claim against a portion of the total assets of an enterprise is known as ____.
Stockholders’ equity
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
All of them are added, except Treasury Stock, which is subtracted
How are stock issue costs recorded?
Deferred and amortized or subtracted from proceeds received from the sale
Subtracted from proceeds
Paid-in capital is not affected by the issuance of ____ stock.
No-par
Stock issued in non cash transactions should be recorded at the more determinable of the fair market value of the ____ or the ______.
stock issued
property received
Treasury stock is classified on the balance sheet as a(n) _____.
contra-stockholders’ equity account
Treasury stock sold for less than its cost decreases net income. (True/False)
False
When treasury stock is sold for less than its cost, the excess of the cost over proceeds first reduces _____ and then reduces ____.
Paid-in Capital from Treasury stock
Retained earnings
Treasury stock transactions may decrease retained earnings. (True/False)
True
Treasury stock transactions may increase retained earnings. (True/False)
False
Reacquisition of stock includes a debit to ____ for the cost of the stock.
Treasury stock
Do preferred stockholders have voting rights?
No
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?
Cumulative preferred stock
How should cumulative preferred dividends in arrears be shown in a corporation’s balance sheet?
In a footnote
What is the most common type of preferred stock?
Cumulative
Companies usually issue preferred stock with a par value. (true/false)
True
The dividend preference for preferred stock is expressed as a percentage of the par value. (true/false)
True
A company often issues preferred stock instead of debt, because of a high debt-to-equity ratio. (true/false)
True
A dividend preference assures the payment of dividends. (true/false)
False
What feature of preferred stock makes the security more like debt than an equity instrument?
(participating, voting, redeemable, noncumulative)
Redeemable
Are cash dividends ever declared on treasury stock?
No
Dividends must be paid in the period declared. (true/false)
False
A declaration by the Board is required to declare a cash dividend. (true/false)
True
The declaration of a ____ dividend will likely generate a gain or loss on the income statement.
Property
What effect does a stock dividend have on stockholders’ equity?
None
When a property dividend is declared, by how much is Retained Earnings reduced?
By the fair value of the property
Cash dividends are paid on the basis of the number of shares ____.
(authorized, issued, outstanding, outstanding less treasure shares)
Oustanding
What is the impact of stock splits on shareholders’ equity?
None
What is the impact of property dividends on retained earnings?
Decrease
What is the impact of cash dividends on retained earnings?
Decrease
What is the impact of stock dividends on retained earnings?
Decrease
When a stock dividend is issued, at what amount should retained earnings be capitalized for the additional shares?
Par value of the issued shares
At the date of declaration of a stock dividend, the entry should include a debit to ____.
Retained earnings
How should redeemable preferred stock be classified on the balance sheet?
As a liability
The book value per share is based on common shares (issued/outstanding).
Oustanding
How are common stock dividends distributable reported on the balance sheet?
As an addition to common stock
How is the rate of return on common stock equity computed?
Net income less preferred dividends divided by average common stockholders’ equity
