Chapter 15 - Stockholders' Equity Flashcards

1
Q

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

A

No

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2
Q

Who does the residual interest in a corporation belong to?

A

Common stockholders

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3
Q

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

A

Common

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4
Q

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

A

Yes

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5
Q

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

A

Yes

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6
Q

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

A

Yes

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7
Q

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

A

No

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8
Q

Do corporate stockholders have limited or unlimited liability?

A

Limited

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9
Q

What are the two main categories of stockholders’ equity?

A

Retained earnings

Contributed capital

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10
Q

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

A

Stockholders’ equity

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11
Q

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
A

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

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12
Q

How are stock issue costs recorded?

Deferred and amortized or subtracted from proceeds received from the sale

A

Subtracted from proceeds

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13
Q

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

A

No-par

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14
Q

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

A

stock issued

property received

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15
Q

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

A

contra-stockholders’ equity account

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16
Q

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

A

False

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17
Q

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

A

Paid-in Capital from Treasury stock

Retained earnings

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18
Q

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

A

True

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19
Q

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

20
Q

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

A

Treasury stock

21
Q

Do preferred stockholders have voting rights?

22
Q

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?

A

Cumulative preferred stock

23
Q

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

A

In a footnote

24
Q

What is the most common type of preferred stock?

A

Cumulative

25
Companies usually issue preferred stock with a par value. (true/false)
True
26
The dividend preference for preferred stock is expressed as a percentage of the par value. (true/false)
True
27
A company often issues preferred stock instead of debt, because of a high debt-to-equity ratio. (true/false)
True
28
A dividend preference assures the payment of dividends. (true/false)
False
29
What feature of preferred stock makes the security more like debt than an equity instrument? (participating, voting, redeemable, noncumulative)
Redeemable
30
Are cash dividends ever declared on treasury stock?
No
31
Dividends must be paid in the period declared. (true/false)
False
32
A declaration by the Board is required to declare a cash dividend. (true/false)
True
33
The declaration of a ____ dividend will likely generate a gain or loss on the income statement.
Property
34
What effect does a stock dividend have on stockholders' equity?
None
35
When a property dividend is declared, by how much is Retained Earnings reduced?
By the fair value of the property
36
Cash dividends are paid on the basis of the number of shares ____. (authorized, issued, outstanding, outstanding less treasure shares)
Oustanding
37
What is the impact of stock splits on shareholders' equity?
None
38
What is the impact of property dividends on retained earnings?
Decrease
39
What is the impact of cash dividends on retained earnings?
Decrease
40
What is the impact of stock dividends on retained earnings?
Decrease
41
When a stock dividend is issued, at what amount should retained earnings be capitalized for the additional shares?
Par value of the issued shares
42
At the date of declaration of a stock dividend, the entry should include a debit to ____.
Retained earnings
43
How should redeemable preferred stock be classified on the balance sheet?
As a liability
44
The book value per share is based on common shares (issued/outstanding).
Oustanding
45
How are common stock dividends distributable reported on the balance sheet?
As an addition to common stock
46
How is the rate of return on common stock equity computed?
Net income less preferred dividends divided by average common stockholders' equity