Chapter 18: Shareholder's Equity (TERMS)

Question 1

The 4 classifications within SE

Answer 1

The 4 classifications within SE:

1. Paid-in capital
2. Retained Earnings
3. AOCI
4. Treasury Stock

Question 2

Paid-in capital

Answer 2

Paid-in capital: Invested capital consisting primarily of amounts invested by shareholders when they purchase shares of stock from the corporation.

Question 3

Retained Earnings:

Answer 3

Retained Earnings: Amounts earned by the corporation on behalf of its shareholders and not (yet) distributed to them as dividends.

Question 4

Treasury Stock

Answer 4

Treasury Stock: Shares repurchased and not retired.

Question 5

Accumulated Other Comprehensive Income - AOCI

Answer 5

Accumulated Other Comprehensive Income - AOCI: Traditional net income plus other nonowner changes in equity.

Question 6

Comprehensive income extends our view of income beyond net income reported in an income statement to include 4 types of gains and losses not included in income statements.

Answer 6

4 types of gains and losses not included in income statements (included in OCI).

1. Net holding gains (losses) on available-for-sale investments in debt securities.
2. Gains (losses) from and amendments to post retirement benefit plans.
3. Deferred gains (losses) on derivatives.
4. Adjustments from foreign currency translation.

Question 7

We report 2 attributes of OCI:

Answer 7

We report 2 attributes of OCI:

1. components of comprehensive income created during the reporting period and
2. the comprehensive income accumulated over the current and prior periods.

Question 8

Components of comprehensive income created during the reporting period - can be reported either as

Answer 8

Components of comprehensive income created during the reporting period - can be reported either as

1. An expanded version of the income statement or
2. A separate statement immediately following the income statement.

Question 9

The comprehensive income accumulated over the current and prior periods - is reported as a

Answer 9

The comprehensive income accumulated over the current and prior periods - is reported as a separate component of shareholders’ equity following retained earnings.

Question 10

A company may be organized in any of 3 ways

Answer 10

A company may be organized in any of 3 ways:

1. A sole proprietorship.
2. A partnership.
3. A corporation.

Question 11

S corporation

Answer 11

S corporation: Characteristics of both regular corporations and partnerships. Owners have the limited liability of a corporation, but income and expenses are passed through to the owners as in a partnership, avoiding double taxation.

Question 12

Limited liability company

Answer 12

Offers 3 advantages:

1. Owners are not liable for the debts of the business, except to the extent of their investment.
2. All members can be involved with managing the business without losing liability protection.
3. No limitations on the number of owners.

Question 13

Model Business Corporation Act

Answer 13

Model Business Corporation Act: Designed to serve as a guide to states in the development of their corporation statutes.
- Corporations are formed in accordance with te corporation laws of individual states.

Question 14

Articles of Incorporation

Answer 14

Articles of Incorporation: Statement of the nature of the firm’s business activities, the shares to be issued, and the composition of the initial board of directors.

Question 15

Board of Directors

Answer 15

Board of Directors: The board of directors establishes corporate policies and appoints officers who manage the corporation.

Question 16

Right of Conversion

Answer 16

Right of Conversion: Shareholders’ right to exchange shares of preferred stock for common stock at specified conversion ratio.

Question 17

Redemption Privilege

Answer 17

Redemption Privilege: Might allow preferred shareholders the option, under specific conditions, to return their shares for a predetermined redemption price.

Question 18

Preferred Shares (cumulative)

Answer 18

Preferred Shares (cumulative): If the specified dividend is not paid in a given year, the unpaid dividends accumulate and must be made up in a later dividend year before any dividends are paid on common shares.

Question 19

Preferred Shares (non cumulative)

Answer 19

Preferred Shares (non cumulative): If the specified dividend is not declared in any given year, it need never be paid.

Question 20

Preferred Shares (participating)

Answer 20

Preferred Shares (participating): Preferred shareholders are allowed to receive additional dividends beyond the stated amount.

Question 21

Preferred Shares (nonparticipating)

Answer 21

Preferred Shares (nonparticipating): Preferred shareholder dividends are limited to the stated amount.

Question 22

Retire Stock

Answer 22

Retire Stock: Shares repurchased and not designated as treasury stock.
- Decreases both, cash and shareholder’s equity.

Question 23

Deficit

Answer 23

Deficit: Debit balance in retained earnings.

Question 24

Dividend

Answer 24

Dividend: Distribution to shareholders of a portion of assets earned.

Question 25

Liquidating Dividend

Answer 25

Liquidating Dividend: When a dividend exceeds the balance in retained earnings and returns invested capital to owners.

Question 26

Date of Record

Answer 26

Date of Record: Specific date stated as to when the determination will be made of the recipient of the dividend.

Question 27

Ex-dividend date

Answer 27

Ex-dividend date: Date usually 2 business days before the date of the record and is the first day the stock trades without the right to receive the declared dividend.

Question 28

Property Dividend

Answer 28

Property Dividend: When a noncash asset is distributed.

Question 29

Stock Split

Answer 29

Stock Split: Stock distributions of 25% or higher, sometimes called a large stock dividend.

Question 30

Stock Dividend

Answer 30

Stock Dividend: Distribution of additional shares of stock to current shareholders of the corporation.