Exam 1

Question 1

The amount of stock that a corporation is authorized to sell as indicated in its charter.

Answer 1

Authorized Stock

Question 2

A document that is issued by the state to set forth important terms and features regarding the creation of a corporation.

Answer 2

Charter

Question 3

A business organized as a legal entity separate and distinct from its owners under state corporation law.

Answer 3

Corporation

Question 4

Capital stock that has not been assigned a value in the corporate charter.

Answer 4

No-par value stock

Question 5

Costs incurred in the formation of a corporation

Answer 5

Organization costs

Question 6

Capital stock that has been issued and is being held by stockholders

Answer 6

Outstanding stock

Question 7

Total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock.

Answer 7

Paid-in capital

Question 8

Capital stock that has been assigned a value per share in the corporate charter.

Answer 8

Par value stock

Question 9

Capital stock that has some preferences over common stock.

Answer 9

Preferred stock

Question 10

A corporation that has only a few stockholders and whose stock is not available for sale to the general public.

Answer 10

Privately held corporation

Question 11

A corporation that may have thousands of stockholders and whose stock is regularly traded on a national securities exchange.

Answer 11

Publicly held corporation

Question 12

Net income that the corporation retains for future use.

Answer 12

Retained earnings

Question 13

The amout per share assigned by the board of directors to no-par value stock

Answer 13

Stated value

Question 14

A corporation’s own stock that has been issued and subsequently reacquired from shareholders by the corporation but not retired.

Answer 14

Treasury stock

Question 15

The equity a common stockholder has in the net assets of the corporation from owning one share of stock.

Answer 15

Book value per share

Question 16

A pro rata distribution of cash to stockholders

Answer 16

Cash dividend

Question 17

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

Answer 17

Cumulative dividend

Question 18

The date the board of directors formally declares (authorizes) a dividend and announces it to stockholders.

Answer 18

Declaration date

Question 19

A debit balance in retained earnings.

Answer 19

Deficit

Question 20

A corporation’s distribution of cash or stock to its stockholders on a pro rata (proportional) basis.

Answer 20

Dividend

Question 21

The net income earned by each share of outstanding common stock.

Answer 21

Earnings per share (EPS)

Question 22

A dividend declared out of paid-in-capital.

Answer 22

Liquidating dividend

Question 23

The date dividends are transferred to stockholders.

Answer 23

Payment date

Question 24

The percentage of earnings a company distributes in the form of cash dividends to common stockholders and is computed as cash dividends declared on common stock divided by net income.

Answer 24

Payout ratio

Question 25

The correction of an error in previously issued financial statements.

Answer 25

Prior period adjustment.

Question 26

The date when ownership of outstanding shares is determined for dividend purposes.

Answer 26

Record date

Question 27

Net income that a company retains in the business.

Answer 27

Retained earnings

Question 28

Circumstances that make a portion of retained earnings currently unavailable for dividends.

Answer 28

Retained earnings restrictions

Question 29

A statement that shows the changes in retained earnings during the year.

Answer 29

Retained earnings statement.

Question 30

A measure of profitabiity that shows how many dollars of net income were earned for each dollar invested by the owners; computed as net income minus preferred dividends divided by average common stockholders' equity.

Answer 30

Return on common stockholders' equity

Question 31

A pro rata distribution to stockholders of hte corporation's stock.

Answer 31

Stock dividend

Question 32

A statement that shows the changes in each stokholders' equity account and in total stockholders' equity during the year.

Answer 32

Stockholders' equity statement

Question 33

The issuance of additional shares of stock to stockholders according to their percentage ownership. It is accompanied by a reduction in the par or stated value per share.

Answer 33

Stock split

Question 34

A legal document thta indicates the name of the issuer, the face value of the bonds, the contractual interest rate, and maturity date of the bonds.

Answer 34

Bond Certificate

Question 35

A legal document that sets forth the terms of the bond issue.

Answer 35

Bond indenture

Question 36

A form of interest-bearning notes payable issued by corporations, universities, and governmental entities.

Answer 36

Bonds

Question 37

Bonds that are subject to redemption (buy back) at a stated dollar amount prior to maturity at the option of the issuer.

Answer 37

Callable bonds

Question 38

Rate used to determine the amount of cash interest the borrower pays and the investor receives.

Answer 38

Contractual interest rate

Question 39

Bonds that permit bondholders to convert them into common stock at the bondholders' option.

Answer 39

Convertible bonds

Question 40

Bonds issued against the general credit of the borrower. Also called unsecured bonds.

Answer 40

Debenture bonds

Question 41

A solvency measure that indicates the percentage of total assets provided by creditors; computed as total liabilities divided by total assets.

Answer 41

Debt to asset ratio

Question 42

The difference between the face value of a bond and its selling price, when the bond is sold for less than its face value.

Answer 42

Discount (on a bond)

Question 43

Amortization of bond discount or bond premium which results in periodic interest expense equal to a constant percentage of the carrying value of the bonds

Answer 43

Effective-interest method of amortization

Question 44

Rate established when bonds are issued that maintains a constant value for interest expense as a percentage of bond carrying value in each interest period.

Answer 44

Effective-interest rate

Question 45

Amount of principal due at the maturity date of the bond.

Answer 45

Face value

Question 46

Obligations expected to e paid more than one year in the future.

Answer 46

Long-term liabilities

Question 47

The rate investors demand for loaning funds to the corporation.

Answer 47

Market interest rate

Question 48

The date on which the final payment on the bond is due from the bond issuer to the investor.

Answer 48

Maturity date

Question 49

A bond secured by real estate.

Answer 49

Mortgage bond

Question 50

A long-term note secured by a mortgage that pledges title to specific assets as security for a loan.

Answer 50

Mortgage notes payable

Question 51

The difference between the selling price and the face alue of a bond, when the bond is sold for more than its face value.

Answer 51

Premium (on a bond)

Question 52

Bonds that have specific assets of the issuer pledged as collateral.

Answer 52

Secured bonds

Question 53

Bonds secured by specific assets set aside to redeem them.

Answer 53

Sinking fund bonds

Question 54

Allocates the same amount to interest expense in each interest period.

Answer 54

Straight-line method of amortization

Question 55

A solvency measure that indicates a company's ability to meet interest payments; computed by dividing the sum of net income, interest expense, and income tax expense by interest expense.

Answer 55

Times interest earned

Question 56

The relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future.

Answer 56

Time value of money

Question 57

Bonds issued against the general credit of the borrower. Also called debenture bonds.

Answer 57

Unsecured bonds.