Exam 1 (Ch 13, 16, 17)

Question 1

Defn: An amount assigned by a company to a share of its stock.

Answer 1

Par Value

Question 2

Defn: The date the corporation records the stockholders that receive dividend checks. -Those stockholders holding the stok at the end of the business day on that date will receive a dividend

Answer 2

Date of record

Question 3

The ability of a company to pay its currently maturing debts is known as its ________. Also its the measure of a company’s ability to convert assets into cash.

Answer 3

Liquidity

Question 4

Ability of a company to pay its debts into the long term (greater than 12 months)

Answer 4

Solvency

Question 5

Formula: Times-interest-earned ratio

Answer 5

Times-interest-earned ratio = Net income + Income tax expense + Interest expense

Interest expense

Question 6

What is the rule of thumb for credits (CR) on a balance sheet that represent an increase to cash for the Statement of Cash Flows and vice versa for a debit (DR). (3 accounts types)

Answer 6

1. Asset account other than cash 2. Liability account 3. Owner’s Equity account

Question 7

Defn: A corporation’s own stock that it has previously issued and then later reacquired.

Answer 7

Treasury stock

Question 8

Defn: The comparison of a company from one year to the next by studying percentage changes of comparative financial statements

Answer 8

Horizontal analysis

Question 9

The ability of a company to earn a profit is a measure of ____________.

Answer 9

Profitability

Question 10

Defn: Reports on a business’s cash receipts and cash payments for a specific period.

Answer 10

Statement of Cash Flows

Question 11

Defn: Activities that increase or decrease long-term assets

Answer 11

Investing activites

Question 12

Defn: A corporation’s equity that includes paid-in captial and retained earnings.

Answer 12

Stockholder’s Equity

Question 13

Defn: The amount above par at which a stock is issued.

Answer 13

Premium

Question 14

What are the (4) basic rights of the stockholder?

Answer 14

1. Voting 2. Dividends 3. Liquidation 4. Preemptive right

Question 15

True/False Preferred stockholders often retain the right to vote.

Answer 15

False. Most often preferred stockholders choose to give up that right for their preferred status.

Question 16

What are (3) dates regarding dividends:

Answer 16

1. Declaration date 2. Date of record 3. Payment date

Question 17

Defn: Distribution of a corporation’s earnings to stockholders.

Answer 17

Dividend

Question 18

Formula: Price/Earnings Ratio (P.E.)

Answer 18

P.E. = Market Price per Share of Cmn Stk

Earnings per Share

Question 19

Defn: The price the stock initially sells for the first time it is sold.

Answer 19

Issue price

Question 20

Defn: Stack that has been issued but may or may not be held by stockholders

Answer 20

Issued stock

Question 21

Defn: Activities that increase or decrease long-term liabilities and equity

Answer 21

Financing activites

Question 22

When classifying items on the Statement of Cash Flows and the account affected is a Current Asset or Current Liability then it is an __________ Activity.

Answer 22

Operating activity

Question 23

Defn: Stock that gives its owners certain advantages over common stockholders, such as the right to receive dividends or assets (if the company liquidates) before common stockholders.

Answer 23

Preferred stock

Question 24

Defn: Preferred stock whose owners must receive all dividends in arrears plus the current year dividend before the corporation pays dividends to common stockholders.

Answer 24

Cumulative preferred stock

Question 25

Defn: Dividends on preferred stock that is cumulative that has not been paid for the year.

Answer 25

Dividend in Arrears

Question 26

Defn: Activities that creat revenue or expense in the entity's business.

Answer 26

Operating activities

Question 27

When classifying items on the Statement of Cash Flows, if the account affected is a Non-Current Asset account then it is what kind of activity?

Answer 27

Investing activity

Question 28

Defn: The date that payment is issued of dividends owed to stockholders

Answer 28

Payment date

Question 29

What are characteristics of a corporation (7):

Answer 29

1. Separate legal entity 2. Number of owners 3. No personal liability for owners 4. Lack of mutual agency 5. Indefinite life 6. Taxation 7. Capital accumulation

Question 30

What are the (3) basic types of cash flow activities:

Answer 30

1. Operating activities 2. Investing activities 3. Financing activities

Question 31

Defn: Preferred stock whose owners do not receive passed dividends.

Answer 31

Noncumulative preferred stock

Question 32

Defn: Issued stock in the hands of the stockholders.

Answer 32

Outstanding stock

Question 33

Formula: Rate of Return on Common Stockholders' Equity

Answer 33

Rate Rtn on Cmn Stkhdr Equity = _(Net Income - Preferred Dividends)_ Avg Cmn Stockholders' Equity

Question 34

Defn: The day the board of directors of a company announces the intention to pay dividends to stockholders - declaration of a cash dividend creates a liability (or obligation) for the corporation

Answer 34

Declaration date

Question 35

Defn: Represents the basic ownership of a corporation

Answer 35

Common stock

Question 36

Defn: Represents amounts received from stockholders in excess of par value.

Answer 36

Paid-in Capital in Excess of Par

Question 37

Defn: The maximum number of shares of stock that the corporate charter allows the corporation to issue.

Answer 37

Authorized stock

Question 38

Defn: A firm that handles the issuance of a company's stock to the public.

Answer 38

Underwriter

Question 39

When classifying items on the Statement of Cash Flows, if the account affected is a Non-Current Liability or any Owner's Equity Account then it is an __________ activity.

Answer 39

Financing activity

Question 40

Formula: Current Ratio

Answer 40

Currient Ratio = _Total Current Assets_ Total Current Liabilities

Question 41

Defn: Comparing a company with other companies based on percentages computed from elements of its financial statements An analysis of a financial statement that reveals the relationship of each statement item to its base amount.

Answer 41

Vertical analysis

Question 42

Defn: Equity earned by profitable operations of a corporation that is not distributed back to stockholders.

Answer 42

Retained Earnings

Question 43

Formula: Debt Ratio

Answer 43

Debt Ratio = _Total liabilities_ Total assets

Question 44

Defn: Stockholder's right to maintain their proportionate ownership in the corporation

Answer 44

Preemptive Right

Question 45

Defn: Represents amounts received from the stockholders of a corporation in exchange for stock.

Answer 45

Paid-in Capital

Question 46

Formula: Inventory Turnover Ratio

Answer 46

Inventory Turnover Ratio = _Cost of Goods Sold_ Avg Merchandise Inventory

Question 47

Formula: Earnings Per Share (EPS)

Answer 47

EPS = _(Net income - Preferred dividends)_ Average common stockholders' equity

Question 48

Defn: A business organized under state law that is a separate legal entity.

Answer 48

Corporation