Test 2

Question 1

General Partner

Answer 1

In LP, assumes mgmt duties & unlimited liability for partnership.

Question 2

LLC

Answer 2

Owner (members) have limited liability and have an active role in mgmt. Limited life and treated as a partnership for tax purposes.

Question 3

Limited partners

Answer 3

In LP, no personal liability beyond investment.

Question 4

Mutual agency

Answer 4

Each partner a fully authorized agent of partnership. Can contractually bind partnership independent of other partners.

Question 5

Partnership

Answer 5

Voluntary, partnership agreement, limited life, taxation at individual level, mutual agency, unlimited liability, co-ownership of property

Question 6

S Corp

Answer 6

100 or fewer stockholders - treated as partnership for tax purposes, but with limited liability of C Corp

Question 7

Unlimited Liability

Answer 7

implies each partner can be called on to pay partnership’s debts

Question 8

Call Price

Answer 8

Amount paid to call and retire a preferred share.

Question 9

Callable preferred stock

Answer 9

Gives issuing company right to purchase stock from holders at specified dates and prices.

Question 10

common stock

Answer 10

Vote, transfer ownership, preemptive right to maintain % ownership, dividends, share assets remaining after creditors & preferred stockowners paid All have same rights and characteristics.

Question 11

convertible preferred stock

Answer 11

Option to exchanged preferred stock for common shares at a specified rate.

Question 12

cumulative preferred stock

Answer 12

Right to be paid both current and all preor periods’ unpaid dividends - before common stock receives any dividends.

Question 13

Date of Declaration

Answer 13

Date directors declare a dividend. Creates legal liability that must be journaled.

Question 14

Date of Record

Answer 14

Date where stock owners are recorded for receipt of dividends. No journal entry.

Question 15

Diluted EPS

Answer 15

=(NI-Preferred Div)/(weighted avg. shares outstanding + any convertible securities)

Question 16

Dividend yield

Answer 16

=Annual cash dividend/market price

Question 17

EPS

Answer 17

=(NI-Preferred Div)/Weighted Avg. Shares Outstanding.

Question 18

Financial leverage

Answer 18

Use of preferred stock to increase return to common shareholders. Also, debt issued with interest rate lower than the rate earned from using the assets the creditors lend the company.

Question 19

Large Stock Dividend/Small Stock Dividend

Answer 19

Lg - Distribution of >25% of previously outstanding shares

Sm - Distribution of 25% or less of previously outstanding shares

Question 20

Minimum legal capital

Answer 20

Amount buyers of stock must contribute to company or be subject to pay at a future date

Question 21

noncumulative preferred stock

Answer 21

No right to prior periods’ unpaid dividends.

Question 22

nonparticipating preferred stock

Answer 22

Limiteds dividends to max. each year.

Question 23

paid-in capital

Answer 23

Total amount of cash and other assets received for stock.

Question 24

participating preferred stock

Answer 24

Allows sharing with common stockholders in any dividends paid in excess of the percent or dollar amount stated on preferred stock.

Question 25

preferred stock

Answer 25

Priority status over common stock for receiving dividends and distribution of assets at dissolution of company. Generally, no right to vote.

Question 26

PE ratio

Answer 26

=Market price/EPS

Question 27

restricted retained earnings

Answer 27

Refers to statutory and contractual restrictions. Limited treasury stock purchases to amount of retained earnings. Loan agreements that restrict paying dividends beyond a specified % of retained earnings.

Question 28

stock dividend

Answer 28

Distribution of additional company shares to stockholders without receipt of payment - declared by directors. Does not reduce assets & equity, transfers equity from retained earnings to contributed capital.

Question 29

stock options

Answer 29

Right to purchase common stock at a fixed price over a specified period.

Question 30

treasury stock

Answer 30

Not an asset. No dividends. No voting rights. Shares of the company stock acquired by the company from the market.

Question 31

Advantage of C Corp

Answer 31

1. Separate legal entity
2. Limited liability of owners
3. Transferrable ownership
4. Continuous life
5. Lack of mutual agency
6. Ease of cap accululation

Question 32

Disadvantages of C Corp

Answer 32

1) Gov regulation
2) Double taxation

Question 33

Journal to issue stock

Answer 33

Date-Cash………….300,000

Com stk, $10 par val………..300,000

Issued 30,000 of $10 par value common stock @ par

*When issued at premium, add in
“paid-in value in excess of par value, common stock.”

Question 34

Stockholders’ Equity - Balance sheet

Answer 34

Stockholder’s equity

Common Stock -
$10 par value
50,000 authorized
30,000 issued & outstanding………………300,000

Retained earnings……. 65,000

Total SE………………..365,000

*Issued at premium - add in “Paid-in capital in excess of par value, common stock”

Question 35

Journal for cash dividend

Answer 35

**Dec Date **
Date-Retained Earnings….50,000

         Com Div Payable.......50,000
          *Declared $ per common share cash dividend.*

Record Date - no entry

Pay Date
Date-Common Dividend Payable…50,000

           Cash...........................50,000 
                    *Paid $ for common share dividend.*

Question 36

Journal for stock dividend

Answer 36

Dec Date
Date-Retained Earnings……15,000

   Com. Stk Dividend Distributable.....................................10,000

   Paid-in cap in excess of par value, common stock.. ......5,000 
    *note: (% of total)*

Pay Date
Date-Com. Stk Div Distributabe….10,000

          Common Stock, $10 par value.........10,000
           *Include note here*

Question 37

Stockholders’ Equity - Post Stock Dividend

Answer 37

Stockholders’ Equity

Common Stk - $10 par value,
15,000 authorized 10,000 outstanding……………………………100,000

Com. Stk Div distributable 1000 share……………………………….10,000

Paid-in Cap in excess of par value, com stk……………………….13,000

Retained Earnings………………………………………………………………20,000

Total Stockholder’s Equity………………………………………………….143,000

Question 38

Journal Entry for Treasury Stock

Answer 38

Date-Treasury Stock, Common…11,000

                     Cash......................................11,000
                       *Purchased 1000 treasury shares at 11 per share*

*No gain is ever reported for sale of treasury stock.

Question 39

Balance Sheet After Treasury Stock

Answer 39

Balance Sheet
12/31/xx

Assets
Cash………………………………18,000 - org. less buy
Other Assets………………….._95,000 _
Total Assets………………… 125,000

Liabilities - $889,000

Shareholders’ Equity

Com. Stk-10 par, 100,000
auth & issued 1000 shares
in treasury………………………….1,000,000
Retained Earnings,
11,000 restricted by
treasury stock purchase……………25,000
Less cost of treasury stock………..(11,000)
Total Stockholder’s EQ……………1,014,000

Question 40

Journal Entry to Show Partnership investments

Answer 40

Date-Cash………………………..10,000

   H. Beimler, Capital......................10,000
    *To record investment of Beimler*

Question 41

Journal Entry for Allocation
of Stated Ratios (Partnership)

Answer 41

Date-Income Summary…………………..60,000

        H. Beimler, Capital................................25,000

        A. Beimler, Capital.................................35,000 *To allocate income and close Income Summary*

Question 42

Statement of Partners’ Equity

Answer 42

Statement of Partners’ Equity

For Year End 12/31/12

                                          _H. Beimler_                _A. Beimler_                      _Total_  Beg Cap Balance                       0                                 0                                  0

Inv. by owners 15,000 40,000 55,000

Net Income
Salary Allowances 5,000 10,000
Int Allowances 0 0
Balance Alloccated 15,000 35,000
Total Net Income 20,000 45,000 65,000
(sum) 35,000 85,000 120,000

Less partners’ withdrawals (5,000) (10,000) (15,000)

Ending Cap Balances 30,000 75,000 105,000