question

The residual interest in a corporation belongs to the

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common stockholders

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The pre-emptive right of a common stockholder is the right to

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share proportionately in any new issues of stock of the same class

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The pre-emptive right enables a stockholder to

answer

share proportionately in any new issues of stock of the same class

question

In a corporate form of business organization, legal capital is best defined as

answer

the par value of all capital stock issued

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Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders

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bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

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Total stockholders' equity represents

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a claim against a portion of the total assets of an enterprise.

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A primary source of stockholders' equity is

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both income retained by the corporation and contributions by stockholders

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Stockholders' equity is generally classified into two major categories:

answer

earned capital and contributed capital

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The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

answer

either the proportional method or the incremental method

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When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

answer

par value of the shares issued.

question

Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset.

answer

1

question

A "secret reserve" will be created if

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a capital expenditure is charged to expense.

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Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

answer

authorized shares

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Stock that has a fixed per-share amount printed on each stock certificate is called

answer

par value stock.

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Which of the following is not a legal restriction related to profit distributions by a corporation?

answer

The amount distributed in any one year can never exceed the net income reported for that year.

question

In January 2010, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2010, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

answer

decreased total stockholders' equity.

question

Treasury shares are

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issued but not outstanding shares

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When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

answer

Treasury stock for the purchase price

question

"Gains" on sales of treasury stock (using the cost method) should be credited to

answer

paid-in capital from treasury stock

question

Porter Corp. purchased its own par value stock on January 1, 2010 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

answer

additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings

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How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

answer

As paid-in capital from treasury stock transactions.

question

Which of the following best describes a possible result of treasury stock transactions by a corporation?

answer

May decrease but not increase retained earnings

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Which of the following features of preferred stock makes the security more like debt than an equity instrument?

answer

Redeemable

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The cumulative feature of preferred stock

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requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders

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According to the FASB, redeemable preferred stock should be

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included as a liability.

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Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

answer

a footnote

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At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

answer

purchase of treasury stock

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An entry is not made on the

answer

date of record

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Cash dividends are paid on the basis of the number of shares

answer

outstanding.

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Which of the following statements about property dividends is not true?

answer

The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

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Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2010, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

answer

property dividend

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A dividend which is a return to stockholders of a portion of their original investments is a

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liquidating dividend

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A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

answer

a paid-in capital account

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If management wishes to "capitalize" part of the earnings, it may issue a

answer

stock dividend

question

Which dividends do not reduce stockholders' equity?

answer

Stock dividends

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The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

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decreases retained earnings but does not change total stockholders' equity

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Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

answer

Par value

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The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the

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market value of the shares issued

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At the date of declaration of a small common stock dividend, the entry should not include

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a credit to Common Stock Dividend Payable

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The balance in Common Stock Dividend Distributable should be reported as a(n)

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addition to capital stock

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A feature common to both stock splits and stock dividends is

answer

that there is no effect on total stockholders' equity

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What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per Share and Retained Earnings

answer

Decrease and No effect

question

Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

answer

Liquidation preferences

question

The rate of return on common stock equity is calculated by dividing

answer

net income less preferred dividends by average common stockholders' equity

question

The payout ratio can be calculated by dividing

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cash dividends by net income less preferred dividends

question

Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

answer

the payment of a previously declared cash dividend on the common stock

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Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called

answer

book value per share.

question

Dividends are not paid on

answer

treasury common stock.

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Noncumulative preferred dividends in arrears

answer

are not paid or disclosed.

question

How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position?

answer

Note disclosure

question

A corporation is incorporated in only one state regardless of the number of states in which it operates.

answer

True

question

The preemptive right allows stockholders the right to vote for directors of the company.

answer

False

question

Common stock is the residual corporate interest that bears the ultimate risks of loss

answer

True

question

Earned capital consists of additional paid-in capital and retained earnings

answer

False

question

True no-par stock should be carried in the accounts at issue price without any additional paid-in capital reported.

answer

True

question

Companies allocate the proceeds received from a lump-sum sale of securities based on the securities' par values.

answer

False

question

Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received.

answer

True

question

Treasury stock is a company's own stock that has been reacquired and retired.

answer

False

question

The cost method records all transactions in treasury shares at their cost and reports the treasury stock as a deduction from capital stock.

answer

False

question

When a corporation sells treasury stock below its cost, it usually debits the difference between cost and selling price to Paid-in Capital from Treasury Stock.

answer

True

question

Participating preferred stock requires that if a company fails to pay a dividend in any year, it must make it up in a later year before paying any common dividends.

answer

False

question

Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at stipulated prices.

answer

True

question

The laws of some states require that corporations restrict their legal capital from distribution to stockholders.

answer

True

question

The SEC requires companies to disclose their dividend policy in their annual report.

answer

False

question

All dividends, except for liquidating dividends, reduce the total stockholders' equity of a corporation.

answer

False

question

Dividends payable in assets of the corporation other than cash are called property dividends or dividends in kind

answer

True

question

When a stock dividend is less than 20-25 percent of the common stock outstanding, a company is required to transfer the fair value of the stock issued from retained earnings.

answer

True

question

Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholders' equity.

answer

False

question

The rate of return on common stock equity is computed by dividing net income by the average common stockholders' equity.

answer

False

question

The payout ratio is determined by dividing cash dividends paid to common stockholders by net income available to common stockholders.

answer

True

Ch 18 Intermediate II – Flashcards

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