Acc 291 ch 11 – Flashcards

The cumulative feature of preferred stock may not give the preferred stockholders the right to receive current-year dividends and unpaid prior-year dividends before common stockholders receive any dividends. A : True B : False

Holding preferred stock ____________ a guarantee that dividends will be paid.

Dean Corporation issues 41,000 shares of $50 par value preferred stock for cash at $60 per share. The effects of the transaction will be reported entirely under both the capital stock and additional paid-in capital sections. A : True B : False

Each of the choices below is a right or preference associated with preferred stock except A : a priority claim to receive dividends in arrears before common stockholders receive dividends. B : a priority claim preference to corporate assets in case of liquidation. C : the right to vote. D : the first claim to dividends.

Preferred stockholders have contractual priorities in relation to dividends and assets in the event of liquidation. A : False B : True

The rights or preferences associated with preferred stock include which of the following? Select all that apply. A : the right to vote. B : a priority claim to dividends. C : a priority claim to receive dividends in arrears before common stockholders receive dividend. D : a priority claim to corporate assets in case of liquidation.

Owners of ________ stock are granted preference to corporate assets in case of liquidation. A : common B : treasury C : preferred D : Class B

The rights or preferences associated with preferred stock _________ include the right to vote.

Landers Company has $20,000 of dividends in arrears. Considering this information, which of the following statements are true? Select all that apply. A : The amount of dividends in arrears should be disclosed in the notes to the financial statements. B : Dividends in arrears are not considered to be liabilities. C : An obligation for dividends in arrears exists only after the board of directors declares payment. D : The investment community looks favorably on companies with dividends in arrears, since the money is redirected toward more important growth opportunities.

The cumulative feature of ________ ___________ gives the preferred stockholders the right to receive current-year dividends and unpaid prior-year dividends before common stockholders receive any dividends.

Which feature of preferred stock gives the preferred stockholders the right to receive current-year dividends and unpaid prior-year dividends before common stockholders receive any dividends? A : liquidation preference B : voting privileges C : first claim to dividends D : cumulative dividend feature

Peters Company has $20,000 of dividends in arrears, which are considered to be liabilities. A : True B : False

When a company has dividends in arrears, A : investors look less favorably on the company. B : it indicates that the company is expanding. C : it indicates that stockholders have more preferred stock than common stock. D : investors look more favorably on the company.

Preferred stock has __________ ___________ over common stock in certain areas.

Wyman Industries had 250,000 shares of common stock outstanding before a 3-for-1 stock split. How many shares outstanding did it have after the split? A : 81,000 B : 750,000 C : 320,000 D : 500,000

A debit balance in retained earnings indicates a ___________.

Contractual loan restrictions A : cause occasional restriction of retained earnings B : result in dividends in arrears C : make available retained earnings for dividend declaration D : do not cause occasional restriction of retained earnings

A company debits ________ to Retained Earnings even if it would result in a debit balance. A : net income B : net loss C : operating expenses D : dividends

Which of the following is the cause for occasional restriction of retained earnings? A : contractual loan restrictions B : arrears in preferred dividends C : setting aside cash for dividends D : keeping the legal capital associated with paid-in capital intact

Which of the following statements about retained earnings restrictions is true? A : All of the choices are correct. B : Many states require a corporation to restrict retained earnings for the cost of treasury stock purchased. C : The board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposes. D : Long-term debt contracts may impose a restriction on retained earnings as a condition for the loan.

By restricting its retained earnings, a company makes a portion of its retained earnings __________ for dividends.

If a company has a net loss, it _____________ debit net losses to paid-in capital accounts.

Total retained earnings may increase or decrease when retained earnings are restricted. A : True B : False

When a company purchases treasury stock, restricting retained earnings is a A : legal restriction B : stock restriction C : contractual restriction D : voluntary restriction

Which of the following statements is true? A : Retained Earnings account cannot show a debit balance. B : In closing entries, a company debits a net loss to the Retained Earnings account. C : A company debits net losses to paid-in capital. D : A net loss does not affect retained earnings.

If a company has a net loss, it A : can still show a credit balance in Retained Earnings account. B : debits net losses to paid-in capital. C : debits a net loss to the Retained Earnings account. D : increases retained earnings.

Restrictions on retained earnings signal that a company is in financial difficulty. A : True B : False

If cumulative losses and dividends exceed cumulative income over a company's life, A : the number of shares outstanding decreases B : the company places a restriction on stockholders' equity C : Retained Earnings has a debit balance D : the company places a restriction on retained earnings

The amount of retained earnings available for dividend declarations would be reduced by which of the following actions? A : authorizing a restriction of retained earnings B : buying back shares of stock outstanding C : issuing more shares of common tock D : posting net gains to paid-in capital

An investor owned 300 shares of stock in a company. Each share was worth $50. After company announced a 3-for-1 split, the number of the investor's shares tripled and the total value A tripled. B doubled. C halved. D stayed the same.

Which of the following statements is true? A : The payout ratio is computed by dividing total cash dividends paid on common stock by net assets. B : The payout ratio is computed by dividing total cash dividends paid on common stock by retained earnings. C : The payout ratio is computed by dividing total cash dividends paid on common stock by paid in capital. D : The payout ratio is computed by dividing total cash dividends declared to common shareholders by net income.

By dividing net income less preferred dividends by average common stockholders' equity, you can compute A : the return on common stockholders' equity. B : return on preference stockholders' equity. C : the payout ratio. D : the return on common stockholders' liability.

Return on common stockholders' equity is computed by dividing net income available to common stockholders (Net income - Preferred dividends) by A : total common stockholders' equity. B : beginning common stockholders' equity. C : ending common stockholders' equity. D : average common stockholders' equity.

In calculating total stockholders' equity, which of the following are added? A : treasury stock and common stock B : total paid-in capital and retained earnings C : total paid-in capital and common stock D : retained earnings and paid-in capital in excess of par value

The payout ratio is computed by dividing total stock dividends paid by net income. A : True B : False

The president of the corporation has the power to appoint the board of directors. A True B False

When a company declares a dividend, the declaration will change the total of stockholders' equity. A : True B : False

Dividends in arrears on cumulative preferred stock enable the preferred stockholders to share equally in corporate earnings with the common stockholders. A : True B : False

Paid-in capital in excess of par value is credited when no-par stock does not have a stated value. A : True B : False

Is the par value of a stock legally significant? A : no, par value has no legal significance if shares are issued at a price greater than par value B : yes, par value has legal significance C : no, par value has economic significance only D : yes, par value has legal significance if shares are issued at a price greater than par value

If common stock is issued for an amount greater than par value, the excess should be credited to paid-in capital in excess of par value. A : True B : False

Authorized stock represents the number of shares a corporation is authorized to sell. A : True B : False

The paid-in capital in excess of par value is increased in the accounting records when capital stock is issued at an amount greater than par value. A : True B : False

The return on common stockholders' earnings is used to measure a company's A : solvency. B : liquidity. C : net losses. D : profitability.

A&M Corporation began business by issuing 125,000 shares of $10 par value common stock for $20 per share. During its first year, the corporation sustained a net loss of $8,000. The year-end balance sheet would show A : total paid-in capital of $5,950,000. B : total paid-in capital of $4,750,000. C : common stock of $1,250,000. D : common stock of $2,500,000.

Two classifications appearing in the paid-in capital section of the balance sheet are capital stock and .

Paid-in capital would appear under stockholders' equity on a balance sheet. A : True B : False

In the stockholders' equity section of the balance sheet, additional paid-in capital appears A under total assets. B under the sub-section paid-in capital. C under the sub-section fixed assets. D under the sub-section current liabilities.

Paid-in __________ in excess of stated value would appear on a balance sheet under the category additional paid-in capital.

A corporation A : is bound by the acts of its stockholders before they become agents of the corporation. B : may sue and be sued. C : may not enter into binding legal contracts in its own name. D : may not buy, own, and sell property.

What determines the amount of legal capital required to be retained by corporations? A : market value B : residual equity C : par value D : stockholder's equity

The stated value is treated the same way as ______ _________ for accounting purposes.

Paid-in capital accounts ____________ used to record the issuance of common stock.

What happens if no-par value stock does not have a stated value? A : The entire proceeds from the issuance of the stock become stock splits. B : The entire proceeds from the issuance of the stock become paid-in capital. C : The entire proceeds from the issuance of the stock become legal capital. D : The entire proceeds from the issuance of the stock become cash dividends.

Authorized stock is A : the amount per share assigned by the board of directors to no-par stock. B : the number of preferred shares owned by shareholders. C : the amount of capital that must be retained in the business for the protection of corporate creditors. D : the amount of stock that may be issued according to the corporation's charter.

The par value of the stock affects the initial market price of a stock. A : True B : False

The entire proceeds are credited to common stock if _____________ stock is issued without a stated value.

The ____________ on common stockholders' equity is computed by dividing net income available to common stockholders (Net income - Preferred dividends) by average common stockholders' equity.

As a company grows larger, it becomes increasingly ___________ to sustain a high return on common stockholders' equity.

The individual sources of additional paid-in capital are often combined A : in an income statement. B : in a cash flow statement. C : in unpublished annual reports. D : in published annual reports.

Which of the following form of corporation does not regularly trade its stock in the New York Stock Exchange? A : statutory corporation B : publicly held corporation C : privately held corporation D : government corporation

The effect of a stock dividend is to decrease total assets and stockholders' equity. A : True B : False

The stockholders have the ownership right to vote in the election of directors. A : True B : False

Which of the following statements is true about the stockholders' equity section in the balance sheet? A : It will list the names of individuals who are eligible to receive dividends on the date of record. B : It will report paid-in capital on the date of record. C : It will report paid-in capital and retained earnings and current liabilities on the date of record. D : It will report paid-in capital and retained earnings and identify the specific sources of paid-in capital on the date of record.

An entity that underwrites the sale of the stock value of a corporation is A : an industry association. B : an investment firm. C : a statutory corporation. D : a charitable organization.

The authorized stock of a corporation is indicated in its by-laws. A : True B : False

Paid-in capital refers to A : the value of a share of stock. B : the amount stockholders paid in exchange for stock. C : the amount of cash a company must retain to protect creditors. D : a measure of profitability.

Dividends in arrears on cumulative preferred stock __________ considered to be a non-current liability.

______ __________ is the value assigned per share of stock in the corporate charter

The value recorded for common stock is best determined by the market value of the stock when issued in exchange for a noncash asset. A : True B : False

The dollar amount given to the corporation by stockholders in exchange for shares of ownership is called A : par value stock B : legal capital C : stated value D : paid-in capital

When a company records the issuance of common stock above the par value for cash (Select all that apply.) A : it credits the amount above par value to Cash. B : it debits the amount received under Cash. C : it credits the total amount received to Paid-In Capital in Excess of Par Value. D : it credits the par value under Common Stock and the remaining amount under Paid-In Capital in Excess of Par Value.

When stock is issued, where is the amount recorded? A : in the retained earnings account B : in the paid-in capital account C : in both the paid-in capital account and the retained earnings account D : on the income statement

What happens if no-par stock is issued without a stated value? A : The par value is automatically $1 per share. B : There is no legal capital. C : The corporation is automatically in violation of its state charter. D : The entire proceeds are credited to common stock.

What does par value mean? A : It represents the original selling price for a share of stock. B : It is established for a share of stock after it is issued. C : It represents what a share of stock is worth. D : It is the value assigned per share in the corporate charter.

Retained earnings represent a claim on cash. A : True B : False

Contractual loan restrictions may occasionally cause ______ __________ to be restricted.

Net loss A : is closed to the Paid-in Capital account of the stockholders' equity section of the balance sheet B : is closed to Retained Earnings even if it would result in a debit balance C : occurs if operating expenses exceed cost of goods sold D : is not closed to Retained Earnings if it would result in a debit balance

Which of the following is true when retained earnings are restricted? A : Total retained earnings increase. B : Total retained earnings decrease. C : Total retained earnings are unaffected. D : Shareholders receive higher dividends.

When a bank grants a loan, it may impose a ________ on retained earnings. A : legal restriction B : contractual restriction C : voluntary restriction D : stock restriction

If cumulative losses and dividends exceed cumulative income over a company's life, the result will be A : a restriction on stockholders' equity B : a debit balance in Retained Earnings C : a decrease in shares outstanding D : a restriction on retained earnings

Placing a restriction on retained earnings ________ decrease total stockholders' equity

When a company has ________ it means that there is a debit balance in Retained Earnings. A : cumulative income B : net income C : net losses D : a deficit

Retained earnings restrictions can be categorized as ________. Select all that apply. A : legal B : voluntary C : monetary D : contractual

Q 11.198: ______ ___________is closed to Retained Earnings even if it would result in a debit balance.

A company reports a deficit as a deduction in the stockholders' equity section of the balance sheet. A : True B : False

When there is restriction on retained earnings, it means that A : a company is experiencing solvency problems B : stockholders are guaranteed a dividend C : the company has sufficient cash for a specific purpose D : a portion of retained earnings is unavailable for dividends

________________stock represent the largest number of common stock.

All of the following statements are true in case of dividends in arrears EXCEPT A : The amount of dividends in arrears should be disclosed in the notes to the financial statements. B : The investment community looks favorably on companies with dividends in arrears, since the money is redirected toward more important growth opportunities. C : Dividends in arrears are not considered to be liabilities. D : An obligation for dividends in arrears exists only after the board of directors declares payment.

Paid-in capital is the amount of capital that must be retained in the business for the protection of corporate creditors. A : True B : False

A corporation _________have to change its charter with the state if it sells all of its authorized stock.

If no-par value stock does not have a stated value, then entire proceeds from the issuance of the stock become A paid-in capital. B cash dividend. C stock split. D legal capital.

The company's anticipated future earnings affect the initial market price of a stock. A : True B : False

What happens if common stock is issued for an amount greater than par value? A The excess should be credited to Legal Capital. B The excess should be credited to retained earnings. C The excess should be credited to paid-in capital in excess of par value. D The excess should be credited to cash.

Most states do not permit the sale of common stock below par value. This is correct answer : A True B False

When capital stock is issued at an amount greater than par value, A the paid-in capital in excess of par value is equal in the accounting records B the paid-in capital in excess of par value is decreased in the accounting records C the paid-in capital in excess of par value is increased in the accounting records D the paid-in capital in excess of par value is unaffected in the accounting records

What does par value determine for the protection of creditors? A legal capital B stock value C stock dividends D paid-in capital

The amount of stock that may be issued according to the corporation's charter is called authorized stock. A True B False

Par value determines the amount of _________ __________ required to be retained by corporations.