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

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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

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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

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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

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par value of the shares issued

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Direct costs incurred to sell stock such as underwriting costs should be accounted for as

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a reduction of additional paid-in capital

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A "secret reserve" will be created if

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a capital expenditure is charged to expense

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

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authorized shares

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

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par value stock

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This is not a legal restriction related to profit distributions by a corporation

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

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In January 2012, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

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decreased total stockholders' equity

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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?

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Treasury stock for the purchase price

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

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paid-in capital from treasury stock

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Porter Corp. purchased its own par value stock on January 1, 2012 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

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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?

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As paid-in capital from treasury stock transactions.

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

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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?

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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

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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

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purchase of treasury stock.

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An entry is not made on the

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date of record

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

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outstanding

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

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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, 2012, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

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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

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a paid-in capital account

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

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stock dividend

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Which dividends do not reduce stockholders' equity?

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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?

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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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fair 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

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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 par value per share and retained earnings?

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Decrease par value per share and no effect on retained earnings

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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?

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Liquidation preferences

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

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net income by average common stockholders' equity

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The payout ratio can be calculated by dividing

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cash dividends by net income less preferred dividends

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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

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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

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book value per share

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Dividends are not paid on

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treasury common stock

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Noncumulative preferred dividends in arrears

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are not paid or disclosed

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

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Note disclosure

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