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Exam 10: Stockholders Equity

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Question 41

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Listed below are ten terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided.

Premises

Responses

A large stock dividend that includes a reduction in the par or stated value per share.

Statement of stockholders' equity

Distributions by a corporation to its stockholders.

Preferred stock

Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors.

Additional paid-in capital

Traces the line of authority for a typical corporation.

Venture capital firms

Provide additional financing, often in the millions, for a percentage ownership in the company.

Stock dividends

A mixture of attributes somewhere between common stock and bonds payable.

Articles of incorporation

The portion of the cash proceeds above par value.

Organization chart

Additional shares of the companies' own stock given to stockholders.

Retained earnings

Summarizes the changes in the balance in each stockholders' equity account over a period of time.

Stock split

Represents all net income, less all dividends, since the company began.

Dividends

Premises

A large stock dividend that includes a reduction in the par or stated value per share.

Distributions by a corporation to its stockholders.

Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors.

Traces the line of authority for a typical corporation.

Provide additional financing, often in the millions, for a percentage ownership in the company.

A mixture of attributes somewhere between common stock and bonds payable.

The portion of the cash proceeds above par value.

Additional shares of the companies' own stock given to stockholders.

Summarizes the changes in the balance in each stockholders' equity account over a period of time.

Represents all net income, less all dividends, since the company began.

Responses

Statement of stockholders' equity

Preferred stock

Additional paid-in capital

Venture capital firms

Stock dividends

Articles of incorporation

Organization chart

Retained earnings

Stock split

Dividends

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Correct Answer

Premises

Responses

A large stock dividend that includes a reduction in the par or stated value per share.

Distributions by a corporation to its stockholders.

Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors.

Traces the line of authority for a typical corporation.

Provide additional financing, often in the millions, for a percentage ownership in the company.

A mixture of attributes somewhere between common stock and bonds payable.

The portion of the cash proceeds above par value.

Additional shares of the companies' own stock given to stockholders.

Summarizes the changes in the balance in each stockholders' equity account over a period of time.

Represents all net income, less all dividends, since the company began.

Premises

A large stock dividend that includes a reduction in the par or stated value per share.

Distributions by a corporation to its stockholders.

Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors.

Traces the line of authority for a typical corporation.

Provide additional financing, often in the millions, for a percentage ownership in the company.

A mixture of attributes somewhere between common stock and bonds payable.

The portion of the cash proceeds above par value.

Additional shares of the companies' own stock given to stockholders.

Summarizes the changes in the balance in each stockholders' equity account over a period of time.

Represents all net income, less all dividends, since the company began.

Responses

Question 42

Multiple Choice

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Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

A) Dividends and voting rights.
B) Par value and dividends.
C) The preemptive right and voting rights.
D) Dividends and distribution of assets if the corporation is dissolved.

E) A) and D)
F) None of the above

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Question 43

Multiple Choice

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Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?

When treasury stock is resold at a price below cost:

Retained earnings represent the earnings retained in the corporation - earnings not paid out as dividends to stockholders.

On May 15 Canadian Falcon declares a quarterly cash dividend of $0.15 per share payable on June 10 to all stockholders of record on May 31. Record Canadian Falcon's declaration and payment of cash dividends for its 200,000 shares of common stock.

Small stock dividends are recorded by debiting Retained Earnings for the par value per share. Small stock dividends are recorded by debiting Retained Earnings for the market value, rather than the par value, per share.

Par value is the legal capital per share of stock that's assigned when the corporation is first established.

When treasury stock is purchased, what is the effect on total stockholders' equity?

Contrast the effects of a cash dividend and a stock dividend on total assets, total liabilities, and total stockholders' equity.

The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the

We usually record preferred stock as equity and report it in the stockholders' equity section of the balance sheet just above common stock.

Earnings per share (EPS) measures the net income earned per share of common stock outstanding.

Indicate whether each of the following transactions increases (+), decreases (-), or has no effect (NE) on total assets, total liabilities, and total stockholders' equity. $\begin{array}{l}\begin{array} { l c c c } \text { Transaction } & \begin{array} { c } \text { Total } \\\text { Assets }\end{array} & \begin{array} { c } \text { Total } \\\text { Liabilities }\end{array} & \begin{array} { c } \text { Total }\\\text { Stockholders' } \\\text { Equity }\end{array} \\\text { Issue common stock } & \\\text { Issue preferred stock } & \\\text { Repurchase treasury stock } & \\\text { Sale of treasury stock } & \\\text { Declare cash dividend } & \\\text { Pay cash dividend } & \\100 \% \text { stock dividend } &\\\text { 2-for-1 stock split } &\end{array}\end{array}$

Which of the following is not a potential feature of preferred stock?

If a company purchases shares of another company, it records this transaction as treasury stock. If a company purchases shares of another company, it records this transaction as an investment and not as treasury stock.

No journal entry is made to record a stock split.

The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 million. What is the amount of dividends Lambert Inc. declared and paid?

Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company.

Match the following terms with their definitions. Each letter is used only once.