TestBank financial accounting 2n spiceland ch10

Ch10 Student: _ Assets plus liabilities equal stockholders' equity True Paid-in Capital is the amount stockholders have invested in the company True False A corporation has lower taxes and less paperwork relative to sole-proprietorships and partnerships True False Owners in a sole proprietorship or a partnership can be held personally liable for debts the company has incurred, over and beyond the investment they have made True False 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 True False All publicly held corporations are regulated by the Securities and Exchange Commission True False Angel investors are investors that focus on companies at or near bankruptcy True False Retained Earnings is the amount stockholders have invested in the company True False False An S Corporation allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership True False 10 Authorized stock is the number of shares that have been sold to investors True False 11 Par value is the legal capital per share of stock that's assigned when the corporation is first established True False 12 Par value has a direct relationship to the market value of the common stock True False 13 A company credits Additional Paid-in Capital for the portion of the cash proceeds above par value received for the issuance of stock True False 14 In the event a corporation is dissolved, common stockholders receive preference over preferred stockholders in the distribution of assets True False 15 Convertible preferred stock allows the stockholder to exchange shares of preferred stock for common stock at a specified conversion ratio True False 16 Cumulative preferred stock means that dividends accumulate interest during the year True False 17 We usually record preferred stock as equity and report it in the stockholders' equity section of the balance sheet just above common stock True False 18 Treasury stock is the repurchase of a company's own issued stock True False 19 If a company purchases shares of another company, it records this transaction as treasury stock True False 20 Stock repurchases reduce the number of shares outstanding, thereby increasing earnings per share True False 21 We record treasury stock at the cost of the shares reacquired True False 22 Treasury stock is a contra-equity account since treasury stock increases total stockholders' equity True False 23 When we reissue treasury stock, we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital True False 24 Retained earnings represent the earnings retained in the corporation - earnings not paid out as dividends to stockholders True False 25 The amount of retained earnings equals net income minus dividends for the current year True False 26 If a company has expenses that are more than revenues, the net loss decreases retained earnings True False 27 Dividends are paid on all shares issued by the company including treasury stock True False 28 Total assets, total liabilities, and total stockholders' equity not change as a result of a stock dividend True False 29 Small stock dividends are recorded by debiting Retained Earnings for the par value per share True False 30 No journal entry is made to record a stock split True False 31 A stock split has no effect on the total of any account in stockholders' equity True False 32 Common stock is listed before preferred stock in the balance sheet True False 33 The number of shares outstanding is equal to the number of shares issued minus the number of shares bought back True False 34 We can estimate the average purchase cost of treasury stock per share by dividing the treasury stock balance by the number of shares repurchased True False 35 The statement of stockholders' equity shows how each equity account changed during the year True False 36 The stockholders' equity section of the balance sheet shows how each equity account changed during the year True False 37 The return on equity measures the ability of company management to generate earnings from the resources that owners provide True False 38 We compute the return on equity ratio by dividing net income by ending stockholders' equity True False 39 Earnings per share (EPS) measures the net income earned per share of common stock outstanding True False 40 We calculate earnings per share as net income divided by the average shares outstanding during the period True False 41 Earnings per share is useful in comparing earnings performance across companies True False 42 We calculate the PE ratio as the stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis True False 43 Which of the following accounts is not reported in the stockholders' equity section of the balance sheet? A B C D Treasury Stock Common Stock Sales Revenue Retained Earnings 44 Which of the following stages of equity financing comes last in the traditional order of progression? A B C D Investment by friends and family of the founders Investment by the founders of the business Initial public offering (IPO) Outside investment by "angel" investors and venture capital firms 45 In terms of total sales, assets, and earnings, the dominant form of business organization is the: A B C D Sole proprietorship Partnership Corporation Limited liability company (LLC) 46 Common stockholders usually have all of the following rights except: A B C D To receive dividends when declared To share in the distribution of assets To elect board of directors To participate in the day-to-day operations 47 Which of the following is a reason that a corporation would prefer to issue stock instead of bonds? A B C D Option a Option b Option c Option d 48 Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following except: A B C D Ease of raising capital Low government regulation Limited liability Lack of mutual agency 49 Advantages of the corporate form of business include which of the following? I Double taxation II Ability to raise capital III Lack of mutual agency IV More paperwork V Limited liability A B C D Option a Option b Option c Option d 50 Which of the following statements regarding the corporate form of business is correct? A B C D Option a Option b Option c Option d 51 The disadvantages of the corporate form of business include: A B C D Lack of mutual agency Additional taxes Limited liability Ability to raise capital 52 The correct order from the smallest number of shares to the largest number of shares is: A B C D Authorized, issued, and outstanding Outstanding, issued, and authorized Issued, outstanding, and authorized Issued, authorized, and outstanding 53 Outstanding common stock refers to the total number of shares: A B C D Issued Issued plus treasury stock Issued less treasury stock Authorized 54 Authorized common stock refers to the total number of shares: A B C D Outstanding Issued Issued and outstanding That can be issued 55 Outstanding common stock is: A B C D Stock that is performing well on the New York Stock Exchange Stock that has been authorized by the state for issue Stock issued plus treasury stock Stock in the hands of stockholders 56 Issued stock refers to the number of shares: A B C D Outstanding plus treasury shares Authorized In the hand of stockholders That may be issued under state law 57 The par value of shares issued is normally recorded in the: A B C D Additional Paid-in Capital account Common Stock account Retained Earnings account Treasury Stock account 58 The par value of common stock represents: A B C D The legal capital per share of stock assigned when the corporation was first established The liquidation value of a share The market value of a share of stock The amount received when the stock was issued 59 If a company issues 1,000 shares of par value common stock for $30 per share, what would be the effect on the accounting equation? A B C D Option a Option b Option c Option d 60 When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include: A B C D Option a Option b Option c Option d 61 Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share What is true about the journal entry to record the issuance? A B C D Option a Option b Option c Option d 62 South Beach Apparel issued 10,000 shares of $1 par value stock for $5 per share What is true about the journal entry to record the issuance? A B C D Option a Option b Option c Option d 63 Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share The entry to record the issuance will not include a: A B C D Option a Option b Option c Option d 64 Preferred stock is called preferred because it usually has two preferences over common stock These preferences relate to: A B C D Dividends and voting rights Par value and dividends The preemptive right and voting rights Dividends and distribution of assets if the corporation is dissolved 65 Preferred stock: A B C D is always recorded as a liability is always recorded as part of stockholders' equity can have features of both liabilities and stockholders' equity is not included in either liabilities or stockholders' equity 66 Which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets? A B C D Common Stock Preferred Stock Bonds They have equal preference 67 Which of the following is not a potential feature of preferred stock? A B C D Convertible Redeemable Cumulative They all are potential features of preferred stock 68 Which of the following has the highest expected return to the investor? A B C D Common Stock Preferred Stock Bonds They all have similar expected returns 69 A company issued 1,000 shares of $1 par value preferred stock for $5 per share What is true about the journal entry to record the issuance? A B C D Option a Option b Option c Option d 70 The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2011 All remaining shares are common stock The company was not able to pay dividends in 2011, but plans to pay dividends of $18,000 in 2012 Assuming the preferred stock is cumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012? A B C D Option a Option b Option c Option d 71 The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2011 All remaining shares are common stock The company was not able to pay dividends in 2011, but plans to pay dividends of $18,000 in 2012 Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012? A B C D Option a Option b Option c Option d 72 California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2011 All remaining shares are common stock The company was not able to pay dividends in 2011, but plans to pay dividends of $100,000 in 2012 Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012? A B C D Option a Option b Option c Option d 73 California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2011 All remaining shares are common stock The company was not able to pay dividends in 2011, but plans to pay dividends of $100,000 in 2012 Assuming the preferred stock is noncumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012? A B C D Option a Option b Option c Option d 74 Treasury Stock is normally reported as: A B C D A reduction of total stockholders' equity An asset account A liability account An expense account 75 When treasury stock is resold at a price above cost: A B C D A gain account is credited A loss is reported A revenue account is credited Additional Paid-in Capital is increased 76 When treasury stock is resold at a price below cost: A B C D Additional Paid-in Capital is decreased Additional Paid-in Capital is increased A gain is reported on the income statement A loss is reported on the income statement 136.Explain why preferred stock often is said to have a mixture of attributes somewhere between common stock and bonds 137.Contrast the effects of a cash dividend and a stock dividend on total assets, total liabilities, and total stockholders' equity 138.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 letter designating the term in the space provided Dividends Statement of stockholders' equity Stock split Preferred stock Venture capital firms Organization chart Articles of incorporation Retained earnings Additional paid-in capital 10 Stock dividends 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. Summarizes the changes in the balance in each stockholders' equity account over a period of time. Traces the line of authority for a typical corporation. The portion of the cash proceeds above par value. A large stock dividend that includes a reduction in the par or stated value per share. Represents all net income, less all dividends, since the company began. Distributions by a corporation to its stockholders. Additional shares of the companies' own stock given to stockholders. Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors. 139.Match (by letter) the following terms with their definitions Each letter is used only once Like an S corporation, but there are no limitations on the number of owners as in an S corporation Designed to serve as a guide to states in the development of their corporate statutes Describe (a) the nature of the firm's business activities, (b) the shares to be issued, and (c) the composition of the initial board of directors Mutual agency Allows for legal treatment as a corporation, but tax treatment as a partnership S Corporation Limited liability company. Model Business Corporation Act. Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE) Publicly held corporation. Individual partners in a partnership have the power to bind the business to a contract Double taxation. Stockholders can lose no more than the amount they invest in the company Articles of Incorporation. Corporate earnings are taxed twice - at the corporate level and individual stockholder level Limited liability. 140.Match (by letter) the following terms with their definitions Each letter is used only once Angel investors. Shares available to sell Paid-in capital. The corporation's own stock that it reacquired Shares can be returned to the corporation at a predetermined price Issued stock. Authoriz ed stock. Shares actually sold Wealthy individuals in the business community willing to risk investment funds on a promising business venture Redee mable. The amount invested by stockholders Cumu lative. Shares receive priority for future dividends, if dividends are not Retained paid in a given year earnings. Shares held by investors Limited liability. Shareholders can lose no more than the amount they invested in the company Treasury stock. 10 The earnings not paid out in dividends Outstand ing stock. 141.Match each of the following preferred stock features with its description Preferred Stock Features Shares can be exchanged for common stock Shares can be sold at a predetermined price Shares receive dividend priority, if dividend not paid Convertible Redeemable. Cumulative 142.Match (by letter) the following terms with their definitions Each letter is used only once Measures the ability of company management to generate earnings from the resources that owners provide Effectively the same as a 2-for-1 stock split The earnings not paid out in dividends A debit balance in retained earnings The stock price divided by earnings per share The corporation's own stock that it reacquired Priced low in relation to current earnings Summarizes the changes in the balance in each stockholders' equity account over a period of time Statement of stockholders' equity. Treasury stock. Value stocks. Retained earnings. PE ratio. Stockholders' equity section of the balance sheet. Return on equity. Growth stocks. Priced high in relation to current earnings as investors expect future earnings to be higher 100% stock dividend. 10 Shows the balance in each equity account at a point in time Accumulated deficit. Ch10 Key FALSE TRUE FALSE FALSE TRUE TRUE TRUE FALSE TRUE 10 FALSE 11 TRUE 12 FALSE 13 TRUE 14 FALSE 15 TRUE 16 FALSE 17 TRUE 18 TRUE 19 FALSE 20 TRUE 21 TRUE 22 FALSE 23 TRUE 24 TRUE 25 FALSE 26 TRUE 27 FALSE 28 TRUE 29 FALSE 30 TRUE 31 TRUE 32 FALSE 33 TRUE 34 TRUE 35 TRUE 36 FALSE 37 TRUE 38 FALSE 39 TRUE 40 TRUE 41 FALSE 42 TRUE 43 C 44 C 45 C 46 D 47 C 48 B 49 B 50 B 51 B 52 B 53 C 54 D 55 D 56 A 57 B 58 A 59 C 60 D 61 C 62 D 63 D 64 D 65 C 66 C 67 D 68 A 69 D 70 C 71 A 72 B 73 A 74 A 75 D 76 A 77 B 78 A 79 B 80 C 81 D 82 C 83 C 84 B 85 D 86 B 87 D 88 B 89 A 90 D 91 B 92 D 93 C 94 A 95 C 96 D 97 C 98 D 99 A 100 B 101 C 102 A 103 A 104 C 105 B 106 B 107 B 108 C 109 A 110 C 111 B 112 A 113 C 114 A 115 A 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 Most corporations first raise money by selling stock to the founders of the business and their friends and family As the equity financing needs of the corporation grow, companies prepare a business plan and seek outside investment from "angel" investors and venture capital firms Angel investors are wealthy individuals in the business community willing to risk investment funds on a promising business venture Venture capital firms provide additional financing, often in the millions, for a percentage ownership in the company Many venture capital firms look to invest in promising companies to which they can add value through business contacts, financial expertise, or marketing channels Most corporations not consider issuing stock to the general public (going public) until their equity financing needs exceed $20 million 134 A corporation offers three primary advantages over sole-proprietorships and partnerships These are (1) limited liability, (2) ability to raise capital, and (3) lack of mutual agency Because of limited liability, even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company Because corporations sell ownership interest in the form of shares of stock, ownership rights are easily transferred An investor can sell his or her ownership interest (shares of stock) at any time and without affecting the structure of the corporation or its operations Finally, a lack of mutual agency means that individual stockholders cannot legally bind the corporation to a contract A corporation has two primary disadvantages relative to sole-proprietorships and partnerships These are (1) additional taxes and (2) more paperwork Corporations have double taxation Corporate income is taxed once on earnings at the corporate level, and again on dividends at the individual level Corporations also have more paperwork as federal and state governments impose extensive reporting requirements on the company 135 Authorized stock is the total number of shares available to sell, stated in the company's articles of incorporation Issued stock is the number of shares that have been sold to investors A company usually does not issue all its authorized stock Outstanding stock is the number of shares held by investors Issued and outstanding are the same amounts as long as the corporation has not repurchased any of its shares Repurchased shares, called treasury stock, are included as part of shares issued, but excluded from shares outstanding 136 Investors in common stock are the owners of the corporation because they have voting rights Investors in bonds are creditors who have loaned money to the corporation Preferred stock fits somewhere between common stock and bonds There are other factors where preferred stock falls in the middle between common stock and bonds For example, the risk and expected return are greatest for investments in common stock followed by preferred stock and then bonds In contrast, preference for payments of interest and dividends are given first to bonds, then preferred stock, and then common stock 137 Declaration and payment of a cash dividend reduces total assets and total stockholders' equity Declaration and payment of a stock dividend has no effect on total assets, total liabilities, and total stockholders' equity 138 Venture capital firms :: Provide additional financing, often in the millions, for a percentage ownership in the company and Preferred stock :: A mixture of attributes somewhere between common stock and bonds payable and Statement of stockholders' equity :: Summarizes the changes in the balance in each stockholders' equity account over a period of time and Organization chart :: Traces the line of authority for a typical corporation and Additional paid-in capital :: The portion of the cash proceeds above par value and Stock split :: A large stock dividend that includes a reduction in the par or stated value per share and Retained earnings :: Represents all net income, less all dividends, since the company began and Dividends :: Distributions by a corporation to its stockholders and Stock dividends :: Additional shares of the companies' own stock given to stockholders and Articles of incorporation :: Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors 139 Individual partners in a partnership have the power to bind the business to a contract :: Mutual agency and Allows for legal treatment as a corporation, but tax treatment as a partnership :: S Corporation and Like an S corporation, but there are no limitations on the number of owners as in an S corporation :: Limited liability company and Designed to serve as a guide to states in the development of their corporate statutes :: Model Business Corporation Act and Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE) :: Publicly held corporation and Corporate earnings are taxed twice - at the corporate level and individual stockholder level :: Double taxation and Describe (a) the nature of the firm's business activities, (b) the shares to be issued, and (c) the composition of the initial board of directors :: Articles of Incorporation and Stockholders can lose no more than the amount they invest in the company :: Limited liability 140 Wealthy individuals in the business community willing to risk investment funds on a promising business venture :: Angel investors and The amount invested by stockholders :: Paid-in capital and Shares actually sold :: Issued stock and Shares available to sell :: Authorized stock and Shares can be returned to the corporation at a predetermined price :: Redeemable and Shares receive priority for future dividends, if dividends are not paid in a given year :: Cumulative and The earnings not paid out in dividends :: Retained earnings and Shareholders can lose no more than the amount they invested in the company :: Limited liability and The corporation's own stock that it reacquired :: Treasury stock and Shares held by investors :: Outstanding stock 141 Shares can be exchanged for common stock :: Convertible and Shares can be sold at a predetermined price :: Redeemable and Shares receive dividend priority, if dividend not paid :: Cumulative 142 Summarizes the changes in the balance in each stockholders' equity account over a period of time :: Statement of stockholders' equity and The corporation's own stock that it reacquired :: Treasury stock and Priced low in relation to current earnings :: Value stocks and The earnings not paid out in dividends :: Retained earnings and The stock price divided by earnings per share :: PE ratio and Shows the balance in each equity account at a point in time :: Stockholders' equity section of the balance sheet and Measures the ability of company management to generate earnings from the resources that owners provide :: Return on equity and Priced high in relation to current earnings as investors expect future earnings to be higher :: Growth stocks and Effectively the same as a 2-for-1 stock split :: 100% stock dividend and A debit balance in retained earnings :: Accumulated deficit Ch10 Summary Category AACSB: Analytic AACSB: Reflective Thinking AICPA: Critical Thinking AICPA: Decision Making AICPA: Measurement AICPA: Reporting Blooms: Analysis Blooms: Application Blooms: Comprehension Blooms: Knowledge Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: 10-01 Identify the advantages and disadvantages of the corporate form of ownership Learning Objective: 10-02 Record the issuance of common stock Learning Objective: 10-03 Contrast preferred stock with common stock and bonds payable Learning Objective: 10-04 Account for treasury stock Learning Objective: 10-05 Describe retained earnings and record cash dividends Learning Objective: 10-06 Explain the effect of stock dividends and stock splits Learning Objective: 10-07 Prepare and analyze the stockholders equity section of a balance sheet and the statement of stockholders equity Learning Objective: 10-08 Evaluate company performance using information on stockholders equity Spiceland - Chapter 10 # of Questions 39 103 42 15 53 32 34 23 38 47 38 20 84 23 25 21 26 22 14 18 16 142 ... forecasted by financial analysts 113 .Financial information for Retro Designs includes the following selected data: What is the company's earnings per share? A B C D $0.60 $0.71 $0.50 $0.05 114 .Financial. .. Which of the following is TRUE regarding the accounting for treasury stock? A B C D Option a Option b Option c Option d 82 What would be the impact on the accounting equation when a company purchases... at $28 per share What net effect did the repurchase and the resell of common stock have on the accounting equation? A B C D Option a Option b Option c Option d 86 On December 2, Coley Corp reacquired