Deck 10: Stockholders Equity

Question 1

If a new business does not have access to the major capital markets, it may depend upon venture capital for its initial equity capital.

Answer 1

True

Question 2

The stockholders' equity section of the balance sheet shows all changes in stockholders' equity for the period.

Answer 2

False

Question 3

All treasury stock is outstanding.

Answer 3

False

Question 4

When treasury stock is reissued at a price that is greater than their cost, the difference should be credited to the Treasury Stock account.

Question 5

Shares outstanding may be less than shares issued.

Question 6

Comprehensive income represents the increase in net assets resulting from all transactions occurring during the accounting period except transactions with owners.

Question 7

A corporate charter is sometimes called the articles of incorporation.

Question 8

Since stock dividends are paid with shares of stock instead of cash, no reduction in Retained Earnings is recorded.

Question 9

When true no-par stock is sold for cash, the amount credited to the stock account is the par value times the number of shares sold.

Question 10

Treasury stock is stock that has been issued but is no longer outstanding.

Question 11

Treasury stock is reported as a reduction of stockholders' equity.

Question 12

All authorized stock is issued.

Question 13

Private corporations typically issue their stock to management and employees rather than the general public.

Question 14

The par value of stock is reduced when stock dividends are issued.

Question 15

Cumulative and participating dividend features are typically associated with preferred stock.

Question 16

Accumulated other comprehensive income is NOT considered to be a source of stockholders' equity.

Question 17

When treasury stock is reissued at a price that is less than their cost, the difference should be credited to retained earnings.

Question 18

The residual claim entitles a common stockholder to a proportionate share of a liquidating payout before preferred stockholders are paid.

Question 19

A corporation may become chartered by applying to the federal government.

Question 20

The preemptive right entitles a common stockholder to a proportionate share of any dividend payouts.

Question 21

If preferred stock is participating, then the preferred shareholders have the right to share in excess dividends above their stated dividend.

Question 22

Dividends in arrears are associated with the cumulative preferred stock only.

Question 23

Dividend-related dates follow this chronological order: declaration date, record date, and payment date.

Question 24

A stock split has the effect of reducing the par value per share and the number of shares outstanding.

Question 25

Capitalization of retained earnings occurs when a corporation's stock is split.

Question 26

Par value is adjusted annually to reflect the current market value of the stock.

Question 27

A corporation may extend a tender offer when it desires to acquire treasury stock.

Question 28

When a corporation declares a dividend, a liability must be recorded.

Question 29

Liquidating dividends must be charged against the capital stock accounts because the corporation's retained earnings are appropriated for future business expansion.

Question 30

A call provision sets forth provisions for a corporation to redeem its preferred stock at a fixed price on or after a specified date.

Question 31

Restricted earnings are usually disclosed in the footnotes to the financial statements, but may sometimes be disclosed in a reserve account in the equity section of the balance sheet.

Question 32

Stated capital is the amount of capital that, under law, cannot be returned to the corporation's owners except upon liquidation.

Question 33

No formal journal entry is required to record a stock split.

Question 34

When a company issues no-par stock with no stated value, there is no need for an account titled "paid-in capital in excess of par."

Question 35

The stated value is the price at which employees can exercise stock options.

Question 36

Both stock dividends and stock splits increase the number of a corporation's outstanding shares without altering the proportionate ownership of the corporation.

Question 37

If preferred stock is convertible, then the preferred shareholders have the option to trade voting privileges for the dividend payment preference.

Question 38

Large corporations are profitable enough to maintain their own stockholder lists and arrange for the issuance of their stock certificates to stockholders rather than having to retain an independent stock transfer agent to do those things.

Question 39

Preferred stockholders typically do not have the right to vote at stockholders meetings.

Question 40

A stock option is the same as a stock warrant.

Question 41

The corporation's accumulated net income that has not been paid out as dividends is ____________________.

Question 42

In general, retained earnings represents accumulated earnings of the corporation less dividends paid.

Question 43

The ____________________ ratio is computed by dividing common stock dividends by net income.

Question 44

An arbitrary monetary amount that has a stated value on each share of stock and establishes a minimum price for the stock when issued is the ____________________.

Question 45

Issued stock that is repurchased by the corporation but not retired is ____________________.

Question 46

When stockholders exchange their shares of stock for additional shares, and there is a corresponding reduction in the par value of the stock, a stock ____________________ has occurred.

Question 47

____________________ represents the owners' claims against the assets of a corporation after deducting all liabilities.

Question 48

When stockholders receive a distribution of additional shares of stock, and there is a corresponding capitalization of retained earnings, a stock ____________________ has occurred.

Question 49

The ____________________ ratio is computed by subtracting the dividend payout ratio from the total payout ratio.

Question 50

When computing earnings per share, the numerator includes net income minus any dividends paid to common stockholders.

Question 51

____________________ is the name of the account credited when a corporation issues common stock for a price greater than par.

Question 52

____________________ shares are the maximum number of shares a corporation may issue in accordance with its corporate charter.

Question 53

The corporation's retained earnings is computed by adding the beginning balance and net income, then subtracting the current year ____________________.

Question 54

To compute the return on common equity ratio, the numerator includes ____________________ minus preferred dividends, and the denominator is the average common stockholders' equity.

Question 55

The corporate _________________ is the legal document that authorizes the creation of a corporation.

Question 56

The number of shares sold to stockholders are ____________________ shares.

Question 57

When computing the total payout ratio, common stock dividends plus common stock repurchases are included in the numerator.

Question 58

When computing the dividend payout ratio, net income is divided by the common stock dividends.

Question 59

The number of shares issued minus the number of shares of treasury stock is ____________________ shares.

Question 60

When computing the dividend yield, net income is divided by the common stock price.

Question 61

The __________________ dividend preference is a preferred stock feature that provides for the current stated dividends plus dividends in arrears before any dividends are paid to the common stockholders.

Question 62

Match the terms to the definitions.
a.authorized shares
i.stock option
b.issued shares
j.stock warrant
c.outstanding shares
k.treasury stock
d.par value
l.call provision
e.stated capital (legal capital)
m.earnings per share
f.preemptive right
n.dividend yield ratio
g.retained earnings
o.dividend payout ratio
h.stock split
The number of issued shares actually in the hands of stockholders rather than held as treasury stock.

Question 63

MATCHING
The preferred stock feature which provides the right to dividend in arrears.

Question 64

Match the terms to the definitions.
a.authorized shares
i.stock option
b.issued shares
j.stock warrant
c.outstanding shares
k.treasury stock
d.par value
l.call provision
e.stated capital (legal capital)
m.earnings per share
f.preemptive right
n.dividend yield ratio
g.retained earnings
o.dividend payout ratio
h.stock split
A measure of the proportion of dividends to earnings.

Question 65

MATCHING
The portion of the stock's issue price that exceeds par.

Question 66

A ____________________ is a correction of retained earnings resulting from a previous error that affected net income.

Question 67

The _________________ preference is a preferred stock feature that provides for the current stated dividends to be paid to preferred stockholders before they are paid to common stockholders.

Question 68

If the stated cash dividend on cumulative preferred stock has been unpaid for a period of one year or more, it is referred to as a dividend ____________________.

Question 69

Match the terms to the definitions.
a.authorized shares
i.stock option
b.issued shares
j.stock warrant
c.outstanding shares
k.treasury stock
d.par value
l.call provision
e.stated capital (legal capital)
m.earnings per share
f.preemptive right
n.dividend yield ratio
g.retained earnings
o.dividend payout ratio
h.stock split
Shares repurchased and held by the corporation.

Question 70

The ____________________ date is the date on which a corporation announces that it will pay a dividend.

Question 71

Match the terms to the definitions.
a.authorized shares
i.stock option
b.issued shares
j.stock warrant
c.outstanding shares
k.treasury stock
d.par value
l.call provision
e.stated capital (legal capital)
m.earnings per share
f.preemptive right
n.dividend yield ratio
g.retained earnings
o.dividend payout ratio
h.stock split
A decrease in the par value of a class of stock brought about by the exchange of original shares for a greater number of new shares.

Question 72

MATCHING
The preferred stock feature which provides for preferred stock to be exchanged for common stock.

Question 73

Match the terms to the definitions.
a.authorized shares
i.stock option
b.issued shares
j.stock warrant
c.outstanding shares
k.treasury stock
d.par value
l.call provision
e.stated capital (legal capital)
m.earnings per share
f.preemptive right
n.dividend yield ratio
g.retained earnings
o.dividend payout ratio
h.stock split
A measure of the proportion of common stock dividends to the stock price.

Question 74

When a corporation is in the process of being dissolved, any additional dividends are referred to as ____________________ dividends.

Question 75

MATCHING
Shares of stock that are distributed in a process known as capitalization of retained earnings.

Question 76

The ____________________ right provides that common stockholders may keep the same percentage of ownership if new stock is issued.

Question 77

The _______________ dividend preference is a preferred stock feature that provides for the current stated dividends plus a share of dividends available for distribution to other classes of stockholders.

Question 78

The designated price for which employees may exercise stock options is called the ____________________ price.

Question 79

MATCHING
The preferred stock feature which provides for the sharing of dividends above the stated amount.

Question 80

MATCHING
Shares of stock that are repurchased with the intention of no longer being traded.