Q&A Hero

Q: Corporations issue preferred stock to raise capital without sacrificing control of the corporation and/or to boost the return earned by common shareholders.

Q: Participating preferred stock has a feature that allows it to share with common shareholders in any dividends paid in excess of the percent or dollar amount stated on the preferred stock.

Q: Callable preferred stock gives its holders the option of exchanging their preferred shares into common shares at a specified rate.

Q: Cumulative preferred stock has a right to be paid both current and prior periods' unpaid dividends before any dividend is paid to common shareholders.

Q: All stock dividends are recorded at par value so there would never be a credit to the paid-in capital in excess of par value account.

Q: A large stock dividend only occurs when a distribution of more than 50% of previously outstanding shares is issued.

Q: Recording of a stock dividend does not result in a liability being recorded.

Q: A reverse stock split reduces the market value per share and the par value per share of stock.

Q: A stock split is the distribution of additional shares of stock to stockholders according to their percent of ownership.

Q: The journal entry to record the declaration of dividends on common stock includes a debit to Retained Earnings and a credit to Common Dividend Payable.

Q: A debit balance in retained earnings is referred to as a retained earnings deficit.

Q: The date of record is the date that directors vote to pay a cash dividend to shareholders.

Q: When no-par stock is not assigned a stated value, the total amount received is recorded as Common Stock.

Q: A corporation sometimes gives shares of its stock to promoters in exchange for their services in organizing the corporation.

Q: If a corporation receives assets other than cash in exchange for stock, it records the assets received at their market value as of the date of the transaction.

Q: Book value per common share is calculated by dividing stockholders' equity applicable to common shares by the number of common shares outstanding.

Q: The main limitation in using book value per share for stock valuation models is the potential difference between recorded value and market value for both assets and liabilities.

Q: Book value per share reflects the value per share if a company is liquidated at balance sheet amounts.

Q: Dividend yield is computed by dividing annual cash dividends per share by the market value per share.

Q: Stocks that pay large dividends on a regular basis are growth stocks.

Q: Dividend yield is defined as the market price per share of a company's stock divided by its earnings per share.

Q: Dividend yield shows the annual amount of cash dividends distributed to common shares relative to the stock's market price.

Q: A company has earnings per share of $6.45. Its dividend per share is $0.20, and its market price per share is $80. Its price-earnings ratio equals 12.4.

Q: The price-earnings ratio is computed by dividing earnings per share by the market price per share.

Q: Stocks with a price-earnings ratio greater than 20 to 25 are likely to be underpriced.

Q: The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings.

Q: Sparrow Company had net income of $63,000. The company had 9,000 weighted average common shares outstanding. The basic earnings per share equal $7.00 per share.

Q: Earnings per share is the amount of income earned per share of a company's outstanding (weighted-average) common stock.

Q: Changes in accounting estimates are accounted for in current and future periods.

Q: A company made an error in recording the 2009 purchase of computer equipment as an expense. This was discovered in 2011. The item should be reported as a prior period adjustment on the 2009 income statement.

Q: If the dividends account is not recorded as a reduction to Retained Earnings on the date of declaration, the dividends account is closed to Retained Earnings at the end of the accounting period.

Q: A common statutory restriction is reported on the income statement whereas; a common contractual restriction is reported in the stockholders' equity section of the balance sheet.

Q: Retained earnings are not part of the stockholders' claims on the company's net assets.

Q: Retained earnings generally consist of a company's cumulative net income less any net losses and dividends declared since its inception.

Q: Cumulative preferred stock carries the right to be paid both current and all prior periods' unpaid dividends before any dividends are paid to common shareholders.

Q: Special rights often granted to preferred stock include a preference for receiving dividends and for the distribution of assets if the corporation is liquidated.

Q: Stated value stock is par stock that is assigned a value per share by the corporation's board of directors.

Q: Minimum legal capital requirements are intended to protect creditors by requiring a minimum level of legal minimum.

Q: If a corporation is authorized to issue 1,000 shares of $50 common stock, it is said to have $50,000 of stock outstanding.

Q: Paid-in capital is the total amount of cash and other assets the corporation receives from its stockholders in exchange for its stock.

Q: Par value per share is the price at which a share of stock is bought or sold.

Q: A transfer agent keeps stockholder records and prepares official lists of stockholders and dividend payments.

Q: Stock is attractive to investors because stockholders are not liable for the corporation's actions and debts and because stock is easily transferred.

Q: A preemptive right means shareholders can purchase their proportional share of common stock issued later by the corporation.

Q: Common shareholders always share equally with all other shareholders in all dividends.

Q: A proxy is a document that gives a designated agent the right to vote a shareholder's stock.

Q: The only way that a shareholder can affect the management of a corporation is to get elected to the corporation's board of directors.

Q: Organization expenses of a corporation often include legal fees and promoter fees.

Q: Corporations are subject to substantially fewer regulations and laws than are proprietorships and partnerships.

Q: When preferred stock is cumulative and the directors either do not declare a dividend to preferred stockholders or declare one that does not cover the total amount of cumulative dividends, the unpaid amount is called ____________________________.

Q: __________________________ is the annual amount of cash dividends distributed to common shareholders relative to the stock's market price.

Q: _______________________ is the stockholders' equity applicable to common shares divided by the number of common shares outstanding.

Q: _____________ is the amount of income earned per share of a company's outstanding common stock.

Q:

Q: ___________________________ are corrections of material errors in prior period financial statements.

Q: The least amount that the buyers of stock must contribute to the corporation or be subject to paying at a future date is called ____________________________.

Q: _____________________ is a general term that refers to any shares issued to obtain owner financing in a corporation.

Q: Stock that is not assigned a value per share by the corporate charter is called _________.

Q: ________________ is a class of stock assigned a value by the corporation in its charter.

Q: The cumulative net income and loss retained by a corporation is called ____________.

Q: The total amount of cash and other assets the corporation receives from its stockholders in exchange for common stock is called __________________________.

Q: ________________________ is the number of shares that a corporation's charter allows it to sell.

Q: A stock _________________ keeps stockholder records and prepares official lists of stockholders for stockholder meetings and dividend payments.

Q: The _______________________ protects stockholders' proportional interest in a corporation by allowing them to purchase their proportional share of any common stock later issued by the corporation.

Q: A corporation is responsible for its own acts and debts. This is because a corporation is considered a ____________________________________.

Q: _______________________ are responsible for and have final authority for managing a corporation's activities.

Q: Record the following transactions of a company in general journal form: (a) Reacquired 8,000 of its own $10 par value common stock at $40 cash per share. The stock was originally issued at $15 per share. (b) Sold 2,000 shares of the stock reacquired under part (a) at $43 cash per share. (c) Sold 3,000 shares of the stock reacquired under part (a) at $39 cash per share.

Q: On January 10, a corporation purchased 5,000 shares of its own common stock at $17.50 per share. On August 4, a total of 1,000 treasury shares were sold at $19.00 per share. These are the only treasury stock transactions ever made by the corporation. Prepare the journal entries required on January 10 and August 4.

Q: A company reported the following stockholders' equity on January 1 of the current year: Common stock, $10 par, 1,000,000 shares authorized, 400,000 shares issued .. $ 4,000,000 Paid-in capital in excess of par, common 1,200,000 Retained earnings 1,600,000 Total stockholders' equity ... $6,800,000 Prepare journal entries for the following selected transactions related to this company's stock during the current year: Mar. 1 Purchased 10,000 shares of treasury stock for $17 per share. May 5 Sold 4,000 shares of treasury stock for $16 per share. Oct. 12 Sold 2,000 shares of treasury stock for $18 per share.

Q: A company had the following stockholders' equity on January 1: Common Stock - $1 par value; 1,000,000 shares authorized, 400,000 shares issued and outstanding . $ 400,000 Paid-in capital in excess of par value, common stock .... 300,000 Retained earnings 364,000 Total stockholders' equity $1,064,000 On January 10, the company declared a 40% stock dividend to holders of record on January 25, to be distributed January 31. The market value of the stock on January 10 prior to the dividend was $20 per share. What is the book value per common share on February 1?

Q: A corporation had stockholders' equity on January 1 as follows: Common Stock, $10 par value, 1,500,000 shares authorized, 600,000 shares issued; Paid-in Capital in Excess of Par Value, Common Stock, $1,000,000; Retained Earnings, $2,500,000. Prepare journal entries to record the following transactions: Feb. 15 The board of directors declared a 10% stock dividend to stockholders of record on March 1, to be issued on April 15. The stock was trading at $12 per share prior to the dividend. Mar. 31 Sold 100,000 shares of common stock for $11 per share. Apr. 15 Issued the stock dividend.

Q: A corporation had stockholders' equity on January 1 as follows: Common Stock, $5 par value, 1,000,000 shares authorized, 500,000 shares issued; Paid-in Capital in Excess of Par Value, Common Stock, $1,000,000; Retained Earnings, $3,000,000. Prepare journal entries to record the following transactions: Feb. 15 The board of directors declared a 5% stock dividend to stockholders of record on March 1, to be issued on March 20. The stock was trading at $6 per share prior to the dividend Mar. 1 The date of record. Mar. 20 Issued the stock dividend.

Q: On May 1, a company's board of directors declared a 10% stock dividend to be distributed on June 1 to the stockholders of record on May 21. The company had 250,000 shares of $10 par value common stock outstanding with a market value of $22 per share. Prepare the journal entries required on May 1, May 21, and June 1.

Q: A corporation has 200,000 shares of $10 par value common stock outstanding. The following selected transactions related to the company's stock took place during the current year: Apr. 15 Declared a 40% stock dividend to stockholders of record on May 1, to be issued May 10. The current market value is $15 per common share. May 1 Date of record. May 10 Issued the common stock dividend. Prepare the journal entries to record these transactions.

Q: For each of the following independent transactions a through d, prepare the necessary journal entry: (a) Declared a $0.40 per share cash dividend on 200,000 shares of preferred stock outstanding. (b) Declared and distributed a 12% stock dividend on 800,000 shares of $5 par value common stock outstanding. Market price per common share on this date was $25. (c) Declared and distributed a 2-for-1 stock split on 500,000 shares of $10 par value common stock outstanding. (d) Declared and distributed a 30% stock dividend on 400,000 common shares of $5 par value common stock outstanding. Market price per common share on this date was $20.

Q: A company reported stockholders' equity on January 1 of the current year as follows: Common Stock, $5 par value, 1,000,000 shares authorized, 600,000 shares issued; Paid-in Capital in Excess of Par Value, Common Stock, $1,025,000; Retained Earnings, $2,850,000. Prepare journal entries to record the following transactions: May 1 A cash dividend of $1.10 per common share was declared by the board of directors to stockholders of record on May 20, payable June 1. May 20 The date of record. June 1 Paid the cash dividend.

Q: A company was organized in January 2012 and has 2,000 shares of $100 par value, 10%, nonparticipating preferred stock outstanding and 30,000 shares of $10 par value common stock outstanding. It has declared and paid cash dividends each year as shown below. Calculate the total dividends distributed to each class of stockholder under each of the assumptions given. Assuming Preferred Assuming Preferred Stock Stock Cash Is Noncumulative Is Cumulative Dividends Declared Preferred Common Preferred Common Year and Paid Dividend Dividend Dividend Dividend 2012 $15,000 ________ ________ ________ ________ 2013 $36,000 ________ ________ ________ ________ 2014 $60,000 ________ ________ ________ ________

Q: A company has $100,000 of 10% noncumulative, nonparticipating, preferred stock outstanding, and $150,000 of common stock outstanding. In the company's first year of operation, no dividends were paid, but during the second year, it paid cash dividends of $25,000. Compute the dividends to be distributed to (1) preferred shares and (2) common shares.

Q: A corporation had the following stock outstanding when the company's board of directors declared a $95,000 cash dividend during the current year: Preferred stock, $100 par, 6%, 5,000 shares issued $ 500,000 Common stock, $10 par, 75,000 shares issued .. 750,000 Total $ 1,250,000 Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is cumulative and nonparticipating and dividends are one year in arrears.

Q: A corporation had the following stock outstanding when the company's board of directors declared a $95,000 cash dividend in the current year: Preferred stock, $100 par, 6%, 5,000 shares issued $ 500,000 Common stock, $10 par, 70,000 shares issued . 700,000 Total .. $1,200,000 Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is noncumulative and nonparticipating.