Intermediate Accounting Ch 15

Front 1

The special characteristics of the corporate form that affect accounting are:

Back 1

1. Influence of state corporate law
2. Use of the capital stock or share system
3. Develpoment of a varitey of ownership interests

Front 2

In many cases states have adopted the principles contained in the ____ prepared by the _______

Back 2

Model Business Corporate Act
American Bar Association

Front 3

in the absence of restrictive provisions, each share carries the following rights

Back 3

1. To share proportionately in profits and losses
2. To share proportionately in management (the right to vote for directors)
3. To share proportionately in corporate assets on liquidation
4. To share proportionately in any new issues of stock of the same class-- called the PREEMPTIVE RIGHT

Front 4

What is the preemptive right

Back 4

The right to share proportionately in any new issues of stock of the same class

Front 5

What is required of the corporation in regards to the share system?

Back 5

1. Maintain a list or subsidiary ledger of stockholdersas a fuide to dividend payments, issuance of stock rights, voting proxies, and similar privledges.
2. To revise the subsidiary ledger of stockholders periodically, generally in advance of every dividendpayment or stockholders' meeting
3. Specific controlls required by the major stock exchanges

Front 6

The negotiability of stock certificates is governed by the

Back 6

Uniform Stock Transfer Act
and
Uniform Commercial Code

Front 7

the residual corporate interest that bears the ultimate risks of loss and recieves the benefits of success.

Back 7

Common Stock

Front 8

Special classes of stock created that have certain preferential rights are called

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Preferred stock

Front 9

Owner's equity in a corporation is defined as

Back 9

stockholders equity
sharehlders equity
corporate capital

Front 10

The negotiability of stock certificates is governed by the

Back 10

Uniform Stock Transfer Act
and
Uniform Commercial Code

Front 11

Owner's Equity in a corporation is defined as

Back 11

stockholders' equity
shareholders' equity
corporate capital

Front 12

The following three categories normally appear as part of stockholders' equity

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1. Capital Stock
2. Additional paid-in capital
3. Retained earnings

Front 13

_____ Represents the earned capital of the enterprise

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Retained earnings

Front 14

the toal amount paid i on capital stock-the amount provided by stockholders to the corporation for use in business

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Contributed capital

Front 15

the capital that develps of the business operates profitably

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earned capital

Front 16

Stockholder's equity is the difference between ____ and ____

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Assets and liabilites of the enterprise

Front 17

In issuing a stock the following procedures must be followed

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1. The stock ust be authorized by the state
2. shares are offered for sale
3. contracts to sell stock are entered into

Front 18

Why is stock issued at low par value?

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1. The discount is recorded as a debit to additional paid-in capital
2. The original purchaser of the current holder of the shares isssued may be called on to pay in the amount of the discount to prevent creditors from sustaining a loss upon liquitdation of the corporation

Front 19

shares issued with no per share amount printed on the stock certificate

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no par stock

Front 20

two methods of allocation of proceeds from lummp sum sales

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1. the proportional method
2. The incremental method

Front 21

The proportional method of allocating lump sum sales requires that value is based on percentage of

Back 21

fair market value

Front 22

The incremental method of allocating lump sum sales requires that the balance allocated to stock with no established market value by

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subtracting the value of stock with determinable value from the lump sum receipt to get the balance allocated

Front 23

an understated corporated structure (secret reserve) may be created by

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issuing stock for understated property or services
excessive deprication or amotization
expensing capital expenditures
excessive writedowns of inventories or receivables
or any other understatements of assets or overstatement of liabilities

Front 24

when issuing stock direct costs incurred should be reported as a

Back 24

reduction of the amount paid in

Front 25

issue costs of stock are considered

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an issue cost of financing

Front 26

management salaries and other indirecto costs related to stock issue should be

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expensed as incurred

Front 27

corporations buy back their own stocks to

Back 27

provide tax efficient distributions of excess cash to shareholders

to increase earnings per share and return on equity

to provide stock for employee stock compensation contracts

to thwart takeover attempts or to reduce the number of stockholders

to make a market in the stock

Front 28

when a company borrows money to finance stock repurchases this is called a

Back 28

leveraged buyout

Front 29

when a company repurchases treasury stock a ___ occurs in both

Back 29

reduction assets shareholders equity

Front 30

treasury stock is essentially the same as

Back 30

unissued capital stock

Front 31

purchase of treasury stock can be accounted for in two methods

Back 31

cost method
par or stated value method

Front 32

the cost method _____ the ___ account for the reaquisition cost which is a deduction from ____AND ____ on the balance sheet

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debiting; treasury stock;paid in capital and retained earnings

Front 33

***the par or stated value method records all transactions in treasury shares at their ____ and reports the ____ as a deduction from

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par value; captial stock

Front 34

the accounting for the sale of treasury shares when the selling price equals the cost the company records the sale by

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debiting cash and crediting treasury stock

Front 35

THe sale of treasury stock always increases

Back 35

total assets
stockholders equity

Front 36

When the selling price of shares of treasury stock exceeds its cost the company ___ the difference to ___

Back 36

credits Paid-in Capital from treasury stock

Front 37

WHy isnt a GAIN ON SALE of TREASURY stock credited when treasury stock is sold above cost

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1 gains occur when selling assets, treasury stock is not an asset
2 a gain or loss should not be recognized fro mstock transactions with a company's own stockholders

Front 38

When a company sells treasury stock below its cost it usually __ the excess of the cost over selling price to___

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debits
Paid in Capital from treasury stock

Front 39

after eliminating the credit balance in PIC from Treasury stock, the corporation ___ any excess of cost over selling price to __

Back 39

debits; retained earnings

Front 40

preferred stock usually has these features

Back 40

preference as to dividends
preference as to assets in the event of liquidation
convertible into common stock
callable at the option of the corporation
nonvoting

Front 41

___ requires that a corporation that fails to pay a dividend in any year it must make it up later

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cumulative preferred stock

Front 42

A participating preferred stock requires that

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dividends at the same rates as those paid to common stockholders are paid

Front 43

convertible preferred stock permits

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allows stockholders at any time to convert to common stock at a predetermined ratio

Front 44

calable preferred stock

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permits the corporation to call or redeem outstanding shares on a specific future date at specific prices

Front 45

to account for preferred stock when issuing

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allocate proceeds between the par value fo the preferred stock and additional paid in capital

Front 46

convertible bonds are recorded as a ___ on the date of issue

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liability

Front 47

corporations consider convertible bonds as a part of

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stockholders equity

Front 48

when excercixing convertible preferred stocks there is a (gain/loss)

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there is not recognizable gain or loss, the company uses the BOOK METHOD

Front 49

companies pay dividends in amounts equal to their legallyl available retained earnings because

Back 49

to maintain bond covenants with creditors, and to build up protection against loss

to meet state corporation requirements

to finance growth or expansion (reinvesting)

to smooth out dividend payments from year to year to pad lean years

to build up a buffer against possible losses or errors in the calculation of profits

Front 50

types of dividends

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cash dividends
property dividends
liquidating dividends
stock dividends

Front 51

all dividends except for stock dividends_____

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reduce the total stockholders' equity in the corporation

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a dividend not based on retained earnings is a

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liquidating dividend

Front 53

the date of declaration is the date

Back 53

the resolution is approved by the board of directors

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when the dividends are payable

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date of payment

Front 55

the date used when all the stockholders are listed

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date of record

Front 56

a declared cash dividend is usually a

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current liability

Front 57

to set up a ledger account that shows the amount of dividends declared during the year, a company might ___ the ___ account instead of retaind earnings, and then ____ at year end

Back 57

debit; cash dividends declared; closes the account to retained earnings

Front 58

the usual property dividend is usually in the form of

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securities of other companies that the distrubuting company holds

Front 59

dividends based on other than retained earnings are someitmes described as

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liquidating dividends

Front 60

all dividends, except for ___ dividends ___ the total stockholder' equity in the corporation

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stock; reduce

Front 61

a declared cash dividend is a ______ usually a ____

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liability; current liability

Front 62

to set up a ledger account that shows the amount of dividends declared during the year, companys might ___ the ___ account and then close the account to the ___ account at year end

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debit cash dividends declared; retained earnings

Front 63

property dividends are called

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dividends in kind

Front 64

the usual property dividend is in the form of ___

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securities of other companies that the distributing corporation holds as an investment

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when declaring a property dividend, the corporation should __- the property it will distribute _____

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restate at fair value the property it will distribute; recognizing any gain or loss

Front 66

dividends based on other than retained earnings are sometimes called

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liquidating dividends

Front 67

any dividend not based on earnings ____ the coporate paid-in capital and to that extent it is a ____

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reduces; liquidating dividend

Front 68

When management wishes to capitalize part of earnings from earned to contributed captial it will issue a

Back 68

stock dividend

Front 69

the statement of stockholders equity is frequently presented in this format

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balance at the beginning of the period
additions
deductions
balance at the end of the period

Front 70

the rate of return on common stock equity measures

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profitablity from the common stockholders viewpoint

Front 71

return on equity equals

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(net income-preferred dividends)/ average common stockholders' equity

Front 72

the practice of using borrowed money or issuing preferred stock in hopes of obtaining a higher rate of return on the money used is called

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trading on the equity

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trading on the equity

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the practice of using borrowed money or issuing preferred stock in hopes of obtaining a higher rate of return on the money used

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the ratio of cash dividends to net income

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payout ratio

Front 75

payout ratio

Back 75

the ratio of cash dividends to net income

Front 76

the payout ratio is caluclated by

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cash dividends/(net income-preferred dividends)

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book value per share of a stock

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is the amount each share would receive if the compnay were liquidated on the basis of amounts reported on the balance sheet

Front 78

book value per share equals

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common stockholders equity/outstanding shares