Intermediate Accounting Ch 15

Front 1

What are the basic rights of stockholders of a corporation

Back 1

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

Front 2

Why is the preemptive right important

Back 2

It protects an existing stockholder from involunary dilution of ownership interest

Front 3

What is the difference between common and diluted stock?

Back 3

Preferred stock gets preference on earnings, and preferred stockholders sacrifice right to a voice in management or their right to share in profits beyond the stated rate

Front 4

What is the difference between paid in capital and retained earnings

Back 4

Retained earnings is the earned capital of the company and PIC is the toal amount paid in on capital stock

Front 5

In all states dividends can be paid out of __ but in many states it cannot be paid out of ___

Back 5

retained earnings,
paid in capital

Front 6

the total number of shares authorized for issue

Back 6

authorized capital stock

Front 7

the total number of shares authorized but not issued

Back 7

Unissued capital stock

Front 8

the total number of shares issued (distributed to stockholders)

Back 8

Issued capital stock

Front 9

the total number of shares issued and still in the hands of stockholders

Back 9

Unissued capital stock
(issued-treasury stock)

Front 10

shares of stock issued and repurchased by the issuing coporation but not retired

Back 10

treasury stock

Front 11

Par value is

Back 11

the maximum amount of responsibility of each stockholder for each share. The minimum amount that must be paid for the stock

Front 12

no par value stock is handled

Back 12

the exact amount received represents the credit to common or preferred stock
No discount or additional PIC reported

Front 13

proportional method of allocating lump sum sales

Back 13

the company will compute the fair market value of all the securities, and then allocate the sales cost according to that proportion

Front 14

incremental method of allocating lump sum sales

Back 14

Use the market value of the known market value shares and then apply the remainder of the sales cost to the unknown

Front 15

What is the rule for accounting for the issuance of shares of stock for property or services involving noncash transactions

Back 15

record stock issued for services or property either at the fair value of the stock issued, or the fair value of the noncash consideration received, whichever is more clearly definable

Front 16

What are the direct costs incurred to sell stock and how should they be accounted for

Back 16

underwriting costs
accounting and legal fees
printing costs
taxes
should be accounted for as a reduction of amounts paid in, DEBIT TO ADDL PIC

Front 17

a company would purchase its own stock because

Back 17

provide a tax efficient distribution of excess cash to stockholders
increase earnings per share and ROE
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 18

why is treasury stock not an asset

Back 18

the company cannot own itself

Front 19

How are gains and losses on the sale of treasury stock accounted for and why

Back 19

should be considered as addtions or reductions to paid in capital or even charged to retained earnings, they are not a part of NI because they are captial transactions

Front 20

Dividends on treasury stock should be

Back 20

should not happen

Front 21

What types of preferred stock are there

Back 21

cumulative
participating
convertible
callable
redeemable

Front 22

stocks that share ratably with the common stockholders beyond the prescribed rate

Back 22

participating preferred stock

Front 23

allows stockholders to exchange preferred shares for common stock at a predetermined ratio

Back 23

convertible preferred stock

Front 24

permits the corporation at its option to call or redeem the outstanding preferred shares at a specified future date and at stipulated prices

Back 24

callable preferred stock

Front 25

stock with a mandatory redemption period

Back 25

redeemable preferred stock

Front 26

where is preferred stock accounted for on the balance sheet

Back 26

a part of stockholders equity
usually the first line any excess over par is a part of PIC

Front 27

How do corporations report dividends on preferred stock

Back 27

a distribution of income NOT an expense

Front 28

WHere does PIC come from

Back 28

sale on treasury stock above cost, premiums on stock issued, conversions of convertible bonds and preferred stock, revisions in captial structure

Front 29

a purchase of shares by the company with intent to reissue effects

Back 29

Treasury stock account debited
Cash credited
the transaction does not effect net income
reduces assets
does not change total PIC
decreases total SE

Front 30

Common stock should be in the SE section where

Back 30

PIC-capital stock

Front 31

Retained earnings should be in the SE section where

Back 31

Retained Earnings

Front 32

PIC in excess of par should be in the SE section where

Back 32

PIC-addl PIC

Front 33

Treasury Stock

Back 33

should reduce retained earnings and PIC

Front 34

PIC in excess of stated value

Back 34

PIC-addl PIC

Front 35

Preferred Stock

Back 35

PIC-capital stock

Front 36

The dividend policy of a company is effected by

Back 36

earnings forcast
current earnings
levels of cash
restrictions on RE
RE balance

Front 37

dividends payable in assets of the corporation other than cash

Back 37

property dividends or dividends in kind

Front 38

dividends based on other than retained earnings, such as dividends that use PIC

Back 38

liquidating dividends

Front 39

the issuance by a corporation of its own stock to its stockholders, without receiving any consideration

Back 39

stock dividend