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39 Cards in this Set

  • Front
  • Back
What are the basic rights of stockholders of a corporation
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
Why is the preemptive right important
It protects an existing stockholder from involunary dilution of ownership interest
What is the difference between common and diluted stock?
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
What is the difference between paid in capital and retained earnings
Retained earnings is the earned capital of the company and PIC is the toal amount paid in on capital stock
In all states dividends can be paid out of __ but in many states it cannot be paid out of ___
retained earnings,
paid in capital
the total number of shares authorized for issue
authorized capital stock
the total number of shares authorized but not issued
Unissued capital stock
the total number of shares issued (distributed to stockholders)
Issued capital stock
the total number of shares issued and still in the hands of stockholders
Unissued capital stock
(issued-treasury stock)
shares of stock issued and repurchased by the issuing coporation but not retired
treasury stock
Par value is
the maximum amount of responsibility of each stockholder for each share. The minimum amount that must be paid for the stock
no par value stock is handled
the exact amount received represents the credit to common or preferred stock
No discount or additional PIC reported
proportional method of allocating lump sum sales
the company will compute the fair market value of all the securities, and then allocate the sales cost according to that proportion
incremental method of allocating lump sum sales
Use the market value of the known market value shares and then apply the remainder of the sales cost to the unknown
What is the rule for accounting for the issuance of shares of stock for property or services involving noncash transactions
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
What are the direct costs incurred to sell stock and how should they be accounted for
underwriting costs
accounting and legal fees
printing costs
should be accounted for as a reduction of amounts paid in, DEBIT TO ADDL PIC
a company would purchase its own stock because
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
why is treasury stock not an asset
the company cannot own itself
How are gains and losses on the sale of treasury stock accounted for and why
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
Dividends on treasury stock should be
should not happen
What types of preferred stock are there
stocks that share ratably with the common stockholders beyond the prescribed rate
participating preferred stock
allows stockholders to exchange preferred shares for common stock at a predetermined ratio
convertible preferred stock
permits the corporation at its option to call or redeem the outstanding preferred shares at a specified future date and at stipulated prices
callable preferred stock
stock with a mandatory redemption period
redeemable preferred stock
where is preferred stock accounted for on the balance sheet
a part of stockholders equity
usually the first line any excess over par is a part of PIC
How do corporations report dividends on preferred stock
a distribution of income NOT an expense
WHere does PIC come from
sale on treasury stock above cost, premiums on stock issued, conversions of convertible bonds and preferred stock, revisions in captial structure
a purchase of shares by the company with intent to reissue effects
Treasury stock account debited
Cash credited
the transaction does not effect net income
reduces assets
does not change total PIC
decreases total SE
Common stock should be in the SE section where
PIC-capital stock
Retained earnings should be in the SE section where
Retained Earnings
PIC in excess of par should be in the SE section where
PIC-addl PIC
Treasury Stock
should reduce retained earnings and PIC
PIC in excess of stated value
PIC-addl PIC
Preferred Stock
PIC-capital stock
The dividend policy of a company is effected by
earnings forcast
current earnings
levels of cash
restrictions on RE
RE balance
dividends payable in assets of the corporation other than cash
property dividends or dividends in kind
dividends based on other than retained earnings, such as dividends that use PIC
liquidating dividends
the issuance by a corporation of its own stock to its stockholders, without receiving any consideration
stock dividend