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54 Cards in this Set

  • Front
  • Back

The residual interest in a corporation belongs to the

Common stockholders

The pre-emptive right of a common stockholder is the right to

Share proportionately in any new issues of stock of the same class.

The pre-emptive right enables a stockholder to

Share proportionately in any new issues of stock of the same class

In a corporate form of business organization, legal capital is best defined as

The par value of all capital stock issued.

Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that stockholders

Bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

Total stockholders' equity represents

A claim against a portion of the total assets of an enterprise.

A primary source of stockholders' equity is

Income retained by the corporation and contributions by stockholders.

Stockholders' equity is generally classified into two major catagories

Earned capital and contributed capital

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

Proportional or incremental method

When a corporation issued its capital stock in payment for services, the least appropriate basis for recording the transaction is the

Par value of the shares issued

Direct costs incurred to sell stock such as underwriting costs should be accounted for as

A reduction of additional paid-in capital

A "secret reserve" will be created if

A capital expenditure is charged to expense

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

Authorized shares

Stock that has a fixed per-share amount printed on each stock certificate is called

Par value stock

What is not a legal restriction related to profit distributions by a corporation?

The amount distributed in any one year can never exceed the net income reported for that year.

In January 2012, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

Decreased stockholders' equity

Treasury shares are

Issued but not outstanding shares

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

Treasury stock for the purchase price

Gains on sales of treasury stock (using the cost method) should be credited to

Paid-in capital from treasury stock

Porter Corp. purchased its own par value stock on January 1, 2012 for $20,000 and debited treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

Additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

How should a "gain" from the sale of treasury stock be reflected when using the cost method?

As paid-in capital from treasury stock transactions

What best describes a possible result of treasury stock transactions by a corporation?

May decrease but not increase retained earnings

What feature of preferred stock makes the security more like a debt than an equity investment?


The cumulative feature of preferred stock

Requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common stockholders.

According to the FASB, redeemable preferred stock should be

Included as a liability

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

A footnote

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

Purchase of treasury stock

An entry is not made on the

Date of record

Cash dividends are paid on the basis of the number of shares


What statement about property dividends is not true?

The accounting for a property dividend should be based on the carrying value (book value) of the nonmonentary assets transferred.

Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2012, Houser distributed these shares of stock as a divided to its stockholders. This is an example of

Property Dividend

A dividend which is a return to stockholders of a portion of their original investments is a

Liquidating dividend

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

A paid-in capital account

If management wishes to "capitalize" part of the earnings, it may issue a

Stock dividend

Which dividends do not reduce stockholders' equity?

Stock dividends

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

Decreases retained earnings but does not change total stockholders' equity

Quirk corporation issued a 100% stock dividend of its common stock which has a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

Par value

The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the

Fair value of the shares issued

At the date of declaration of a small common stock dividend, the entry should not include

A credit to Common Stock Dividend Payable

The balance in Common Stock Dividend Distributable should be reported as a(n)

Addition to capital stock

A feature common to both stock splits and stock dividends is

There is no effect on total stockholders' equity

What effect does the issuance of a 2 for 1 stock split have on Par Value per Share and Retained Earnings?

Decrease par value per share and no effect on retained earnings

What disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

Liquidation preferences

The rate of return on common stock equity is calculated by dividing

Net income less preferred dividends by average common stockholders' equity

The payout ratio can be calculated by dividing

Cash dividends by net income less preferred dividends

Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred stock is equal to its par value. The book value per share of the common stock is unaffected by

The payment of a previously declared cash dividend on the common stock

Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called

Book value per share

Dividends are not paid on

Treasury common stock

Noncumulative preferred dividends in arrears

Are not paid or disclosed

How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position?

Note disclosure

Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 if its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to common stock?

10,000 x $25 = 200,000 = .45

15,000 x $25 = 3,00000 = .55


Norton Company issues 4,000 shares of its $5 par value common stock having a fair value of $25 per share and 6,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $204,000. What amount of the proceeds should be allocated to the preferred stock?

4,000 x 25 = 100,000 = .45

6,000 x 20 = 120,000 = .55 x 204,000 = 112,200


Glavine Company issues 6000 share of its $15 par value common stock having a fair value of $25 per share and 9000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $312,000. The proceeds allocated to the common stock is:

6000 x 25 = 150000 = .45 x 312000 = 140400

9000 x 20 = 180000


Wheeler Company issued 5000 shares of its $5 par value common stock having a fair value of $25 per share and 7500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $260,000. The proceeds allocated to the preferred stock is

5000 x 25 = 125000 = .45

7500 x 20 = 150000 = .55 x 260000 = 143000