Deck 11: Corporate Reporting and Analysis

Question 1

Stated value stock is no-par stock that is assigned a "stated" value per share.

Answer 1

True

Question 2

A registrar keeps stockholder records for dividend payments and stockholder meetings.

Answer 2

True

Question 3

Corporations avoid many of the state regulations and controls that proprietorships and partnerships are subject to.

Answer 3

False

Question 4

Shareholders in a corporation have the power to bind the corporation to contracts.

Question 5

A corporation is a legal entity separate from its owners.

Question 6

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.

Question 7

A special right often granted to preferred stock is additional voting privileges.

Question 8

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

Question 9

Stockholders' equity consists of paid-in capital and retained earnings.

Question 10

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

Question 11

A corporation may be authorized to issue both common and preferred stock.

Question 12

Minimum legal capital is the least amount that the buyers of stock must contribute to the corporation or be at risk to pay creditors at a future date.

Question 13

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

Question 14

The total number of shares outstanding is always equal to the number of shares authorized.

Question 15

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

Question 16

If a corporation is authorized to issue 1,000 shares of $5 common stock,it is said to have $5,000 of common stock outstanding.

Question 17

Common shareholders always share equally with all other shareholders (including preferred shareholders)in dividends.

Question 18

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

Question 19

Common stock always carries a preference for receiving dividends over preferred stock.

Question 20

The price at which a share of stock is bought or sold is known as par value.

Question 21

Dividend yield is defined as the annual cash dividends per share divided by the market price per share of a company's stock.

Question 22

Cash dividends reduce Retained Earnings.

Question 23

A company has earnings per share of $6.50.Its dividend per share is $0.50,and its market price per share is $80.Its price-earnings ratio equals 13.

Question 24

Dividend yield is computed by dividing earnings per share by the market value per share.

Question 25

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

Question 26

A company made an error in recording the Year 1 purchase of computer equipment as an expense.This was discovered in Year 2.The item should be reported as a prior period adjustment on the Year 2 income statement.

Question 27

The price-earnings ratio is computed by dividing earnings per share by the par value per share.

Question 28

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.

Question 29

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

Question 30

Lewis Company had net income of $67,000.The company had 9,000 weighted average common shares outstanding.The basic earnings per share equals $7.44 per share.

Question 31

Growth stocks generally pay large dividends on a regular basis.

Question 32

If a company has noncumulative preferred stock,basic earnings per share is equal to net income less preferred dividends declared divided by the number of weighted average common shares outstanding.

Question 33

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

Question 34

The term restricted retained earnings refers to statutory but not contractual restrictions.

Question 35

Retained earnings are part of the stockholders' claims on the company's net assets.

Question 36

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

Question 37

If a company has no preferred stock,basic earnings per share is equal to net income divided by the number of weighted average common shares outstanding.

Question 38

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

Question 39

Price-earnings ratio is computed by dividing annual dividends by average market value per share.

Question 40

Retained earnings generally consists of a company's cumulative net income less any net losses and dividends declared.

Question 41

If a corporation receives assets other than cash in exchange for stock,it records the assets received at their market value.

Question 42

A stock split increases total stockholders' equity.

Question 43

The declaration of cash dividends increases retained earnings.

Question 44

Large stock dividends are recorded at par or stated value.

Question 45

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

Question 46

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

Question 47

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

Question 48

Common Stock Dividend Distributable is a liability account.

Question 49

A stock dividend is a distribution of corporate assets that returns part of the original investment to shareholders.

Question 50

Dividing stockholders' equity applicable to common shares by the number of common shares outstanding yields the book value per common share.

Question 51

Declaration of a stock dividend results in a liability being recorded.

Question 52

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.

Question 53

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

Question 54

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

Question 55

Common Stock Dividend Distributable is an equity account.

Question 56

A corporation may not legally give shares of its stock to promoters in exchange for their services in organizing the corporation.

Question 57

A stock dividend does not reduce a corporation's assets or its stockholders' equity.

Question 58

Small stock dividends are recorded at par or stated value.

Question 59

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.

Question 60

A stock split can be done in any ratio.

Question 61

When a corporation has only one class of stock,the stock is called:

A)Preferred stock.
B)Common stock.
C)Par value stock.
D)Stated value stock.
E)No-par value stock.

Question 62

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

Question 63

The costs of bringing a corporation into existence,including legal fees and promoter fees,are called:

A)Minimum legal capital.
B)Stock subscriptions.
C)Organization expenses.
D)Selling expenses.
E)Prepaid fees.

Question 64

Purchasing treasury stock reduces the corporation's assets and stockholders' equity by unequal amounts.

Question 65

Paid and declared preferred dividends are called dividends in arrears.

Question 66

The right of common shareholders to purchase their proportional share of any common stock later issued by the corporation is called a:

A)Preemptive right.
B)Proxy right.
C)Right to call.
D)Financial leverage.
E)Voting right.

Question 67

Treasury stock is stock that has been authorized,issued,and is outstanding.

Question 68

Market value per share is:

A)The price at which a stock is bought and sold.
B)A contractual commitment by an investor to purchase unissued shares of stock.
C)Stock not assigned a value per share.
D)The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.
E)An amount assigned to no-par stock.

Question 69

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.

Question 70

If a company resells treasury stock below the acquisition cost,a loss from the sale of treasury stock is recorded.

Question 71

The number of shares that a corporation's charter allows it to sell is referred to as:

A)Issued stock.
B)Outstanding stock.
C)Common stock.
D)Preferred stock.
E)Authorized stock.

Question 72

A stock dividend,declared by a corporation's directors,is a distribution of additional shares of the corporation's own stock to its stockholders without any payment in return.

Question 73

The Paid-in Capital,Treasury Stock account can never have a debit balance.

Question 74

Accumulation of dividends in arrears on cumulative preferred stock does not guarantee the dividends will be paid.

Question 75

Par value of a stock refers to the:

A)Issue price of the stock.
B)Value assigned per share by the corporate charter.
C)Market value of the stock on the date of the financial statements.
D)Maximum selling price of the stock.
E)Dividend value of the stock.

Question 76

A liability for a cash dividend does not exist until the directors declare a cash dividend.

Question 77

Participating preferred stock has a feature that allows its holders to share with common shareholders in any dividends paid in excess of the amount stated on the preferred stock.

Question 78

The Paid-in Capital,Treasury Stock account can have a zero or credit balance.

Question 79

The board of directors of a corporation:

A)Are elected by the corporate registrar.
B)Are responsible for day-to-day operations of the business.
C)Do not have the power to bind the corporation to contracts,due to lack of mutual agency.
D)May not also be executive officers of the corporation,due to the separate entity principle.
E)Are responsible for overseeing corporate activities.

Question 80

A stock dividend decreases the market price of the company's stock.