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chpter 15 Owner's E

Inted acct 2

Question	Answer
Contributed Captial	consists of par value of shares and the amount in excess of this value (additional paid in capital) added together.
Preemptive right	to share proportionately in any new issues of stock of the same class.
The residual interest in a corporation belongs to the	common stockholders
Total Stockholders equity is made up of	Common stock, paid in capital in excess of par ( common, preferred & Treasury stock) Retained Earnings, Preferred Stock
Treasury Common Stock (at cost)	Is subtracted from Stockholders equity
Residual owners	Common stockholders of a business. 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 the company
The issuance of no-par stock has no effect on	Additional paid-in capital.
Treasury Stock ( Treasury Shares)	is a contra account recorded in the shareholder's equity section of the balance sheet , it reduces shareholder's equity by the amount paid for the stock
Under the cost method when treasury stock is sold for more than its cost, the excess is credited to	Paid -in Capital from Treasury Stock
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
Which of the following best describes a possible result of treasury stock transactions by a corporation?	May decrease but not increase retained earnings.
The most common type of preferred stock is	Cumulative preferred stock
A preference as to dividends merely assures that the corporation must pay the stated dividend rate or amount	applicable to the preferred stock before paying any dividends on the common stock.
Which of the following features of preferred stock makes the security more like debt than an equity instrument	Redeemable
The payment of a dividend does not have to be in the	same period as it was declared.
Cash dividends are paid on the basis of the number of shares	Outstanding
The statement of changes in equity has columns for each of the following	Retained earnings, Share capital, Unrealized holding gain/ loss
The Revaluation Surplus of IFRS is	different than U.S. GAAP in that it allows the increase in valuation
The accounting for treasury stock retirements under IFRS requires	a charge for the excess to paid-in capital, depending on the original transaction related to the issuance of the stock.
The Revaluation Surplus of IFRS is	different than U.S. GAAP in that it allows the increase in valuation.
At what amount should retained earnings be capitalized for the additional shares issued?	Retained earnings is reduced by an amount equal to the number of shares issued times the par value per share.
The statement of stockholders' equity is frequently presented in the following basic format.	1. Balance at the beginning of the period. 2. Additions. 3. Deductions. 4. Balance at the end of the period.
columnar format for the presentation of changes in stockholders' equity items in published annual reports is gaining in popularity.	true
The book value per share is based on	common shares outstanding.
Which of the following country systems of finance have relied more heavily on debt financing, interlocking stock ownership, banker/directors, and worker/shareholder rights?	Japan and Germany
3 special characteristics of the corporate fore that effect accounting	1. Influence of state corporate law. 2. use of capital stock or share system 3. Development of a variety of ownership interests
In the absence of restrictive provisions each share carries the following rights	1. To share proportionately in profits and loses
In the absence of restrictive provisions each share carries the following rights	2. To share proportionately in management ( right to vote for directors)
In the absence of restrictive provisions each share carries the following rights	3. To share proportionately in corporate assets upon liquidation.
In the absence of restrictive provisions each share carries the following rights	4. To share proportionately in any new issues of stock of the same class - call the preemptive right.
Preemptive right	right protects an existing stockholder from involuntary dilution of ownership interest.
Preferred stock always sacrifices some of the	inherent rights of common stock ownership.
Examples of preferred stock sacrifice to obtain right to rec assured dividend usually at a stated rate before common stockholders	may sacrifice right of voice in management or right to share in profits beyond stated rate.
Three categories normally appear as part of Stockholder's equity	1. Capital stock, 2. Additional paid in capital. 3. Retained earnings.
Retained earnings	represent earned capital of the company. Profits added from year to year,
Two primary sources of Equity	Contributed capital and retained earnings
Disadvantage of no par stocks is that some states levy a high tax on these issues and	some states the total issue price for no par stock may be considered legal capital, which could reduce flexibility in pay dividends.
Benefits of no-par stock	Avoids contingent liability and avoids confusion over recording par value versus fair market value
Two methods of allocating proceeds when stock issued with other securities	Proportional method and Incremental method
Stocks issued in Non cash Transactions should record stock for services or property other than cash at the	Fair value of the stock issued or fair value of the noncash consideration received whichever is more clearly determinable.
Characteristics of Preferred Stock	Preference as to dividends, preference to assets if liquidation, convertible into common stock, callable at option of corporation & non voting.
Cost of Issuing Stock (direct cost) includes	underwriting costs, accounting & legal fees, printing costs and taxes
Cost of Issuing Stock (direct cost)	should be reported as a reduction of the amounts paid in (Paid-in Capital in Excess of Par).
Corporations may attach whatever preferences or restrictions	as long as it does not violate its state incorporation law..
Features of Preferred Stock	Cumulative, participating, convertible, callable, and redeemable
Reasons corps Re-acquisition of shares(Corp purchases their outstanding stock	Provide tax-efficient distributions of excess cash to stockholders
Reasons corps Re-acquisition of shares(Corp purchases their outstanding stock	Increase earnings per share and return on equity
Reasons corps Re-acquisition of shares(Corp purchases their outstanding stock	Provide stock for employee stock compensation contracts or to meet potential merger needs.
Reasons corps Re-acquisition of shares(Corp purchases their outstanding stock	Thwart takeover attempts or to reduce the number of stockholders
Reasons corps Re-acquisition of shares(Corp purchases their outstanding stock	make a market in the stock
Treasury stock	Stock re- purchased and held to sell again and is not considered an asset. It is essential the same as unissued capital stock.
To re-purchase stock (treasury) two methods are used	Cost Method and par (stated) value method
Cost Method	results in debiting the treasury Stock account for the re-acquisition cost and in reporting this account as a deduction from the total paid-in capital & retained earnings on the balance sheet.
Par (stated) value method	records all transactions in treasury shares at their par value and reports the treasury stock as a deduction from capital stock only
Under incremental method the market value of the securities is used as a basis for those classes that are known	The remainder of the lump sum is allocated to the class for which the market value is not known.
A corp cannot show a gain or loss dealing with its own stock	Treasury stock
If treasury stock is reissued at a price in excess of the acquisition cost	excess is credited to an account titled paid in Capital from Treasury Stock
Preferred dividends in arrears are not liabilities till declared by board of directors &	Any dividends in arrears on preferred stock should be disclosed in a footnote to the financial statments
participating dividends	a feature of preferred stock enabling the stockholder to share ratably with common stockholders in any dividends beyond the rate specified on the preferred stock.
property dividend	when a corporation distributes a dividend of an asset other than cash to stockholders
liquidating dividend	dividend not based on retained earnings implying that stockholder share are receiving a return of their investment, rather than profits.
One of the major distinctions between a stock split and a stock dividend is the fact that a stock split alters the par or stated value of stock issued involved	while stock dividend does not affect par or stated value.
From accounting standpoint no entry is recorded for a stock split	true
Rate of return on common stock equity is computed by dividing net income- less preferred	dividends/ by average common stockholders equity.
By law capital is considered the portion of stockholders equity	that is required by statue to be retained in the business for the protection of creditors. usually legal capital is the par value of all capital stock issued

Created by: smcdo11

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