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Questions and Answers
A corporation has agreed to pay a $0.10 cash dividend on shares of common stock. On the date of record, no formal journal entry is required.
A corporation has agreed to pay a $0.10 cash dividend on shares of common stock. On the date of record, no formal journal entry is required.
True (A)
When the board of directors authorizes a cash dividend to investors, there are three important dates involved—the date of declaration, date of record, and date of _____ .
When the board of directors authorizes a cash dividend to investors, there are three important dates involved—the date of declaration, date of record, and date of _____ .
payment
A _____ dividend returns a portion of the capital contributed by stockholders.
A _____ dividend returns a portion of the capital contributed by stockholders.
On June 1, the board of directors of Dylan, Inc. declare a cash dividend of $1 per share. The journal entry required on the date of declaration will include a _____ to the Common Dividend Payable account.
On June 1, the board of directors of Dylan, Inc. declare a cash dividend of $1 per share. The journal entry required on the date of declaration will include a _____ to the Common Dividend Payable account.
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The board of directors of Visor, Inc. authorize a _________, a distribution of additional shares of the corporation's own stock, to existing shareholders.
The board of directors of Visor, Inc. authorize a _________, a distribution of additional shares of the corporation's own stock, to existing shareholders.
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On the date of payment, a journal entry for a cash dividend will include which of the following accounts?
On the date of payment, a journal entry for a cash dividend will include which of the following accounts?
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Which of the following is not a reason for a stock dividend?
Which of the following is not a reason for a stock dividend?
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A corporation with a _____ balance for retained earnings is said to have a retained earnings deficit.
A corporation with a _____ balance for retained earnings is said to have a retained earnings deficit.
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On August 1, the board authorizes a 20% stock dividend. This is considered a _____ stock dividend.
On August 1, the board authorizes a 20% stock dividend. This is considered a _____ stock dividend.
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A large stock dividend is a distribution of at least how many shares?
A large stock dividend is a distribution of at least how many shares?
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Stock dividends are given to:
Stock dividends are given to:
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The entry to record a 20% stock dividend will include a debit to _____ in the amount of _____.
The entry to record a 20% stock dividend will include a debit to _____ in the amount of _____.
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A stock dividend is the distribution of additional shares to stockholders according to their percent ownership.
A stock dividend is the distribution of additional shares to stockholders according to their percent ownership.
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To record a stock split, debit Retained Earnings and credit Common Stock.
To record a stock split, debit Retained Earnings and credit Common Stock.
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Mario, Inc. declares a 2-for-1 stock _________.
Mario, Inc. declares a 2-for-1 stock _________.
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Which of the following statements is false regarding stock splits?
Which of the following statements is false regarding stock splits?
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_________ stock typically includes preference for receiving dividends and for the distribution of corporate assets during a liquidation.
_________ stock typically includes preference for receiving dividends and for the distribution of corporate assets during a liquidation.
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The entry to record the issuance of 100 shares of $1 par value preferred stock for $3,000 cash would include a _____ to the preferred stock account in the amount of ____.
The entry to record the issuance of 100 shares of $1 par value preferred stock for $3,000 cash would include a _____ to the preferred stock account in the amount of ____.
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An advantage of purchasing preferred stock is that preferred shareholders are guaranteed to receive dividend payments each year.
An advantage of purchasing preferred stock is that preferred shareholders are guaranteed to receive dividend payments each year.
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______ preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders.
______ preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders.
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_________ has/have special rights that give it priority over other types of stock in one or more areas.
_________ has/have special rights that give it priority over other types of stock in one or more areas.
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On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry would include a _____ to the preferred stock account in the amount of _____.
On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry would include a _____ to the preferred stock account in the amount of _____.
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Preferred stock usually carries a preference for dividends, meaning that:
Preferred stock usually carries a preference for dividends, meaning that:
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_______ preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders.
_______ preferred stockholders have a right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders.
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Mario Hernandez owns 25 shares of $100 par, 5% cumulative preferred stock. During the current year, no dividends are declared or paid. The unpaid amount of $_____ is considered dividends in ____.
Mario Hernandez owns 25 shares of $100 par, 5% cumulative preferred stock. During the current year, no dividends are declared or paid. The unpaid amount of $_____ is considered dividends in ____.
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Roger Hillcrest owns 100 shares of $10 par, 5% noncumulative preferred stock. During the current year, there are no dividends declared or paid. If a large cash dividend is paid in the following year, Roger would be entitled to up to $_____ for the previous year before common shareholders are paid.
Roger Hillcrest owns 100 shares of $10 par, 5% noncumulative preferred stock. During the current year, there are no dividends declared or paid. If a large cash dividend is paid in the following year, Roger would be entitled to up to $_____ for the previous year before common shareholders are paid.
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Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total _____.
Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total _____.
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When stock is cumulative preferred stock and the board of directors does not declare a dividend, the unpaid dividend amount is called:
When stock is cumulative preferred stock and the board of directors does not declare a dividend, the unpaid dividend amount is called:
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__________ preferred stock confers no right to prior period unpaid dividends.
__________ preferred stock confers no right to prior period unpaid dividends.
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_______ preferred stock has a feature that limits dividends to a maximum amount each year.
_______ preferred stock has a feature that limits dividends to a maximum amount each year.
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Blink, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $_________.
Blink, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $_________.
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Which of the following is not a reason that a corporation would issue preferred stock?
Which of the following is not a reason that a corporation would issue preferred stock?
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A ___________ is an entity created by law that is separate from its owners.
A ___________ is an entity created by law that is separate from its owners.
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Which of these facts is not correct about corporations?
Which of these facts is not correct about corporations?
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Identify the advantages of the corporate form of business. (Check all that apply.)
Identify the advantages of the corporate form of business. (Check all that apply.)
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Identify the disadvantages of the corporate form of business. (Check all that apply.)
Identify the disadvantages of the corporate form of business. (Check all that apply.)
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A corporation is created by obtaining a charter from:
A corporation is created by obtaining a charter from:
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A _____ held corporation does not offer its stock for public sale and usually has few stockholders.
A _____ held corporation does not offer its stock for public sale and usually has few stockholders.
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A _____ held corporation offers its stock for public sale and can have thousands of stockholders.
A _____ held corporation offers its stock for public sale and can have thousands of stockholders.
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Rank the following groups in order of authority--with the highest authority at the top.
Rank the following groups in order of authority--with the highest authority at the top.
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Which of the following is not a characteristic of a corporation?
Which of the following is not a characteristic of a corporation?
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Stockholders do not have the power to bind the corporation to contracts. This is referred to as lack of mutual agency.
Stockholders do not have the power to bind the corporation to contracts. This is referred to as lack of mutual agency.
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Two of the biggest disadvantages of the corporate form of business are government regulation and corporate _____ .
Two of the biggest disadvantages of the corporate form of business are government regulation and corporate _____ .
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A charter application usually must be signed by the prospective stockholders called incorporators or ________.
A charter application usually must be signed by the prospective stockholders called incorporators or ________.
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While stockholders elect the board of directors of a corporation, the board of __________ hires the president, vice president, and other officers.
While stockholders elect the board of directors of a corporation, the board of __________ hires the president, vice president, and other officers.
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The costs to start a corporation are called _______ expenses.
The costs to start a corporation are called _______ expenses.
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The stockholders of a corporation elect the:
The stockholders of a corporation elect the:
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Identify which of the following is not generally a right of common stockholders.
Identify which of the following is not generally a right of common stockholders.
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Investors who buy a corporation's stock sometimes receive a stock ______ as proof of share ownership.
Investors who buy a corporation's stock sometimes receive a stock ______ as proof of share ownership.
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Organization expenses, or the costs to organize a corporation, include which of the following? (Check all that apply.)
Organization expenses, or the costs to organize a corporation, include which of the following? (Check all that apply.)
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A _________ is a document that gives a designated agent the right to vote the stock.
A _________ is a document that gives a designated agent the right to vote the stock.
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A(n) _______ agent assists with purchases and sales of shares by receiving and issuing certificates as necessary.
A(n) _______ agent assists with purchases and sales of shares by receiving and issuing certificates as necessary.
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Stockholders have the right _______ to vote at stockholders' meetings.
Stockholders have the right _______ to vote at stockholders' meetings.
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Capital __________ is a general term that refers to any shares issued to obtain capital (owner financing).
Capital __________ is a general term that refers to any shares issued to obtain capital (owner financing).
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Carin, Inc. declared a 50% stock dividend on January 15. The entry to record the distribution of stock will include a debit to the ______ account, in the amount of _______.
Carin, Inc. declared a 50% stock dividend on January 15. The entry to record the distribution of stock will include a debit to the ______ account, in the amount of _______.
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_________ stock is the number of shares that a corporation's charter allows it to sell.
_________ stock is the number of shares that a corporation's charter allows it to sell.
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A(n) _________ keeps stockholder records and prepares official lists of stockholders for stockholder meetings and dividend payments.
A(n) _________ keeps stockholder records and prepares official lists of stockholders for stockholder meetings and dividend payments.
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_____________ is a general term that refers to any shares issued to obtain capital (owner financing).
_____________ is a general term that refers to any shares issued to obtain capital (owner financing).
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Franz Inc. declared a 50% stock dividend when there were 10,000 shares of $1 par value stock issued and outstanding. The entry to record the distribution of stock will include a (debit/credit) ______ to the common stock dividend distributable account, in the amount of $_____ .
Franz Inc. declared a 50% stock dividend when there were 10,000 shares of $1 par value stock issued and outstanding. The entry to record the distribution of stock will include a (debit/credit) ______ to the common stock dividend distributable account, in the amount of $_____ .
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A corporation can pay a brokerage house to issue its stock. Some brokerage houses underwrite an indirect issuance of stock; they buy the stock from the corporation and resale it to investors.
A corporation can pay a brokerage house to issue its stock. Some brokerage houses underwrite an indirect issuance of stock; they buy the stock from the corporation and resale it to investors.
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_____ stock is the number of shares that a corporation's charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.
_____ stock is the number of shares that a corporation's charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.
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The market value per share is the price at which stock is bought and sold. Which of the following factors does not influence market value?
The market value per share is the price at which stock is bought and sold. Which of the following factors does not influence market value?
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Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called ______ stock.
Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called ______ stock.
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A corporation can sell ______ directly or indirectly (through a brokerage).
A corporation can sell ______ directly or indirectly (through a brokerage).
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Jordan Inc.'s charter states that there are 50,000 shares of stock authorized with a par value of $5 per share. This typically means that investors must pay a (______/maximum) of $5 per share to invest in the corporation.
Jordan Inc.'s charter states that there are 50,000 shares of stock authorized with a par value of $5 per share. This typically means that investors must pay a (______/maximum) of $5 per share to invest in the corporation.
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_________ value stock is stock not assigned a value per share by the corporate charter.
_________ value stock is stock not assigned a value per share by the corporate charter.
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The ______ value per share is the price at which a stock is bought and sold.
The ______ value per share is the price at which a stock is bought and sold.
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_____ value stock is no-par stock to which the directors assigned a certain value per share.
_____ value stock is no-par stock to which the directors assigned a certain value per share.
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The _____ value of stock is an amount assigned per share by the corporation in its charter.
The _____ value of stock is an amount assigned per share by the corporation in its charter.
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Philip's Inc. reports stockholders' equity on its financial statements. The two items reported in the stockholders' equity section of Philip's balance sheet are _____ Capital and Retained Earnings.
Philip's Inc. reports stockholders' equity on its financial statements. The two items reported in the stockholders' equity section of Philip's balance sheet are _____ Capital and Retained Earnings.
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No-par value stock is stock not assigned a value per share by the corporate charter. Its advantage is that it can be issued ___________ without the possibility of a minimum legal capital.
No-par value stock is stock not assigned a value per share by the corporate charter. Its advantage is that it can be issued ___________ without the possibility of a minimum legal capital.
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Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit) to Common Stock, $1 par for $.
Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit) to Common Stock, $1 par for $.
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Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called ________ stock.
Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called ________ stock.
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Martin, Inc.'s charter authorizes 50,000 shares of stock with a par value of $1 per share. 1,000 shares of stock are issued at a market value of $5 per share. This means that the shares of stock are issued at a (______/discount).
Martin, Inc.'s charter authorizes 50,000 shares of stock with a par value of $1 per share. 1,000 shares of stock are issued at a market value of $5 per share. This means that the shares of stock are issued at a (______/discount).
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Stockholders' equity, reported on the balance sheet, consists of which of the following accounts? (Check all that apply.)
Stockholders' equity, reported on the balance sheet, consists of which of the following accounts? (Check all that apply.)
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Payton, Inc.'s charter authorized 100,000 shares of stock with a par value of $1 per share. Payton issues 100 shares at a market value of $5 per share. The journal entry to record this transaction will include a credit to _____ in the amount of _______.
Payton, Inc.'s charter authorized 100,000 shares of stock with a par value of $1 per share. Payton issues 100 shares at a market value of $5 per share. The journal entry to record this transaction will include a credit to _____ in the amount of _______.
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Gomez Inc.'s charter authorizes 1,000 shares of stock at a par value of $1 per share. Gomez sells 200 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.)
Gomez Inc.'s charter authorizes 1,000 shares of stock at a par value of $1 per share. Gomez sells 200 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.)
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A _____ on stock occurs when a corporation issues its stock for more than par (or stated) value.
A _____ on stock occurs when a corporation issues its stock for more than par (or stated) value.
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A ____ on stock occurs when a corporation issues its stock for less than par (or stated) value.
A ____ on stock occurs when a corporation issues its stock for less than par (or stated) value.
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Dean, Inc.'s charter indicates a par value of $1 per share. Dean issues 100 shares at a market value of $8 per share. The journal entry to record this transaction will include a debit to the account in the amount of $.
Dean, Inc.'s charter indicates a par value of $1 per share. Dean issues 100 shares at a market value of $8 per share. The journal entry to record this transaction will include a debit to the account in the amount of $.
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Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) _______ to Common Stock for ______.
Bing Inc.'s charter authorizes 500 shares of stock with no par value. Bing Inc. sells 100 shares of stock at its initial offering for $5 per share. The journal entry to record this transaction will include a (debit/credit) _______ to Common Stock for ______.
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Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.)
Vanya Inc.'s charter authorizes 1,000 shares of stock at a stated value of $1 per share. Vanya sells 50 shares of stock at its initial offering for $10 per share. The journal entry to record this transaction will include which of the following entries? (Check all that apply.)
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Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to _________ in the amount of _______.
Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common stock with a par value of $10 per share. The journal entry to record this transaction in the books of Damian, Inc., will include a credit to _________ in the amount of _______.
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Vernon, Inc.'s charter did not assign a par-value to its authorized stock. However, Vernon's directors assigned a(n) ________ value per share.
Vernon, Inc.'s charter did not assign a par-value to its authorized stock. However, Vernon's directors assigned a(n) ________ value per share.
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The board of directors authorizes a cash or distribution of cash to its investors.
The board of directors authorizes a cash or distribution of cash to its investors.
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When the board of directors authorizes a cash dividend to investors, there are three important dates involved—the date of declaration, date of record, and date of _____ .
When the board of directors authorizes a cash dividend to investors, there are three important dates involved—the date of declaration, date of record, and date of _____ .
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On June 1, the board of directors of Dylan, Inc. declares a cash dividend of $1 per share. On June 1, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a (debit/credit) to the Common Dividend Payable account.
On June 1, the board of directors of Dylan, Inc. declares a cash dividend of $1 per share. On June 1, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a (debit/credit) to the Common Dividend Payable account.
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Riley Inc.'s charter authorizes 1,000 shares of stock at a stated value of $10 per share. Riley issues 50 shares of stock at its initial offering for $20 per share. The journal entry to record this transaction will include a (debit/credit) to Common Stock, for $.
Riley Inc.'s charter authorizes 1,000 shares of stock at a stated value of $10 per share. Riley issues 50 shares of stock at its initial offering for $20 per share. The journal entry to record this transaction will include a (debit/credit) to Common Stock, for $.
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John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts? (Check all that apply.)
John Kim agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.'s common stock with a par value of $1 per share. Rio will record this transaction as a credit to which of the following accounts? (Check all that apply.)
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A _________ is the distribution of cash to its owners. This is determined by the board of directors.
A _________ is the distribution of cash to its owners. This is determined by the board of directors.
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When a corporation declares and pays a cash dividend, there are three notable important dates. Which date does not require a formal journal entry to the financial statements?
When a corporation declares and pays a cash dividend, there are three notable important dates. Which date does not require a formal journal entry to the financial statements?
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Authorizing a cash dividend payment to investors requires three crucial dates. Identify which of the following is not a correct term to describe these dates.
Authorizing a cash dividend payment to investors requires three crucial dates. Identify which of the following is not a correct term to describe these dates.
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On March 15, the board of directors of Richmond, Inc. declare a cash dividend of $1 per share. On March 15, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a debit to the _________ account.
On March 15, the board of directors of Richmond, Inc. declare a cash dividend of $1 per share. On March 15, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a debit to the _________ account.
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The board of directors of Chester, Inc. authorizes a $0.10 cash dividend to its 10,000 shares of common stock issued and outstanding. On the date of payment, a journal entry will debit which of the following accounts and for what amount?
The board of directors of Chester, Inc. authorizes a $0.10 cash dividend to its 10,000 shares of common stock issued and outstanding. On the date of payment, a journal entry will debit which of the following accounts and for what amount?
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Study Notes
Corporate Structure and Types
- A corporation is a legal entity separate from its owners, with stockholders or shareholders as owners.
- Types of corporations include privately held (does not offer stock publicly) and publicly held (offers stock for public sale).
Advantages and Disadvantages of Corporations
- Advantages of corporations:
- Ease of capital accumulation: Corporations can raise funds more effectively.
- Limited liability for shareholders: Stockholders are not personally liable for corporate debts.
- Continuous life: Corporations can survive beyond the lives of their owners.
- Disadvantages of corporations:
- Corporate taxation: Corporations face taxes on profits before dividends are distributed.
- Government regulation: Corporations must comply with extensive regulations.
Authority in Corporations
- Authority hierarchy is as follows:
- Stockholders (highest authority)
- Board of Directors
- President/Vice President/Officers
- Employees
- Stockholders elect the Board of Directors, who hire corporate officers to manage the business.
Stock Details
- Corporate stock can be authorized (the total allowed by charter), issued (actual shares sold), and outstanding (shares owned by investors).
- Common stock is the most common type of stock, providing votes and dividends.
- No-par value stock has no assigned value per share, allowing for flexible pricing.
Dividends
- A dividend is a distribution of cash or stock to shareholders, authorized by the Board of Directors.
- Important dates associated with dividends:
- Date of declaration: When the dividend is officially declared.
- Date of record: When shareholders eligible for dividends are determined (no journal entry required).
- Date of payment: When payment is made to shareholders.
Stock Transactions and Journal Entries
- Company must record various transactions involving the issuance of stock and payment of dividends with specific journal entries.
- Example: Issuing stock for contributions (like land or equipment) is recorded as credits to Common Stock and Paid-in Capital.
- If a corporation issues stock above par value, this results in a premium.
Statements and Reports
- Stockholders’ equity statements typically consist of Paid-in Capital and Retained Earnings.
- Date of payment journal entries will debit the cash account for total dividend payment.
Miscellaneous
- A proxy allows a designated agent to vote on behalf of a shareholder.
- Transfer agents help with the handling of stock transactions, including the issuance of stock certificates.
- Liquidating dividends return capital to investors from contributed capital rather than retained earnings.### Accounting Entries for Dividends
- Debits to Cash, Retained Earnings, and Common Dividend Payable are recorded for dividend transactions.
- Credits to Cash, Common Dividend Payable, and Retained Earnings also appear in dividend accounting entries.
Stock Dividends
- A stock dividend may be authorized by the board of directors for various reasons, such as maintaining stock affordability and showing management's confidence.
- The reduction of par stock value is not a rationale for issuing stock dividends.
- A retained earnings deficit occurs when the balance is debit due to cumulative losses or dividend payouts exceeding total earnings.
Types of Stock Dividends
- Small stock dividends are those of 20% or less of previously outstanding shares.
- Large stock dividends require a minimum distribution of 25% of these shares.
- Stock dividends help keep stock prices affordable rather than decreasing outstanding shares.
Accounting Entries for Stock Dividends
- Stock dividends require specific journal entries, such as debiting Retained Earnings based on the stock's par value and fair market value.
- For instance, on a 10% stock dividend with 10,000 shares at a $5 market value, a debit to Retained Earnings of $5,000 would be recorded.
- Upon payment of the stock dividend, a debit entry is made to Common Stock Dividends Distributable equal to the par value of distributed shares.
Stock Splits and Their Impact
- A stock split increases the number of shares available and reduces the par value of each share without impacting retained earnings.
- No journal entry is necessary to record a stock split.
Preferred Stock
- Preferred stock offers rights such as priority for dividends and asset distribution during liquidation.
- When preferred stock is issued, entries are recorded for the par value, with any excess credited to Paid-In Capital.
- Preferred shareholders receive dividends before common stockholders, but preferment does not guarantee payment if dividends are not declared.
Cumulative vs. Noncumulative Preferred Stock
- Cumulative preferred stock allows holders to accumulate unpaid dividends, unlike noncumulative preferred stock, which does not provide this right.
- In a scenario where preferred dividends are unpaid, the amount due is termed as "dividend in arrears."
Dividend Distribution
- Payments to preferred shareholders can be calculated based on shares and dividend rates.
- In a practical example, if there are 10,000 shares of preferred stock with a 5% rate, a $15,000 dividend authorization would result in $2,500 payable to preferred shareholders before any common stock distribution.
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Description
This flashcard set covers key concepts from MGMT 210 Chapter 11 related to corporations. It includes definitions, examples, and the critical distinctions between different business entities. Perfect for students looking to solidify their understanding of corporate structures.
