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Exam 11: Corporate Reporting and Analysis

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Question 51

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

A) True
B) False

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Question 52

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Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

A) Participating preferred stock.
B) Callable preferred stock.
C) Cumulative preferred stock.
D) Convertible preferred stock.
E) Noncumulative preferred stock.

F) A) and E)
G) A) and C)

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Question 53

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

The group responsible for and have final authority for managing a corporation's activities is(are) the ________________________________.

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

_______________________ is the amount of income earned per share of a company's outstanding common stock.

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

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

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

A corporation is a legal entity separate from its owners.

A registrar keeps stockholder records and prepares official lists of stockholders and dividend payments.

Avro Corporation has $875,000 in stockholders' equity and 350,000 weighted-average shares of common stock outstanding. Calculate the book value per common share.

_____________________ is a general term that refers to any shares issued to obtain owner financing in a corporation.

For each of the following independent transactions a through d, prepare the necessary journal entry: (a) Declared a $0.40 per share cash dividend on 300,000 shares of preferred stock outstanding. (b) Declared and distributed an 8% stock dividend on 800,000 shares of $5 par value common stock outstanding. Market price per common share on this date was $25. (c) Declared and distributed a 2-for-1 stock split on 400,000 shares of $10 par value common stock outstanding. (d) Declared and distributed a 35% stock dividend on 700,000 common shares of $1 par value common stock outstanding. Market price per common share on this date was $20.

Torino Company has 10,000 shares of $5 par value, 4% cumulative and nonparticipating preferred stock and 100,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:

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

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.

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the payment of the dividend is:

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

Explain where each of the following items should appear in the financial statements of a corporation: (1) The accounting department discovered that an entry was made last year to Insurance Expense instead of to Prepaid Insurance. The after-tax effect of the charge to Insurance Expense was $5,000. (2) The company grants five of its employees the option to purchase 100 shares of its $5 par value common stock at its current market price of $20 per share anytime with the next five years. None of the employees exercised the options in the current year.