Corporate Finance and Accounting Principles Answers

● Contributed capital of $1,000,000 is found in the ______ section of the ______. ○ shareholders' equity; statement of financial position ● Which of these is a separate legal entity? ○ Corporation ● Corporations can raise large amounts of money because ○ shares can be purchased in small amounts, so even small investors can participate. ● Lox, Stock and Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals ______ shares. ○ 45,000 ● Ownership structure can vary from one company to another, but the most basic form of corporation offers ○ common shares. ● Contributed capital of $1,000,000 represents ○ the amount shareholders have invested in exchange for shares. ● Which of these are characteristics of a corporation? (Check all that apply.) ○ It is a separate legal entity. ○ It can raise large amounts of capital more easily than sole proprietorships and partnerships. ● Corporations can raise large amounts of money because ○ shares in public companies can easily be bought and sold by investors. ● Common share's par value is ______. ○ likely an insignificant amount specified in the corporate charter ● What are the benefits of common shares? (Check all that apply.) ○ A residual claim on assets after creditors and preferred shareholders have been satisfied ○ Voting rights ● Daffy Duct, Inc. issued 10,000 shares of no par value common shares at $10 cash per share. The journal entry to record this transaction includes a: (Check all that apply.) ○ $100,000 debit to Cash. ○ $100,000 credit to Common Shares. ● A corporation is a separate legal entity that can ______. (Check all that apply.) ○ own assets ○ enter into contracts ○ sue or be sued ● Common share's par value: (Check all that apply.) ● ● ● ● ● ● ● ● ○ was introduced in order to prevent bankrupt companies from paying dividends. ○ has become less meaningful because provinces and securities laws/regulations use other means to prevent dividend payments. ○ affects how common shares are recorded. The number of shares outstanding equals the number of shares ______. ○ issued minus the number of shares in treasury Daffy Duct Inc. issued 1,000 shares of no par value common shares for cash of $4 each. Identify all appropriate account titles that may be used to record this issuance of shares. (Check all that apply.) ○ Cash ○ Common shares A corporation ______ have a legal obligation to pay dividends. ○ does not When a company issues shares to acquire assets or services, the acquired items are recorded at the market value of the shares issued at the date of the transaction in accordance with the ________. If the market value of the shares issued cannot be determined, the market value of the consideration received should be used. ○ cost principle A(n) is a separate legal entity whereby the owners are not personally liable for the debts of the business. (Enter one word per blank.) ○ Blank 1: corporation or LLC AnuU, Inc. sold 100,000 shares of the 1,000,000 shares it is allowed to sell. AnuU repurchased 10,000 of these shares. The number of shares issued equals ______ shares. ○ 100,000 Investors earn a return on share investments by: (Check all that apply.) ○ receiving dividends. ○ selling the share for more than its cost. When a company issues shares to acquire assets or services, the acquired items are recorded at the ________ of the shares issued at the date of the transaction in accordance with the cost principle. If the market value of the shares issued cannot be determined, the market value of the consideration received should be used. ○ market value ● A corporation is a separstock options:ate legal entity that can ______. (Check all that apply.) ● ● ● ● ● ● ● ● ● ● ● ○ own assets ○ sue or be sued ○ enter into contracts Stock options are given in order to ______. ○ provide incentives for employees to work harder. Lox, Stock and Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals ______ shares. ○ 45,000 Why might a corporation repurchase its own shares? (Check all that apply.) ○ to avoid the dilutive effect of issuing new shares when stock options are exercised ○ to have shares to issue when stock options are exercised The declaration and payment of a cash dividend ultimately causes a(n): (Check all that apply.) ○ decrease in Cash. ○ decrease in Retained Earnings. ○ decrease in shareholders' equity. Stock options: (Check all that apply.) ○ are often given to employees as part of their compensation. ○ provide the holder with the option to purchase shares at a specified price during a specified period of time. When does a corporation record an increase in Dividends Payable? ○ On the declaration date Investors earn a return on share investments by: (Check all that apply.) ○ receiving dividends. ○ selling the share for more than its cost. A corporation creates Dividends payable on the _____ date. (Enter one word per blank.) ○ Blank 1: declaration A corporation may repurchase its shares in order to ○ have shares to issue when stock options are exercised. A distribution of a company's accumulated prior earnings is a(n) ______. ○ Dividend The declaration of a dividend results in ______. (Check all that apply.) ○ an increase in liabilities ○ a decrease in retained earnings ● The declaration date is the date on which the corporation ○ records its obligation to pay a dividend ● A dividend date of record is the date on which the corporation ______. ○ makes no entry ● The dividend payment date is when ______. ○ cash is paid to satisfy the dividend liability ● Diva, Inc. declared and paid $10,000 of dividends in 2018. Dividends of $10,000 may be found on the ______. ○ statement of retained earnings ● The journal entry to record the declaration of a dividend that is to be paid at a later date includes a ______. (Check all that apply.) ○ credit to Dividends Payable ○ debit to Retained Earnings ● When does a corporation record an increase in Dividends Payable? ○ Declaration date ● The date of record is the date on which the corporation ______. ○ finalizes its list of shareholders who will receive dividends ● The dividend payment date is when ______. (Check all that apply.) ○ Cash is decreased ○ Dividends Payable is decreased ● Dividends Payable is recorded as a credit on the ______. ○ declaration date ● Select those statements below that are true about cash dividends. (Check all that apply.) ○ On the declaration date, liabilities are increased. ○ On the payment date, current assets are decreased. ● A stock dividend: (Check all that apply.) ○ distributes additional shares to existing shareholders on a pro rata basis. ○ causes retained earnings to decrease. ● The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n): (Check all that apply.) ○ increase in liabilities. ○ decrease in shareholders' equity. ● When does a corporation record an increase in Dividends Payable?The dividend payment date is when ______. ● ● ○ On the declaration date ● A stock dividend causes a shareholder's percentage ownership in a company to ______. ○ remain the same ● A stock dividend: (Check all that apply.) ● ● ● ● ● ● ● ● ● ○ decreases retained earnings. ○ has no effect on total shareholders' equity. ○ increases common shares. The journal entry to record the payment of a previously declared dividend includes a ______. (Check all that apply.) ○ credit to Cash ○ debit to Dividends payable Similar to a stock split, a stock ____ also distributes additional shares of stock to existing shareholders on a pro rata basis at no cost to the shareholders. ○ Blank 1: dividend A stock dividend ______. ○ provides no economic value for current shareholders. Prior to a $4,000 stock dividend, total shareholders' equity equalled $50,000. After the stock dividend, total shareholders' equity equals ○ $50,000 Dividends Payable is a(n) ___account with a normal ____ balance and is initially recorded on the _____ date. (Enter one word per blank.) ○ Blank 1: liability ○ Blank 2: credit ○ Blank 3: declaration or declared dividend After a 3-for-1 stock split, the market value of each share is ______ the market value prior to the split. ○ one third When Diva, Inc. declared a $10,000 cash dividend, it recorded a $10,000 _____. (Check all that apply.) ○ debit to Retained Earnings ○ credit to Dividends Payable Preferred shares: (Check all that apply.) ○ has preference as to dividends. ○ is useful for raising capital without reducing common shareholders' control. ○ generally do not have voting rights. Double Vision, Inc. had 10,000 shares issued and outstanding of its $1 par value common shares. At December 31, 2019, Total common shares equalled $10,000, Retained earnings equalled $20,000 and Total shareholders' equity equalled $50,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, ______. ○ par value equals $0.50. ● Wyanot Company issued 1,000 shares of its 5%, no par value, cumulative preferred shares for $110 cash per share. The journal entry to record this transaction include a: (Check all that apply.) ○ $110,000 debit to Cash. ○ $110,000 credit to Preferred Shares. ● A current dividend preference requires that ______.’ ○ preferred dividends must be paid before any dividends are paid to common shareholders ● Retained earnings represent net earnings less ________ since the first day of the company’s operations. ○ dividends that have been declared ● A corporation may be restricted from paying a dividend if ______. (Check all that apply.) ○ a creditor's loan agreement is violated ○ doing so reduces the amount of legal capital below the required minimum ● Investors who acquire preferred shares: (Check all that apply.) ○ do not have voting rights. ○ that is cumulative have the right to receive dividends in arrears once dividends are declared. ○ have preference as to dividends. ● Issuing 1,000 shares of 5%, $100 par value, cumulative preferred shares for $100 cash per share affects the accounting equation by: (Check all that apply.) ○ increasing total assets. ○ increasing total shareholders' equity. ● Stockable, Inc. began business on January 1, 2018 by issuing 100,000 shares of no par value common shares and 1,000 shares of 6%, noncumulative, $100 par value preferred shares. No dividends were declared in 2018. In 2019, Stockable declared and paid a $0.50 dividend to its common shareholders. Which of the following is true? ○ Stockable, Inc. has no legal obligation to pay a dividend to preferred shareholders in 2018. ● A ________ is a legal entity, separate and distinct from its owners. It can enter into contracts in its own name, it can be sued, and it is taxed as a separate entity. ○ Corporation ● ________ represent net earnings less dividends that have been declared since the first day of the company’s operations. ○ Retained earnings ● A corporation that has a loan covenant: (Check all that apply.) ○ may be required to repay the loan immediately if it violates the covenant. ○ must disclose the covenant in the notes to the financial statements. ● Preferred shares are advantageous in that they: (Check all that apply.) ○ have priority over common shares when dividends are declared. ○ have priority over common shares at liquidation. ● A ________ is an unincorporated business owned by one individual. If you started a lawn care business in the summer by yourself, it would like be this form ● ● ● ● ● ● ● ● ● of business organization. It is not necessary to file any legal papers to create this form of business organization. ○ sole proprietorship Nova, Inc. is considering declaring a $100,000 cash dividend. Nova has a cash balance of $20,000 and retained earnings balance of $100,000. Nova should ______. ○ not declare a cash dividend because it does not have enough cash The number of shares issued represents the number of shares ______. ○ Sold Declaration date ○ The board of directors officially approves a dividend Payment date ○ Dividends payable is decreased A corporation's board of directors would prefer a stock split to a stock dividend because a stock split ○ does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future. X-Co issued 1,000 shares of its 5%, $100 par value, cumulative preferred shares for $100 cash per share. The journal entry to record this event includes a: (Check all that apply.) ○ $100,000 credit to Preferred Shares. ○ $100,000 debit to Cash. Preferred shareholders: ○ have the right to receive dividends only in the years the board of directors declares dividends. Preferred shares generally (have/do not have) ______ voting rights and (have/do not have) ______ preference as to dividends. ○ do not have; have Issuing 1,000 shares of 5%, no par value, cumulative preferred shares for $110 in cash per share affects the accounting equation by: (Check all that apply.) ○ increasing total assets. ○ increasing total shareholders' equity.