Smartbook chapter 11 PDF

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1. Contributed capital of $1,000,000 is found in the stockholders’ equity section of

the statement of financial position 2. An LLC is a separate legal entity whereby the owners are not personally liable

for the debts of the business. (Enter one word per blank.) 3. Corporations can raise large amounts of money because shares in public

companies can easily be bought and sold by investors. 4. 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 45,000 shares. Reason: The 45,000 shares outstanding equals the number issued of 50,000 minus the 5,000 shares bought back by the company. 5. What are the benefits of common shares? (Check all that apply.)

● Voting rights ● A residual claim on assets after creditors and preferred shareholders have been satisfied

6. Contributed capital of $1,000,000 represents the amount shareholders have

invested in exchange for shares. 7. Common share's par value: (Check all that apply.)

● affects how common shares are recorded. ● has become less meaningful because provinces and securities laws/regulations use other means to prevent dividend payments. ● was introduced in order to prevent bankrupt companies from paying dividends.

8. A corporation is a separate legal entity that can ______. (Check all that apply.)

● own assets ● sue or be sued ● enter into contracts

9. Corporations can raise large amounts of money because shares can be

purchased in small amounts, so even small investors can participate.

10. 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 credit to Common Shares. ● $100,000 debit to Cash.

11. 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 100,000 shares. Reason: The number of shares authorized equals 1,000,000 which is the maximum shares the company is allowed to issue. Of the 1,000,000 shares, the company has issued 100,000 and bought back 10,000 leaving 90,000 shares outstanding. 12. Investors earn a return on share investments by: (Check all that apply.)

● receiving dividends. ● selling the share for more than its cost. 13. Ownership structure can vary from one company to another, but the most basic

form of corporation offers common shares. 14. Common share's par value is likely an insignificant amount specified in the

corporate charter. Reason: The par value is typically an arbitrarily low amount set by the company and thus is lower than the market price. 15. 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 cost principle. If the market value of the shares issued cannot be determined, the market value of the consideration received should be used. 16. Which of these is a separate legal entity? Corporation 17. 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.) ● Common shares ● Cash 18. A corporation Does not have a legal obligation to pay dividends.

19. 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.

20. 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 cost principle. If the market value of the shares issued cannot be determined, the market value of the consideration received should be used. 21. 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

22. Investors earn a return on share investments by: (Check all that apply.)

● receiving dividends. ● selling the share for more than its cost.

23. The declaration and payment of a cash dividend ultimately causes a(n): (Check

all that apply.) ● decrease in shareholders' equity. ● decrease in Retained Earnings. ● decrease in Cash. 24. Stock options are given in order to provide incentives for employees to work

harder. Reason: A stock option is an option, typically given to employees as part of their compensation, that gives them the option of buying the company's shares at a predetermined price. The stock option decreases retained earnings because it is an expense when the stock options are granted. 25. Select those statements below that are true about cash dividends. (Check all that

apply.) ● On the payment date, current assets are decreased. ● On the declaration date, liabilities are increased.

26. A corporation creates Dividends payable on the declaration date. (Enter one

word per blank.) 27. A corporation may repurchase its shares in order to have shares to issue when

stock options are exercised. 28. A dividend date of record is the date on which the corporation makes no entry. 29. A distribution of a company's accumulated prior earnings is a(n) dividend. 30. The journal entry to record the payment of a previously declared dividend

includes a ______. (Check all that apply.) ● debit to Dividends payable ● credit to Cash Reason: At the date of declaration, Dividends declared is debited and Dividends payable is credited. To record the later payment, Dividends payable is debited and Cash is credited.

31.

32. The declaration date is the date on which the corporation records its obligation

to pay a dividend 33. The date of record is the date on which the corporation finalizes its list of

shareholders who will receive dividends. 34. 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.

35. The dividend payment date is when cash is paid to satisfy the dividend

liability. 36. A stock dividend: (Check all that apply.)

● causes retained earnings to decrease. ● distributes additional shares to existing shareholders on a pro rata basis.

37. When does a corporation record an increase in Dividends Payable? On the

declaration date 38. A stock dividend causes a shareholder's percentage ownership in a company to

remain the same. 39. Prior to a $4,000 stock dividend, total shareholders' equity equalled $50,000.

After the stock dividend, total shareholders' equity equals $50,000 Reason: A stock dividend decreases retained earnings and increases common shares by the same amount, so there is no change in total shareholders' equity. 40. 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. 41. 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 42. 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. 43. Similar to a stock split, a stock dividend also distributes additional shares of

stock to existing shareholders on a pro rata basis at no cost to the shareholders.

44. 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 shareholders' equity. ● increasing total assets.

45. A stock dividend provides no economic value for current shareholders. 46. A current dividend preference requires that preferred dividends must be paid

before any dividends are paid to common stockholders 47. A stock dividend: (Check all that apply.)

● has no effect on total shareholders' equity. ● decreases retained earnings. ● increases common shares.

48. 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. 49. Retained earnings represent net earnings less dividends that have been

declared since the first day of the company’s operations. 50. Preferred shares generally (have/do not have) do not have voting rights and

(have/do not have) have preference as to dividends. 51. 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 credit to Preferred Shares. ● $110,000 debit to Cash.

52. 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.

53. 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. Reason: Nova should not declare a dividend of $100,000 because it does not have sufficient cash, which is only $20,000. 54. Retained earnings represent net earnings less dividends that have been

declared since the first day of the company’s operations. 55. Preferred shares carry priority over common shares: both for dividends and at

liquidation 56. 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.

57. A sole proprietorship 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. 58. A corporation may be restricted from paying a dividend if ______. (Check all that

apply.) ● doing so reduces the amount of legal capital below the required minimum ● a creditor's loan agreement is violated 59. A corporation 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. 60. Lenders will sometimes impose dividend restrictions to prevent the corporation

from paying out too much to shareholders Reason: Dividends are paid to shareholders, not creditors. 61. A partnership is an unincorporated business owned by two or more people.

Again, it is not necessary to file legal papers to create a this form of business organization, but it is certainly a good idea to have a lawyer draw up a contract between the ownership parties involved....