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Stockholders' Equity (Quiz)

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  1. 1. To start a corporation in the U.S., it is necessary to file an application in one of the states. The legal document that the state approves is the
    __________
    articles of incorporation
    .
  2. 2. One of the advantages of the corporation form of business as opposed to a partnership form is the ease of transferring
    __________
    ownership
    .
  3. 3. At a corporation, Assets minus Liabilities is
    __________
    Stockholders' Equity
    .
  4. 4. Shares of stock that have been issued and have not been reacquired by the issuing corporation are called
    __________
    outstanding
    shares.
  5. 5. If a corporation has issued only one type of stock, it is
    __________
    common
    stock.
  6. 6. The type of stock that gets its dividend before the common stock gets its dividend is called
    __________
    preferred
    stock.
  7. 7. The holders of
    __________
    common
    stock elect the corporation's board of directors.
  8. 8. The par value of
    __________
    common
    stock usually has no economic significance.
  9. 9. The dividend on preferred stock is often expressed as a percentage. To calculate the annual dividend on preferred stock, you multiply the percentage times the
    __________
    par value
    of the preferred stock.
  10. 10. If a corporation issues 10% Preferred Stock $100 Par on a day when the financial markets demand 9%, this corporation's 10% Preferred Stock will sell for
    __________
    more
    than its par value.
  11. 11. If a common stock does not have a par value or a stated value, the entire proceeds from issuing the stock is credited to one account entitled
    __________
    Common Stock
    .
  12. 12. Stockholder's equity is subdivided into two major sections:
    __________
    paid-in capital
    and
    __________
    retained earnings
    .
  13. 13. The net income of a corporation is closed to the
    __________
    Retained Earnings
    account.
  14. 14. Dividends declared by a corporation reduce the
    __________
    retained earnings
    section of stockholders' equity.
  15. 15.

    Dividends appear as an expense on the corporation's income statement.

    True
    Wrong.
    Dividends are a distribution of earnings, they are not an expense.
    False
    Right!
  16. 16.

    If the board of directors does not declare the regular quarterly divided on its common stock, the corporation's liabilities will include the omitted dividend.

    True
    Wrong.
    Dividends become liabilities only if the board of directors declares them.
    False
    Right!
  17. 17. The
    __________
    declaration
    date is the date on which the corporation records a liability for its quarterly dividend.
  18. 18. The
    __________
    record
    date determines which stockholders will receive a declared dividend.
  19. 19. If a corporation declares a small stock dividend, the account that will be reduced by a debit entry is
    __________
    Retained Earnings
    .
  20. 20. A stockholder will have the same number of shares after a 3-for-2 stock split or after a
    __________
    50%
    % stock dividend.
  21. 21. A corporation's own shares of stock that have been reacquired from its stockholders but have not been retired are called
    __________
    treasury stock
    .
  22. 22. The account, Treasury Stock, will have either a zero balance or a
    __________
    debit
    (debit, credit) balance.
  23. 23. If a share of treasury stock is sold for more than its cost, the difference is credited to
    __________
    Paid-in Capital from Treasury Stock
    .
  24. 24.

    Treasury stock sales can result in a loss on the corporation's income statement.

    True
    Wrong.
    A corporation cannot report a loss (or a gain) on its income statement from the sale of its treasury stock.
    False
    Right!
  25. 25. If preferred stockholders have the opportunity to receive more than the stated dividend percentage, the stock is described as
    __________
    participating
    preferred stock.
  26. 26. Dividends in arrears occur only on
    __________
    cumulative
    preferred stock.
  27. 27. Dividends in arrears are reported in the financial statements in the
    __________
    notes or footnotes
    .
  28. 28. If a preferred stock can be exchanged for a stated number of common shares, it is referred to as
    __________
    convertible
    preferred stock.
  29. 29. The book value per share of preferred stock is its
    __________
    call price
    plus any dividends in
    __________
    arrears
    .
  30. 30. Earnings per share means earnings per share of
    __________
    common stock
    .
  31. 31. A debit balance in Retained Earnings will appear in stockholders' equity as
    __________
    deficit or accumulated deficit
    .
  32. 32. The
    __________
    board of directors
    of a corporation declares the dividends.
  33. 33. The directors of a corporation appoint
    __________
    officers
    to carry out the corporation's policies and directives.
  34. 34. When a small stock dividend is declared, the
    __________
    market
    value of the new shares is transferred from Retained Earnings to paid-in capital accounts.
  35. 35. A separate portion of stockholders' equity that reports certain gains and losses on hedges, foreign currency translations, and pension liabilities that were not part of net income shown on the income statement is
    __________
    accumulated other comprehensive income
    .

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