Chapter 10

Financial Accounting

Business
142
Questions
42
True/False
73
Choices
27
Essay
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Questions

Q1
Free

Assets plus liabilities equal stockholders' equity.

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A) True.
B) False.
Answer:
False
Q2
Free

Paid-in Capital is the amount stockholders have invested in the company.

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A) True.
B) False.
Answer:
True
Q3
Free

Retained Earnings is the amount stockholders have invested in the company.

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A) True.
B) False.
Answer:
False
Q4

Angel investors are investors that focus on companies at or near bankruptcy.

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A) True.
B) False.
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Q5

All publicly held corporations are regulated by the Securities and Exchange Commission.

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B) False.
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Q6

Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company.

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A) True.
B) False.
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Q7

Owners in a sole proprietorship or a partnership can be held personally liable for debts the company has incurred, over and beyond the investment they have made.

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B) False.
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Q8

A corporation has lower taxes and less paperwork relative to sole-proprietorships and partnerships.

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B) False.
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Q9

An S Corporation allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership.

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B) False.
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Q10

Authorized stock is the number of shares that have been sold to investors.

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B) False.
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Q11

Par value is the legal capital per share of stock that's assigned when the corporation is first established.

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B) False.
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Q12

Par value has a direct relationship to the market value of the common stock.

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B) False.
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Q13

A company credits Additional Paid-in Capital for the portion of the cash proceeds above par value received for the issuance of stock.

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B) False.
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Q14

In the event a corporation is dissolved, common stockholders receive preference over preferred stockholders in the distribution of assets.

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B) False.
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Q15

Convertible preferred stock allows the stockholder to exchange shares of preferred stock for common stock at a specified conversion ratio.

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B) False.
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Q16

Cumulative preferred stock means that dividends accumulate interest during the year.

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Q17

We usually record preferred stock as equity and report it in the stockholders' equity section of the balance sheet just above common stock.

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Q18

Treasury stock is the repurchase of a company's own issued stock.

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B) False.
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Q19

If a company purchases shares of another company, it records this transaction as treasury stock.

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B) False.
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Q20

Stock repurchases reduce the number of shares outstanding, thereby increasing earnings per share.

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B) False.
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Q21

We record treasury stock at the cost of the shares reacquired.

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Q22

Treasury stock is a contra-equity account since treasury stock increases total stockholders' equity.

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Q23

When we reissue treasury stock, we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital.

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Q24

Retained earnings represent the earnings retained in the corporation - earnings not paid out as dividends to stockholders.

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B) False.
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Q25

The amount of retained earnings equals net income minus dividends for the current year.

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Q26

If a company has expenses that are more than revenues, the net loss decreases retained earnings.

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Q27

Dividends are paid on all shares issued by the company including treasury stock.

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B) False.
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Q28

Total assets, total liabilities, and total stockholders' equity do not change as a result of a stock dividend.

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Q29

Small stock dividends are recorded by debiting Retained Earnings for the par value per share.

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Q30

No journal entry is made to record a stock split.

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Q31

A stock split has no effect on the total of any account in stockholders' equity.

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B) False.
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Q32

Common stock is listed before preferred stock in the balance sheet.

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Q33

The number of shares outstanding is equal to the number of shares issued minus the number of shares bought back.

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B) False.
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Q34

We can estimate the average purchase cost of treasury stock per share by dividing the treasury stock balance by the number of shares repurchased.

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Q35

The statement of stockholders' equity shows how each equity account changed during the year.

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Q36

The stockholders' equity section of the balance sheet shows how each equity account changed during the year.

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Q37

The return on equity measures the ability of company management to generate earnings from the resources that owners provide.

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B) False.
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Q38

We compute the return on equity ratio by dividing net income by ending stockholders' equity.

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Q39

Earnings per share (EPS) measures the net income earned per share of common stock outstanding.

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B) False.
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Q40

We calculate earnings per share as net income divided by the average shares outstanding during the period.

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Q41

Earnings per share is useful in comparing earnings performance across companies.

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Q42

We calculate the PE ratio as the stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis.

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B) False.
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Q43

Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?

Multiple Choice
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A) Treasury Stock
B) Common Stock
C) Sales Revenue
D) Retained Earnings
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Q44

Which of the following stages of equity financing comes last in the traditional order of progression?

Multiple Choice
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A) Investment by friends and family of the founders
B) Investment by the founders of the business
C) Initial public offering (IPO)
D) Outside investment by "angel" investors and venture capital firms
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Q45

In terms of total sales, assets, and earnings, the dominant form of business organization is the:

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A) Sole proprietorship
B) Partnership
C) Corporation
D) Limited liability company (LLC)
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Q46

Common stockholders usually have all of the following rights except:

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A) To receive dividends when declared
B) To share in the distribution of assets
C) To elect board of directors
D) To participate in the day-to-day operations
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Q47

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A) Option a
B) Option b
C) Option c
D) Option d
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Q48

Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following except:

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A) Ease of raising capital
B) Low government regulation
C) Limited liability
D) Lack of mutual agency
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Q49

Advantages of the corporate form of business include which of the following? I. Double taxation II. Ability to raise capital III. Lack of mutual agency IV. More paperwork

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A) Option a
B) Option b
C) Option c
D) Option d
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Q50

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A) Option a
B) Option b
C) Option c
D) Option d
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Q51

The disadvantages of the corporate form of business include:

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A) Lack of mutual agency
B) Additional taxes
C) Limited liability
D) Ability to raise capital
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Q52

The correct order from the smallest number of shares to the largest number of shares is:

Multiple Choice
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A) Authorized, issued, and outstanding
B) Outstanding, issued, and authorized
C) Issued, outstanding, and authorized
D) Issued, authorized, and outstanding
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Q53

Outstanding common stock refers to the total number of shares:

Multiple Choice
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A) Issued
B) Issued plus treasury stock
C) Issued less treasury stock
D) Authorized
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Q54

Authorized common stock refers to the total number of shares:

Multiple Choice
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A) Outstanding
B) Issued
C) Issued and outstanding
D) That can be issued
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Q55

Outstanding common stock is:

Multiple Choice
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A) Stock that is performing well on the New York Stock Exchange
B) Stock that has been authorized by the state for issue
C) Stock issued plus treasury stock
D) Stock in the hands of stockholders
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Q56

Issued stock refers to the number of shares:

Multiple Choice
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A) Outstanding plus treasury shares
B) Authorized
C) In the hand of stockholders
D) That may be issued under state law
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Q57

The par value of shares issued is normally recorded in the:

Multiple Choice
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A) Additional Paid-in Capital account
B) Common Stock account
C) Retained Earnings account
D) Treasury Stock account
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Q58

The par value of common stock represents:

Multiple Choice
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A) The legal capital per share of stock assigned when the corporation was first established
B) The liquidation value of a share
C) The market value of a share of stock
D) The amount received when the stock was issued
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Q59

If a company issues 1,000 shares of 1 par value common stock for $30 per share, what would be the effect

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A) Option a
B) Option b
C) Option c
D) Option d
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Q60

When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry

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A) Option a
B) Option b
C) Option c
D) Option d
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Q61

Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal

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A) Option a
B) Option b
C) Option c
D) Option d
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Q62

South Beach Apparel issued 10,000 shares of $1 par value stock for $5 per share. What is true about the

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A) Option a
B) Option b
C) Option c
D) Option d
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Q63

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A) Option a
B) Option b
C) Option c
D) Option d
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Q64

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

Multiple Choice
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A) Dividends and voting rights
B) Par value and dividends
C) The preemptive right and voting rights
D) Dividends and distribution of assets if the corporation is dissolved
Answer:

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Q65

Preferred stock:

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A) is always recorded as a liability
B) is always recorded as part of stockholders' equity
C) can have features of both liabilities and stockholders' equity
D) is not included in either liabilities or stockholders' equity
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Q66

Which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets?

Multiple Choice
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A) Common Stock
B) Preferred Stock
C) Bonds
D) They have equal preference
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Q67

Which of the following is not a potential feature of preferred stock?

Multiple Choice
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A) Convertible
B) Redeemable
C) Cumulative
D) They all are potential features of preferred stock
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Q68

Which of the following has the highest expected return to the investor?

Multiple Choice
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A) Common Stock
B) Preferred Stock
C) Bonds
D) They all have similar expected returns
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Q69

A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the

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A) Option a
B) Option b
C) Option c
D) Option d
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Q70

The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2011. All remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay dividends of $18,000 in 2012. Assuming the preferred stock is cumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in

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A) Option a
B) Option b
C) Option c
D) Option d
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Q71

The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2011. All remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay dividends of $18,000 in 2012. Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in

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A) Option a
B) Option b
C) Option c
D) Option d
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Q72

California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2011. All remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay dividends of $100,000 in 2012. Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in

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A) Option a
B) Option b
C) Option c
D) Option d
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Q73

California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2011. All remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay dividends of $100,000 in 2012. Assuming the preferred stock is noncumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
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Q74

Treasury Stock is normally reported as:

Multiple Choice
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A) A reduction of total stockholders' equity
B) An asset account
C) A liability account
D) An expense account
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Q75

When treasury stock is resold at a price above cost:

Multiple Choice
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A) A gain account is credited
B) A loss is reported
C) A revenue account is credited
D) Additional Paid-in Capital is increased
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Q76

When treasury stock is resold at a price below cost:

Multiple Choice
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A) Additional Paid-in Capital is decreased
B) Additional Paid-in Capital is increased
C) A gain is reported on the income statement
D) A loss is reported on the income statement
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Q77

When treasury stock is purchased, what is the effect on assets and stockholders' equity?

Multiple Choice
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A) Assets and stockholders' equity increase
B) Assets and stockholders' equity decrease
C) Assets increase and stockholders' equity decrease
D) Assets decrease and stockholders' equity increase
Answer:

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Q78

When treasury stock is purchased, what is the effect on total stockholders' equity?

Multiple Choice
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A) Decrease
B) Increase
C) No effect
D) Cannot tell from the given information
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Q79

Treasury Stock:

Multiple Choice
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A) has a normal credit balance
B) decreases stockholders' equity
C) is recorded as an investment
D) increases stockholders' equity
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Q80

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A) Option a
B) Option b
C) Option c
D) Option d
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Q81

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A) Option a
B) Option b
C) Option c
D) Option d
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Q82

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A) Option a
B) Option b
C) Option c
D) Option d
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Q83

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A) Option a
B) Option b
C) Option c
D) Option d
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Q84

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A) Option a
B) Option b
C) Option c
D) Option d
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Q85

Crossroads Mall had 100,000 outstanding shares of common stock. On June 16, 2012, Crossroads repurchased 20,000 shares of its own stock at $30 per share. On July 23, 2012, Crossroads resold 10,000

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A) Option a
B) Option b
C) Option c
D) Option d
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Q86

On December 2, Coley Corp. reacquired 1,000 shares of its $2 par value common stock for $27 each. On December 20, Coley Corp. reissued 400 shares for $15 each. Which of the following is correct regarding

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d shares at $28 per share
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Q87

On November 6, Coleman Corp. reacquired 1,000 shares of its $2 par value common stock for $27 each. On November 20, Coleman Corp. reissued 400 shares for $30 each. Which of the following is correct

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A) Option a
B) Option b
C) Option c
D) Option d
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Q88

On February 22, Brett Corporation reacquired 200 shares of its $5 par value common stock for $25 each. On March 15, the company reissued 70 shares for $30 each. What is true of the journal entry for reissuing

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A) Option a
B) Option b
C) Option c
D) Option d
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Q89

Retained Earnings represent a company's:

Multiple Choice
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A) Net income less dividends since the company first started
B) Undistributed net assets
C) Extra paid-in capital
D) Undistributed cash
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Q90

The Retained Earnings balance reported on the balance sheet typically is not affected by:

Multiple Choice
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A) Net income
B) Net loss
C) Dividends paid
D) Stock splits
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Q91

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Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d The Retained Earnings balance reported on the balance sheet typically is not affected by:
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Q92

Retained Earnings:

Multiple Choice
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A) has a normal debit balance
B) decreases stockholders' equity
C) is equal to the balance in cash
D) increases stockholders' equity
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Q93

Journal entries to record cash dividends are made on the:

Multiple Choice
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A) declaration date, record date, and payment date
B) record date and payment date
C) delaration date and payment date
D) delaration date and record date
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Q94

The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000

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A) Option a
B) Option b
C) Option c
D) Option d
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Q95

The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 million. What is the amount of dividends

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A) Option a
B) Option b
C) Option c
D) Option d
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Q96

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A) Option a
B) Option b
C) Option c
D) Option d amount of dividends paid per year? $6,000, and ($2,000)
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Q97

Rugby Rocks, Inc. had a Retained Earnings balance of $12,000 at December 31, 2012. The company had

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A) Option a
B) Option b
C) Option c
D) Option d
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Q98

Both cash dividends and stock dividends:

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A) reduce total assets
B) reduce total liabilities
C) reduce total stockholders' equity
D) reduce retained earnings
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Q99

The declaration and issuance of a stock dividend:

Multiple Choice
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A) Does not change total assets, liabilities, or total stockholders' equity
B) Decreases total stockholders' equity and increases common stock
C) Decreases assets and decreases total stockholders' equity
D) Does not change retained earnings or paid-in capital
Answer:

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The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit

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A) Option a
B) Option b
C) Option c
D) Option d
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The issuer of a 5% common stock dividend (small stock dividend) to common stockholders should debit

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d December 31, 2013
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A feature common to both stock splits and stock dividends is

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A) Option a
B) Option b
C) Option c
D) Option d
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Large stock dividends and stock splits are issued primarily to:

Multiple Choice
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A) Lower the trading price of the stock per share
B) Increase the number of authorized shares
C) Increase legal capital
D) Increase the number of outstanding shares
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The Common Stock account on a company's balance sheet is measured as:

Multiple Choice
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A) The number of common shares outstanding x the stock's par value per share
B) The number of common shares outstanding x the stock's current market value per share
C) The number of common shares issued x the stock's par value per share
D) The number of common shares issued x the stock's current market value per share
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The statement of stockholders' equity shows

Multiple Choice
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A) Only the ending balance in each stockholders' equity account
B) How each equity account changed over time
C) Only the beginning balance in each stockholders' equity account
D) Less information than the stockholders' equity section in the balance sheet
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How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

Multiple Choice
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A) The stockholders' equity section is more detailed than the statement of stockholders' equity
B) The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time
C) The stockholders' equity section shows activity over a period of time, whereas the statement of stockholders' equity is at a point time
D) There are no differences between them
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Panhandle Corporation was organized on January 3, 2012. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2012, Panhandle had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is total paid-in capital at the end of 2012?

Multiple Choice
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A) $420,000
B) $370,000
C) $470,000
D) $320,000
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Roberto Corporation was organized on January 1, 2012. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2012, Roberto had the following transactions relating to stockholders' equity: Issued 10,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8). What is total stockholders' equity at the end of 2012?

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A) $270,000
B) $300,000
C) $250,000
D) $200,000
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Return on equity is calculated as:

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A) Net income divided by average stockholders' equity
B) Net income divided by ending stockholders' equity
C) Net income divided by average market value of equity
D) Net income divided by ending market value of equity
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Why doesn't stockholders' equity equal the market value of equity?

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A) Stockholders' equity usually does equal the market value of equity
B) Investors tend to incorrectly price the market value of equity
C) It's related to the use of historical cost to report many long-term assets and the expensing of value generating costs such as research and development and advertising
D) It's due to incorrect entries prepared by accountants
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Earnings per share (EPS)

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A) is useful in comparing earnings performance across companies
B) is useful in comparing earnings performance for the same company over time
C) is useful in both comparing earnings performance across companies and in comparing earnings performance for the same company over time
D) is not useful in comparing earnings performance across companies or in comparing earnings performance for the same company over time
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Which of the following statements is not true regarding earnings per share?

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A) Earnings per share is useful in comparing earnings performance across companies at the same point in time
B) Earnings per share is useful in comparing earnings performance for the same company over time
C) Earnings per share is calculated as net income minus dividends on preferred stock all divided by the average number of common shares outstanding
D) Earnings per share is forecasted by financial analysts
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Financial information for Retro Designs includes the following selected data: What is the company's earnings per share?

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A) $0
B) $0
C) $0
D) $0
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Financial information for Retro Designs includes the following selected data: What is the company's price-earnings ratio?

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A) 20
B) 15
C) 6
D) 0
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The PE ratio:

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A) tends to be higher for growth stocks
B) tends to be higher for value stocks
C) indicates how a stock is trading in relation to cumulative earnings over the life of the company
D) typically is less than 1
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Hamilton International issues 5,000 shares of its $1 par value common stock to provide funds for further expansion. If the issue price is $15 per share, what is the entry to record the issuance of the stock?

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Environmental Designs issues 10,000 shares of its $1 par value common stock at $25 per share. (1) Record the issuance of the stock. (2) Record the issuance of the stock assuming it is no-par value stock.

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Northwest Clothing Supply has the following transactions during the year related to stockholders' equity: January 1 Issues 3,000 shares of no-par value common stock for $20 per share. March 15 Issues 800 shares of $20 par value preferred stock for $22 per share. December 1 Declares a cash dividend of $1 per share to all stockholders of record (both common and preferred) on October 15. December 15 Date of record. December 31 Pays the cash dividend declared on October 1. Record each of these transactions.

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Tropical Rainwear issues 1,000 shares of its $20 par value preferred stock for cash at $22 per share. Record the issuance of the preferred shares.

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Diane's Designs has two classes of stock authorized: 8%, $10 par preferred and $1 par value common. The following transactions affect stockholders' equity during 2012, its first year of operations: January 1 Issue 200,000 shares of common stock for $15 per share. February 6 Issue 1,000 shares of preferred stock for $11 per share. October 10 Repurchase 10,000 shares of its own common stock for $18 per share. November 12 Reissue 5,000 shares of treasury stock at $20 per share. Record each of these transactions.

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Oregon Outfitters issues 1,000 shares of $1 par value common stock at $20 per share. Later in the year, the company decides to repurchase 200 shares at a cost of $22 per share. (1) Record the original issue of the 1,000 shares, (2) Record the repurchase of 200 shares, and (3) Record the entry if Oregon Outfitters reissues the 200 shares of treasury stock at $25 per share.

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Desert Apparel has 5,000 shares of common stock outstanding. On April 1, the company declares a $2 per share dividend to stockholders of record on April 15. The dividend is paid on April 30. Record all necessary entries on the appropriate dates for cash dividends.

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On May 15 Canadian Falcon declares a quarterly cash dividend of $0.15 per share payable on June 10 to all stockholders of record on May 31. Record Canadian Falcon's declaration and payment of cash dividends for its 200,000 shares of common stock.

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On March 31, the board of directors of Shoeboxes, Inc. declares a 100% stock dividend on its 100,000, $0.01 par, common shares. The market price of Shoeboxes common stock is $30 on March 31. Record the stock dividend.

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Court Casuals has 100,000 shares of common stock outstanding as of the beginning of 2012 and has the following transactions affecting stockholders' equity in 2012. May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share. July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. Hint: Dividends are not paid on treasury stock. July 31 Pays the cash dividend declared on July 1. August 10 Reissues 2,500 shares of treasury stock purchased on May 31 for $46 per share. Record each of these transactions.

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Indicate whether each of the following transactions increases (+), decreases (-), or has no effect (NE) on

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Indicate whether each of the following transactions increases (+), decreases (-), or has no effect (NE) on

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Prom Night Formal Wear has the following stockholders' equity accounts at December 31, 2012: Common Stock, $1 par value, 2,000,000 shares; Additional Paid-in Capital, $22 million; Retained Earnings, $15 million; and Treasury Stock, 50,000 shares, $1.25 million. Prepare the stockholders' equity section of the balance sheet.

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Donnie Hilfiger has the following balances in its stockholders' equity accounts on December 31, 2012: Treasury Stock, $375,000; Common Stock, $350,000; Preferred Stock, $1,200,000; Retained Earnings, $1,675,000; and Additional Paid-in Capital, $3,150,000. Prepare the stockholders' equity section of the balance sheet for Donnie Hilfiger as of December 31, 2012.

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Court Casuals has the following beginning balances in its stockholders' equity accounts on January 1, 2012: Common Stock, $100,000; Additional Paid-in Capital, $4,100,000; and Retained Earnings, $3,000,000. Net income for the year ended December 31, 2012, is $800,000. Court Casuals has the following transactions affecting stockholders' equity in 2012: May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share. July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. Hint: Dividends are not paid on treasury stock. July 31 Pays the cash dividend declared on July 1. August 10 Reissues 2,500 shares of treasury stock purchased on May 31 for $48 per share. Taking into consideration all the entries described above, prepare the statement of stockholders' equity for

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The financial statements of Heatwave Athletic Wear include the following selected data ($in millions): Sales, $22,502; Net income $875; Beginning stockholders' equity $3,567; Ending stockholders' equity, $4,102. Calculate the return on equity.

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The financial statements of Trail Apparel include the following selected data (in millions): 1. Calculate the return on equity for 2013. 2. Calculate the return on the market value of equity for 2013. 3. Calculate the price-earnings ratio for 2013.

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Corporations typically do not start raising capital by issuing stock to the general public. What are the common stages of equity financing leading to an initial public offering (IPO)?

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Describe the primary advantages and disadvantages of a corporation in comparison to a sole-proprietorship or partnership.

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Explain the difference between authorized, issued, and outstanding shares.

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Explain why preferred stock often is said to have a mixture of attributes somewhere between common stock and bonds.

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Contrast the effects of a cash dividend and a stock dividend on total assets, total liabilities, and total stockholders' equity.

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Listed below are ten terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. 1. Dividends Provide additional financing, often in the millions, for a percentage ownership in the company. __ __ 2. Statement of stockholders' equity A mixture of attributes somewhere between common stock and bonds payable. __ __ 3. Stock split Summarizes the changes in the balance in each stockholders' equity account over a period of time. __ __ 4. Preferred stock Traces the line of authority for a typical corporation. __ __ 5. Venture capital firms The portion of the cash proceeds above par value. __ __ 6. Organization chart A large stock dividend that includes a reduction in the par or stated value per share. __ __ 7. Articles of incorporation Represents all net income, less all dividends, since the company began. __ __ 8. Retained earnings Distributions by a corporation to its stockholders. __ __ 9. Additional paid-in capital Additional shares of the companies' own stock given to stockholders. __ __ 10. Stock dividends Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors. __ __

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Match (by letter) the following terms with their definitions. Each letter is used only once. 1. Like an S corporation, but there are no limitations on the number of owners as in an S corporation. Mutual agency __ __ 2. Designed to serve as a guide to states in the development of their corporate statutes S Corporation. __ __ 3. Describe (a) the nature of the firm's business activities, (b) the shares to be issued, and (c) the composition of the initial board of directors Limited liability company. __ __ 4. Allows for legal treatment as a corporation, but tax treatment as a partnership Model Business Corporation Act. __ __ 5. Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE) Publicly held corporation. __ __ 6. Individual partners in a partnership have the power to bind the business to a contract. Double taxation. __ __ 7. Stockholders can lose no more than the amount they invest in the company Articles of Incorporation. __ __ 8. Corporate earnings are taxed twice - at the corporate level and individual stockholder level Limited liability. __ __

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Match (by letter) the following terms with their definitions. Each letter is used only once. 1. Shares available to sell Angel investors. __ __ 2. The corporation's own stock that it reacquired Paid-in capital. __ __ 3. Shares can be returned to the corporation at a predetermined price Issued stock. __ __ 4. Shares actually sold Authoriz ed stock. __ __ 5. Wealthy individuals in the business community willing to risk investment funds on a promising business venture Redee mable. __ __ 6. The amount invested by stockholders Cumu lative. __ __ 7. Shares receive priority for future dividends, if dividends are not paid in a given year Retained earnings. __ __ 8. Shares held by investors Limited liability. __ __ 9. Shareholders can lose no more than the amount they invested in the company Treasury stock. __ __ 10. The earnings not paid out in dividends Outstand ing stock. __ __

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Match each of the following preferred stock features with its description. Preferred Stock Features 1. Shares can be exchanged for common stock Convertible. ____ 2. Shares can be sold at a predetermined price Redeemable. ____ 3. Shares receive dividend priority, if dividend not paid Cumulative. ____

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Match (by letter) the following terms with their definitions. Each letter is used only once. 1. Measures the ability of company management to generate earnings from the resources that owners provide Statement of stockholders' equity. __ __ 2. Effectively the same as a 2-for-1 stock split Treasury stock. __ __ 3. The earnings not paid out in dividends Value stocks. __ __ 4. A debit balance in retained earnings Retained earnings. __ __ 5. The stock price divided by earnings per share PE ratio. __ __ 6. The corporation's own stock that it reacquired Stockholders' equity section of the balance sheet. __ __ 7. Priced low in relation to current earnings Return on equity. __ __ 8. Summarizes the changes in the balance in each stockholders' equity account over a period of time Growth stocks. __ __ 9. Priced high in relation to current earnings as investors expect future earnings to be higher 100% stock dividend. __ __ 10. Shows the balance in each equity account at a point in time Accumulated deficit. __ __

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