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accounting ch. 11

Return on equity is measured in terms of…
a percentage
which of the following is not descriptive of common stock?
-stockholders are considered owners, not creditors, of a corporation
-the payment of dividends is never required
-issuing stock is less risky than issuing bonds
What is the correct entry to record the declaration of a dividend?
Dr. Dividends Cr. dividends payable
which of the following phrases is NOT descriptive of the corporate form of business?
-professional management
-continuous existence
-double taxation
when shares of preferred stock may be redeemed by the corporations at a certain price, the shares are said to be…
if bonds are issued at a premium, the FACE RATE is
higher than the market rate of interest
all of the following are advantages of issuing bonds rather than stock EXCEPT
-financial leverage
-bond interest is tax deductible
-bondholders do not have voting rights
true or false, no entry is required on the date of record for a cash dividend
true or false, the par value of a bond is equal to its market value
true or false, dividends in arrears are disclosed as liabilities of a corporation
true or false, convertible preferred stock is preferred stock that may be redeemed or retired at the option of the stockholder
Return on equity equation
return on equity = net income/average stockholders equity
True or false, stockholders’ liability extends to their personal assets
True or false, the costs of organizing a corporation are normally recorded as an asset and amortized over the early years of a corporation’s life
false, it is expensed in the first year
true or false, a corporation would be bound by a contract entered into by one it its stockholders
true or false, the board of directors is directly responsible for appointing the corporate officers
true or false, no journal entry is required on the date of declaration of a cash dividend
false, on the RECORD date there is no journal entry required
True or false, corporate income is subject to taxation both when earned and when distributed as dividends
dividends in arrears should be disclosed…
in the body of the financial statements or as a footnote. (not a liability yet)
what is true about stock option plans?
compensation expense may be recorded only if the exercise price is less than the fair value of the options on the grant date.
where is treasury stock disclosed in the financial statements?
within stockholders’ equity, as a deduction
what is par value?
the legal capital established for a share of stock
preferred stockholder’s are not likely to…
have a right to vote at stockholders’ meetings
the contributed capital portion of stockholders’ equity does NOT include…
retained earnings
the contributed capital portion of stockholders’ equity DOES include…
preferred stock, common stock, additional paid-in capital, paid in capital, treasury stock.
if a company buys its treasury stock and then sells it the entry would be…
Cr. Paid-in capital, Treasury Stock

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