CH 1.4

Question 1

Statement of Changes in Equity statement items (4)

Answer 1

1. net income/loss2. dividends paid, distribution to owners3. issuance of common stock4. total change in other comp income

Question 2

Statement of retained earnings calculation

Answer 2

Ret Earn beginning balanceplus net income/lossless dividends distributedplus prior period adjustments= ret earn ending balance

Question 3

prior period adjustments on statement of Retained earnings include (3)

Answer 3

1. cumulative effect of changes in accounting principle2. corrections of prior period statement errors3. Note: adjust the beginning balance of retained earnings. and are not included in current net income calculation

Question 4

appropriated retained earnings purposes (4)

Answer 4

1. compliance with bond contract2. retention of assets for financed expansion3. anticipation of losses4. legal restrictions

Question 5

stock authorized is

Answer 5

the maximum amount of stock that a corporation is legallyallowed to issue

Question 6

Stock issued is

Answer 6

the amount of stock authorized that has actually been issued bythe corporation.

Question 7

Stock outstanding is

Answer 7

the amount of stock issued that has been purchased and isheld by shareholders

Question 8

common shareholders are, and characteristics (4)

Answer 8

1. the owners of the firm. 2. They have voting rights, and3. they select the firm’s board of directors4. not entitled to dividends

Question 9

preemptive rights are

Answer 9

Preemptive rightsgive current common shareholders the right to purchase any additional stockissuances in proportion to their ownership percentages.

Question 10

Preferred stock characteristics (3)

Answer 10

1. equity section of balance sheet2. no voting rights3. dividend not obligation

Question 11

features of preferred stock (2)

Answer 11

1. accumulates unpaid dividends (calleddividends in arrears)2. convertible preferred stock have the right to convert the stock into shares of another class (usually common stock)

Question 12

Issuance of stock transaction

Answer 12

DB Cash (#shares × $market) CR Common stock (#shares × $ par value) CR Additional paid-in capital (difference)

Question 13

direct cost of issuing stock transaction

Answer 13

reduce the net proceedsreceived and additional paid-in capital

Question 14

Cash Dividend transaction

Answer 14

declaration date:DB ret earn (#shares x $dividend)CR Dividend payablepayment date:DB dividend payableCR cash

Question 15

Property Dividend transaction

Answer 15

Declaration Date:DB Land (remeasured adjustment)CR gain on landDB retained earnings (total land)CR property dividend payablepayment date:DB property dividend payableCR land (total land)

Question 16

Stock Dividend transaction

Answer 16

• issuance of shares less than 20% to 25%- On declaration and payment dateRetained earnings [(#shares × 10%) × $market] Common stock [(45,000 shares × 10%) × $1 par] Additional paid-in capital (difference)

Question 17

Stock split transaction

Answer 17

• issuance of shares more than 20% to 25%- On declaration and payment dateRetained earnings [(#shares × 10%) × $par] Common stock