Chapter 10 Key Words

Question 1

The amount stockholders have invested in the company.

Answer 1

paid-in capital

Question 2

An entity that is legally separate from its owners and even pays its own income taxes

Answer 2

corporation

Question 3

Describes the nature of the firm’s business activities, the shares to be issued, and the composition of the initial board of directors.

Answer 3

articles of incorporation

Question 4

Traces the line of authority within the corporation.

Answer 4

organization chart

Question 5

Wealthy individuals in the business community willing to risk investment funds on a promising business venture

Answer 5

angel investors

Question 6

Provide additional financing, often in the millions, for a percentage ownership in the company.

Answer 6

venture capital firms

Question 7

The first time a corporation issues stock to the public.

Answer 7

initial public offering (IPO)

Question 8

Allows investment by the general public and is regulated by the Securities and Exchange Commission.

Answer 8

publicity held corporation

Question 9

Does not allow investment by the general public and normally has fewer stockholders.

Answer 9

privately held corporation

Question 10

Stockholders in a corporation can lose no more than the amount they invested in the company.

Answer 10

limited liability

Question 11

Corporate income is taxed once on earnings at the corporate level and again on dividends at the individual level.

Answer 11

double taxation

Question 12

Allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership.

Answer 12

S corporation

Question 13

Shares available to sell, as stated in the company’s articles of incorporation.

Answer 13

authorized stock

Question 14

Shares sold to investors; includes treasury shares.

Answer 14

issued stock

Question 15

Issued shares that currently are held by investors; does not include treasury shares.

Answer 15

outstanding stock

Question 16

A company’s own issued stock that it has purchased.

Answer 16

treasury stock

Question 17

The legal capital assigned per share of stock.

Answer 17

par value

Question 18

Common stock that has not been assigned a par value

Answer 18

no-par value stock

Question 19

The legal capital assigned per share to no-par stock.

Answer 19

stated value

Question 20

The portion of the cash proceeds from issuing stock above par value

Answer 20

additional paid-in capital

Question 21

Stock with preference over common stock in the payment of dividends and the distribution of assets.

Answer 21

preferred stock

Question 22

A bond feature that allows the lender (or investor) to convert each bond into a specified number of shares of common stock.

Answer 22

convertible

Question 23

Shares can be returned to the corporation at a fixed price.

Answer 23

redeemable

Question 24

Preferred stock shares receive priority for future dividends, if dividends are not declared in a given year.

Answer 24

cumulative

Question 25

Unpaid dividends on cumulative preferred stock.

Answer 25

dividends in arrears

Question 26

A company’s own issued stock that it has purchased.

Answer 26

treasury stock

Question 27

Earnings not distributed as dividends to stockholders over the life of the company.

Answer 27

retained earnings

Question 28

A negative balance in Retained Earnings.

Answer 28

accumulated deficit

Question 29

Distributions to stockholders, typically in the form of cash.

Answer 29

dividends

Question 30

The date the board of directors announces the next dividend to be paid.

Answer 30

declaration date

Question 31

The date on which a company looks at its records to determine who the stockholders of the company are.

Answer 31

record date

Question 32

The date of the actual distribution of dividends.

Answer 32

payment date

Question 33

The distribution of a noncash asset to stockholders.

Answer 33

property dividend

Question 34

Additional shares of a company’s own stock given to stockholders.

Answer 34

stock dividends

Question 35

A large stock dividend that includes a reduction in the par or stated value per share.

Answer 35

stock split

Question 36

A financial statement that summarizes the changes in stockholders’ equity over time.

Answer 36

statement of stockholders' equity

Question 37

Net income divided by average stockholders’ equity; measures the income generated per dollar of equity.

Answer 37

return on equity (ROE)

Question 38

Dividends per share divided by the stock price

Answer 38

dividend yield

Question 39

Net income available to common shareholders divided by average shares of common stock outstanding.

Answer 39

earnings per share (EPS)

Question 40

The stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis.

Answer 40

price-earnings ratio