Chapter 11

Question 1

Retained earnings separately reported to inform stockholders of funding needs.

Answer 1

APPROPRIATED RETAINED EARNINGS

Question 2

Total amount of stock that a corporation’s charter authorizes it to issue.

Answer 2

AUTHORIZED STOCK

Question 3

Net income less any preferred dividends and then divided by weighted-average common shares outstanding.

Answer 3

BASIC EARNINGS PER SHARE

Question 4

Recorded amount of equity applicable to common shares divided by the number of common shares outstanding.

Answer 4

BOOK VALUE PER COMMON SHARE

S/H Eq applicable to C/S / # of C/S outstanding

Question 5

Equity applicable to preferred shares (equals its call price [or par value if it is not callable] plus any cumulative dividends in arrears) divided by the number of preferred shares outstanding.

Answer 5

BOOK VALUE PER PREFERRED SHARE

S/H Eq applicable to P/S / # of P/S outstanding

Question 6

Amount that must be paid to call and retire a callable preferred stock or a callable bond.

Answer 6

CALL PRICE

Question 7

Preferred stock that the issuing corporation, at its option, may retire by paying the call price plus any dividends in arrears.

Answer 7

CALLABLE PREFERRED STOCK

Question 8

General term referring to a corporation’s stock used in obtaining capital (owner financing).

Answer 8

CAPITAL STOCK

Question 9

Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods.

Answer 9

CHANGE IN ACCOUNTING ESTIMATES

Question 10

Corporation’s basic ownership share; also generically called CAPITAL STOCK.

Answer 10

COMMON STOCK

Question 11

Capital structure that includes outstanding rights or options to purchase common stock, or securities that are convertible to common stock.

Answer 11

COMPLEX CAPITAL STRUCTURE

Question 12

Preferred stock with an option to exchange it for common stock at a specified rate.

Answer 12

CONVERTIBLE PREFERRED STOCK

Question 13

Business that is a separate legal entity under state or federal laws with owners called SHAREHOLDERS or STOCKHOLDERS.

Answer 13

CORPORATION

Question 14

Preferred stock on which undeclared dividends accumulate until paid; common stockholders cannot receive dividends until cumulative dividends are paid.

Answer 14

CUMULATIVE PREFERRED STOCK

Question 15

Date the directors vote to pay a dividend.

Answer 15

DATE OF DECLARATION

Question 16

Date the corporation makes the dividend payment.

Answer 16

DATE OF PAYMENT

Question 17

Date directors specify for identifying stockholders to receive dividends.

Answer 17

DATE OF RECORD

Question 18

Earnings per share calculation that requires dilutive securities be added to the denominator of the basic EPS calculation.

Answer 18

DILUTED EARNINGS PER SHARE

Question 19

Securities having the potential to increase common shares outstanding; examples are options, rights, convertible bonds, and convertible preferred stock.

Answer 19

DILUTIVE SECURITIES

Question 20

Difference between the par value of stock and its issue price when issued at a price below par value.

Answer 20

DISCOUNT ON STOCK

Question 21

Unpaid dividend on cumulative preferred stock; must be paid before any regular dividends on preferred stock and before any dividends on common stock.

Answer 21

DIVIDEND IN ARREARS

Question 22

Amount of income earned by each share of a company’s outstanding common stock; also called NET INCOME PER SHARE.

Answer 22

EARNINGS PER SHARE (EPS)

(net income - preferred dividends)/
weighted-average c/s outstanding

Question 23

Earning a higher return on equity by paying dividends on preferred stock or interest on debt at a rate lower than the return earned with the assets from issuing preferred stock or debt; also called TRADING ON THE EQUITY.

Answer 23

FINANCIAL LEVERAGE

Question 24

Stock dividend that is more that 25% of the previously outstanding shares.

Answer 24

LARGE STOCK DIVIDEND

Question 25

Distribution of assets that returns part of the original investment to stockholders; deducted from contributed capital accounts.

Answer 25

LIQUIDATING CASH DIVIDEND

Question 26

Price at which stock is bought or sold.

Answer 26

MARKET VALUE PER SHARE

Question 27

Amount of assets defined by law that stockholders must (potentially) invest in a corporation; usually defined as par value of the stock; intended to protect creditors.

Answer 27

MINIMUM LEGAL CAPITAL

Question 28

Preferred stock on which the right to receive dividends is lost for any period when dividends are not declared.

Answer 28

NONCUMULATIVE PREFERRED STOCK

Question 29

Preferred stock on which dividends are limited to a maximum amount each year.

Answer 29

NONPARTICIPATING PREFERRED STOCK

Question 30

Stock class that has not been assigned a par (or stated) value by the corporate charter.

Answer 30

NO-PAR VALUE STOCK

Question 31

Costs such as legal fees and promoter fees to bring an entity into existence

Answer 31

ORGANIZATION EXPENSES

Question 32

Total amount of cash and other assets received from stockholders in exchange for stock.

Answer 32

PAID-IN CAPITAL or CONTRIBUTED CAPITAL

Question 33

Amount received from issuance of stock that is in excess of the stock's par value.

Answer 33

PAID-IN CAPITAL IN EXCESS OF PAR VALUE

Question 34

Preferred stock that shares with common stockholders any dividends paid in excess of the percent stated on preferred stock.

Answer 34

PARTICIPATING PREFERRED STOCK

Question 35

Value assigned a share of stock by the corporate charter when the stock is authorized.

Answer 35

PAR VALUE

Question 36

Class of stock assigned a par value by the corporate charter.

Answer 36

PAR VALUE STOCK

Question 37

Stockholders' right to maintain their proportionate interest in a corporation with any additional shares issued,

Answer 37

PREEMPTIVE RIGHT

Question 38

Stock with a priority status over common stockholders in one or more ways, such as paying dividends or distributing assets.

Answer 38

PREFERRED STOCK

Question 39

Difference between the par value of stock and its issue price when issued at a price above par.

Answer 39

PREMIUM ON STOCK or CONTRIBUTED CAPITAL IN EXCESS OF PAR VALUE

Question 40

Ratio of a company's current market value per share to its earnings per share; also called PRICE-TO-EARNINGS

Answer 40

PRICE-EARNINGS (PE) RATIO market value per share / earnings per share

Question 41

Correction of an error in a prior year that is reported in the statement of retained earnings (or statement of stockholders' equity) net of any income tax effects.

Answer 41

PRIOR PERIOD ADJUSTMENTS

Question 42

Legal document giving a stockholder's agent the power to exercise the stockholder's voting rights.

Answer 42

PROXY

Question 43

Retained earnings not available for dividends because of legal or contractual limitations.

Answer 43

RESTRICTED RETAINED EARNINGS

Question 44

Cumulative income less cumulative losses and dividends.

Answer 44

RETAINED EARNINGS

Question 45

Debit (abnormal) balance in Retained Earnings; occurs when cumulative losses and dividends exceed cumulative income; also called ACCUMULATED DEFICIT

Answer 45

RETAINED EARNINGS DEFICIT

Question 46

Occurs when a corporation calls in its stock and replaces each share with less than one new share; increases both market value per share and any par or stated value per share.

Answer 46

REVERSE STOCK SPLIT

Question 47

Capital structure that consists of only common stock and nonconvertible preferred stock; consists of no dilutive securities.

Answer 47

SIMPLE CAPITAL STRUCTURE

Question 48

Stock dividend that is 25% or less of a corporation's previously outstanding shares.

Answer 48

SMALL STOCK DIVIDEND

Question 49

No-par stock assigned a stated value per share; this amount is recorded in the stock account when the stock is issued.

Answer 49

STATED VALUE STOCK

Question 50

Financial statement that lists the beginning and ending balances of each major equity account and describes all changes in those accounts.

Answer 50

STATEMENT OF STOCKHOLDERS' EQUITY

Question 51

Corporation's distribution of its own stock to its stockholders without the receipt of any payment.

Answer 51

STOCK DIVIDEND

Question 52

Rights to purchase common stock at a fixed price over a specified period of time.

Answer 52

STOCK OPTIONS

Question 53

Occurs when a corporation calls in its stock and replaces each share with more than one new share; decreases both the market value per share and any par or stated value per share.

Answer 53

STOCK SPLIT

Question 54

A corporation's equity; also called SHAREHOLDERS' EQUITY or CORPORATE CAPITAL.

Answer 54

STOCKHOLDERS' EQUITY

Question 55

Corporation's own stock that it reacquired and still holds.

Answer 55

TREASURY STOCK

Question 56

The annual amount of cash dividends distributed to common shares relative to their market value.

Answer 56

DIVIDEND YIELD annual cash dividends per share / market value per share