Chapter 11 Key terms and definitions

Question 1

What is a corporation?

Answer 1

a business that is a separate legal entity under state and federal laws with owners called shareholder or stockholders.

Question 2

What are Organizational Expenses?

Answer 2

Cost such as legal fees and promoter fees to bring a corporation into existence.

Question 3

What is a proxy?

Answer 3

A legal document giving the stockholders agent the power to excersise the stockholders voting rights.

Question 4

What is common stock?

Answer 4

Corporations basic ownership share; also called capital stock.

Question 5

What are preemptive rights?

Answer 5

The stockholders right to maintain their proportionate interest in corporation when additional shares are issued.

Question 6

What is Capital Stock?

Answer 6

General term referring to a corportations stock used in obtaining capital. (Owner Financing)

Question 7

What is authorized stock?

Answer 7

The total amount of stock that a corportation charter allows it to issue.

Question 8

What is market value per share?

Answer 8

The price of which a stock is bought or sold.

Question 9

What is Par value stock?

Answer 9

Stock that is assigned at a par value by the corporate charter.

Question 10

What is Par value?

Answer 10

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

Question 11

What is minimum legal capital?

Answer 11

The amount of assets assigned by law that a stockholder must invest in a corporation; usually defined as par value of the stock, and is to protect creditors.

Question 12

What is no par value stock?

Answer 12

Stock that has not been assigned a value per share by the corporate charter.

Question 13

What is state value?

Answer 13

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

Question 14

What is Stockholders Equity?

Answer 14

A corporations equity; shareholder equity, Corporate capital.

Question 15

What is paid in capital?

Answer 15

The amount of cash and other assets the corporation recieves from its stockholders in exchange for its stock.

Question 16

What is retained earnings?

Answer 16

Cumulative income less cumulative losses and dividends.

Question 17

When does a premium on stock occur?

Answer 17

When a corporation sells its stock for more than par value.

Question 18

What is paid in capital in excess of par value?

Answer 18

the amount recieved in issuance of stock that is in excess of par value.

Question 19

What is a discount on stock?

Answer 19

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

Question 20

What are Orgaization Expenses?

Answer 20

When a corporation gives shares of it’s stock to promoters in exchange for their services in organizing the corporation.

Question 21

What is the date of declaration?

Answer 21

The day the directors vote to pay a dividend.

Question 22

What is the date of record?

Answer 22

The date that directors specify for identifying stockholders to recieve dividends.

Question 23

What is date of payment?

Answer 23

The date directors pay out the dividends.

Question 24

What is a retained earnings deficit?

Answer 24

debit balance in the retained earnings account; it occurs when cumulative losses and dividends exceeds cumulative income.

Question 25

What is liquidating cash dividends?

Answer 25

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

Question 26

What is a stock dividend?

Answer 26

a corporations distribution of its own shares to its stockholders without the receipt of any payments.

Question 27

What is a small stock dividend?

Answer 27

stock dividend that is 25 percent or less of a companies previously outstanding shares.

Question 28

what is large stock dividend?

Answer 28

stock dividend that is more than 25 percent of a corporations previously outstanding shares.

Question 29

What is a stock split?

Answer 29

occurs when a corporation call in a stock and replace each share with more than one addition share; this increase both the market value per share and the par or stated value per share.

Question 30

what is preferred stock?

Answer 30

Stock with priority status over common stock in one or more ways; such as paying dividends and distributing assets.

Question 31

what is cumulative preferred stock?

Answer 31

preferred stock on which undeclared dividends accumulate until paid; common stockholders cannot recieve dividends until cumulative dividends are paid.

Question 32

what are dividends in arrears?

Answer 32

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

Question 33

What is noncumulative preferred stock?

Answer 33

preferred stock in which the right to recieve dividends is lost for any period when dividends are not declared.

Question 34

What is non participating preferred stock?

Answer 34

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

Question 35

What is participating preferred stock?

Answer 35

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

Question 36

What is convertible preferred stock?

Answer 36

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

Question 37

What is callable preferred stock?

Answer 37

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

Question 38

What is call price?

Answer 38

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

Question 39

what is financial leverage?

Answer 39

earning a higher return on equity by paying dividends on preferred stock or interest on debt on a rate lower than the return earned with the assets of issuing preferred stock or debt; also called trading on equity.

Question 40

What is treasury stock?

Answer 40

a corportations own stock that it reacquired and still holds.

Question 41

What are restricted retained earnings?

Answer 41

retained that are not available for dividends because of legal or contractual limitations.

Question 42

What are appropriated retained earnings?

Answer 42

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

Question 43

Prior period adjustments?

Answer 43

Prior period adjustmentsCorrection 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. are corrections of material errors in prior period financial statements. These errors include arithmetic mistakes, unacceptable accounting, and missed facts. Prior period adjustments are reported in the statement of retained earnings (or the statement of stockholders' equity), net of any income tax effects.