Chapter #8

Question 1

common stock

Answer 1

most widespread form of ownership in corporation

Question 2

issued shares

Answer 2

shares of stock that have been offered and sold to sharholders

Question 3

rights of stockholders

Answer 3

vote of board members
share in corporation´s profits
share in any assets left if corporation must dissolve
acquire more shared if corporations issues new stock

Question 4

par value

Answer 4

legal amount assigned to a share

not same as market value

Question 5

what can the par value be used for

Answer 5

calculation of # of shares that have been issued

Question 6

what are shares authorized

Answer 6

# of shares a corporation is allowed to sell
# is included in corporate charter

Question 7

what are shares of treasury stock

Answer 7

created when company buys back own stock from shareholders

Question 8

what can company do with treasury stock in the future

Answer 8

sell shares again

cancel reacquired shares

Question 9

what are outstanding shares

Answer 9

issued shares - treasury shares

shares that have been issued and is held by stockholders

Question 10

what is stated value

Answer 10

legal amount assigned by the board of directors to each share after charter is granted

Question 11

no-par value stock

Answer 11

a stock that has not been assigned a value by the board of directors

Question 12

legal capital

Answer 12

money that company needs to retain in business to protect corporate creditors
not available for withdrawal by the stockholder

Question 13

legal capital if par value stock is issued

Answer 13

legal capital = # of shares issued x par value

Question 14

legal capital if no-par value stock with stated value is issued

Answer 14

legal capital = # of shares issued x stated value

Question 15

legal capital if no-par value stock without stated value is issued

Answer 15

legal capital = # of shares sold x selling price

Question 16

dividends

Answer 16

distributions of corporation´s earnings given to shareholders

Question 17

important dates related to dividends

Answer 17

decleartion date
date of record
payment date

Question 18

date of record

Answer 18

whoever owns stock at this date receives dividends

Question 19

types of preferred stock

Answer 19

cumulative

noncumulative

Question 20

cumulative preferred stock

Answer 20

accumulated dividends from previous years needs to be paid to preferred stockholders before dividends can be paid to common stockholders

Question 21

noncumulative preferred stock

Answer 21

board decides to make up any missed dividends to preferred stockholders

Question 22

why do companies buy their own stock (treasury stock)

Answer 22

have stock to distribute to eployees for compensation
return cash to shareholders using a way that is more flexible for both firm and shareholder than paying dividends
increase companies earning per share
reduce chash needed to pay future dividends
reduce chance of a hostile takeover

Question 23

what is purchase of treasury stock recorded as

Answer 23

decrease in asset (cash)

decrease in shareholder´s equity

Question 24

how do we record selling of treasury stocks

Answer 24

# stocks sold times amount which they were bought for as treasury stock in shareholder´s equity
# stocks sold times amount excessing purchase price per stock in paid-in capital from treasury stock transaction

Question 25

stock dividends

Answer 25

instead of cash shareholders receive additional shares of stock

Question 26

small stock dividend

Answer 26

less than 25% of company´s outstanding stock | company uses market value to record transaction

Question 27

large stock dividend

Answer 27

greater than 25% of company´s outstanding stock | company uses par value to record transaction

Question 28

effect of stock dividends on the % of ownership of each shareholder

Answer 28

it stays the same it only includes more shares

Question 29

stock split

Answer 29

division of shares to increase # of outstanding shares | par value per share decreases

Question 30

retained earnings

Answer 30

all earnings that have not been distributed to stockholder

Question 31

what does retained earnings include

Answer 31

net incomes - any losses - any dividends | does not include cash

Question 32

equation for ending retained earnings

Answer 32

beg. retained earnings + net income for period - dividends

Question 33

two ratios that help evaluate the return to shareholders

Answer 33

return on equity | earnings per share

Question 34

what does return on equity measure

Answer 34

amount of income earned with each dollar of common shareholder´s investment in the firm

Question 35

equation to calculate return on equity

Answer 35

net income -preferred dividends / average common shareholders´ equity

Question 36

earnings per share

Answer 36

use current earnigns to predict future dividends and stock prices

Question 37

equation to calculate earnings per share

Answer 37

net income - preferred dividends / weighted average # of common shares outstanding