Question 1

Earnings per share is calculated by dividing the total number of common shares outstanding by net income.

Accepted Answer

Earnings per share is calculated by dividing net income by the total number of common shares outstanding.

Question 2

Par value of a stock refers to the:
A)Issue price of the stock.
B)Value assigned to a share of stock by the corporate charter.
C)Market value of the stock on the date of the financial statements.
D)Maximum selling price of the stock.
E)Dividend value of the stock.

Accepted Answer

The par value of a stock is the value assigned to a share of stock by the corporate charter. It is typically a nominal amount, such as $0.01 or $0.10, and does not reflect the current market value of the stock.

Question 3

The costs of bringing a corporation into existence,including legal fees,promoter fees,and amounts paid to obtain a charter,are called:
A)Minimum legal capital
B)Stock subscriptions
C)Organization costs
D)Cumulative costs
E)Prepaid fees

Accepted Answer

Organization costs include all expenses incurred during the process of forming a corporation, including legal fees, promoter fees, and costs associated with obtaining a charter. Minimum legal capital refers to the minimum amount of capital required by law for a corporation to operate. Stock subscriptions are amounts paid by shareholders to purchase shares of stock in the corporation. Cumulative costs and prepaid fees are not relevant terms in this context.

Question 4

When a company declares cash dividends,retained earnings is reduced.

Accepted Answer

Declaring cash dividends involves distributing a portion of the company's retained earnings to its shareholders, thus reducing the amount of retained earnings.

Question 5

The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings,dividends,and economic opportunities.

Accepted Answer

The statement is true. The price-earnings ratio is a measure that reflects the market's expectations for a company's future growth potential, and it is often used by investors to evaluate the attractiveness of a company's stock. A higher price-earnings ratio may indicate that investors are optimistic about a company's future prospects and growth potential, while a lower ratio may suggest that investors have more cautious expectations.

Question 6

When all of the authorized shares have the same rights and characteristics,the stock is called:
A)Preferred stock
B)Common stock
C)Par value stock
D)Stated value stock
E)No-par value stock

Accepted Answer

Common stock is the type of stock where all authorized shares have the same rights and characteristics. Preferred stock, on the other hand, has additional features such as priority in dividend payments and liquidation preference. Par value stock has a designated face value for each share, while stated value stock has an assigned value by the company. No-par value stock does not have a predetermined face value for each share.

Question 7

Earnings per share is the amount of income earned per share of a company's outstanding (weighted-average) common stock.

Accepted Answer

Earnings per share (EPS) is indeed the amount of income earned per share of a company's outstanding common stock. It is a commonly used financial metric to determine a company's profitability and is calculated by dividing net income by the total number of outstanding shares.

Question 8

A stock option is also called a stock dividend.

Accepted Answer

A stock option is not the same as a stock dividend. A stock dividend is a distribution of additional shares to existing shareholders, while a stock option is a contract that gives the holder the right to buy or sell a certain amount of stock at a certain price within a certain period of time.

Question 9

Changes in accounting estimates are accounted for in current and future periods.

Accepted Answer

Changes in accounting estimates are adjustments made to prior accounting estimates based on new information. They are accounted for in the current period and future periods unless they affect prior periods' financial statements' accuracy, in which case they are restated.

Question 10

Common stock always carries a preference for receiving dividends over preferred stock.

Accepted Answer

This statement is false. Preferred stock holders typically have priority over common stock holders when it comes to receiving dividends.

Question 11

A debit balance in retained earnings is often referred to as a retained earnings deficit.

Accepted Answer

A debit balance in retained earnings indicates that the company has accumulated losses over time, which is commonly referred to as a retained earnings deficit.

Question 12

Authorized stock is the total number of shares outstanding.

Accepted Answer

Authorized stock is the maximum number of shares that a company is allowed to issue, but it may choose to issue only a portion of that amount, resulting in the number of shares outstanding.

Question 13

An amount of assets defined by state law that stockholders must invest and leave invested in a corporation is called the:
A)Par value of preferred.
B)Minimum legal capital.
C)Premium capital.
D)Stated value.
E)Working capital.

Accepted Answer

The minimum legal capital is the amount of assets that stockholders must invest and leave invested in a corporation, as defined by state law. This is also known as the legal minimum capital or minimum capital requirement. Par value of preferred, stated value, premium capital, and working capital are not related to this concept.

Question 14

The total amount of stock that a corporation's charter allows it to issue is referred to as:
A)Issued stock
B)Outstanding stock
C)Common stock
D)Preferred stock
E)Authorized stock

Accepted Answer

The total amount of stock a corporation is authorized to issue is referred to as authorized stock. Issued stock refers to the shares that have been sold to investors, outstanding stock refers to shares that are currently held by investors, common stock refers to the most basic form of ownership in a corporation, and preferred stock refers to a type of ownership that typically has priority over common stock in terms of dividends and other benefits.

Question 15

A corporation can issue both common and preferred stock.

Accepted Answer

A corporation has the ability to issue both common and preferred stock to raise capital. Common stock represents ownership in the company and provides voting rights to the shareholders. Preferred stock represents a priority claim over common stock in terms of dividends and liquidation proceeds, but typically does not provide voting rights.

Question 16

A corporation is a separate legal entity from its owners.

Accepted Answer

A corporation is considered a separate legal entity from its owners, meaning it has its own rights and obligations and can enter into contracts, own property, and sue or be sued in its own name.

Question 17

A proxy is:
A)A legal document that gives a designated agent of a stockholder the power to vote the stock.
B)A contractual commitment by an investor to purchase unissued shares of stock.
C)An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.
D)The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.
E)An arbitrary amount assigned to no-par stock by the corporation's board of directors.

Accepted Answer

A proxy is a legal document that gives a designated agent of a stockholder the power to vote the stock. This allows the stockholder to have a voice in corporate decision-making even if they are unable to attend the meeting in person.

Question 18

Minimum legal capital requirements often prohibit dividends when the dividends reduce stockholders' equity below the minimum specified amount.

Accepted Answer

This is true as minimum legal capital requirements typically specify a minimum level of stockholders' equity that must be maintained, and a reduction in equity due to dividends may result in the company falling below this minimum requirement.

Question 19

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:
A)Preemptive right
B)Proxy right
C)Right to call
D)Financial leverage
E)Voting right

Accepted Answer

The right described in the question is known as a preemptive right. This right allows common shareholders to purchase additional shares of common stock issued by the corporation in order to maintain their proportionate ownership stake in the company. This can help to prevent dilution of their ownership position. The other options listed (proxy right, right to call, financial leverage, and voting right) do not refer specifically to the right described in the question.

Question 20

Dividend yield is defined as the market price per share of a company's stock divided by its earnings per share.

Accepted Answer

Dividend yield is defined as the annual dividend per share of a company's stock divided by its current stock price. It is not calculated using earnings per share.

Quiz 11: Reporting and Analyzing Equity

Earnings per share is calculated by dividing the total number of common shares outstanding by net income.

Par value of a stock refers to the:

The costs of bringing a corporation into existence,including legal fees,promoter fees,and amounts paid to obtain a charter,are called: