Stock Transactions
What account is credited when stock is issued at par value?
Common Stock
What account is debited when a cash dividend is declared?
Retained Earnings
What type of account is Treasury Stock classified as?
Contra-Equity
What are the two components of stockholders’ equity?
Additional Paid-In Capital (APIC) and Retained Earnings
EPS = (Net Income – x) ÷ Weighted Average Number of Common Shares
(Net Income – Preferred Dividends) ÷ Weighted Average Number of Common Shares
When stock is issued above par, what account records the extra amount?
Additional Paid-In Capital (APIC) or excess acct
What date requires no journal entry in dividend reporting?
Date of Record
What is debited when a company repurchases its stock?
Treasury Stock (Regular Debit)
Who elects the board of directors in a corporation?
Common Stockholders
Dividend Yield = Dividend per Share ÷ ___
Dividend per Share ÷ Current Share Price x 100
If 1,000 shares at $1 par are issued for $5 each, what is the APIC?
$4,000 (1,000 x $1 = $1,000) so $4,000 of total $5,000 is excess.
What is the journal entry on the payment date of a cash dividend?
Dr: Dividends Payable
Cr: Cash
What happens to equity when treasury stock is purchased?
Equity decreases
Which stock type gets dividend preference?
Preferred Stock
Book Value per Share = Equity ÷ ___
Book Value per Share = Equity ÷ Number of Common Shares Outstanding
What are the accounts affected when stock is issued with no-par value but a stated value?
Cash, Common Stock (stated), APIC (if applicable)
How does a stock dividend affect total equity?
It does not change total equity (just redistributes within equity). Stock dividends are redistributed to Common Stock.
When reissuing treasury stock, what is the entry if sold above cost?
Dr: Cash
Cr: Treasury Stock
Cr: Additional Paid in Capital (APIC) – Treasury Stock
Why would a company issue preferred stock?
To raise capital without giving up voting control
Times Interest Earned = Earnings Before Income Tax (EBIT) ÷ ___
Times Interest Earned = Earnings Before Income Tax (EBIT) ÷ Interest Expense
What is the journal entry for issuing 500 shares at $10/share with $1 par value?
Dr: Cash $5,000
Cr: Common Stock $500
Cr: APIC $4,500
Explain the difference between a stock dividend and a stock split.
Stock dividend: journal entry and distribution of additional shares to existing shareholders
Stock split: no entry, just involves dividing existing shares into multiple shares, resulting in more shares outstanding at a lower price per share.
(NOTE: Both events increase the number of shares outstanding, but only a stock dividend changes the company's retained earnings and capital accounts.)
Why does Treasury Stock reduce total equity on the balance sheet?
It is a contra-equity account and represents shares repurchased using cash.
What restrictions can reduce the availability of retained earnings?
Legal constraints or debts and if the board of directors decide to restrict a certain amount available for dividends
If Net Income is $2,000, Preferred Dividends are $200, and 400 shares exist, what is Earnings Per Share (EPS)?
EPS = (Net Income – Preferred Dividends) ÷ Weighted Average Number of Common Shares
EPS = ($2,000 – $200) ÷ 400 = $4.50