ACING MBA 510 EXAM 2 WITH THE LATEST A+ QUESTIONS AND
ANSWERS STUDY COMPANION.
What is the role of stock in the capital structure of a corporation?
Issuing stock is one way corporations raise capital by selling shares to investors, who
then become owners of the corporation. Investors can trade their stock on established
stock exchanges.
How do you compute the earnings per share (EPS) ratio?
EPS is computed by dividing net income by the weighted average number of common
shares outstanding.
What is the purpose of the earnings per share (EPS) ratio?
EPS facilitates the comparison of companies based on how much they earn per share
of common stock outstanding.
What are the characteristics of common stock?
Common stock is the basic voting stock issued by a corporation, and it often has a par
value required by state law.
What are the four types of common stock transactions?
1) Initial sale of shares, 2) Repurchasing shares, 3) Declaring and paying cash
dividends, 4) Initiating stock dividends and stock splits.
How are cash dividends reported?
A company records a dividend as a liability when its board of directors declares the
dividend (on the date of declaration). The liability is satisfied when the company pays
the dividend to stockholders (on the date of payment).
How do you compute the dividend yield ratio?
The dividend yield ratio is computed by dividing dividends per share by the stock's
market price per share.
What do stock dividends and stock splits have in common?
Both distribute additional shares of stock to existing stockholders.
How are stock dividends recorded?
A company transfers the dividend amount from retained earnings to the common stock
account and, if applicable, the additional paid-in capital account.
, What happens when a company initiates a stock split?
No journal entry is required; the company simply increases the number of shares issued
and decreases the par value per share.
What is reported on the statement of stockholders' equity?
It shows how accounts affecting the stockholders' equity section of the balance sheet
have changed, such as common stock, preferred stock, retained earnings, and
components of comprehensive income.
What are the characteristics of preferred stock?
Preferred stock is issued to raise capital but typically has no voting rights, a current
dividend preference, and may have a cumulative dividend preference.
What is the difference between current and cumulative dividend preferences?
A current dividend preference means preferred stockholders get paid first, while a
cumulative dividend preference requires unpaid dividends to accumulate and be paid
before common stockholders receive dividends.
How do stock transactions impact cash flows?
Cash inflows and outflows related to stock transactions are reported in the Financing
Activities section of the statement of cash flows. Inflows include the issuance of stock,
while outflows include the repurchase of stock and payment of dividends.
What are authorized shares?
Authorized shares are the maximum number of shares a corporation can issue, as
specified in its charter.
What is common stock?
Common stock is the basic voting stock issued by a corporation.
What is the purpose of cumulative dividend preference in preferred stock?
It requires unpaid dividends on preferred stock to accumulate and must be paid before
common stockholders receive dividends.
What is the declaration date for dividends?
The declaration date is when the board of directors officially approves a dividend.
What are dividends in arrears?
Dividends on cumulative preferred stock that have not been paid in prior years.
What are issued shares?
ANSWERS STUDY COMPANION.
What is the role of stock in the capital structure of a corporation?
Issuing stock is one way corporations raise capital by selling shares to investors, who
then become owners of the corporation. Investors can trade their stock on established
stock exchanges.
How do you compute the earnings per share (EPS) ratio?
EPS is computed by dividing net income by the weighted average number of common
shares outstanding.
What is the purpose of the earnings per share (EPS) ratio?
EPS facilitates the comparison of companies based on how much they earn per share
of common stock outstanding.
What are the characteristics of common stock?
Common stock is the basic voting stock issued by a corporation, and it often has a par
value required by state law.
What are the four types of common stock transactions?
1) Initial sale of shares, 2) Repurchasing shares, 3) Declaring and paying cash
dividends, 4) Initiating stock dividends and stock splits.
How are cash dividends reported?
A company records a dividend as a liability when its board of directors declares the
dividend (on the date of declaration). The liability is satisfied when the company pays
the dividend to stockholders (on the date of payment).
How do you compute the dividend yield ratio?
The dividend yield ratio is computed by dividing dividends per share by the stock's
market price per share.
What do stock dividends and stock splits have in common?
Both distribute additional shares of stock to existing stockholders.
How are stock dividends recorded?
A company transfers the dividend amount from retained earnings to the common stock
account and, if applicable, the additional paid-in capital account.
, What happens when a company initiates a stock split?
No journal entry is required; the company simply increases the number of shares issued
and decreases the par value per share.
What is reported on the statement of stockholders' equity?
It shows how accounts affecting the stockholders' equity section of the balance sheet
have changed, such as common stock, preferred stock, retained earnings, and
components of comprehensive income.
What are the characteristics of preferred stock?
Preferred stock is issued to raise capital but typically has no voting rights, a current
dividend preference, and may have a cumulative dividend preference.
What is the difference between current and cumulative dividend preferences?
A current dividend preference means preferred stockholders get paid first, while a
cumulative dividend preference requires unpaid dividends to accumulate and be paid
before common stockholders receive dividends.
How do stock transactions impact cash flows?
Cash inflows and outflows related to stock transactions are reported in the Financing
Activities section of the statement of cash flows. Inflows include the issuance of stock,
while outflows include the repurchase of stock and payment of dividends.
What are authorized shares?
Authorized shares are the maximum number of shares a corporation can issue, as
specified in its charter.
What is common stock?
Common stock is the basic voting stock issued by a corporation.
What is the purpose of cumulative dividend preference in preferred stock?
It requires unpaid dividends on preferred stock to accumulate and must be paid before
common stockholders receive dividends.
What is the declaration date for dividends?
The declaration date is when the board of directors officially approves a dividend.
What are dividends in arrears?
Dividends on cumulative preferred stock that have not been paid in prior years.
What are issued shares?
