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Questions

Questions

1.

LO 14.1Your corporation needs additional capital to fund an expansion. Discuss the advantages and disadvantages of raising capital through the issuance of stock. Would debt be a better option? Why or why not?

2.

LO 14.1How many shares of stock should your new corporation authorize? How did you arrive at your number?

3.

LO 14.1What factors should a new company consider in deciding in which state to incorporate?

4.

LO 14.1What are some of the reasons a business owner might choose the corporate form of business?

5.

LO 14.2Why would a company repurchase its own stock?

6.

LO 14.2The following data was reported by Saturday Corporation:

  • Authorized shares: 30,000
  • Issued shares: 25,000
  • Treasury shares: 5,000

How many shares are outstanding?

7.

LO 14.2A corporation issues 6,000 shares of $1 par value stock for a parcel of land valued at $12,000. Prepare the journal entry to reflect this transaction.

8.

LO 14.2When corporations issue stock in exchange for professional services, what account(s) should be debited and what account(s) should be credited?

9.

LO 14.2A corporation issues 5,000 shares of $1 par value stock for some equipment with a clearly determined value of $10,000. Prepare the journal entry to reflect this transaction.

10.

LO 14.3On April 2, West Company declared a cash dividend of $0.50 per share. There are 50,000 shares outstanding. What is the journal entry that should be recorded?

11.

LO 14.3Assuming the same facts as Exercise 14.10, what is the journal that should be recorded on May 5, the date of payment?

12.

LO 14.3When does a corporation incur a liability for a dividend?

13.

LO 14.3How does a stock split affect the balance sheet of a corporation?

14.

LO 14.4Your friend has questions about retained earnings and dividends. How do you explain to him that dividends are paid out of retained earnings?

15.

LO 14.4What does owners’ equity mean for the owner?

16.

LO 14.4What types of transactions reduce owner’s equity? What types of transactions reduce retained earnings? What do they have in common?

17.

LO 14.4Sometimes financial statements contain errors. What type of liabilities may need correction as a prior period adjustment?

18.

LO 14.4Retained earnings may be restricted or appropriated. Explain the difference between the two and give an example of when each may be used.

19.

LO 14.5Which financial statements do you need to calculate EPS?

20.

LO 14.5Where is EPS disclosed for publicly traded companies?

21.

LO 14.5Should investors rely on EPS as an investing tool? Why or why not?

22.

LO 14.5What information do you need to calculate the weighted average common shares outstanding?

23.

LO 14.5Which is the only ratio required to be reported on the face of a company’s financial statements? What are the two ways the ratio is required to be reported?