Chapter 10 homework solution - Solutions to Questions and...

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Solutions to Questions and Multiple Choice Questions 1. The two primary ways for a company to finance a business are debt and equity. 2. 3. Par value is an arbitrary amount and does not determine the price at which a share of stock sells. 4. 5. 6. Dividends are not an expense. They are a distribution of the firm's income to the owners. 7. 8. 9. Dividends in arrears are unpaid dividends on cumulative preferred stock. 10. 11. 12. Treasury stock is authorized and issued, but not outstanding. 13. 14. 15. Common stock represents ownership in the corporation. Common shareholders have the right to vote for the board of directors, to receive a pro rata share of dividends, to share in assets at liquidation, and have the preemptive right to acquire more shares when the corporation issues more stock. Preferred shareholders are not owners and cannot vote. They have preferential rights to dividends and assets at liquidation. Paid-in-Capital is a sub-section of stockholders' equity which includes the proceeds from the sale of stock. Additional-Paid-in-Capital is an account which is credited for the proceeds from the sale of stock in excess of par. Paid-in capital includes Capital Stock and Additional Paid-in Capital. Shareholders can make money on an investment in a corporation's stock by receiving dividends or selling the stock at a higher price than its cost. The three dates a corporation considers when issuing a dividend are the declaration date, the record date and the distribution date. If preferred stock is cumulative, unpaid dividends in arrears must be paid before the common shareholders can receive any dividends. If preferred stock is noncumulative, unpaid dividends are lost to the preferred shareholders. Treasury stock is the corporation's own stock that it has repurchased. A company might repurchase its stock to use in employee benefit plans, to prevent takeovers or to increase earnings per share. The purchase of treasury shares decreases cash and decreases stockholders' equity on the balance sheet. Cash dividends distribute cash to the corporation's shareholders. Stock dividends distribute additional shares of stock to the corporation's shareholders. A stock dividend decreases Retained Earnings and increases Common Stock and Additional Paid-in- Capital so that the net effect on stockholders' equity is zero. A stock split increases the number of shares outstanding and decreases the par value per share of the stock proportionately.
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16. 17. 18. 19. EPS is the only one reported in the financial statements. It appears on the income statement. Multiple Choice 1. c 2. d 3. a 4. c 5. d 6. b 7. b 8. c 9. b 10. d The two sections of Shareholders' Equity are Contributed Capital and Retained Earnings. Contributed Capital is the proceeds from the sale of stock or other contributions made by owners.
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Chapter 10 homework solution - Solutions to Questions and...

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