Page 509 - Accounting Principles (A Business Perspective)

12. Stockholders' equity: Classes of capital stock

Return on average common stockholders' equity A measure of the income-producing ability of the
company. It is the ratio of net income available to common stockholders divided by average common
stockholders' equity.
Shares of stock Units of ownership in a corporation.
Stated value An arbitrary amount assigned by the board of directors to each share of a given class of no-par
stock.
Stock certificate A printed or engraved document serving as evidence that the holder owns a certain
number of shares of capital stock.
Stockholders' ledger Contains a group of subsidiary accounts showing the number of shares of stock
currently held by each stockholder.
Stock preferred as to assets Means that in liquidation, the preferred stockholders are entitled to receive
the par value (or a larger stipulated liquidation value) per share before any assets may be distributed to
common stockholders.
Stock preferred as to dividends Means that the preferred stockholders are entitled to receive a specified
dividend per share before any dividend on common stock is paid.
Stock registrar Typically, a bank that maintains records of the shares outstanding for a company.
Stock-transfer agent Typically, a bank or trust company employed by a corporation to transfer stock
between buyers and sellers.
Stock without par value See no-par stock.
Unissued shares Capital stock authorized but not yet issued.
Self-test
True-false
Indicate whether each of the following statements is true or false.
A person may favor the corporate form of organization for a risky business enterprise primarily because a
corporation's shares can be easily transferred.
In the event of corporate liquidation, stockholders whose stock is preferred as to assets are entitled to receive the

par value of their shares before any amounts are distributed to creditors or common stockholders.
The par value of a share of capital stock is no indication of the market value or book value of the share of stock.
When 10,000 shares of USD 20 par value common stock are issued in payment for a parcel of land with a fair
market value of USD 300,000, the Common Stock account is credited for USD 200,000, and the Paid-In Capital in
Excess of Par Value—Common account is credited for USD 100,000.
Multiple-choice
Select the best answer for each of the following questions.
Which of the following is not an advantage of the corporate form of organization?
a. Continuous existence of the entity.

b. Limited liability of stockholders.
c. Government regulation.
d. Easy transfer of ownership.
An arbitrary amount assigned by the board of directors to each share of a given class of no-par stock is:
a. Quasi-par value.
b. Stated value.
c. Redemption value.

d. Liquidation value.
Preferred stock that has dividends in arrears is:

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