Chapter 13-Corporations Or PDF

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Chapter 13--Corporations: Organization, Stock Transactions, and Dividends Student: ___________________________________________________________________________ 1. Twenty percent of all businesses in the United States are corporations and they account for 80% of the total business dollars generated. True False

2. A corporation is a separate entity for accounting purposes but not for legal purposes. True False

3. The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder. True False

4. Under the Internal Revenue Code, corporations are required to pay federal income taxes. True False

5. Double taxation is a disadvantage of a corporation because the same party has to pay taxes twice on the income. True False

6. The initial owners of stock of a newly formed corporation are called directors. True False

7. While some businesses have been granted charters under state laws, most businesses receive their charters under federal laws. True False

8. Organizational expenses are classified as intangible assets on the balance sheet. True False

9. The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business. True False

10. Retained earnings represents past net incomes less past dividends, therefore any balance in this account would be listed on the income statement. True False

11. The balance in Retained Earnings at the end of the period is created by closing entries. True False

12. The balance in Retained Earnings should be interpreted as representing surplus cash left over for dividends. True False

13. A deficit in Retained Earnings is reported in the stockholders' equity section of the balance sheet. True False

14. When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds. True False

15. The par value of common stock must always be equal to its market value on the date the stock is issued. True False

16. For accounting purposes, stated value is treated the same way as par value. True False

17. The issuance of common stock affects both paid-in capital and retained earnings. True False

18. The main source of paid-in-capital is from issuing stock. True False

19. The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares issued. True False

20. The amount of capital paid in by the stockholders of the corporation is called legal capital. True False

21. If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the dividends per share would be $4. True False

22. If 50,000 shares are authorized, 41,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 43,000. True False

23. Preferred stockholders must receive their current year dividends before the common stockholders can receive any dividends. True False

24. If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders. True False

25. Paid-in capital may originate from real estate donated to the corporation. True False

26. The par value of stock is an arbitrary per share amount defined in many states as legal capital. True False

27. A large public corporation normally uses registrars and transfer agents to maintain records of the stockholders. True False

28. When common stock is issued in exchange for land, the land should be recorded in the accounts at the par amount of the stock issued. True False

29. When a corporation issues stock at a premium, it reports the premium as an other income item on the income statement. True False

30. When no-par stock is issued, the Common Stock account is credited for the selling price of the stock issued. True False

31. A large retained earnings account means that there is cash available to pay dividends. True False

32. When the board of director's declares a cash or stock dividend, this action decreases retained earnings. True False

33. If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $15,000. True False

34. Cash dividends are normally paid on shares of treasury stock. True False

35. The declaration of a cash dividend decreases a corporation's stockholders equity and decreases its assets. True False

36. One of the prerequisites to paying a cash dividend is sufficient retained earnings. True False

37. Cash dividends become a liability to a corporation on the date of record. True False

38. The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets, liabilities, or stockholders' equity. True False

39. The declaration of a stock dividend decreases a corporation's stockholders' equity and increases its liabilities. True False

40. Before a stock dividend can be declared or paid, there must be sufficient cash. True False

41. The day on which the board of directors of the corporation distributes a dividend is called the declaration date. True False

42. The stock dividends distributable account is listed in the current liability section of the balance sheet. True False

43. A prior period adjustment should be reported as an adjustment to the retained earnings balance at the beginning of the period in which the adjustment was made. True False

44. The amount of a corporation's retained earnings that has been restricted/appropriated should be reported in the notes to the financial statements. True False

45. A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific purpose. True False

46. A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease. True False

47. The cost method of accounting for the purchase and sale of treasury stock is a commonly used method. True False

48. Under the cost method, when treasury stock is purchased by the corporation, the par value and the price at which the stock was originally issued are important. True False

49. If 100 shares of treasury stock were purchased for $50 per share and then sold at $60 per share, $1,000 of income is reported in the income statement. True False

50. A sale of treasury stock may result in a decrease in paid-in-capital. All decreases should be charged to the Paid-In-Capital from Sale of Treasury account. True False

51. Treasury Stock is listed in the stockholders' equity section on the balance sheet. True False

52. The cost of treasury stock is deducted from total paid-in capital and retained earnings in determining total stockholders’ equity. True False

53. The retained earnings statement may be combined with the income statement. True False

54. If paid-in-capital in excess of par/preferred stock is $30,000, preferred stock is $200,000, paid-in-capital in excess of par/common stock is $20,000, common stock is $525,000, and retained earnings is $105,000 (deficit), the total stockholders' equity is $880,000. True False

55. A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation issues a 5-for-1 stock split, the number of shares outstanding after the split will be 40,000. True False

56. The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares. True False

57. The reduction in the par or stated value of common stock, accompanied by the issuance of a proportionate number of additional shares, is called a stock split. True False

58. A corporation has 12,000 shares of $20 par value stock outstanding that has a current market value of $150. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $50. True False

59. A stock split results in a transfer at market value from retained earnings to paid-in capital. True False

60. If a company has preferred stock, the preferred stock dividend is added to net income when computing earnings per common share. True False

61. Which of the following is not characteristic of a corporation? A. The financial loss that a stockholder may suffer from owning stock in a public company is limited. B. Cash dividends paid by a corporation are deductible as expenses by the corporation. C. A corporation can own property in its name. D. Corporations are required to file federal income tax returns.

62. Characteristics of a corporation include A. shareholders who are mutual agents B. direct management by the shareholders (owners) C. its inability to own property D. shareholders who have limited liability

63. One of the main disadvantages of the corporate form is the A. professional management B. double taxation of dividends C. charter D. corporation must issue stock

64. A disadvantage of the corporate form of business entity is A. mutual agency for stockholders B. unlimited liability for stockholders C. corporations are subject to more governmental regulations D. the ease of transfer of ownership

65. Under the corporate form of business organization A. ownership rights are easily transferred. B. a stockholder is personally liable for the debts of the corporation. C. stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation. D. stockholders wishing to sell their corporation shares must get the approval of other stockholders.

66. Those most responsible for the major policy decisions of a corporation are the A. management. B. board of directors. C. employees. D. stockholders.

67. Which one of the following would not be considered an advantage of the corporate form of organization? A. Government regulation B. Separate legal existence C. Continuous life D. Limited liability of stockholders

68. Which of the following is not true of a corporation? A. It may enter into binding legal contracts in its own name. B. It may sue and be sued. C. The acts of its owners bind the corporation. D. It may buy, own, and sell property.

69. The ability of a corporation to obtain capital is A. less than a partnership. B. about the same as a partnership. C. restricted because of the limited life of the corporation. D. enhanced because of limited liability and ease of share transferability.

70. Which of the following statements concerning taxation is accurate? A. Corporations pay federal income taxes but not state income taxes. B. Corporations pay federal and state income taxes. C. Only the owners must pay taxes on corporate income. D. Corporations pay income taxes but their owners do not.

71. The term deficit is used to refer to a debit balance in which of the following accounts of a corporation? A. Retained Earnings B. Treasury Stock C. Organizational Expenses D. Common Stock

72. Stockholders' equity A. is usually equal to cash on hand B. includes paid-in capital and liabilities C. includes retained earnings and paid-in capital D. is shown on the income statement

73. The state charter allows a corporation to issue only a certain number of shares of each class of stock. This amount of stock is called A. treasury stock B. issued stock C. outstanding stock D. authorized stock

74. Which of the following is not a right possessed by common stockholders of a corporation? A. the right to vote in the election of the board of directors B. the right to receive a minimum amount of dividends C. the right to sell their stock to anyone they choose D. the right to share in assets upon liquidation

75. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding? A. 10,000 B. 40,000 C. 30,000 D. 50,000

76. The par value per share of common stock represents A. the minimum selling price of the stock established by the articles of incorporation. B. the minimum amount the stockholder will receive when the corporation is liquidated C. an arbitrary amount established in the articles of incorporation D. the amount of dividends per share to be received each year

77. A corporation issues 2,500 shares of common stock for $ 45,000. The stock has a stated value of $10 per share. The journal entry to record the stock issuance would include a credit to Common Stock for A. $25,000 B. $45,000 C. $20,000 D. $ 5,000

78. The excess of issue price over par of common stock is termed a(n) A. discount B. income C. deficit D. premium

79. The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal fees for organizing the corporation includes a credit to A. Organizational Expenses B. Goodwill C. Common Stock D. Cash

80. The price at which a stock can be sold depends upon a number of factors. Which statement below is not one of those factors? A. the financial condition, earnings record, and dividend record of the corporation B. investor expectations of the corporation's earning power C. how high the par value is D. general business and economic conditions and prospects

81. The entry to record the issuance of common stock at a price above par includes a debit to A. Organizational Expenses B. Common Stock C. Cash D. Paid-In Capital in Excess of Par-Common Stock

82. Merritt Company acquired a building valued at $210,000 for property tax purposes in exchange for 12,000 shares of its $5 par common stock. The stock is widely traded and selling for $18 per share. At what amount should the building be recorded by Merritt Company? A. $60,000 B. $216,000 C. $210,000 D. $156,000

83. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 30,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding? A. 35,000 B. 70,000 C. 25,000 D. 30,000

84. Par value A. is the monetary value assigned per share in the corporate charter. B. represents what a share of stock is worth. C. represents the original selling price for a share of stock. D. is established for a share of stock after it is issued.

85. The authorized stock of a corporation A. must be recorded in a formal accounting entry. B. only reflects the initial capital needs of the company. C. is indicated in its by-laws. D. is indicated in its charter.

86. If Everly Company issues 1,000 shares of $5 par value common stock for $75,000, the account A. Common Stock will be credited for $75,000. B. Paid-in Capital in excess of Par Value will be credited for $5,000. C. Paid-in Capital in excess of Par Value will be credited for $70,000. D. Cash will be debited for $70,000.

87. If common stock is issued for an amount greater than par value, the excess should be credited to A. Retained Earnings. B. Cash. C. Legal Capital. D. Paid-in Capital in Excess of Par Value.

88. The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $75 per share. The entry to record the transaction will consist of a debit to Cash for $750,000 and a credit or credits to A. Preferred Stock for $750,000. B. Preferred stock for $500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for $250,000. C. Preferred Stock for $500,000 and Retained Earnings for $250,000. D. Paid-in Capital from Preferred Stock for $750,000.

89. Alma Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to: A. Common Stock $14,000. B. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000. C. Common Stock $4,000 and Paid-in Capital in Excess of Stated Value $10,000. D. Common Stock $10,000 and Retained Earnings $4,000.

90. Nexis Corp. issues 1,000 shares of $15 par value common stock at $22 per share. When the transaction is recorded, credits are made to: A. Common Stock $15,000 and Paid-in Capital in Excess of Par Value $7,000. B. Common Stock $22,000 and Retained Earnings $15,000. C. Common Stock $7,000 and Paid-in Capital in Excess of Stated Value $15,000. D. Common Stock $22,000.

91. When Bayou Corporation was formed on January 1, 20xx, the corporate charter provided for 100,000 share of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 9,000 shares of stock at a price of $23 per share. The entry to record the above transaction would include a A. debit to Cash for $90,000 B. credit to Common Stock for $207,000 C. credit to Paid in Capital in Excess of Par for $117,000 D. debit to Common Stock for $90,000

92. On January 1, 20xx, Swenson Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, 20xx, Swenson purchased 4,000 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1, 20xx. The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a A. credit to Treasury Stock for $96,000. B. debit to Treasury Stock for $96,000. C. debit to a loss account for $120,000 D. credit to a gain account for $120,000.

93. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared? A. $ 60,000 B. $ 20,000 C. $120,000 D. $100,000

94. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared? A. $80,000 B. $10,000 C. $90,000 D. $100,000

95. The date on which a cash dividend becomes a binding legal obligation is on the A. declaration date. B. date of record. C. payment date. D. last day of the fiscal year.

96. The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to A. decrease total liabilities and stockholders’ equity. B. increase total expenses and total liabilities. C. increase total assets and stockholders’ equity. D. decrease total assets and stockholders’ equity.

97. Which of the following is the appropriate general journal entry to record the declaration of a cash dividends? A. Retained earnings Cash B. Cash Dividends payable Cash C. Paid-in capital Cash Dividends payable D. Cash Dividends Cash Dividends Payable

98. Miriah Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock? A. $50 per share B. $50,000 in total C. $10,000 in total D. $0.50 per share

99. Which of the following is not a prerequisite to paying a cash dividend? A. formal action by the board of directors B. market value in excess of par value per share C. sufficient cash D. sufficient retained ea...