Exam 12: Organization and Operation of Corporations

Quality Cleaning Corp. issued 50 no-par-value common shares for land with a market value of $4,000. Dillon had originally issued common shares at $100 two years ago, but there is currently no market value available for their shares. The amount of contributed capital arising from this transaction is:

A privately held corporation has a limited life because it is tied to the physical lives of its owners.

Whenever the dividend rate on preferred shares is higher than the rate the corporation earns on its assets, the effect of issuing preferred shares is to increase the dividend rate earned by common shareholders.

The liability for preferred dividends declared is recorded on the date of record.

If shares are issued for non-cash assets, the assets are always recorded at the current market value of the shares.

Organization costs may be paid for by giving shares to promoters of a corporation in exchange for their services in organizing the corporation.

Lucie Corporation was formed on January 1 of the current year. The corporate charter authorized the company to issue 100,000 common shares. During the first month ofoperation, the corporation issued 300 shares to its lawyer in payment of a $5,600 bill for preparing the articles of incorporation. The entry to record this transaction wouldinclude:

Barb Inc issued 500 common shares in payment of a $1,900 bill from its accountant for assistance in filing its charter. The entry to record this transaction will include:

The par value of a share is:

Discuss the differences between common and preferred shares.

The largest number of shares specified by a corporation are known as:

The preemptive right is the right of preferred shareholders to:

The shareholders can vote to pay themselves a dividend.

The income of a corporation is taxed twice, first as corporate income and then as personal income to shareholders who receive cash dividends.

The use of preferred shares to increase return to common shareholders is an example of financial leverage.

A corporation is a legal entity separate from its owners.

Cumulative preferred shares carry the right to be paid both current and all prior periods' unpaid dividends before any dividends are paid to common shareholders.

Preferred shares that the issuing corporation, at its option, may retire by paying aspecified amount to the preferred shareholders plus any dividends in arrears are called:

Reporting procedures are the same for private and public corporations.

Special rights for preferred shares may include a preference in receiving dividends and in the distribution of assets if the corporation is liquidated.