Deck 13: Corporations: Organization and Capital Stock Transactions

Question 1

A corporation can issue more shares than it is authorized in its charter, if the board of directors approves of an increase in the number of authorized shares.

Answer 1

False

Question 2

The par value of stock issued for noncash assets is never a factor in determining the cost of the assets received.

Answer 2

True

Question 3

The stockholders' equity section of a corporation's balance sheet consists of (1) paid-in capital, (2) retained earnings, and (3) drawings.

Answer 3

False

Question 4

Dividends are declared out of retained earnings.

Question 5

A corporation must be incorporated in each state in which it does business.

Question 6

Each stockholder in a corporation has a separate capital account in the stockholders' equity section of the balance sheet.

Question 7

Retained earnings are a part of stockholders' equity.

Question 8

A corporation is not an entity which is separate and distinct from its owners.

Question 9

When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock becomes legal capital.

Question 10

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

Question 11

A stockholder has the right to vote in the election of the board of directors.

Question 12

If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

Question 13

A proxy is a legal document that instructs a stockholder's agent how to vote shares of stock for the stockholder.

Question 14

A corporation acts under its own name rather than in the name of its stockholders.

Question 15

Stock can be issued only in exchange for cash.

Question 16

The market value of a corporation's stock is determined by the number of shares that the corporation has been authorized to issue.

Question 17

As soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized.

Question 18

Retained earnings is usually subtracted from paid-in capital to arrive at total stockholders' equity.

Question 19

A corporation can be organized for the purpose of making a profit or it may be not-for-profit.

Question 20

When a corporation has only one class of capital stock, it is identified as preferred stock.

Question 21

Organizational costs are capitalized by debiting an intangible asset entitled Organization Costs.

Question 22

The term "Capital surplus" can be used instead of "Additional Paid-in Capital".

Question 23

In the stockholders' equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified.

Question 24

Preferred stock has contractual preference over common stock in certain areas.

Question 25

Treasury stock should not be classified as a current asset.

Question 26

Which one of the following is a privately held corporation?

A) Intel
B) General Electric
C) Caterpillar Inc.
D) Cargill Inc.

Question 27

The cash proceeds from issuing par value stock may be equal to or greater than, but not less than par value.

Question 28

A successful corporation can have a continuous and perpetual life.

Question 29

The dominant form of business organization in the United States in terms of dollar sales volume, earnings, and employees is

A) the sole proprietorship.
B) the partnership.
C) the corporation.
D) not known.

Question 30

The number of common shares outstanding can never be greater than the number of shares issued.

Question 31

Treasury stock is a contra stockholders' equity account.

Question 32

The cost of a noncash asset acquired in exchange for common stock should be either the fair market value of the consideration given up or the consideration received, whichever is more clearly determinable.

Question 33

Under the corporate form of business organization

A) a stockholder is personally liable for the debts of the corporation.
B) stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
C) the corporation's life is stipulated in its charter.
D) stockholders wishing to sell their corporation shares must get the approval of other stockholders.

Question 34

Dividends in arrears on cumulative preferred stock are considered a liability.

Question 35

Preferred stockholders generally do not have the right to vote for the board of directors.

Question 36

In published annual reports, subdivisions within the stockholders' equity section are seldom presented, but additional information is frequently included in the footnotes to the financial statements.

Question 37

Stockholders of a corporation directly elect

A) the president of the corporation.
B) the board of directors.
C) the treasurer of the corporation.
D) all of the employees of the corporation.

Question 38

Under the cost method, Treasury Stock is debited at the price paid to reacquire the shares, and the same amount is credited to Treasury Stock when the shares are sold.

Question 39

The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.

Question 40

Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a Loss on Sale of Treasury Stock being recognized on the income statement.

Question 41

Which of the following statements reflects the transferability of ownership rights in a corporation?

A) If a stockholder decides to transfer ownership, he must transfer all of his shares.
B) A stockholder may dispose of part or all of his shares.
C) A stockholder must obtain permission from the board of directors before selling shares.
D) A stockholder must obtain permission from at least three other stockholders before selling shares.

Question 42

The chief accounting officer in a corporation is the

A) treasurer.
B) president.
C) controller.
D) vice-president of finance.

Question 43

What is ordinarily the first step in the formation of a corporation?

A) Development of by-laws for the corporation
B) Issuance of the corporate charter
C) Application for incorporation to the appropriate Secretary of State
D) Registration with the SEC

Question 44

Which of the following statements concerning taxation is accurate?

A) Partnerships pay state income taxes but not federal income taxes.
B) Corporations pay federal income taxes but not state income taxes.
C) Corporations pay federal and state income taxes.
D) Only the owners must pay taxes on corporate income.

Question 45

The two ways that a corporation can be classified by purpose are

A) general and limited.
B) profit and not-for-profit.
C) state and federal.
D) publicly held and privately held.

Question 46

The ability of a corporation to obtain capital is

A) enhanced because of limited liability and ease of share transferability.
B) less than a partnership.
C) restricted because of the limited life of the corporation.
D) about the same as a partnership.

Question 47

A typical organization chart showing delegation of authority would show

A) stockholders delegating to the board of directors.
B) the board of directors delegating to stockholders.
C) the chief executive officer delegating to the board of directors.
D) the controller delegating to the chief executive officer.

Question 48

Which one of the following would not be considered an advantage of the corporate form of organization?

A) Limited liability of owners
B) Separate legal existence
C) Continuous life
D) Government regulation

Question 49

Which of the following is not true of a corporation?

A) It may buy, own, and sell property.
B) It may sue and be sued.
C) The acts of its owners bind the corporation.
D) It may enter into binding legal contracts in its own name.

Question 50

Which of the following would not be true of a privately held corporation?

A) It is sometimes called a closely held corporation.
B) Its shares are regularly traded on the New York Stock Exchange.
C) It does not offer its shares for sale to the general public.
D) It is usually smaller than a publicly held company.

Question 51

Which of the following statements is not considered a disadvantage of the corporate form of organization?

A) Additional taxes
B) Government regulations
C) Limited liability of stockholders
D) Separation of ownership and management

Question 52

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

A) corporation is organized for the purpose of making a profit.
B) corporation is subject to more federal and state government regulations.
C) corporation is an accounting economic entity.
D) corporation's temporary accounts are closed at the end of the accounting period.

Question 53

A corporate board of directors does not generally

A) select officers.
B) formulate operating policies.
C) declare dividends.
D) execute policy.

Question 54

The concept of an "artificial being" refers to which form of business organization?

A) Partnership
B) Sole proprietorship
C) Corporation
D) Limited partnership

Question 55

The two ways that a corporation can be classified by ownership are

A) publicly held and privately held.
B) stock and non-stock.
C) inside and outside.
D) majority and minority.

Question 56

The chief accounting officer in a company is known as the

A) controller.
B) treasurer.
C) vice-president.
D) president.

Question 57

Ed Tresh has invested $400,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Tresh stand to lose?

A) Up to his total investment of $400,000.
B) Zero.
C) The $400,000 plus any personal assets the creditors demand.
D) $200,000.

Question 58

The officer who is generally responsible for maintaining the cash position of the corporation is the

A) controller.
B) treasurer.
C) cashier.
D) internal auditor.

Question 59

If no-par stock is issued without a stated value, then

A) the par value is automatically $1 per share.
B) the entire proceeds are considered to be legal capital.
C) there is no legal capital.
D) the corporation is automatically in violation of its state charter.

Question 60

Which one of the following is not an ownership right of a stockholder in a corporation?

A) To vote in the election of directors
B) To declare dividends on the common stock
C) To share in assets upon liquidation
D) To share in corporate earnings

Question 61

Retained earnings is

A) always equal to the amount of cash that the corporation has generated from operations.
B) a part of the paid-in capital of the corporation.
C) a part of the stockholders' claim on the total assets of the corporation.
D) closed at the end of each accounting period.

Question 62

If a corporation has only one class of stock, it is referred to as

A) classless stock.
B) preferred stock.
C) solitary stock.
D) common stock.

Question 63

A separate paid-in capital account is used to record each of the following except the issuance of

A) no-par stock.
B) par value stock.
C) stated value stock.
D) treasury stock above cost.

Question 64

Dividends are declared out of

A) Capital Stock.
B) Paid-in Capital in Excess of Par Value.
C) Retained Earnings.
D) Treasury Stock.

Question 65

Retained earnings

A) is unique to the corporate form of business.
B) is an optional account in the partnership form of business.
C) reflects cash paid in by stockholders to date.
D) is closed at the end of the year.

Question 66

The par value of a stock

A) is legally significant.
B) reflects the most recent market price.
C) is selected by the SEC.
D) is indicative of the worth of the stock.

Question 67

If stock is issued for less than par value, the account

A) Paid-In Capital in Excess of Par Value is credited.
B) Paid-In Capital in Excess of Par Value is debited if a debit balance exists in the account.
C) Paid-In Capital in Excess of Par Value is debited if a credit balance exists in the account.
D) Retained Earnings is credited.

Question 68

If stock is issued for a noncash asset, the asset should be recorded on the books of the corporation at

A) fair market value.
B) cost.
C) zero.
D) a nominal amount.

Question 69

Paid-In Capital in Excess of Stated Value

A) is credited when no-par stock does not have a stated value.
B) is reported as part of paid-in capital on the balance sheet.
C) represents the amount of legal capital.
D) normally has a debit balance.

Question 70

If a stockholder cannot attend a stockholder's meeting, he may delegate his voting rights by means of

A) an absentee ballot.
B) a proxy.
C) a certified letter.
D) a telegram.

Question 71

The sale of common stock below par

A) is a common occurrence in most states.
B) is not permitted in most states.
C) is a practice that most stockholders encourage.
D) requires that a liability be recorded for the difference between the sales price and the par value of the shares.

Question 72

When stock is issued for legal services, the transaction is recorded by debiting Organization Expense for the

A) stated value of the stock.
B) par value of the stock.
C) market value of the stock.
D) book value of the stock.

Question 73

If Vickers Company issues 4,000 shares of $5 par value common stock for $140,000,

A) Common Stock will be credited for $140,000.
B) Paid-In Capital in Excess of Par Value will be credited for $20,000.
C) Paid-In Capital in Excess of Par Value will be credited for $120,000.
D) Cash will be debited for $120,000.

Question 74

Which of the following factors does not affect the initial market price of a stock?

A) The company's anticipated future earnings
B) The par value of the stock
C) The current state of the economy
D) The expected dividend rate per share

Question 75

Owners' equity for a corporation is identified as each of the following except

A) corporate capital.
B) paid-in capital.
C) partners' equity.
D) stockholders' equity.

Question 76

If common stock is issued for an amount greater than par value, the excess should be credited to

A) Cash.
B) Retained Earnings.
C) Paid-in Capital in Excess of Par Value.
D) Legal Capital.

Question 77

The term residual claim refers to a stockholders' right to

A) receive dividends.
B) share in assets upon liquidation.
C) acquire additional shares when offered.
D) exercise a proxy vote.

Question 78

If an investment firm underwrites a stock issue, the

A) risk of being unable to sell the shares stays with the issuing corporation.
B) corporation obtains cash immediately from the investment firm.
C) investment firm has guaranteed profits on the sale of the stock.
D) issuance of stock is likely to be directly to creditors.

Question 79

The authorized stock of a corporation

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

Question 80

A corporation has the following account balances: Common stock, $1 par value, $40,000; Paid-in Capital in Excess of Par Value, $1,350,000. Based on this information, the

A) legal capital is $1,390,000.
B) number of shares issued are 40,000.
C) number of shares outstanding are 1,390,000.
D) average price per share issued is $3.48.