Deck 5: Introduction to Corporations

Question 1

Authorized share capital is the amount of the shares that are issued to the shareholders.

Answer 1

False

Question 2

A corporation is a legal entity that is combined with the owner's economic circumstances.

Answer 2

False

Question 3

Organization costs are normally capitalized by public companies.

Answer 3

False

Question 4

Most of the largest Canadian companies are publically held.

Question 5

The transfer of ownership rights between shareholders has no effect on the corporations operating activities.

Question 6

The board of directors of a corporation legally owns the corporation.

Question 7

Acts of the shareholders who are NOT official agents of a corporation can legally bind a corporation.

Question 8

One of the disadvantages of a corporation is that the company will have continuous life.

Question 9

Profits may be either reinvested in a corporation or distributed to its shareholders as dividends.

Question 10

A public corporation is a corporation that does NOT issue its shares for sale to the public.

Question 11

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

Question 12

Articles of incorporation form the corporation's "constitution".

Question 13

A transfer of shares by a shareholder does NOT require the approval of either the corporation or other shareholders.

Question 14

Creditors have access to corporate assets only to have their claims repaid.

Question 15

The shareholders of a corporation pay tax on corporate profit on an individual basis.

Question 16

Corporations must pay taxes as a legal entity.

Question 17

Companies can only be incorporated under the federal government.

Question 18

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

Question 19

One of the disadvantages of a corporation is that professional managers will run the company.

Question 20

Dividends in a corporation are the equivalent of drawings in a proprietorship.

Question 21

When shares are issued for services or noncash assets, the shares should be recorded at the fair value of the services or noncash assets.

Question 22

When a company is liquidated, the common shares will receive proceeds before the preferred shares.

Question 23

Convertible preferred shares give common shareholders the option of exchanging their bonds for preferred shares.

Question 24

A corporation must have preferred shares.

Question 25

A redeemable preferred share gives shareholders the option to redeem shares at their own option rather than the corporation's option.

Question 26

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.

Question 27

Share capital may be distributed to shareholders as dividends.

Question 28

One characteristic of preferred shares is a dividend preference.

Question 29

Retained earnings are the cumulative profits or losses since incorporation that have been retained within the corporation.

Question 30

When a preferred share is exchanged for a common share, cash flow for the company is increased.

Question 31

Shares can be issued only in exchange for cash.

Question 32

In cases where the fair value of the services and noncash assets cannot be reliably measured, the shares issued should be recorded at the amortized cost of the noncash assets.

Question 33

Income taxes only affect the income statement.

Question 34

A cumulative dividend feature will mean that unpaid dividends from prior periods will be paid before the current dividend entitlement.

Question 35

Income tax expense is shown on the income statement.

Question 36

The authorization of share capital will have an immediate effect on assets and shareholders' equity.

Question 37

No par value shares are shares that have NOT been assigned any specific value.

Question 38

Income tax expense is added to income when determining profit.

Question 39

The authorization of share capital does NOT result in a formal accounting entry.

Question 40

Common shares usually have a cumulative dividend feature.

Question 41

The amount of dividends paid is reported on the statement of retained earnings.

Question 42

When the retained earnings has a debit balance it is called a "deficit".

Question 43

Journal entries are made on the date of declaration and on the date of record date.

Question 44

There is no obligation to pay dividends until a dividend is declared by the board of directors.

Question 45

Dividends are distributed from retained earnings.

Question 46

A company may NOT declare a dividend if there was a loss in the year.

Question 47

The statement that reflects the changes in retained earnings for the period is called a statement of retained earnings.

Question 48

Under the Canada Business Corporations Act, a corporation cannot pay a dividend if it would then be unable to pay its liabilities.

Question 49

A cash dividend account is NEVER closed during the closing process.

Question 50

Companies must have enough cash before they can declare a cash dividend.

Question 51

Dividends in arrears are NOT considered a liability.

Question 52

Corporate income tax is based on the amount of retained earnings that a company has.

Question 53

Retained earnings is a temporary account.

Question 54

A dividend is a pro rata distribution of a portion of a corporation's retained earnings to its shareholders.

Question 55

If the board of directors has NOT declared a dividend then no liability exists.

Question 56

Cash dividends are shown as an addition to the statement of retained earnings.

Question 57

At the end of each accounting year, the profit for the corporation will be closed into the account called Income Summary.

Question 58

The ownership of the shares is determined on the date of declaration.

Question 59

The primary consideration for the decision to declare dividends is whether the company made a profit in the current year.

Question 60

Declaration of cash dividends increases liabilities and decreases shareholders equity.

Question 61

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 numerous federal and provincial government regulations.
C) corporation is an accounting economic entity.
D) corporation's temporary accounts are closed at the end of the accounting period.

Question 62

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 Toronto 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 63

The ways that a corporation can be classified by purpose are

A) general and limited.
B) profit and non-profit.
C) provincial and federal.
D) publicly held and privately held.

Question 64

Which of the following Canadian companies must report under International Financial Reporting Standards?

A) private companies
B) not-for-profit corporations
C) public companies
D) partnerships

Question 65

Retained earnings are subtracted from share capital to arrive at total shareholders' equity.

Question 66

Canadian Tire Corporation is an example of a(n)

A) not-for-profit corporation.
B) publicly held corporation.
C) privately held corporation.
D) partnership.

Question 67

Return on equity will assist a company to measure its cash flow.

Question 68

A corporate board of directors generally

A) select officers.
B) manage sales targets.
C) makes everyday purchasing decisions.
D) approves vacation periods for top management.

Question 69

Under IFRS, there is a section in shareholders' equity on the balance sheet called accumulated other comprehensive income.

Question 70

Shareholders of a corporation directly elect

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

Question 71

Return on equity can be calculated as average shareholders' equity divided by profit.

Question 72

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 73

Contributed capital of a company includes share capital and retained earnings.

Question 74

The dominant form of business organization in Canada is

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

Question 75

The concept of a "separate legal existence" refers to which form of business organization?

A) partnership
B) proprietorship
C) corporation
D) limited partnership

Question 76

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

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

Question 77

Abraham Griffin has invested $ 800,000 in a privately held family corporation. The corporation does NOT do well and must declare bankruptcy. What amount does Griffin stand to lose?

A) up to his total investment of $ 800,000
B) zero
C) the $ 800,000 plus any personal assets the creditors demand
D) $ 400,000

Question 78

Retained earnings will be reported on financial statements within the share capital section.

Question 79

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 80

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

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