Deck 13: Corporations

Question 1

Paid-in capital consists of:

A)amounts paid by customers.
B)capital raised by issuing bonds or preferred stocks.
C)earnings generated by the corporation.
D)amounts received from stockholders in exchange for stock.

Answer 1

D

Question 2

Stated value stock is no-par stock that has been assigned an amount similar to par value.

Answer 2

True

Question 3

The par value of stock is:

A)the current selling price of stock.
B)the highest price for which a share can sell.
C)the price paid if the corporation purchases its own stock back.
D)the amount assigned by a company to a share of its stock.

Answer 3

D

Question 4

Paid-in capital is externally generated capital and results from transactions with outsiders.

Question 5

A corporation is a separate legal entity and is organized independently of its owners.

Question 6

The retained earnings of a corporation is the:

A)internally generated capital that is raised from profitable operations.
B)externally generated capital that is contributed by shareholders.
C)externally generated capital that is raised from banks and other creditors.
D)internally generated capital that from the direct investment of employees.

Question 7

Which of the following is true of a corporation?

A)Stock of a corporation can be publicly or privately held.
B)A corporation has to pay income taxes on its business earnings.
C)A corporation has a limited life.
D)The owners of a corporation have unlimited liabilities for the corporation's debts.

Question 8

Which of the following statements is true of a corporation?

A)The liabilities of the corporation can be paid by the personal assets of the shareholders.
B)Shares of stock cannot be readily bought and sold by investors on the open market.
C)Shareholders are authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock.

Question 9

Which of the following is true of stockholders?

A)Stockholders have a right to access confidential information about the business before the information is disseminated to the public.
B)Stockholders can claim a portion of the corporate assets after the corporation pays it debts in the event the company is liquidated.
C)Stockholders may authorize a business contract on behalf of the corporation.
D)Stockholders may determine at what price the company issues stock.

Question 10

Preferred stock is a stock:

A)that sells for a very high price.
B)that is distributed to employees of the company as a performance incentive.
C)that is distributed by corporations to avoid liquidation.
D)that gives its owners certain benefits over common stock.

Question 11

Which of the following corporate characteristics is a disadvantage of a corporation?

A)Stockholders of a corporation have limited liability.
B)A corporation has a continuous life.
C)There is no mutual agency among the stockholders and the corporation.
D)Earnings of a corporation are taxed twice.

Question 12

All classes and types of a corporation's stock carry the same degrees of risk for the shareholder.

Question 13

Retained earnings represents amounts received from stockholders of a corporation in exchange for stock.

Question 14

Stockholders of a corporation are not personally liable for the corporation's debt.

Question 15

The two basic sources of stockholders' equity are:

A)common stock and bonds.
B)common stock and preferred stock.
C)paid-in capital and retained earnings.
D)loans from banks and gifts from donors.

Question 16

Outstanding stock refers to the:

A)shares of stock that are held by the stockholders.
B)shares of stock that have been sold for the highest price.
C)total amount of stock that has been authorized by state law.
D)total amount of stock that has not been sold yet.

Question 17

Preferred stockholders receive a dividend preference over common stockholders.

Question 18

Which of the following represents one of the basic rights of stockholders?

A)Stockholders may sell their stock back to the company if they wish.
B)Stockholders may authorize a business contract on behalf of the corporation.
C)Stockholders may receive dividends from corporate earnings.
D)Stockholders may determine at what price the company issues stock.

Question 19

Which of the following explains the term "lack of mutual agency" of a corporation?

A)The liabilities of the corporation cannot be extended to the personal assets of the shareholder.
B)Shares of stock can be readily bought and sold by investors on the open market.
C)Shareholders are not authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock.

Question 20

Which of the following characteristics is an advantage of the corporate form of business?

A)less degree of government regulation
B)limited liability of stockholders
C)separation of ownership and management
D)low start-up costs

Question 21

Stock sold for amounts in excess of par value results in a gain reported on the income statement.

Question 22

Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par value common stock at $13 per share cash?

A)Cash would be debited for $65,000.
B)Common Stock would be debited for $50,000.
C)Common Stock would be credited for $65,000.
D)Paid-In Capital in Excess of Par-Common would be debited for $15,000.

Question 23

Bradley Corporation issued 10,000 shares of common stock on January 1, 2015. The stock has a par value of $0.01 per share and was sold for cash at par. Which of the following is the correct journal entry to record this transaction?

A)Cash debited for $100 and Common Stock-$0.01 Par Value credited for $100
B)Cash credited for $10,000 and Common Stock-$0.01 Par Value debited for $10,000
C)Paid-In Capital in Excess of Par-Common debited for $9,900 and Common Stock-$0.01 Par Value credited for $9,900
D)Cash debited for $10,000, Common Stock-$0.01 Par Value credited for $100, and Paid-In Capital in Excess of Par-Common credited for $9,900

Question 24

The following information is from the balance sheet of Jackson Corporation as of December 31, 2015. What is the average issue price of the preferred stock shares?

A)$107
B)$100
C)$176
D)$105

Question 25

Which of the following occurs when a shareholder invests cash in a corporation in exchange for stock?

A)Both liabilities and stockholders' equity are increased.
B)Both assets and stockholders' equity are increased.
C)One asset is increased and another asset is decreased.
D)Both assets and liabilities are increased.

Question 26

Osbourne Company issued 50,000 shares of common stock in exchange for manufacturing equipment. The equipment has a fair value of $1,000,000. The stock has par value of $0.01 per share. Which of the following is included in the journal entry to record this transaction?

A)debit Cash $5,000
B)credit Gain on Sale of Common Stock $1,050,000
C)credit Paid-In Capital in Excess of Par-Common $999,500
D)credit Common Stock-$0.01 Par Value $1,000,000

Question 27

The following information is from the balance sheet of Tudor Corporation as of December 31, • 2015. What was the total paid-in capital as of December 31, 2015?

A)$606,000
B)$807,900
C)$729,000
D)$708,000

Question 28

In the event of liquidation, preferred shareholders:

A)are guaranteed to get their investment back in full.
B)have first claim on remaining corporate assets after debts are paid.
C)may sell their shares for higher amounts than common stock.
D)may retain their proportionate share of voting rights.

Question 29

When a corporation sells 10,000 shares of $10 par value common stock for $120,000, the Common Stock account is credited for $100,000.

Question 30

Peterson Company issued 4,000 shares of preferred stock for $240,000. The stock has a par value of $60 per share. The journal entry to record this transaction would:

A)credit Cash $240,000, debit Preferred Stock-$60 Par Value $4,000, and debit Paid-In Capital in Excess of Par-Preferred $236,000.
B)debit Cash $240,000, credit Preferred Stock-$60 Par Value $4,000, and credit Paid-In Capital in Excess of Par-Preferred $236,000.
C)credit Cash $240,000 and debit Preferred Stock-$60 Par Value $240,000.
D)debit Cash $240,000 and credit Preferred Stock-$60 Par Value $240,000.

Question 31

A company cannot report a gain or loss when buying or selling its own stock.

Question 32

Preferred shareholders:

A)are guaranteed that they will not take a loss on their investment.
B)have higher voting rights than common shareholders.
C)are sold for a price lower than that of common stock.
D)have the first claim on dividend funds.

Question 33

When a company sells stock for less than the par value, it will record a gain on sale for the amount in excess of par.

Question 34

The following information is from the balance sheet of Lawson Corporation as of December 31, 2015. What was the average issue price of the common stock shares?

A)$1.90
B)$1.00
C)$3.00
D)$4.00

Question 35

Dallkin Corporation issued 5,000 shares of common stock on January 1, 2015. The stock has no par value and was sold at $18 per share. The journal entry for this transaction would include a:

A)debit to Cash for $90,000 and a credit to Common Stock-No-Par Value for $90,000.
B)debit to Cash for $90,000 and a credit to Paid-In Capital in Excess of Par-Common for $600,000.
C)credit to Cash for $90,000 and a debit to Common Stock-No-Par Value for $90,000.
D)credit to Cash for $90,000, a debit to Paid-In Capital in Excess of Par-Common for $5,000, and a debit to Common Stock-No-Par Value for $85,000.

Question 36

Which of the following types of stock is considered least risky for investors?

A)common stock
B)par value stock
C)no-par stock
D)preferred stock

Question 37

Which of the following is true of preferred stock?

A)Preferred shareholders generally receive a fixed amount of dividends before common stockholders do.
B)Preferred shareholders are guaranteed that they will not take a loss on their investment.
C)Preferred shareholders have higher voting rights than common shareholders.
D)Preferred shareholders may sell their shares for a price higher than that of common stock.

Question 38

Most corporations set par value low and issue common stock for a price above par called a premium.

Question 39

The price that the corporation receives from issuing stock is called the issue price.

Question 40

On December 2, 2015, Ewell Company purchases a piece of land from the original owner. In payment for the land, Ewell Company issues 8,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of $400,000. Which of the following is included in the journal entry to record this transaction?

A)debit Common Stock-$1 Par Value for $8,000 and debit Paid-In Capital in Excess of Par-Common $392,000.
B)credit Common Stock-$1 Par Value for $8,000 and credit Paid-In Capital in Excess of Par-Common $392,000.
C)credit Common Stock-$1 Par Value for $400,000.
D)debit Cash $400,000.

Question 41

Moretown Company had the following transactions in 2015, its first year of operations. • Issued 30,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $18.00 per share.
• Earned net income of $70,000.
• Paid no dividends.
At the end of 2015, what is the total amount of stockholders' equity?

A)$30,000
B)$610,000
C)$540,000
D)$70,000

Question 42

Legal capital refers to the portion of stockholders' equity that cannot be used for dividends.

Question 43

Peterson Company issued 4,000 shares of preferred stock for $240,000. The stock has a par value of $60 per share. Provide the journal entry for this transaction.

Question 44

Lerner Company had the following transactions in 2015, its first year of operations. • Issued 20,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $14.00 per share.
• Issued 1,000 shares of $100 par value preferred stock. Shares were issued at par.
• Earned net income of $35,000.
• Paid no dividends.
At the end of 2015, what is the total amount of paid-in capital?

A)$415,000
B)$120,000
C)$280,000
D)$380,000

Question 45

On December 2, 2014, Ewell Company purchases a piece of land from the original owner. In exchange for the land, Ewell Company issues 8,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of $400,000. Provide the journal entry for this transaction.

Question 46

Lerner Company had the following transactions in 2015, its first year of operations. • Issued 20,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $14.00 per share.
• Issued 1,000 shares of $100 par value preferred stock. Shares were issued at par.
• Earned net income of $35,000.
• Paid no dividends.
At the end of 2015, what is the total amount of stockholders' equity?

A)$415,000
B)$120,000
C)$260,000
D)$380,000

Question 47

If preferred stock is noncumulative, then the company needs to pay dividends that were passed in previous years.

Question 48

When a company has issued both preferred and common stock, the common stockholders are allocated their dividends first.

Question 49

A stock split decreases par value per share, whereas stock dividends do not affect par value per share.

Question 50

Stock dividends have no impact on the total amount of stockholders' equity.

Question 51

The declaration and payment of cash dividends cause a decrease in both assets (Cash)and stockholders' equity (Retained Earnings)for the corporation.

Question 52

Moretown Company had the following transactions in 2015, its first year of operations. • Issued 30,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $18.00 per share.
• Earned net income of $70,000.
• Paid no dividends.
At the end of 2015, what is the total amount of paid-in capital?

A)$30,000
B)$610,000
C)$540,000
D)$70,000

Question 53

A dividend's declaration date is the date the corporation records which stockholders get dividend checks.

Question 54

Stock dividends are distributed to stockholders in proportion to the number of shares each stockholder already owns.

Question 55

The declaration of a stock dividend creates a liability for the corporation.

Question 56

No journal entry is made on the dividend declaration date.

Question 57

A stock split, like any other stock issuance, cannot involve issuing more shares of stock than authorized in the corporate charter.

Question 58

Declaring and paying dividends causes an increase in both assets and stockholders' equity for the corporation.

Question 59

The declaration of a cash dividend does not create an obligation (liability)for the corporation.

Question 60

Overton Company had the following transactions in 2012, its first year of operations. • Issued 5,000 shares of common stock. Stock has par value of $0.01 per share and was issued at $30.00 per share.
• Earned net income of $200,000.
• Paid dividends of $5.00 per share.
At the end of 2012, how much is the total stockholders' equity?

A)$150,000
B)$325,000
C)$175,000
D)$350,000

Question 61

On November 1, 2015, Oster Company declared a dividend of $3.00 per share. Oster Company has 20,000 shares of common stock outstanding and no preferred stock. Which of the following is the journal entry needed to record the declaration of dividends?

A)Debit Dividends Payable-Common $60,000 and credit Retained Earnings $60,000.
B)Debit Retained Earnings $60,000 and credit Cash $60,000.
C)Debit Retained Earnings $60,000 and credit Dividends Payable-Common $60,000.
D)Debit Cash $60,000 and credit Dividends Payable-Common $60,000.

Question 62

Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4% noncumulative, with $100 par value. On October 15, 2015, the company declares a total dividend payment of $40,000. What is the total amount of dividends that will be paid to the common shareholders?

A)$40,000
B)$32,000
C)$400
D)$4,500

Question 63

Which of the following is the correct description of dividends in arrears, as it applies to cumulative preferred stock?

A)the cumulative amount of dividends that were not paid in previous years
B)the cumulative amount of dividends that were paid in previous years
C)the amount of dividends that were paid late
D)the amount of dividends that will be paid in the coming year

Question 64

Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4% noncumulative, with $100 par value. On October 15, 2015, the company declares a total dividend payment of $40,000. How much dividend will be paid to the preferred shareholders?

A)$40,000
B)$2,000
C)$8,000
D)$4,500

Question 65

On the ________, cash dividends become a liability of a corporation.

A)declaration date
B)date of record
C)end of the fiscal year
D)payment date

Question 66

On November 1, 2015, Oster Company declared a dividend of $3.00 per share. Oster Company has 10,000 shares of common stock outstanding and 20,000 preferred shares. The date of record is November 15, and the payment date is November 30, 2014. Which of the following statements is true of the date of record?

A)No journal entry is made on the date of record.
B)The liability must be recorded on the date of record.
C)Cash is disbursed to shareholders on the date of record.
D)The company transfers cash to a brokerage firm on the date of record.

Question 67

Saturn Corporation has 10,000 shares of 10%, $75 par noncumulative preferred stock outstanding and 20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of $180,000. How is the dividend allocated between preferred and common stockholders?

A)The dividend is allocated $5,000 to preferred shareholders and $115,000 to common shareholders.
B)The dividend is allocated $75,000 to preferred shareholders and $105,000 to common shareholders.
C)The dividend is allocated $60,000 to preferred shareholders and $120,000 to common shareholders.
D)The dividend is allocated $72,000 to preferred shareholders and $108,000 to common shareholders.

Question 68

Which of the following occurs when a previously declared dividend is paid?

A)Assets increase.
B)Stockholders' equity increases.
C)Liabilities decrease.
D)Assets remain unchanged.

Question 69

On November 1, 2015, Oster Company declared a dividend of $3.00 per share. Oster Company has 20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15, and the payment date is November 30, 2015. Which of the following is the journal entry needed on November 30?

A)Debit Retained Earnings $60,000 and credit Dividends Payable-Common $60,000.
B)Debit Dividends Payable-Common $60,000 and credit Cash $60,000.
C)Debit Cash $60,000 and credit Dividends Payable-Common $60,000.
D)Debit Retained Earnings $60,000 and credit Cash $60,000.

Question 70

Memorandum entry is an entry in the journal that notes a significant event, but has no debit or credit amount.

Question 71

Which of the following occurs when a cash dividend is declared?

A)Liabilities remain unchanged.
B)Stockholders' equity decreases.
C)Liabilities decrease.
D)Assets increase.

Question 72

Which of the following is true of dividends?

A)Dividends are a distribution of cash, stock, or other assets to the stockholders.
B)Dividends increase assets and decrease total stockholders' equity of a corporation.
C)Dividend payments decrease paid-in capital.
D)Dividend payments increase stockholders' equity.

Question 73

A corporation has 10,000 shares of 10%, $100 par noncumulative preferred stock outstanding and 20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of $120,000. What is the dividend per share for preferred shares and for common shares?

A)The dividend per share is $10.00 to preferred shares and $1.00 to common shares.
B)The dividend per share is $6.67 to preferred shares and $1.00 to common shares.
C)The dividend per share is $10.00 to preferred shares and $10 to common shares.
D)The dividend per share is $50.00 to preferred shares and $1.00 to common shares.

Question 74

A 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value.

Question 75

A corporation declares a dividend of $0.50 per share on 10,000 shares of common stock. Which of the following would be included in the entry to record the declaration?

A)Retained Earnings would be debited for $5,000.
B)Paid-In Capital in Excess of Par-Common would be credited for $5,000.
C)Retained Earnings would be credited for $5,000.
D)Dividends Payable-Common would be debited for $5,000.

Question 76

Which of the following would be included in the entry to record the payment of a previously declared dividend of $0.25 per share on 12,500 shares of common stock?

A)Retained Earnings would be debited for $3,125.
B)Cash would be debited for $3,125.
C)Retained Earnings would be credited for $3,125.
D)Dividends Payable would be debited for $3,125.

Question 77

Dividends in arrears are:

A)a liability on the balance sheet.
B)passed dividends on noncumulative preferred stock.
C)passed dividends on cumulative preferred stock.
D)passed dividends on common stock.

Question 78

Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4% noncumulative, with $100 par value. On October 15, 2015, the company declares a total dividend payment of $40,000. What is the amount of dividend that will be paid for each share of common stock?

A)$0.80
B)$400.00
C)$4.00
D)$1.00

Question 79

On the date of record of dividends, the company:

A)issues new shares of stock.
B)disburses dividend payments to shareholders.
C)records the dividend payable amount.
D)determines who owns the shares of stock as of that date.

Question 80

Pearland Company has 5,000 shares of preferred stock outstanding. The preferred stock has a $90 par value, a 5% dividend rate, and is noncumulative. If Pearland has sufficient funds to pay dividends, what is the total amount of dividends that will be paid out to preferred shareholders?

A)$10,800
B)$22,500
C)$9,000
D)$4,500