Deck 18: Corporations: Organizations and Stock

Question 1

Officers of the corporation are:

A)appointed by the stockholders.
B)stockholders of the corporation.
C)appointed by the board of directors.
D)None of these answers are correct.

Answer 1

C

Question 2

Preferred stockholders have what right over common stockholders?

A)Voting rights
B)Prior claim to dividends
C)More risk than common stockholders
D)Preemptive rights

Answer 2

B

Question 3

Articles of incorporation contain all of the following except:

A)the names of the directors.
B)the location of the business.
C)the life expectancy (usually forever)of the business.
D)the nature of the business.

Answer 3

A

Question 4

The major parts of the Stockholders' Equity section of the balance sheet are:

A)Paid-in Capital and Retained Earnings.
B)Stock and Retained Earnings.
C)Stock,Paid-in Capital,and Retained Earnings.
D)Authorized Stock and Preferred Stock.

Question 5

Characteristics of a corporation include:

A)stockholders having unlimited liability.
B)direct management by the stockholders.
C)stockholders having limited liability.
D)choosing a board of directors.

Question 6

Which of the following is a characteristic of a corporation?

A)The stockholders have limited liability.
B)When stockholders sell their shares,the corporation is dissolved.
C)A corporation cannot own property in its name.
D)Cash dividends to the stockholders are non-taxable.

Question 7

Preemptive rights allow a stockholder to:

A)share in profits first.
B)maintain a proportionate ownership interest in the corporation.
C)vote their shares at the annual meeting
D)dispose or sell their stock without notice.

Question 8

The articles of incorporation are:

A)submitted by the incorporators to the IRS for approval.
B)submitted by the incorporators to the Office of the Secretary of State for approval.
C)submitted by the incorporators to Securities and Exchange Commission for approval.
D)submitted by the incorporators to the Governor of the State for approval.

Question 9

If preferred stock is cumulative,the preferred stockholders:

A)have a right to certain dividends every year.
B)may receive a bonus.
C)will always receive a yearly dividend.
D)All of these answers are correct.

Question 10

Which of the following would normally not appear in the Stockholders' Equity section of the balance sheet?

A)Cash
B)Paid-in Capital
C)Common Stock
D)Preferred Stock

Question 11

Issued stock is:

A)authorized shares of stock that can be sold.
B)stock only sold to another company.
C)shares sold and in stockholders' possession.
D)stock sold to stockholders.

Question 12

If only one type of stock is issued,it is:

A)no-par preferred stock.
B)preferred stock.
C)legal capital.
D)common stock.

Question 13

Authorized capital stock is:

A)shares listed in the charter.
B)shares issued to the corporation's officers.
C)shares sold and in stockholder possession.
D)shares that pay dividends.

Question 14

A major disadvantage of a corporation is the:

A)difficulty in transferring ownership.
B)limited life.
C)difficulty in raising capital.
D)double taxation of income to the corporation and of dividends paid to shareholders.

Question 15

The ownership of the corporation consists of:

A)the governing body.
B)the officers of the corporation.
C)the stockholders
D)the board of directors.

Question 16

Stockholders' investment appears in:

A)Paid-in Capital.
B)Owner's Equity.
C)Retained Earnings.
D)Cash.

Question 17

Preferred stock is considered to be non-cumulative when:

A)preferred stockholders get their yearly dividend and a percent of what is left over,sharing with common stockholders.
B)preferred stockholders have a right to the current year's dividend,but do not receive holdovers from past years when dividends were not paid.
C)preferred stockholders have a right to a certain dividend every year.
D)None of these answers are correct.

Question 18

Common stockholders have all the following rights except:

A)the right to prior claims of profit over preferred stockholders.
B)the right to vote.
C)the right to sell their stock.
D)the right to share in assets upon liquidation after creditors and preferred stockholders.

Question 19

Which of the following is not a characteristic of a corporation?

A)Ease of formation
B)No mutual agency
C)Unlimited life
D)Limited liability

Question 20

One type of preferred stock that provides for the payment of preferred dividends that are in arrears is called:

A)non-participating.
B)cumulative.
C)non-cumulative.
D)participating.

Question 21

Corporations are subject to more government regulations than sole proprietorships and partnerships.

Question 22

Dividends in arrears occur when the company does not pay dividends to:

A)cumulative preferred stockholders.
B)non-cumulative preferred stockholders.
C)participating preferred stockholders.
D)non-participating common stockholders.

Question 23

A change in ownership terminates the corporation.

Question 24

An advantage of a corporation would be:

A)limited liability for the shareholders.
B)unlimited life.
C)double taxation (income of corporation and dividends to shareholders).
D)both A and B are correct.

Question 25

Stockholders pay federal income tax on their stock dividends.

Question 26

Each share of capital stock of a corporation gives its owner the right to:

A)share in the assets if the corporation liquidates.
B)set company policy.
C)hire and fire employees.
D)manage the daily operations of the business.

Question 27

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

Question 28

When a corporation has only one class of stock,it will be common stock.

Question 29

The Articles of Incorporation are submitted to the Secretary of State.

Question 30

A form issued by the corporation that shows the name of the stockholder and the number of shares owned is called a(n):

A)article of incorporation.
B)charter.
C)proxy.
D)stock certificate.

Question 31

Retained Earnings is the account in which a corporation's net income and net losses are placed.

Question 32

A share of stock may be sold at any given time according to the stock's:

A)stated value.
B)book value.
C)market value.
D)par value.

Question 33

Par value is equal to:

A)market value of the stock.
B)the amount stated in the charter or legal capital.
C)retained earnings.
D)the initial price at which the stock is sold.

Question 34

Voting rights are a characteristic of which type stock?

A)Common but not preferred
B)Preferred but not common
C)Both common and preferred
D)Neither common or preferred

Question 35

The stockholders of a corporation have mutual agency.

Question 36

A stock certificate is released for authorized stock.

Question 37

Cox Corporation has issued 1,000 shares of stock.Janis owns 200 shares.If the corporation issues an additional 500 shares,how many shares does Janis have the preemptive right to purchase?

A)100 shares
B)200 shares
C)500 shares
D)None

Question 38

Corporations can issue:

A)par value shares.
B)no-par value shares.
C)stated value shares.
D)All of these answers are correct.

Question 39

An amount determined by the corporation directors and assigned to no-par value stock is:

A)par value.
B)stated value.
C)book value.
D)market value.

Question 40

Double taxation is said to be a disadvantage of a corporation.

Question 41

RH Corporation Stockholders' Equity section includes the following information: $\begin{array} { | l | r | } \hline \text { Preferred Stock } & \$ 11,000 \\\hline \text { Paid-in Capital in Excess of Par-Preferred } & 17,000 \\\hline \text { Common Stock } & 16,000 \\\hline \text { Paid-in Capital in Excess of Par-Common } & 4,000 \\\hline \text { Retained Earnings } & 7,000 \\\hline\end{array}$ Total paid-in capital is:

A)$48,000.
B)$55,000.
C)$27,000.
D)$21,000.

Question 42

The entry to record MidIowa.net selling 800 shares of $6.00 par value common stock at $8.00 would be to:

A)debit Cash $6,400; credit Common Stock $4,800; credit Paid-in Capital in Excess of Par Value-Common $1,600.
B)debit Cash $4,800; credit Common Stock $4,800.
C)debit Cash $6,400; debit Paid-in Capital in Excess of Par Value-Common $1,600; credit Common Stock $8,000.
D)None of these answers are correct.

Question 43

The entry to record selling 300 shares of no-par common stock with a stated value of $60 for $70 would be to:

A)debit Cash $21,000; credit Common Stock $21,000.
B)debit Cash $18,000; credit Common Stock $18,000.
C)debit Cash $21,000; credit Common Stock $18,000; debit Paid-in Capital in Excess of Par Value-Common $3,000.
D)debit Cash $21,000; credit Common Stock $18,000; credit Paid-in Capital in Excess of Stated Value-Common $3,000.

Question 44

Shares of outstanding stock always equal the number of shares of authorized stock.

Question 45

A company would rarely sell its stock for below par value.

Question 46

Organization costs are:

A)part of the company's start-up and are listed as expenses.
B)listed as an intangible asset on the balance sheet.
C)a current asset on the balance sheet.
D)another expense on the income statement.

Question 47

List and discuss the (a)advantages and (b)disadvantages of the corporation form of business.

Question 48

Cumulative preferred stock means that the preferred stockholders have a right to a certain dividend every year.

Question 49

Revenue earned by the business was recorded as additional paid-in capital.This error would cause:

A)the period's net income to be understated.
B)the period's net income to be overstated.
C)the period end assets to be overstated.
D)None of these are correct.

Question 50

List and discuss the following:
a.Rights of common stockholders
b.Rights of preferred stockholders

Question 51

Common stock was sold in excess of par; the excess was credited to Sales.This error would cause:

A)the period's net income to be understated.
B)the period's net income to be overstated.
C)the period end assets to be overstated.
D)None of these are correct.

Question 52

A corporation is not required to pay dividends.

Question 53

The entry to record selling 150 shares of no-par common stock with a stated value of $30 for $40 would be to:

A)debit Common Stock for $6,000; credit Cash for $6,000.
B)debit Cash for $6,000; credit Common Stock for $6,000.
C)debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in Excess of Stated Value-Common for $1,500.
D)debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in Excess of Par Value-Common for $1,500.

Question 54

When stock is exchanged for non-cash assets:

A)debit the asset for prior book value; credit Common Stock for cash received.
B)debit assets for market value; credit Common Stock for par value and,if needed,Paid-in Capital in Excess of Par.
C)debit assets for market value; credit Common Stock for market value.
D)debit assets for par value; credit Common Stock for par value.

Question 55

The two main sources of stockholders' equity are investments by stockholders and net income retained in the corporation.

Question 56

A common shareholder's right to purchase an equivalent percentage of new stock is his preemptive right.

Question 57

Five hundred shares of $25 par common stock was exchanged for a piece of equipment with a fair market value of $13,500.The journal entry to record the transaction would include a credit to:

A)Equipment for $12,500.
B)Debit to Common Stock for $12,500.
C)Credit to Paid-In Capital in Excess of Par-Common for $1,000.
D)Credit to Common Stock for $13,500.

Question 58

A corporation shares its profits with stockholders in the form of dividends.

Question 59

The Zonga Corporation Stockholders' Equity section includes the following: $\begin{array} { | l | r | } \hline \text { Preferred Stock } & \$ 22,000 \\\hline \text { Common Stock } & 48,000 \\\hline \text { Paid-in Capital in Excess of Par-Preferred } & 2,980 \\\hline \text { Paid-in Capital in Excess of Par-Common } & 3,400 \\\hline \text { Retained Earnings } & 7,350 \\\hline\end{array}$ Total paid-in capital is:

A)$83,730.
B)$76,380.
C)$70,000.
D)$77,350.

Question 60

No entry was recorded for the exchange of stock for land.This error would cause:

A)the period end stockholders' equity to be understated.
B)the period end stockholders' equity to be overstated.
C)the period's net income to be understated.
D)Both A and C are correct.

Question 61

A company issues no-par value with no stated value stock.Therefore,the company does not have a minimum legal capital amount.

Question 62

Washington Corporation issued 4,000 shares of its $20 par value common stock for $23 per share.The entry to record the issuance would include a:

A)debit to Cash for $80,000.
B)credit to Common Stock for $12,000.
C)credit to Common Stock for $80,000.
D)debit to Paid-in Capital in Excess of Par Value for $12,000.

Question 63

Birch Company issued 200 shares of common stock with a par value of $12 per share in exchange for equipment with a fair market value of $3,000.Record the journal entry for the stock issuance.

Question 64

Madison Corporation is authorized to issue 3,000 shares of common stock.Record the journal entry for each of the following independent situations.Assume Madison issues 750 shares at $15 on August 31.
a)Common stock has a $10 per share par value.
b)Common stock has no par value and no stated amount.
c)Common stock is no-par stock with a stated value of $8 per share.

Question 65

The Harvester Corporation issued 40 shares of $20 par value stock to its accountant.The shares are in full payment for her $900 fee for assistance in setting up the new company.The entry to record the issuance of the stock would include a:

A)credit to Common Stock for $900.
B)debit to Common Stock for $900.
C)credit to Common Stock for $800.
D)debit to Common Stock for $800.

Question 66

The par value of stock represents the legal capital of the corporation.

Question 67

In exchange for $1,500 legal services to help set up the new company,Hickory Grove Corporation issued 100 shares of $10 par value stock to its attorney.The entry to record the issuance of the stock would include a:

A)credit to Common Stock for $1,000.
B)debit to Common Stock for $1,000.
C)credit to Common Stock for $1,500.
D)debit to Paid-in Capital in Excess of Par Value for $500.

Question 68

R.Red formed a corporation with an authorization of 20,000 shares of $50 par,6% non-cumulative preferred stock and 100,000 shares of $10 par common stock.The following selected transactions were completed during the first year of operations.Journalize the transactions omitting explanations.

Question 69

Journalize the following independent transactions:
a)Casey Company sells 250 shares of $20 par-value common stock at $20.
b)Jacob Corporation sells 100 shares of $15 par-value common stock at $20.
c)Moss Inc.sells 40 shares of no-par common stock with a $15 stated value for $30 per share.

Question 70

Sunrise Online issued 500 shares of its $10 common stock in exchange for equipment with a fair market value of $7,500.The entry to record the transaction would include a:

A)debit to Equipment for $5,000.
B)debit to Common Stock for $5,000.
C)credit to Paid-in Capital in Excess of Par Value for $2,500.
D)credit to Common Stock Subscribed for $5,000.

Question 71

The sale of common stock above par was recorded by crediting Common Stock for the total amount.This error would cause:

A)the period end stockholders' equity to be overstated.
B)the period end stockholders' equity to be understated.
C)the period's net income to be understated.
D)None of these are correct.

Question 72

The Collins Corporation Stockholders' Equity section includes the following: $\begin{array} { | l | r | } \hline \text { Preferred Stock } & \$ 12,000 \\\hline \text { Common Stock } & 15,000 \\\hline \text { Paid-in Capital in Excess of Par-Preferred } & 2,700 \\\hline \text { Paid-in Capital in Excess of Par-Common } & 4,100 \\\hline \text { Retained Earnings } & 8,200 \\\hline\end{array}$ What was the total amount preferred stock was sold for?

A)$12,000
B)$14,700
C)$16,100
D)$20,200

Question 73

The TM Stockholders' Equity section includes the following: $\begin{array} { | l | r | } \hline \text { Preferred Stock } & \$ 3,800 \\\hline \text { Common Stock } & 7,700 \\\hline \text { Paid-in Capital in Excess of Par-Preferred } & 400 \\\hline \text { Paid-in Capital in Excess of Par-Common } & 2,250 \\\hline \text { Retained Earnings } & 6,000 \\\hline\end{array}$ What was the total amount common stock was sold for?

A)$7,700
B)$13,700
C)$11,500
D)$9,950

Question 74

ABC sells 400 shares of its $23 par common stock for $27.The entry would entail a credit(s)of:

A)Cash of $9,200.
B)Paid-in Capital in Excess of Par-Common for $800; Common Stock for $10,800.
C)Paid-in Capital in Excess of Par-Common for $1,600; Common Stock for $9,200.
D)Common Stock for $10,800.

Question 75

The Logan Company issued 140 shares of its $12 par value stock for $14 per share.The entry to record the receipt of cash and issuance of the stock would include a:

A)debit to Cash of $1,680; credit to Common Stock for $1,680.
B)debit to Cash for $1,960.
C)credit to Common Stock for $1,960.
D)debit to Discount on Common Stock for $280

Question 76

The sale of common stock was recorded as a sale of preferred stock.This error would cause:

A)the period end stockholders' equity to be overstated.
B)the period end stockholders' equity to be understated.
C)the period's net income to be understated.
D)None of these are correct.

Question 77

If stock shares are sold at more than their par value,the excess money is called:

A)earnings.
B)paid-in capital in excess of par.
C)gain on issue of stock.
D)discount on issue of stock.

Question 78

When a company sells stock at an amount greater then par value,the excess amount is referred to as:

A)a discount.
B)a premium.
C)a bonus.
D)Companies cannot sell stock for more than par value.

Question 79

Dolly's Best issued 200 shares of its $10 common stock in exchange for used packaging equipment with a fair market value of $2,400.The entry to record the acquisition of the equipment would include a:

A)debit to Equipment for $2,000.
B)debit to Paid-in Capital in Excess of Par for $400.
C)credit to Common Stock for $2,400.
D)debit to Equipment for $2,400.

Question 80

Carmen Corporation issued 200 shares of its $10 par value stock to an attorney.The shares are in full settlement for $8,000 of legal services to help set up the company.Prepare the journal entry for the stock issuance.