Deck 13: Introduction to Corporations

Question 1

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

Answer 1

True

Question 2

The Board of Directors of a corporation legally owns the corporation.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

Organization costs are normally capitalized by public companies.

Question 7

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

Question 8

Most of the largest Canadian companies are publically held.

Question 9

A privately held corporation can also be a publicly accountable enterprise if it has bonds that are publically held.

Question 10

Companies incorporated in the province of Ontario will be incorporated under the Canada Business Corporations Act.

Question 11

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

Question 12

Corporations must pay taxes as a legal entity.

Question 13

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

Question 14

Companies can only be incorporated under a federal basis.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

Income tax expense must be added on the income statement when determining profit.

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

One characteristic of preferred shares is a dividend preference.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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 32

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

Question 33

Shares can be issued only in exchange for cash.

Question 34

A corporation must have preferred shares.

Question 35

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

Question 36

Share capital may be distributed to shareholders as dividends.

Question 37

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

Question 38

Common shares usually have a cumulative dividend feature.

Question 39

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

Question 40

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 41

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

Question 42

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

Question 43

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

Question 44

Dividends in arrears are not considered a liability.

Question 45

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

Question 46

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

Question 47

There is no obligation to pay dividends until a dividend is declared by the Board of Directors.

Question 48

Dividends are distributed from retained earnings.

Question 49

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

Question 50

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

Question 51

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

Question 52

Income tax expense is shown on the income statement.

Question 53

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

Question 54

Income taxes only affect the income statement.

Question 55

Retained earnings is a temporary account.

Question 56

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

Question 57

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

Question 58

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

Question 59

Companies have one year after their fiscal year end to submit their corporate tax return without incurring penalties.

Question 60

Corporate income tax is based on the amount of Retained Earnings that a company has.

Question 61

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

Question 62

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 63

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

Question 64

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

Question 65

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 66

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

Question 67

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 68

Under IFRS, there is a section in Shareholders Equity on the balance sheet called accumulated other comprehensive income.

Question 69

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 70

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 71

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 72

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 73

Declaration of cash dividends increases liabilities and decreases shareholders equity.

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

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

Question 77

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 78

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 79

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

Question 80

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