Deck 10: Corporations: Share Capital and Retained Earnings

Question 1

There are three basic rights a shareholder may have.

Answer 1

False

Question 2

What does an organization's founders need to do to incorporate their business?

Answer 2

An organization's founders need to file an application to the appropriate government authorities, specifying information including the name of the corporation, the type of business, the location of the business, and the number and types of shares to be authorized.

Question 3

When you invest in a corporation, you may call yourself a __________.

Answer 3

shareholder or stockholder

Question 4

Which of the following is an advantage of a corporation?

A) Double taxation
B) Continuous life
C) Unlimited liability
D) Non-transfer of ownership
E) Government regulation

Question 5

What are two disadvantages of the corporate form of business?

Question 6

Retained earnings represent internally generated capital.

Question 7

Limited liability means that the shareholders of a corporation share a personal liability for all debts of the corporation.

Question 8

Identify the advantages and disadvantages of the corporate form of business.

Question 9

Which of the following is NOT an advantage of a corporation?

A) Double taxation
B) Ease of raising capital
C) Ease of transfer ownership
D) Continuous life
E) Limited liability

Question 10

A corporation in Canada can only incorporate through the federal government.

Question 11

Which one of the following is NOT a typical characteristic of a private corporation?

A) Small number of shareholders
B) Shares are not liquid
C) Shares are not easily traded
D) Shares are traded on a stock market
E) Shares are not easily transferred

Question 12

Shareholders' equity consists of contributed capital and paid-in capital.

Question 13

A corporation is a separate legal entity from its owners.

Question 14

Identify the differences between a private and public corporation.

Question 15

What types of businesses are very numerous in Canada?

Question 16

A public corporation has its shares listed for trading in a stock market.

Question 17

The process of becoming a corporation is known as __________.

Question 18

Can a creditor make a claim against an individual shareholder for liabilities associated with a corporation? Explain.

Question 19

What is an organization authorized to sell once it has become a corporation?

Question 20

Which of the following business types dominates by the amount of business transacted?

A) Partnerships
B) Proprietorships
C) Corporations
D) Government entities
E) Other

Question 21

The price that the corporation receives from issuing shares is called the underwriter price.

Question 22

A corporation may issue shares for other than cash, requiring the recording of the assets at current market value.

Question 23

When shareholders participate in management, they are demonstrating which shareholder right?

Question 24

Identify two advantages preferred shareholders have over the owners of common shares.

Question 25

Do preferred shareholders take less investment risk than common shareholders? Explain.

Question 26

Identify and explain the four basic rights of a shareholder.

Question 27

Under the Canada Business Corporations Act (CBCA), explain why shares must be no par value.

Question 28

Maintaining their proportionate share in the ownership of a corporation when new shares are available to be purchased is an example of which shareholder right?

Question 29

Describe the two sources of shareholders' equity.

Question 30

Five hundred common shares trading at $25/share were exchanged for a piece of equipment with a current market value of $13,500. The journal entry to record the transaction would include a:

A) credit to Equipment for $12,500.
B) debit to Common Shares for $12,500.
C) credit to Common Shares for $12,500.
D) credit to Common Shares for $13,500.
E) debit to Equipment for $13,500.

Question 31

Many companies raise capital by issuing shares directly to shareholders or by using an underwriter.

Question 32

Preferred shares are considered a voting "class" of shares.

Question 33

If you own 500 shares (2% of a corporation's stock) and the corporation issues 15,000 new shares, how many of the new shares can you purchase under preemptive right?

A) 500
B) 300
C) 800
D) 0
E) 100

Question 34

Which right do preferred stockholders receive before common stockholders?

Question 35

If you own 500 shares (2% of a corporation's stock) and the corporation issues 15,000 new shares, how many total shares will you have after exercising your preemptive rights?

A) 500
B) 300
C) 800
D) 0
E) 600

Question 36

Which of the following would NOT be share capital?

A) Capital earned by profitable operations
B) Contributed capital
C) Amounts received from shareholders
D) Common shares
E) Externally generated capital resulting from transactions with outsiders

Question 37

Shareholders receiving their proportionate share of any assets left after a company goes out of business is an example of which shareholder right?

Question 38

All Canadian shares are no-par value.

Question 39

Earnings that a shareholder receives from a corporation is an example of which shareholder right?

A) Vote
B) Dividends
C) Liquidation
D) Preemption
E) Retained earnings

Question 40

What is the minimum number of voting class shares that a company must have?

Question 41

Why are shares not referred as "no-par shares"?

Question 42

The price that the corporation receives from issuing shares is called the __________ price.

Question 43

Cumulative common shares will pay dividends in arrears.

Question 44

A company can sell its shares directly to shareholders or it can use the services of an __________.

Question 45

When a corporation issues shares for assets other than cash, how does it record the assets received?

Question 46

Paying dividends causes a decrease in total assets, but an increase in total shareholders' equity.

Question 47

The Harvester Company issued 40 shares trading at $20/share to its accountant in full payment for her $900 fee for assisting in setting up the new company. The entry to record the issuance of the stock would include a:

A) debit to Common Shares for $800.
B) credit to Common Shares for $900.
C) credit to Common Shares for $800.
D) debit to Accounting Fees for $900
E) credit to Cash for $900.

Question 48

An underwriter usually agrees to:

A) buy all the shares it cannot sell to its clients.
B) buy half the shares it cannot sell to its clients.
C) buy none of the shares it cannot sell to its clients.
D) buy a certain percentage of the shares it cannot sell to its clients.
E) sell 100% of the shares.

Question 49

Which of the following dates do NOT require a journal entry?

A) Date of payment
B) Date of record
C) Date of declaration
D) Date of dividend
E) All dividend dates require a journal entry.

Question 50

Corporations declare cash dividends from retained earnings.

Question 51

Birch is a publicly traded company and issues 200 preferred shares for $12 per share. Which of the following is a part of the journal entry for this transaction?

A) Debiting preferred shares for $2,400
B) Crediting preferred shares for $2,400
C) Crediting cash for $2,400
D) Crediting preferred shares for $200
E) Debiting preferred shares for $200

Question 52

Does a company have to sell its shares directly to shareholders only?

Question 53

If a corporation has both common and preferred shares, the preferred shareholders will receive their dividends first, if the money is available.

Question 54

The portion of shareholders' equity that can be used for dividends is referred to as legal capital.

Question 55

ABC Co. issues 500 common shares for $10 per share. Identify the entry that would be recorded.

Question 56

Non-monetary exchanges can be __________ exchanged for an asset.

Question 57

Which of the following is NOT a date associated with dividends?

A) Date of issuance
B) Date of declaration
C) Date of payment
D) Date of record
E) Date of purchase

Question 58

If the value of the shares can be reliably measured, for instance when the share price can be easily obtained from the stock market, then the asset exchanged should be recorded at __________.

Question 59

NDP Co. issues 750 preferred shares for $10 per share and 1,000 common shares for $15 per share. Identify the entry that would be recorded.

Question 60

Under IFRS and Canadian ASPE, how should non-monetary exchanges be measured?

Question 61

ABC Co. declares a $0.50 per share cash dividend on its common shares, of which 100,000 shares are outstanding. Record the journal entry to avoid a year-end closing entry of the dividends account.

Question 62

Aztec Industries has 100,000 common shares outstanding and 10,000 $2 cumulative preferred shares. If the company declares a total dividend of $35,000, how much will be distributed to common shareholders?

Question 63

What journal entry is recorded on the date of declaration to avoid a year-end closing entry of the dividends account?

Question 64

Explain the difference between cumulative and non-cumulative preferred shares.

Question 65

The date of declaration creates ________ for the corporation.

A) an asset
B) a liability
C) an expense
D) a revenue
E) no obligation

Question 66

What is it called when a company does not have enough cash to fund an entire annual preferred dividend?

Question 67

What journal entry is recorded on the date of payment?

Question 68

Are dividends in arrears a liability? Explain.

Question 69

A type of share that pays dividends in arrears is called a __________,

Question 70

The liability "dividend payable" is recognized on the date of __________.

Question 71

What are the two types of preferred shares?

Question 72

Hancock Enterprise has 30,000 $2 noncumulative preferred shares. It did not pay any dividends for the current year. How much, if any, are the dividends in arrears?

Question 73

A stock dividend affects total shareholders' equity.

Question 74

Aztec Industries has 100,000 common shares outstanding and 10,000 $2 cumulative preferred shares. If the company does not declare any dividends in Year 1 but declares a total dividend of $45,000 in Year 2, how much will be distributed to preferred and common shareholders?

Question 75

The date of record is the date that:

A) the board of directors announces a dividend will be paid.
B) the dividends will be transferred to the shareholders.
C) the shareholders purchased the shares.
D) will determine which shareholders receive the dividends.
E) the company records its obligation.

Question 76

A stock dividend increases the shareholder's percentage of stock held.

Question 77

Identify and explain the three dates associated with the declaration and payment of a cash dividend.

Question 78

On the date of record:

A) debit Dividends and credit Retained Earnings.
B) debit Dividends Payable and credit Cash.
C) no entry is required.
D) debit Retained Earnings and credit Dividends Payable.
E) debit Cash and credit Dividends Payable.

Question 79

ABC Company declares a $50,000 cash dividend to its shareholders. The company has 40,000 outstanding common shares and 15,000 $3 noncumulative preferred shares. Record the journal entry.

Question 80

A corporation may declare stock dividends when there is not enough cash to pay a cash dividend.