Deck 13: Accounting for Corporations

Question 1

If a corporation is authorized to issue 1,000 shares of $50 common stock,it is said to have $50,000 of stock outstanding.

Answer 1

False

Question 2

Corporations are subject to substantially fewer regulations and laws than are proprietorships and partnerships.

Answer 2

False

Question 3

A corporation can issue two kinds of stock - common and preferred.

Answer 3

True

Question 4

Retained earnings generally consist of a company's cumulative net income less any net losses and dividends declared since its inception.

Question 5

A transfer agent keeps stockholder records and prepares official lists of stockholders and dividend payments.

Question 6

Minimum legal capital requirements are intended to protect creditors by requiring a minimum level of legal minimum.

Question 7

Cumulative preferred stock carries the right to be paid both current and all prior periods' unpaid dividends before any dividends are paid to common shareholders.

Question 8

Stock is attractive to investors because stockholders are not liable for the corporation's actions and debts and because stock is easily transferred.

Question 9

Common shareholders always share equally with all other shareholders in all dividends.

Question 10

Stated value stock is par stock that is assigned a value per share by the corporation's board of directors.

Question 11

Par value per share is the price at which a share of stock is bought or sold.

Question 12

A corporation is a legal entity separate from its owners.

Question 13

Stockholders' equity consists of paid-in capital and retained earnings.

Question 14

The only way that a shareholder can affect the management of a corporation is to get elected to the corporation's board of directors.

Question 15

Common stock always carries a preference for receiving dividends over preferred stock.

Question 16

Organization expenses of a corporation often include legal fees and promoter fees.

Question 17

Authorized stock is the total number of shares outstanding.

Question 18

A proxy is a document that gives a designated agent the right to vote a shareholder's stock.

Question 19

Paid-in capital is the total amount of cash and other assets the corporation receives from its stockholders in exchange for its stock.

Question 20

A preemptive right means shareholders can purchase their proportional share of common stock issued later by the corporation.

Question 21

A company made an error in recording the 2009 purchase of computer equipment as an expense.This was discovered in 2011.The item should be reported as a prior period adjustment on the 2009 income statement.

Question 22

Earnings per share is the amount of income earned per share of a company's outstanding (weighted-average)common stock.

Question 23

If the dividends account is not recorded as a reduction to Retained Earnings on the date of declaration,the dividends account is closed to Retained Earnings at the end of the accounting period.

Question 24

If a corporation receives assets other than cash in exchange for stock,it records the assets received at their market value as of the date of the transaction.
TopiC: True

Question 25

The price-earnings ratio is computed by dividing earnings per share by the market price per share.

Question 26

Book value per share reflects the value per share if a company is liquidated at balance sheet amounts.

Question 27

Book value per common share is calculated by dividing stockholders' equity applicable to common shares by the number of common shares outstanding.

Question 28

Stocks that pay large dividends on a regular basis are growth stocks.

Question 29

Dividend yield is computed by dividing annual cash dividends per share by the market value per share.

Question 30

Dividend yield shows the annual amount of cash dividends distributed to common shares relative to the stock's market price.

Question 31

A company has earnings per share of $6.45.Its dividend per share is $0.20,and its market price per share is $80.Its price-earnings ratio equals 12.4.

Question 32

Stocks with a price-earnings ratio greater than 20 to 25 are likely to be underpriced.

Question 33

Changes in accounting estimates are accounted for in current and future periods.

Question 34

A common statutory restriction is reported on the income statement whereas; a common contractual restriction is reported in the stockholders' equity section of the balance sheet.

Question 35

A corporation sometimes gives shares of its stock to promoters in exchange for their services in organizing the corporation.

Question 36

The main limitation in using book value per share for stock valuation models is the potential difference between recorded value and market value for both assets and liabilities.

Question 37

Dividend yield is defined as the market price per share of a company's stock divided by its earnings per share.

Question 38

Sparrow Company had net income of $63,000.The company had 9,000 weighted average common shares outstanding.The basic earnings per share equal $7.00 per share.

Question 39

Retained earnings are not part of the stockholders' claims on the company's net assets.

Question 40

The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings.

Question 41

A stock dividend decreases the market price of the company's stock.

Question 42

A reverse stock split reduces the market value per share and the par value per share of stock.

Question 43

Unpaid and undeclared preferred dividends are called dividends in arrears.

Question 44

All stock dividends are recorded at par value so there would never be a credit to the paid-in capital in excess of par value account.

Question 45

The date of record is the date that directors vote to pay a cash dividend to shareholders.

Question 46

A stock dividend reduces a corporation's assets and its stockholders' equity.

Question 47

The declaration of cash dividends reduces retained earnings.

Question 48

When no-par stock is not assigned a stated value,the total amount received is recorded as Common Stock.

Question 49

A large stock dividend only occurs when a distribution of more than 50% of previously outstanding shares is issued.

Question 50

A stock split is the distribution of additional shares of stock to stockholders according to their percent of ownership.

Question 51

Recording of a stock dividend does not result in a liability being recorded.

Question 52

Treasury stock is stock that has been authorized,issued,and is outstanding.

Question 53

Purchasing treasury stock reduces the corporation's assets and stockholders' equity by equal amounts.

Question 54

Callable preferred stock gives its holders the option of exchanging their preferred shares into common shares at a specified rate.

Question 55

Corporations issue preferred stock to raise capital without sacrificing control of the corporation and/or to boost the return earned by common shareholders.

Question 56

A debit balance in retained earnings is referred to as a retained earnings deficit.

Question 57

The journal entry to record the declaration of dividends on common stock includes a debit to Retained Earnings and a credit to Common Dividend Payable.

Question 58

Cumulative preferred stock has a right to be paid both current and prior periods' unpaid dividends before any dividend is paid to common shareholders.

Question 59

A stock split increases total stockholders' equity.

Question 60

Participating preferred stock has a feature that allows it to share with common shareholders in any dividends paid in excess of the percent or dollar amount stated on the preferred stock.

Question 61

A company had a beginning balance in retained earnings of $43,000.It had net income of $6,000 and paid out cash dividends of $5,625 in the current period.The ending balance in retained earnings equals:

A)$54,625.
B)$42,625.
C)$11,625.
D)$43,375.
E)$49,000.

Question 62

A corporation's minimum legal capital is established by recording the par or stated value of the number of shares:

A)Issued.
B)Authorized.
C)Subscribed.
D)Outstanding.
E)In treasury.

Question 63

Stock that is retired is the same as authorized and unissued stock.

Question 64

Retained earnings:

A)Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception.
B)Can only be appropriated by setting aside a cash fund.
C)Represent an amount of cash available to pay shareholders.
D)Are never adjusted for anything other than net income or dividends.
E)All of the choices are correct.

Question 65

Changes in accounting estimates are:

A)Considered accounting errors.
B)Reported as prior period adjustments.
C)Accounted for with a cumulative "catch-up" adjustment.
D)Extraordinary items.
E)Accounted for in current and future periods.

Question 66

If a company resells treasury stock below the acquisition cost,a loss from the sale of treasury stock is recorded.

Question 67

The board of directors of a corporation:

A)Are elected by the corporate registrar.
B)Are responsible for day-to-day operations of the business.
C)Do not have the power to bind the corporation to contracts, due to lack of mutual agency.
D)May not also be executive officers of the corporation, due to the separate entity principle.
E)Are responsible for and have final authority for managing corporate activities.

Question 68

Prior period adjustments to financial statements can result from:

A)Changes in accounting estimates.
B)Unacceptable accounting practices.
C)Discontinued operations.
D)Changes in tax law.
E)Extraordinary items.

Question 69

In many states,the minimum amount that stockholders must contribute to the corporation,and which is intended to protect the creditors of the corporation,is called the:

A)Par value of preferred.
B)Minimum legal capital.
C)Premium capital.
D)Stated value.
E)Working capital.

Question 70

When all of the authorized shares have the same rights and characteristics,the stock is called

A)Preferred stock.
B)Common stock.
C)Par value stock.
D)Stated value stock.
E)No-par value stock.

Question 71

The costs of bringing a corporation into existence,including legal fees,promoter fees,and amounts paid to obtain a charter are called:

A)Minimum legal capital.
B)Stock subscriptions.
C)Organization expenses.
D)Selling expenses.
E)Prepaid fees.

Question 72

Stockholders' equity consists of:

A)Long-term assets.
B)Paid-in capital and retained earnings.
C)Paid-in capital and par value.
D)Retained earnings and cash.
E)Premiums and discounts.

Question 73

Prior period adjustments are reported in the:

A)Multiple-step income statement.
B)Balance sheet.
C)Statement of retained earnings.
D)Statement of cash flows.
E)Single-step income statement.

Question 74

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:

A)Preemptive right.
B)Proxy right.
C)Right to call.
D)Financial leverage.
E)Voting right.

Question 75

If the purchase price of retired stock exceeds the net amount removed from paid-in capital,the excess is debited to Retained Earnings.

Question 76

Stated value of no-par stock is:

A)Another name for redemption value.
B)An amount assigned to par value stock by the state of incorporation.
C)The market value of the stock on the date of issuance.
D)The difference between the par value of stock and the amount below or above par value paid-in by the stockholder.
E)An amount assigned to no-par stock by the corporation's board of directors.

Question 77

A class of stock that does not have a par value,and can usually be issued at any price without creating a minimum legal capital deficiency,is called:

A)Convertible stock.
B)No-par stock.
C)Callable stock.
D)Noncumulative stock.
E)Discounted stock.

Question 78

The number of shares that a corporation's charter allows it to sell is referred to as:

A)Issued stock.
B)Outstanding stock.
C)Common stock.
D)Preferred stock.
E)Authorized stock.

Question 79

Par value of a stock refers to the:

A)Issue price of the stock.
B)Value assigned per share of stock by the corporate charter.
C)Market value of the stock on the date of the financial statements.
D)Maximum selling price of the stock.
E)Dividend value of the stock.

Question 80

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is:

A)Always equal to its par value.
B)Always equal to its stated value.
C)Referred to as paid-in capital.
D)Referred to as retained earnings.
E)Always below its stated value.