Question 1

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

Accepted Answer

The costs of bringing a corporation into existence are called organization expenses. These expenses include legal fees, promoter fees, and amounts paid to obtain a charter. Minimum legal capital refers to the minimum amount of capital required by law to be maintained by a corporation, stock subscriptions refer to the agreements between the corporation and its shareholders to purchase stock, selling expenses refer to expenses incurred to market and sell a product, and prepaid fees refer to fees paid in advance for future services or benefits.

Question 2

Stockholders' equity consists of which of the following?

Accepted Answer

Stockholders' equity includes the contributions made by shareholders (paid-in capital) and the profits generated by the company and retained for future use (retained earnings). Long-term assets, par value, cash, premiums, and discounts are not components of stockholders' equity.

Question 3

Companies report the cost of stock options in the:

Accepted Answer

The cost of stock options is recognized as an expense and is included in the income statement as either a separate line item or as a component of employee compensation expense. This is because stock options represent a cost to the company and impact its profitability.

Question 4

A company had a beginning balance in retained earnings of $430,000. It had net income of $60,000 and paid out cash dividends of $56,250 in the current period. The ending balance in retained earnings equals:

Accepted Answer

The ending balance in retained earnings can be calculated as:
Beginning balance + Net income - Dividends
= $430,000 + $60,000 - $56,250
= $433,750
Therefore, the correct answer is D) $433,750.

Question 5

The board of directors of a corporation:

Accepted Answer

The board of directors are responsible for and have final authority for managing corporate activities. They are elected by the shareholders, not the corporate registrar. They are typically not responsible for day-to-day operations, as that is the role of the executive officers. The board of directors can also be executive officers of the corporation. They have the power to bind the corporation to contracts, due to the concept of mutual agency.

Question 6

A class of stock that can usually be issued at any price without creating a minimum legal capital deficiency is called:

Accepted Answer

No-par stock does not have a par value and thus can be issued at any price without creating a minimum legal capital deficiency. Convertible stock can be converted to common stock at a predetermined price, callable stock can be called back by the issuing company at a predetermined price, noncumulative stock does not allow for the accumulation of missed dividends, and discounted stock is sold at a price lower than its face value.

Question 7

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

Accepted Answer

Purchasing treasury stock reduces both the corporation's assets and stockholders' equity by the same amount.

Question 8

Changes in accounting estimates are:

Accepted Answer

Changes in accounting estimates are accounted for in current and future periods, as they reflect new information or a reassessment of existing information about the future. They are not considered accounting errors nor prior period adjustments, and do not qualify as extraordinary items. A cumulative "catch-up" adjustment is not necessary as the change is accounted for prospectively.

Question 9

Rights to purchase common stock at a fixed price over a specified period are:

Accepted Answer

The description provided matches stock options, which are contracts granting the holder the right, but not the obligation, to purchase or sell a specific amount of an underlying asset, such as common stock, at a predetermined price within a set time frame. This allows investors to speculate on the movement of stock prices without having to own the underlying stock.

Question 10

When a corporation has only one class of stock, the stock is called:

Accepted Answer

When a corporation has only one class of stock, it is referred to as common stock. Preferred stock typically has different rights and privileges compared to common stock, and the other options (par value stock, stated value stock, and no-par value stock) refer to different methods of assigning a value to the stock.

Question 11

Par value of a stock refers to the:

Accepted Answer

Par value of a stock is the value assigned per share by the corporate charter, indicating the minimum amount for which the stock can be sold. It does not necessarily relate to the issue price, market value, maximum selling price, or dividend value of the stock.

Question 12

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

Accepted Answer

Treasury stock refers to stock that has been authorized, issued and then reacquired by the issuing company. Therefore, it is not considered outstanding.

Question 13

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

Accepted Answer

The answer of If a company resells treasury stock below...

Question 14

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:

Accepted Answer

The minimum amount that stockholders must contribute to the corporation, meant to protect the creditors of the corporation, is called the minimum legal capital. This minimum legal capital is usually set by state law and is required to be contributed before the corporation can issue any dividends to its shareholders.

Question 15

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

Accepted Answer

This statement is true. If the purchase price of retired stock exceeds the net amount removed from paid-in capital, the excess amount is considered a loss for the company and is debited to Retained Earnings. This ensures that the company's financial statements accurately reflect the impact of the retired stock on the company's overall financial position.

Question 16

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

Accepted Answer

Authorized stock refers to the number of shares that a corporation's charter allows it to sell. It is also known as authorized capital or authorized shares. Issued stock refers to the number of shares that have been sold to investors, while outstanding stock refers to the number of shares that are currently held by investors. Common stock and preferred stock are types of stock that a corporation can sell.

Question 17

Prior period adjustments to financial statements can result from:

Accepted Answer

The answer of Prior period adjustments to financial statements can...

Question 18

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

Accepted Answer

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is referred to as "paid-in capital", which is the total amount of capital contributed by stockholders. It may be equal, less or greater than the par value or stated value of the stock. Therefore, choices A, B, D, and E are incorrect.

Question 19

Prior period adjustments are reported in the:

Accepted Answer

The answer of Prior period adjustments are reported in the:
...

Question 20

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

Accepted Answer

The answer of Stock that is retired is the same...

Quiz 11: Corporate Reporting and Analysis