Question 1

The cost of a noncash asset acquired in exchange for common stock should be either the fair value of the consideration given up or the consideration received, whichever is more clearly determinable.

Accepted Answer

This is in accordance with the guidance provided by ASC 845-10-25-1.

Question 2

The dominant form of business organization in the United States in terms of dollar sales volume, earnings, and employees is

Accepted Answer

Corporations are the dominant form of business organization in the United States in terms of dollar sales volume, earnings, and employees. They have the ability to raise capital through the sale of stocks and have limited liability for their owners. Sole proprietorships and partnerships are more common in terms of the number of businesses, but they tend to have lower sales and earnings compared to corporations.

Question 3

In the stockholders' equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified.

Accepted Answer

Paid-in capital and retained earnings are both reported in the stockholders' equity section, and the sources of paid-in capital are typically identified, such as common stock, preferred stock, and additional paid-in capital.

Question 4

Under the cost method, Treasury Stock is debited at the price paid to reacquire the shares, and the same amount is credited to Treasury Stock when the shares are sold.

Accepted Answer

This statement is true. Under the cost method, the price paid to reacquire the shares is debited to Treasury Stock, and the same amount is credited to Treasury Stock when the shares are sold.

Question 5

Which one of the following is a privately held corporation?

Accepted Answer

Cargill Inc. is a privately held corporation, meaning that it is not publicly traded and is owned by its shareholders rather than the general public. Intel, General Electric, and Caterpillar Inc. are all publicly traded corporations.

Question 6

The two ways that a corporation can be classified by ownership are

Accepted Answer

A corporation can either be publicly held or privately held. Publicly held corporations have shares of their stocks available for the public to purchase, and their financial information is available to the public. On the other hand, privately held corporations are owned by a small group of people and their financial information is not available to the public. This is the most common classification of corporations based on ownership.

Question 7

Organizational costs are capitalized by debiting an intangible asset entitled Organization Costs.

Accepted Answer

Organizational costs are expensed as incurred according to U.S. GAAP, rather than being capitalized as an intangible asset.

Question 8

Book value per share of common stock is the same amount as the market value per share.

Accepted Answer

Book value per share is determined by dividing the total shareholder equity by the number of outstanding shares. Market value per share, on the other hand, refers to the current price at which the shares are being traded in the market. These two values are usually different and can fluctuate depending on market conditions and investor sentiments.

Question 9

A successful corporation can have a continuous and perpetual life.

Accepted Answer

A corporation has legal entity status and can exist independent of its owners and shareholders, allowing it to have a continuous and perpetual life.

Question 10

Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders' equity section.

Accepted Answer

Common Stock Dividends Distributable is reported as a liability until the dividends are actually distributed, not as additional paid-in capital.

Question 11

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

Accepted Answer

A corporation is subject to more federal and state government regulations than a sole proprietorship or partnership. This is because a corporation is a legal entity separate from its owners and has limited liability protection, which requires more regulations to ensure that the corporation is operating ethically and transparently.

Question 12

Under the corporate form of business organization

Accepted Answer

The corporation's life is stipulated in its charter, which means that the corporation has a separate legal existence from its stockholders and can continue to exist even if the stockholders change. Options A and B are incorrect because the corporate form limits personal liability for stockholders and restricts the authority of stockholders to bind the corporation. Option D is incorrect because stockholders can generally sell their shares without approval from other stockholders.

Question 13

The two ways that a corporation can be classified by purpose are

Accepted Answer

The two ways that a corporation can be classified by purpose are profit and not-for-profit. Profit corporations exist primarily to generate a profit for their shareholders, while not-for-profit corporations exist for charitable or public service purposes and do not distribute profits to shareholders.

Question 14

Stockholders of a corporation directly elect

Accepted Answer

Stockholders of a corporation elect the board of directors. The board of directors then hires and oversees the officers, such as the president and treasurer, and makes important strategic decisions for the company. The stockholders do not directly elect employees of the corporation.

Question 15

A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings.

Accepted Answer

A prior period adjustment is a correction made to previously issued financial statements to correct an error that arose in a prior period. As a result, the adjustment affects the opening balance of the affected account, which is usually Retained Earnings. Therefore, it is reported as an adjustment of the beginning balance of Retained Earnings.

Question 16

Which one of the following would not be considered an advantage of the corporate form of organization?

Accepted Answer

Government regulation is not an advantage of the corporate form of organization as it imposes certain restrictions and obligations on corporations, often requiring additional expenses and compliance efforts. The other options (limited liability of owners, separate legal existence, and continuous life) are advantages of the corporate form of organization.

Question 17

A dividend based on paid-in capital is termed a liquidating dividend.

Accepted Answer

A liquidating dividend is a type of dividend that is paid to shareholders from a company's capital or reserves rather than from its earnings. It is typically paid when a company is liquidating or distributing its assets to shareholders. Since it is paid out of capital, it is also known as a liquidating distribution or return of capital.

Question 18

The person responsible for maintaining the company's cash position is the

Accepted Answer

The treasurer is responsible for the management of the company's finances, including maintaining the cash position. The controller is typically responsible for accounting and financial reporting, while the vice-president and president have broader organizational responsibilities.

Question 19

The concept of an "artificial being" refers to which form of business organization?

Accepted Answer

The concept of an "artificial being" refers to a corporation as it is a legal entity separate from its owners or shareholders. By definition, a corporation has the legal rights and responsibilities of an individual, including the ability to own property, enter into contracts, and sue or be sued in court. The other options, partnership, sole proprietorship, and limited partnership do not have this characteristic of being a separate legal entity from its owners.

Question 20

The cash proceeds from issuing par value stock may be equal to or greater than, but not less than par value.

Accepted Answer

This statement is true. Par value represents the minimum legal value of a share of stock, and issuing stock cannot be priced below this par value. However, a company may choose to issue stock at a price higher than par value, which would result in cash proceeds greater than the par value.

Quiz 11: Corporations: Organization, Stock Transactions, Dividends, and Retained Earnings