Question 1

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 2

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

This statement is true. The stockholders' equity section of a company's balance sheet includes both paid-in capital and retained earnings, and the sources of paid-in capital (such as common stock, preferred stock, and additional paid-in capital) are typically itemized and reported separately.

Question 3

Stockholders of a corporation directly elect

Accepted Answer

Stockholders of a corporation elect the board of directors, who then appoint the president and other officers of the corporation. The treasurer may also be appointed by the board of directors. The stockholders do not directly elect all of the employees of the corporation.

Question 4

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, which is a separate legal entity created by law and treated as a "person" for certain legal purposes. This means that a corporation can enter into contracts, sue, and be sued in its own name, separate from its owners or shareholders.

Question 5

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

Accepted Answer

A corporation can be classified as either for-profit or not-for-profit. For-profit corporations operate to make a profit and distribute it to their shareholders, while not-for-profit corporations exist to serve a specific charitable or social purpose and do not distribute profits to shareholders. The other choices, while relevant to corporations, do not classify them by purpose.

Question 6

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

Accepted Answer

The corporation is the dominant form of business organization in the United States in terms of dollar sales volume, earnings, and employees. This is because corporations are able to raise large amounts of capital through the sale of stocks and bonds, which allows them to finance their operations and expand their businesses. Additionally, corporations typically have centralized decision-making and management structures, which can lead to more efficient operations and greater profitability.

Question 7

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

Accepted Answer

A liquidating dividend is a distribution of assets to shareholders which is often paid out when a company is liquidating and dissolving. This type of dividend is based on the amount of paid-in capital and not on the company's current earnings or profits.

Question 8

A successful corporation can have a continuous and perpetual life.

Accepted Answer

A corporation's existence does not depend on the life of its owners or shareholders, and it can continue to exist and operate indefinitely as long as it fulfills its legal obligations and is financially viable.

Question 9

Under the corporate form of business organization

Accepted Answer

The corporation's life is stipulated in its charter. This means that the length of time the corporation is allowed to exist is determined by the language in its founding documents.

Question 10

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

Accepted Answer

The book value per share and market value per share are usually different. The book value per share is calculated by dividing the total shareholders' equity by the number of outstanding shares, while the market value per share is determined by the supply and demand of the stock in the market. It is common for the market value per share to be higher than the book value per share.

Question 11

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

Accepted Answer

This is because par value is the minimum legal amount for which a stock can be issued, so the cash proceeds cannot be less than that amount. However, the company may choose to issue the stock at a premium (above par value) or at a discount (below par value) depending on market conditions and investor demand.

Question 12

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

Accepted Answer

The treasurer is responsible for managing the company's cash position, including overseeing cash inflows and outflows, investing excess cash, and managing relationships with banks and other financial institutions. The controller typically handles financial reporting and accounting functions, while the vice-president and president have broader leadership and strategic responsibilities.

Question 13

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 14

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, 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.

Question 15

Which one of the following is a privately held corporation?

Accepted Answer

Cargill Inc. is a privately held corporation, meaning it is owned by its shareholders and not publicly traded on a stock exchange. Intel, General Electric, and Caterpillar Inc. are all publicly traded corporations.

Question 16

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

Accepted Answer

The two ways a corporation can be classified by ownership are publicly held and privately held. Publicly held corporations have shares of stock that are available for purchase by anyone on a public stock exchange, while privately held corporations have their shares owned by a small group of individuals who are not publicly traded.

Question 17

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

Accepted Answer

A major factor distinguishing a corporation from a sole proprietorship or partnership is the increased government regulation. Corporations typically face more regulatory requirements, including filing annual reports, meeting certain disclosure requirements, and adhering to more strict accounting and tax rules. Additionally, corporations have separate legal status from their owners, which allows them to enter into contracts and own property, as well as limiting the potential personal liability of their shareholders.

Question 18

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 accounting standards and is based on the principle of the cost being measured at the fair value of the consideration given up or received.

Question 19

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

Accepted Answer

A prior period adjustment relates to correction of errors made in previous accounting periods and is reported as an adjustment to the beginning balance of Retained Earnings. This ensures that the financial statements reflect accurate information for the period being reported.

Question 20

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

Accepted Answer

Government regulation is not considered an advantage of the corporate form of organization. While limited liability of owners, separate legal existence, and continuous life are all advantages of this form of organization.

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