Question 1

Treasury stock is a contra stockholders' equity account.

Accepted Answer

Treasury stock is a contra account to stockholders' equity because it represents the amount of a company's own stock that has been repurchased and is therefore no longer outstanding. This reduces the company's total equity balance.

Question 2

When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock become legal capital.

Accepted Answer

This is true according to accounting principles. Without a stated par value, there is no minimum legal capital requirement, so the entire proceeds from the sale of the stock is assigned as legal capital.

Question 3

The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.

Accepted Answer

The acquisition of treasury stock decreases total stockholders' equity as the corporation is buying back its own shares, and therefore reducing the amount of outstanding shares. This reduction in outstanding shares reduces the overall ownership percentage and voting rights of existing shareholders. It has no effect on total assets, as it is simply a transfer of funds from cash to treasury stock on the balance sheet.

Question 4

If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

Accepted Answer

Stockholders must still pay taxes on dividends received, even if the corporation has already paid taxes on its income.

Question 5

Treasury stock should not be classified as a current asset.

Accepted Answer

Treasury stock is a contra equity account and represents shares of a company's own stock that have been repurchased and are being held by the company. It is not a current asset, as it is not expected to be converted into cash within the next year.

Question 6

Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.

Accepted Answer

The answer of Treasury stock is reported as an asset...

Question 7

A corporation acts under its own name rather than in the name of its stockholders.

Accepted Answer

A corporation is a legal entity and can enter into contracts, own property, and conduct business under its own name, separate from its individual stockholders.

Question 8

A stockholder has the right to vote in the election of the board of directors.

Accepted Answer

As a part owner of the company, a stockholder has the right to participate and vote in important company matters, such as the election of the board of directors.

Question 9

The issuance of common stock affects both paid-in capital and retained earnings.

Accepted Answer

Issuing common stock increases paid-in capital but does not affect retained earnings, as it involves obtaining new equity from shareholders, not distributing profits.

Question 10

A corporation must be incorporated in each state in which it does business.

Accepted Answer

A corporation can be incorporated in one state and do business in other states by filing for foreign qualification, but it is not required to incorporate in every state in which it does business.

Question 11

A corporation can be organized for the purpose of making a profit or it may be nonprofit.

Accepted Answer

A corporation can be organized for the purpose of making a profit or it may be nonprofit.

Question 12

The liability of a stockholder is usually limited to the stockholder's investment in the corporation.

Accepted Answer

This statement is true. Limited liability means that the stockholder's personal assets are not at risk for the debts or liabilities of the corporation beyond the amount of their investment in the company.

Question 13

When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds.

Accepted Answer

The answer of When no-par common stock with a stated...

Question 14

The sale of shares in a corporation by one stockholder to another affects the total capital of the corporation.

Accepted Answer

The sale of shares in a corporation by one stockholder to another does not affect the total capital of the corporation, as the total amount of issued and outstanding shares remains the same. It only affects the distribution of ownership and voting rights among the shareholders.

Question 15

Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership.

Accepted Answer

Paid-in capital represents the amount of equity capital contributed by investors during a company's fundraising activities. It is also known as contributed capital or paid-up capital.

Question 16

As soon as a corporation is authorized to sell stock, an accounting journal entry should be made recording the total value of the shares authorized.

Accepted Answer

The authorization of stock does not require an immediate accounting entry for the total value of the shares authorized. It only specifies that the company is allowed to issue and sell a certain amount of stock in future. Accounting entries are made as and when the stock is actually issued and sold.

Question 17

A corporation is not an entity that is separate and distinct from its owners.

Accepted Answer

A corporation is a legal entity that is separate and distinct from its owners, also known as shareholders. This means that the corporation can enter into contracts, own property, and sue or be sued in its own name, separate from the personal assets of its shareholders.

Question 18

For accounting purposes, stated value is treated the same way as par value.

Accepted Answer

Stated value and par value are both nominal values assigned to shares of stock for legal and accounting purposes. They are considered to be the minimum price at which the shares can be issued and represent the initial capital contribution from shareholders. Both par value and stated value are typically very low (e.g. $0.01 per share) and do not reflect the market value of the stock. Therefore, for accounting purposes, they are treated as the same.

Question 19

The par value of common stock must always be equal to its market value on the date the stock is issued.

Accepted Answer

The par value of common stock is determined at the time of incorporation and is typically a very small amount. It is not related to the market value of the stock on the date it is issued. In fact, market value can fluctuate greatly over time and is influenced by various factors such as company performance, industry trends, and economic conditions.

Question 20

The tax laws can be a significant disadvantage of the corporate form of business.

Accepted Answer

Corporate profits are subject to corporate income tax, and then again subject to individual income tax when distributed as dividends to shareholders. This double taxation can result in a higher overall tax burden for corporations compared to other forms of business such as sole proprietorships or partnerships.

Quiz 11: Reporting and Analyzing Stockholders Equity

Treasury stock is a contra stockholders' equity account.

When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock become legal capital.

The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.

If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

Treasury stock should not be classified as a current asset.

Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.

A corporation acts under its own name rather than in the name of its stockholders.

A stockholder has the right to vote in the election of the board of directors.

The issuance of common stock affects both paid-in capital and retained earnings.

A corporation must be incorporated in each state in which it does business.

A corporation can be organized for the purpose of making a profit or it may be nonprofit.

The liability of a stockholder is usually limited to the stockholder's investment in the corporation.

When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds.

The sale of shares in a corporation by one stockholder to another affects the total capital of the corporation.

Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership.

As soon as a corporation is authorized to sell stock, an accounting journal entry should be made recording the total value of the shares authorized.

A corporation is not an entity that is separate and distinct from its owners.

For accounting purposes, stated value is treated the same way as par value.

The par value of common stock must always be equal to its market value on the date the stock is issued.

The tax laws can be a significant disadvantage of the corporate form of business.