Question 1

The entry to close the Dividends account which has a balance of $10,000,at the end of an accounting period will be:

Accepted Answer

The Dividends account is closed by transferring its balance to Retained Earnings, which decreases Retained Earnings.

Question 2

Start-up and organization costs include all of the following except

Accepted Answer

Rent of a new office is considered an operational expense, not a start-up or organization cost.

Question 3

A disadvantage of the corporate form of business is

Accepted Answer

One of the disadvantages of the corporate form of business is government regulation. Corporations are subject to various regulations such as tax laws, securities laws, labor laws, and environmental laws, which can be complex and costly to comply with. This can be a disadvantage for some businesses who are burdened with compliance costs and paperwork.

Question 4

A good measure of confidence in a corporation's future is

Accepted Answer

The price/earnings ratio (P/E ratio) is a measure of a company's current share price relative to its per-share earnings, indicating investor expectations and confidence in the company's future growth and profitability.

Question 5

Which of the following statements is true of stock option plans?

Accepted Answer

Stock option plans give employees the right to purchase stock in the company at a fixed price on a future date. This is one of the ways companies motivate their employees, and the compensation expense from stock option plans is tax deductible. Option plans are not required to be offered to all employees, although companies may choose to do so.

Question 6

Which of the following phrases is not descriptive of the corporate form of business?

Accepted Answer

The corporate form of business is subject to double taxation, not single taxation. This means that both the corporation and the shareholders are taxed on any profits earned by the corporation. A, B, and C are all descriptive of the corporate form of business.

Question 7

To evaluate the amount of dividends they receive,investors use the ratio called

Accepted Answer

The ratio used by investors to evaluate the amount of dividends they receive is the dividend yield ratio. This ratio is calculated by dividing the annual dividend per share by the current market price per share. It indicates the percentage return on investment from dividends.

Question 8

A corporation records the cash payment of the dividend

Accepted Answer

The corporation records the cash payment of the dividend on the payment date, which is when the dividend is actually paid to the shareholders. The other options (B, C, and D) are important dates in the dividend process, but they do not trigger the actual recording of the cash payment.

Question 9

Par value

Accepted Answer

Par value is an arbitrary amount assigned to each share of stock and does not necessarily represent the actual value of the stock. It is often set at a low amount (such as $0.01 or $0.10) to satisfy legal requirements for issuing stock. It is not established after the stock is issued and does not necessarily represent the current selling price for a share of stock.

Question 10

Start-up and organization costs

Accepted Answer

Start-up and organization costs are considered to be expenses incurred in getting a new business up and running, and are not considered to have an ongoing impact on the business. Therefore, they are expensed in the year incurred and are not capitalized or amortized.

Question 11

The board of directors of Blount Corporation declared a cash dividend of $5.00 per share on 57,000 shares of common stock on April 14,2013.The dividend is to be paid on May 15,2013,to shareholders of record on May 1,2013.The proper entry to be recorded on April 14,2013,will be:

Accepted Answer

On the date of declaration, the company records a liability for the dividend by debiting Dividends and crediting Dividends Payable for the total amount of the dividend.

Question 12

The board of directors of Autauga Corporation declared a cash dividend on July 15,2013,to be paid on August 15,2013,to shareholders holding the stock on August 1,2013.Given these facts,the date August 1,2013,is referred to as the

Accepted Answer

August 1, 2013, is referred to as the date of record, which is the date shareholders must be on record to receive the dividend. The date of declaration is the date the dividend is formally announced by the board of directors, July 15, 2013. The ex-dividend date is usually two business days before the date of record, which means that if you buy the stock on or after this date, you will not receive the dividend. The date of payment is the date the dividend is actually paid to shareholders, which is August 15, 2013, in this case.

Question 13

Which of the following statements is not descriptive of common stock?

Accepted Answer

Dividends paid on common stock are not considered an expense for the corporation; they are a distribution of profits to shareholders.

Question 14

A corporation has

Accepted Answer

Corporations are subject to government regulations. They have a potentially unlimited existence, limited liability, and are subject to tax liability.

Question 15

Which of the following is the appropriate entry to record the declaration of cash dividends?

Accepted Answer

When cash dividends are declared, a Debit entry is made to the Dividends account and a Credit entry is made to the Dividends Payable account. Option C matches that entry. Option A is incorrect because a debit is made to Dividends, not Dividends Payable. Option B is incorrect because Additional Paid-in Capital is not affected when cash dividends are declared. Option D is incorrect because a debit is made to Retained Earnings when dividends are declared, but not when they are paid out.

Question 16

An advantage of the corporate form of business is

Accepted Answer

One advantage of the corporate form of business is that it offers continuous existence, meaning the corporation can continue to exist even if one or more of its owners or shareholders dies or leaves the company. This is not typically possible with other forms of business such as sole proprietorships or partnerships. Choice A is incorrect because the corporate form of business is designed to give more control to shareholders, not less. Choice B is incorrect because lack of liability is not a restriction, but rather a potential benefit that the corporate form of business offers. Choice D is incorrect because government regulation can be both an advantage or disadvantage depending on the situation.

Question 17

Start-up and organization costs for a corporation that is to operate a retail store would include the costs of

Accepted Answer

Start-up and organization costs for a corporation include expenses incurred during the formation of the company, such as promoters' fees and the costs associated with issuing and printing stock certificates. These are one-time costs necessary to establish the corporation's legal and operational structure.

Question 18

Which of the following is a correct statement relating to the concept of mutual agency and the corporate form of business?

Accepted Answer

Mutual agency is a feature of partnerships and not corporations. In a partnership, all partners have mutual agency, meaning that each partner can enter into contracts and make decisions that bind the partnership as a whole. In contrast, in a corporation, only the board of directors has the power to make decisions and enter into contracts on behalf of the corporation. Shareholders have limited liability and are not involved in the day-to-day management of the corporation.

Question 19

A liquidating dividend is

Accepted Answer

A liquidating dividend is a return of capital to shareholders, which occurs when the dividend exceeds the company's retained earnings.

Question 20

Which of the following could be described as both an advantage and a disadvantage of incorporation?

Accepted Answer

The answer of Which of the following could be described...

Quiz 12: Stockholders Equity