Deck 18: Corporations: Organizations and Stock

Question 1

The document granted by the state authorizing the creation of a corporation is known as:

A)the articles of incorporation.
B)the certificate of achievement.
C)the certificate of incorporation.
D)the minute book.

Answer 1

C

Question 2

Stockholders do not have to pay federal income tax on their stock dividends.

Answer 2

False

Question 3

The Articles of Incorporation are submitted to the President of the United States.

Answer 3

False

Question 4

Officers of the corporation are:

A)appointed by the stockholders.
B)stockholders of the corporation.
C)appointed by the board of directors.
D)None of these answers is correct.

Question 5

Articles of incorporation contain all of the following except:

A)the purpose of the business.
B)the types of stock to be offered.
C)the name of the president.
D)organizational structure.

Question 6

The financial loss that each stockholder in a corporation can incur is unlimited.

Question 7

Characteristics of a corporation include:

A)stockholders having limited liability.
B)direct management by the stockholders.
C)no mutual agency.
D)Both A and C are correct.

Question 8

Paid-in capital represents:

A)the cumulative earnings of the company.
B)the investments of the owners into the company.
C)the undistributed earnings of the company.
D)None of the above

Question 9

List and discuss the (a)advantages and (b)disadvantages of the corporation form of business.

Question 10

Which of the following is a characteristic of a corporation?

A)The stockholders have unlimited liability.
B)Ease of transferring ownership interest.
C)A corporation cannot own property in its name.
D)Cash dividends to the stockholders are nontaxable.

Question 11

A major disadvantage of a corporation is the:

A)difficulty in transferring ownership.
B)limited life.
C)difficulty in raising capital.
D)double taxation of income to the corporation and of dividends paid to shareholders.

Question 12

The ownership of the corporation consists of:

A)the governing body.
B)the officers of the corporation.
C)the stockholders.
D)the board of directors.

Question 13

Which of the following is not a characteristic of a corporation?

A)Ease of raising capital
B)No mutual agency
C)Unlimited life
D)Unlimited liability

Question 14

The stockholders of a corporation have no mutual agency.

Question 15

The death of an individual shareholder of the corporation will terminate the corporation.

Question 16

An advantage of a corporation would be:

A)limited liability for the shareholders.
B)limited life.
C)double taxation (income of corporation and dividends to shareholders).
D)both A and B are correct.

Question 17

Corporations are subject to more government regulations than sole proprietorships and partnerships.

Question 18

A document submitted by incorporators when applying for a charter is known as:

A)articles of incorporation.
B)charter.
C)proxy.
D)stock certificate.

Question 19

Double taxation is said to be an advantage of a corporation.

Question 20

The maximum number of shares of capital stock that a corporation can sell is known as:

A)issued capital stock.
B)outstanding capital stock.
C)authorized capital stock.
D)treasury capital stock.

Question 21

Par value represents:

A)the market value of the stock.
B)an arbitrary value that is placed on each share of stock.
C)the legal capital of the corporation.
D)Both B and C are correct.

Question 22

The type of preferred stock that entitles its holders to any undeclared dividends that have accumulated before common stockholders receive their dividends is known as:

A)non-participating.
B)participating.
C)cumulative.
D)All of these answers are correct.

Question 23

If only one type of stock is issued,it is:

A)no-par preferred stock.
B)preferred stock.
C)legal capital.
D)common stock.

Question 24

Which of the following is NOT a characteristic of common stock?

A)The right to share profits by receiving dividends
B)The right to vote
C)The right to sell their stock
D)The right to prior claims of profit over preferred stockholders

Question 25

Each share of capital stock of a corporation gives its owner the right to:

A)manage the daily operations of the business.
B)set company policy.
C)vote at stockholders' meetings.
D)determine the amount of dividends to be paid.

Question 26

One type of preferred stock that entitles its holders not only to a fixed dividend but also to an opportunity to share in additional dividends with common stockholders is known as:

A)participating.
B)cumulative.
C)non-cumulative.
D)common.

Question 27

A share of stock may be sold at any given time according to the stock's:

A)stated value.
B)book value.
C)market value.
D)par value.

Question 28

Corporations can issue:

A)par value shares.
B)no-par value shares.
C)stated value shares.
D)All of these answers are correct.

Question 29

Which of the following would normally appear in the Stockholders' Equity section of the balance sheet?

A)Cash
B)Unearned Revenue
C)Common Stock
D)Prepaid Expenses

Question 30

Capital stock sold to stockholders is known as:

A)issued capital stock.
B)outstanding capital stock.
C)authorized capital stock.
D)treasury capital stock.

Question 31

Voting rights are a characteristic of which type stock?

A)Common but not preferred
B)Preferred but not common
C)Both common and preferred
D)Neither common nor preferred

Question 32

Retained Earnings is the account in which the stockholders' investments are placed.

Question 33

An amount determined by the corporation board of directors and assigned to no-par value stock is:

A)par value.
B)stated value.
C)book value.
D)market value.

Question 34

Preemptive rights allow a stockholder to:

A)share in profits first.
B)maintain a proportionate ownership interest in the corporation.
C)vote their shares at the annual meeting
D)dispose or sell their stock without notice.

Question 35

Dividends in arrears occur when the company does NOT pay dividends to:

A)cumulative preferred stockholders.
B)non-cumulative preferred stockholders.
C)participating preferred stockholders.
D)non-participating common stockholders.

Question 36

Preferred stock is considered to be non-participating when:

A)preferred stockholders get their yearly dividend and the reminder goes to common stockholders.
B)preferred stockholders have a right to the current year's dividend,but do not receive holdovers from past years when dividends were not paid.
C)preferred stockholders have a right to a certain dividend every year.
D)None of these answers is correct.

Question 37

Cox Corporation has issued 2,000 shares of stock.Janis owns 500 shares.If the corporation issues an additional 500 shares,how many shares does Janis have the preemptive right to purchase?

A)100 shares
B)125 shares
C)250 shares
D)500 shares

Question 38

Preferred stockholders have what right over common stockholders?

A)Voting rights
B)Prior claim to dividends
C)More risk than common stockholders
D)Preemptive rights

Question 39

A stock certificate is released for issued stock.

Question 40

The two major components of the Stockholders' Equity section of the balance sheet are:

A)Paid-in Capital and Retained Earnings.
B)Stock and Retained Earnings.
C)Stock and Paid-in Capital.
D)Authorized Stock and Preferred Stock.

Question 41

A company would rarely sell its stock for below par value.

Question 42

No entry was recorded for the exchange of stock for land.This error would cause:

A)the period end stockholders' equity to be understated.
B)the period end stockholders' equity to be overstated.
C)the period's end assets to be understated.
D)Both A and C are correct.

Question 43

The two main sources of stockholders' equity are investments by stockholders and net income retained in the corporation.

Question 44

A note payable was recorded as additional paid-in capital.This error would cause:

A)the period's net income to be understated.
B)the period's net income to be overstated.
C)the period end liabilities to be understated.
D)None of these is correct.

Question 45

Five hundred shares of $26 par common stock was exchanged for a piece of equipment with a fair market value of $13,500.The journal entry to record the transaction would include a:

A)credit to Equipment for $13,000.
B)debit to Common Stock for $13,500.
C)credit to Paid-In Capital in Excess of Par Value-Common for $500.
D)credit to Common Stock for $13,500.

Question 46

Organization costs are:

A)part of the company's start-up and are listed as expenses.
B)listed as an intangible asset on the balance sheet.
C)a current asset on the balance sheet.
D)a liability on the balance sheet.

Question 47

When stock is exchanged for non-cash assets:

A)debit the asset for prior book value;credit Common Stock for cash received.
B)debit assets for market value;credit Common Stock for par value and,if needed,Paid-in Capital in Excess of Par Value-Common.
C)debit assets for market value;credit Common Stock for market value.
D)debit assets for par value;credit Common Stock for par value.

Question 48

RH Corporation Stockholders' Equity section includes the following information:
$$\begin{array} { | l | r | } \hline\text { Preferred Stock } & \$ 11,000 \\\hline \text { Paid-in Capital in Excess of Par Value-Preferred } & 20,000 \\\hline \text { Common Stock } & 20,000 \\\hline \text { Paid-in Capital in Excess of Par Value-Common } & 4,000 \\\hline \text { Retained Earnings } & 7,000 \\\hline\end{array}$$
Total paid-in capital is:

A)$48,000.
B)$55,000.
C)$27,000.
D)$21,000.

Question 49

The entry to record MidIowa.net selling 1,000 shares of $6.00 par value common stock at $8.00 would be to:

A)debit Cash $8,000;credit Common Stock $6,000;credit Paid-in Capital in Excess of Par Value-Common $2,000.
B)debit Cash $8,000;credit Common Stock $8,000.
C)debit Cash $6,000;debit Paid-in Capital in Excess of Par Value-Common $2,000;credit Common Stock $8,000.
D)None of these answers is correct.

Question 50

The entry to record selling 400 shares of no-par common stock with a stated value of $60 for $70 would be to:

A)debit Cash $28,000;credit Common Stock $28,000.
B)debit Cash $24,000;credit Common Stock $24,000.
C)debit Cash $24,000;credit Common Stock $28,000;debit Paid-in Capital in Excess of Par Value-Common $4,000.
D)debit Cash $28,000;credit Common Stock $24,000;credit Paid-in Capital in Excess of Stated Value-Common $4,000.

Question 51

Common stock was sold in excess of par;the excess was credited to Sales.This error would cause:

A)the period's net income to be understated.
B)the period's net income to be overstated.
C)the period end assets to be overstated.
D)None of these is correct.

Question 52

If preferred dividends are limited to the stated rate of dividend,the preferred stock is:

A)non-cumulative.
B)cumulative.
C)participating.
D)nonparticipating.

Question 53

A corporation shares its profits with stockholders in the form of dividends.

Question 54

The entry to record selling 100 shares of no-par common stock with a stated value of $30 for $40 would be to:

A)debit Common Stock for $4,000;credit Cash for $4,000.
B)debit Cash for $4,000;credit Common Stock for $4,000.
C)debit Cash for $4,000;credit Common Stock for $3,000;credit Paid-In Capital in Excess of Stated Value-Common for $1,000.
D)debit Cash for $4,000;credit Common Stock for $1,000;credit Paid-In Capital in Excess of Par Value-Common for $3,000.

Question 55

List and discuss the following:
a.Rights of common stockholders
b.Rights of preferred stockholders

Question 56

Shares of outstanding stock always equal the number of shares of authorized stock.

Question 57

When a corporation has only one class of stock,it will be preferred stock.

Question 58

A common shareholder's right to purchase an equivalent percentage of new stock is his participating right.

Question 59

Nonparticipating preferred stock allows stockholders an opportunity to share in additional dividends with common stockholders.

Question 60

A corporation is required to pay dividends.

Question 61

If stock shares are sold at more than their par value,the excess money is called:

A)earnings.
B)paid-in capital in excess of par value.
C)gain on issue of stock.
D)discount on issue of stock.

Question 62

Antiques.com Corporation's outstanding stock is 75 shares of $60,8% cumulative nonparticipating preferred stock and 2,000 shares of $10 par value common stock.Antiques paid $2,760 cash dividends during the year.Common stockholders received:

A)$2,400.
B)$360.
C)$2,040.
D)$0.

Question 63

ABC sells 400 shares of its $20 par common stock for $25.The entry would entail a credit(s)of:

A)Cash of $10,000.
B)Paid-in Capital in Excess of Par Value-Common for $8,000;Common Stock for $2,000.
C)Paid-in Capital in Excess of Par Value-Common for $2,000;Common Stock for $8,000.
D)Common Stock for $10,000.

Question 64

The sale of common stock was recorded as a sale of preferred stock.This error would cause:

A)the period end stockholders' equity to be overstated.
B)the period end stockholders' equity to be understated.
C)no effect on total stockholders' equity.
D)None of these is correct.

Question 65

In exchange for $1,500 legal services to help set up the new company,Hickory Grove Corporation issued 100 shares of $10 par value stock to its attorney.The entry to record the issuance of the stock would include a:

A)credit to Common Stock for $1,000.
B)debit to Common Stock for $1,000.
C)credit to Paid-in Capital in Excess of Par Value-Common for $500.
D)Both A and C

Question 66

Rhubarb Corporation's outstanding stock is 100 shares of $100,11% cumulative nonparticipating preferred stock and 2,000 shares of $12 par value common stock.Rhubarb paid $2,200 cash dividends during the year.Common stockholders received:

A)$0.
B)$500.
C)$2,500.
D)$1,100.

Question 67

The Harvester Corporation issued 50 shares of $20 par value stock to its accountant.The shares are in full payment for her $900 fee for assistance in setting up the new company.The entry to record the issuance of the stock would include a:

A)credit to Common Stock for $900.
B)debit to Common Stock for $900.
C)credit to Common Stock for $1,000.
D)debit to Common Stock for $1,000.

Question 68

Preferred stock that is given a right to share with the common stock in dividends in excess of a stated preferred dividend rate is called:

A)nonparticipating.
B)participating.
C)cumulative.
D)noncumulative.

Question 69

The TM Stockholders' Equity section includes the following:
$$\begin{array} { | l | r | } \hline\text { Preferred Stock } & \$ 3,800 \\\hline \text { Common Stock } & 5,950 \\\hline \text { Paid-in Capital in Excess of Par Value - Preferred } & 400 \\\hline \text { Paid-in Capital in Excess of Par Value - Common } & 1,750 \\\hline \text { Retained Earnings } & 6,000 \\\hline\end{array}$$
What was the total amount common stock was sold for?

A)$7,700
B)$13,700
C)$11,500
D)$9,950

Question 70

The sale of common stock above par was recorded by crediting Common Stock for the total amount.This error would cause:

A)the period end stockholders' equity to be overstated.
B)the period end stockholders' equity to be understated.
C)no effect on total stockholders' equity.
D)None of these is correct.

Question 71

Soy.com Corporation has 100 shares of $100,7% cumulative nonparticipating preferred stock and 1,000 shares of $10 par value common stock outstanding.The company paid $4,000 cash dividends including one-year dividends in arrears to preferred stockholders.Preferred stockholders received:

A)$1,200.
B)$2,000.
C)$3,300.
D)$1,400.

Question 72

The Logan Company issued 140 shares of its $12 par value stock for $14 per share.The entry to record the receipt of cash and issuance of the stock would include a:

A)debit to Cash of $1,680;credit to Common Stock for $1,680.
B)debit to Cash for $1,960.
C)credit to Common Stock for $1,960.
D)debit to Discount on Common Stock for $280.

Question 73

The Zonga Corporation Stockholders' Equity section includes the following:
$$\begin{array} { | l | r | } \hline\text { Preferred Stock } & \$ 22,500 \\\hline \text { Common Stock } & 48,000 \\\hline \text { Paid-in Capital in Excess of Par Value-Preferred } & 3,450 \\\hline \text { Paid-in Capital in Excess of Par Value-Common } & 3,400 \\\hline \text { Retained Earnings } & 7,350 \\\hline\end{array}$$
Total paid-in capital is:

A)$83,730.
B)$76,380.
C)$70,000.
D)$77,350.

Question 74

The Collins Corporation Stockholders' Equity section includes the following:
$$\begin{array} { | l | r | } \hline \text { Preferred Stock } & \$ 13,000 \\\hline \text { Common Stock } & 15,000 \\\hline \text { Paid-in Capital in Excess of Par Value -Preferred } & 3,100 \\\hline \text { Paid-in Capital in Excess of Par Value - Common } & 4,100 \\\hline \text { Retained Earnings } & 8,200 \\\hline\end{array}$$
What was the total amount preferred stock was sold for?

A)$12,000
B)$14,700
C)$16,100
D)$20,200

Question 75

Washington Corporation issued 5,000 shares of its $20 par value common stock for $23 per share.The entry to record the issuance would include a:

A)credit to Cash for $115,000.
B)credit to Common Stock for $15,000.
C)credit to Common Stock for $100,000.
D)debit to Paid-in Capital in Excess of Par Value-Common for $15,000.

Question 76

When a company sells stock at an amount less then par value,the amount is referred to as:

A)a discount.
B)a premium.
C)a bonus.
D)Companies cannot sell stock for more than par value.

Question 77

Alpha Corporation's has 1,500 shares of $40 par,7% cumulative preferred stock and 2,200 shares of $10 par common stock.Alpha paid $12,000 in cash dividends including one-year dividends in arrears to preferred stockholders.Common stockholders will receive:

A)$0.
B)$7,800.
C)$1,600.
D)$3,600.

Question 78

Sunrise Online issued 500 shares of its $10 common stock in exchange for equipment with a fair market value of $7,500.The entry to record the transaction would include a:

A)debit to Equipment for $5,000.
B)credit to Common Stock for $5,000.
C)debit to Paid-in Capital in Excess of Par Value-Common for $2,500.
D)credit to Common Stock Subscribed for $5,000.

Question 79

Custer.com Company's outstanding stock is 100 shares of $100,5% cumulative nonparticipating preferred stock and 1,000 shares of $10 par value common stock.Custer paid $2,300 cash dividends including one-year dividends in arrears to preferred stockholders.Common stockholders received:

A)$0.
B)$800.
C)$1,300.
D)$500.

Question 80

Dolly's Best issued 200 shares of its $10 common stock in exchange for used packaging equipment with a fair market value of $2,400.The entry to record the acquisition of the equipment would include a:

A)debit to Equipment for $2,000.
B)credit to Paid-in Capital in Excess of Par Value-Common for $400.
C)credit to Common Stock for $2,400.
D)credit to Equipment for $2,400.