Deck 11: Proprietorships,partnerships,and Corporations

Question 1

Discuss a few of the characteristics of sole proprietorships,partnerships and corporations.

Answer 1

a.Sole Proprietorships are owned by one person and usually are fairly small.The owner is personally accountable for actions taken in the name of the business.
b.A partnership has the benefit of two or more people joining together to share their talents,their capital and the risks of business.Like proprietorships,the owners of partnerships are personally accountable for the actions taken in the name of the business.A partner is often responsible for the actions of the other partners as well.
c.Unlike proprietorships and partnerships,a corporation is designated as a separate legal entity by the state in which it is incorporated.The corporate form allows the potential of obtaining larger sums of capital than other forms.Other advantages of the corporate form are limited liability,continuity,transferability of ownership and professional management.Disadvantages include double taxation,excessive governmental regulation,and complexities in formation.

Question 2

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Cooper Co.purchased 500 shares of its own stock as treasury stock for $35 per share.The no-par stock had originally been issued at $26 per share.Show the effects of the purchase.

Answer 2

(D)(N)(D)(N)(N)(N)(D)

Question 3

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Sierra Co.issued 10,000 shares of common stock for $45 per share.The stock has a par value of $10.

Answer 3

(I)(N)(I)(N)(N)(N)(I)

Question 4

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Fort Worth Co.declared a cash dividend but has not yet paid the money to the shareholders.

Question 5

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Taylor Bennett began his sole proprietorship on February 28,2016 by contributing $25,000 of his own money to the business.Indicate the effects of this transaction on the financial statements.

Question 6

Discuss some of the information items normally included in a corporation's articles of incorporation.

Question 7

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Miller Co.declared and distributed a stock dividend.

Question 8

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Wheaton Company reissued 100 shares of treasury stock.The treasury stock had been purchased by Wheaton at $18 per share.The shares were reissued at a price of $20 per share.

Question 9

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Jack Grimes,who had held 12% of Preston Company's outstanding common stock,agreed to purchase another 8% of Preston Company's outstanding common stock from Todd Barbour,another major stockholder of Preston's.Indicate the effect of this event on Preston's financial statements.

Question 10

Explain how the equity section of a balance sheet differs among sole proprietorships,partnerships and corporations.

Question 11

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

The Craig Corporation began operations on January 1,2016 by issuing 5,000 shares of $6 par-value stock at $12.Indicate the effects of this transaction on the financial statements.

Question 12

Describe the varying degrees to which closely held corporations and publicly traded corporations are regulated.

Question 13

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

The stock of Atlantic Oil Co.was trading at $14 per share on March 27 when the company announced that it had recently discovered a large oil reserve.The stock price immediately went up to $28 per share.The company had 10,000,000 shares outstanding.Indicate the effects of this discovery on Atlantic's financial statements.

Question 14

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

The Premier Corporation began operations on January 1,2016 by issuing 10,000 shares of no-par stock for $22 per share.Indicate the effects of this transaction on the financial statements.

Question 15

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Grover Co.declared a 2-for-1 stock split.Before that announcement,Grover had 40,000 shares of outstanding common stock.

Question 16

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Moreno Company appropriated $12,000,000 of retained earnings for the purpose of building a new office building.

Question 17

Which type of stock,common or preferred,must all corporations have?

Question 18

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Jim Caldwell and Pam Ennis,both CPAs,began their new partnership by each contributing $50,000 to their business.Indicate the effects of this transaction on the financial statements.

Question 19

What is meant by "double taxation?" Which type of organizational form is more likely to be subject to double taxation?

Question 20

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts.

Vancouver Co.paid a $50,000 cash dividend to its shareholders on July 5,2016,which was 2 months after Vancouver declared the dividend.

Question 21

What is the importance of record date for a corporation that has declared dividends?

Question 22

Fred and Barney started a partnership.Fred invested $20,000 in the business and Barney invested $32,000.The partnership agreement stipulated that profits would be divided as follows: Each partner would receive a 15% return on invested capital with the remaining income being distributed equally between the two partners.Assuming that the partnership earned $38,000 during an accounting period,the amount of income assigned to the two partners would be:

Question 23

What is the meaning of "par value" of stock?

Question 24

Discuss a few common reasons for increases in the market price of a corporation's common stock.

Question 25

Explain the significance of (a)a high,and (b)a low,price-earnings ratio.

Question 26

On what date do dividends become a legal liability of a corporation?

Question 27

Which of the following is a disadvantage of a sole proprietorship?

A)Entrenched management.
B)Double taxation.
C)Unlimited liability.
D)Excessive regulation.

Question 28

Which of the following is not considered an advantage of the corporate form of business organization?

A)Ability to raise capital.
B)Continuity of existence.
C)Ease of transferability of ownership.
D)Lack of government regulation.

Question 29

Describe cumulative preferred stock.

Question 30

Which of the following entities would have the "Paid-in Capital in Excess" account in the equity section of the balance sheet?

A)A corporation.
B)A municipality.
C)A sole proprietorship.
D)A partnership.

Question 31

What is a common reason for a corporation to "split" its stock?

Question 32

Explain the differences in recording the initial issue of stock for (a)par-value, (b)stated- value,and (c)no-par stock.

Question 33

The term "double taxation" refers to which of the following?

A)Corporations must pay income taxes on their net income,and their stockholders must pay income taxes on their dividends.
B)In a partnership,both partners are required to claim their share of net income on their tax returns.
C)A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals.
D)A sole proprietorship must pay income taxes to both the state government and the federal government.

Question 34

Show the effect of a stock dividend on the accounting equation.

Question 35

Will the number of shares of stock issued and the number of shares of stock outstanding always be the same? Why or why not?

Question 36

Discuss possible reasons why a corporation may establish an appropriation of retained earnings.

Question 37

Which form of business organization is established as a legal entity separate from its owners?

A)Sole proprietorship
B)Partnership
C)Corporation
D)None of these

Question 38

In which section of the balance sheet would Treasury Stock be reported?

Question 39

Garber Corporation had 20,000 shares of $12 par value common stock outstanding and declared a four-for-one stock split.How many new shares of stock would then be outstanding and what would be the par value of the new stock?

Question 40

What is treasury stock?

Question 41

Kellogg,Inc.purchased 200 shares of its own $20 par value stock for $30 cash per share.Which of the following answers reflects how this purchase of treasury stock would affect Kellogg's financial statements?

Question 42

Vailes Company reissued 200 shares of its treasury stock.The treasury stock originally cost $25 per share and was reissued for $35 per share.Select the answer that accurately reflects how the reissue of the treasury stock would affect Vailes's financial statements.

Question 43

Which of the following terms designates the maximum number of shares of stock that a corporation may issue?

A)Number of shares issued
B)Number of shares authorized
C)Par value
D)Number of shares outstanding

Question 44

On February 2,2016,the Farmer Corporation issued 9,000 shares of no-par stock for $17 per share.Within two hours of the issue,the stock's price jumped on the New York Stock Exchange to $21 per share.Which of the following answers describes the effect of the February 2,2016 transaction?

Question 45

Where is treasury stock reported on a corporation's balance sheet?

A)As an addition to total paid-in capital
B)As a deduction from total stockholders' equity,following Retained Earnings
C)As a deduction from total paid-in capital
D)As a deduction from Retained Earnings

Question 46

Which of the following is not normally a preference given to the holders of preferred stock?

A)The right to receive a specified amount of dividends prior any being paid to common stockholders.
B)The right to vote before the common stockholders at the corporation's annual meeting.
C)The right to receive preference over common stockholders as to the distribution of assets during a liquidation process.
D)All of these are preferences given to preferred stock.

Question 47

Flagler Corporation shows a total of $660,000 in its Common Stock account and $1,600,000 in its Paid-in Capital Excess account.The par value of Flagler's common stock is $8.How many shares of Flagler stock have been issued?

A)117,500.
B)200,000.
C)82,500.
D)It cannot be determined

Question 48

When the Common Stock account is disclosed on the balance sheet,it is reported at:

A)current market value
B)average issue price
C)par or stated value
D)lower of cost or market

Question 49

Which of the following statements about types of business entities is true?

A)For accounting purposes a sole proprietorship is not a separate entity from its owner.
B)Ownership in a partnership is represented by having shares of capital stock.
C)One advantage of a corporation is ability to raise capital.
D)Sole proprietorships are subject to double taxation.

Question 50

Which of the following entities would report income tax expense on its income statement?

A)A sole proprietorship.
B)A corporation.
C)A partnership.
D)All of these answer choices are correct.

Question 51

Which of the following statements best describes the term "par value?"

A)The number of shares currently in the hands of stockholders.
B)The amount that must be paid to purchase a share of stock.
C)Determined by dividing total stockholder's equity by the number of shares of stock.
D)An amount used in determining a corporation's legal capital.

Question 52

The par value of a company's stock

A)dictates the initial price of the stock.
B)may be revised each time a company issues more shares of stock.
C)is generally greater than market value.
D)has little connection to the market value of the stock.

Question 53

Which of the following statements about Treasury Stock is correct?

A)The balance in the Treasury Stock account increases paid-in capital.
B)The balance in the Treasury Stock account reduces paid-in capital.
C)The balance in the Treasury Stock account reduces total Stockholders' Equity.
D)The balance in Treasury Stock reduces Retained Earnings.

Question 54

At the end of the accounting period,Houston Company had $12,000 of par value common stock issued,additional paid in capital of $11,000,retained earnings of $12,000,and $4,000 of treasury stock.The total amount of stockholders' equity is:

A)$37,000.
B)$39,000.
C)$19,000.
D)$31,000.

Question 55

Ix Company issued 20,000 shares of $20 par value common stock at a market price of $32.As a result of this accounting event,the amount of stockholders' equity would

A)increase by $640,000.
B)be unaffected.
C)increase by $240,000.
D)increase by $400,000.

Question 56

On January 12,2016,Gilliam Corporation issued 550 shares of $12 par-value common stock for $15 per share.The number of shares authorized is 5,000,and the number of shares outstanding prior to this transaction is 1,200.Which of the following answers describes the effect of the January 12,2016 transaction?

Question 57

On January 2,2016,Torres Corporation issued 20,000 shares of $10 par-value common stock for $11 per share.Which of the following statements is true?

A)The Common Stock account will increase by $220,000.
B)The Cash account will increase by $200,000.
C)Total equity will increase by $200,000.
D)The Paid-in Capital in Excess of Par Value account will increase by $20,000.

Question 58

Blair Scott started a sole proprietorship by depositing $75,000 cash in a business checking account.During the accounting period the business borrowed $30,000 from a bank,earned $18,000 of net income,and Scott withdrew $12,000 cash from the business.Based on this information,at the end of the accounting period Scott's capital account contained a balance of:

A)$93,000.
B)$111,000.
C)$72,000.
D)$81,000.

Question 59

Ogilvie Corp.issued 12,000 shares of no-par stock for $40 per share.Ogilvie was authorized to issue 35,000 shares.What effect will this event have on the company's financial statements?

A)Increase assets by $1,400,000,increase equity by $1,400,000.
B)Increase assets by $480,000,increase equity by $480,000.
C)Increase cash flow from investing activities by $480,000.
D)None of these answer choices are correct.

Question 60

The term "Retained Earnings" is best explained by which of the following statements?

A)Money set aside for the redemption of bonds.
B)The difference between total revenue and total expenses in an accounting period.
C)Cash retained in a separate bank account designated for emergency uses.
D)A measure of capital generated through operating activities.

Question 61

The issuance of a stock dividend will

A)decrease total assets.
B)increase retained earnings.
C)decrease paid-in capital.
D)not affect total equity.

Question 62

Llewelyn Company purchased 1,000 shares of its own $10 par value common stock when the market price of the stock was $36 per share.Select the journal entry that correctly records Llewelyn's purchase of treasury stock.

Question 63

For 2016,the Sacramento Corporation had beginning and ending Retained Earnings balances of $208,054 and $231,012 respectively.Also during 2016,the corporation declared and paid cash dividends of $29,000 and issued stock dividends valued at $16,000.Total expenses were $32,916.Based on this information,what was the amount of total revenue for 2016?

A)$68,158
B)$143,154
C)$100,874
D)$179,132

Question 64

A reason often given for a corporate stock split is:

A)to reduce the market price of the stock.
B)to protect the interest of creditors.
C)to increase the par value of the stock.
D)to absorb the treasury stock.

Question 65

Use the following to answer questions
Gilligan Corporation was established on February 15,2014.Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock.As of December 2016,Gilligan's stockholders' equity accounts report the following balances:
At the end of 2016,Gilligan decides to issue a 5% stock dividend.
At the time of issue,the market price of the stock was $22 per share.


-Determine the dollar value of the stock dividend issued by Gilligan Corporation.

A)$60,500
B)$16,500
C)$44,000
D)$108,500

Question 66

Chandler Company declared and paid a cash dividend.Which of the following choices accurately reflects how this event would affect the company's financial statements?

Question 67

Which answer would represent the financial statement presentation of stockholders' equity after the following transactions?
1)Issued 200 shares of $20 par value common stock for $50 a share.Five hundred shares are authorized.
2)Purchased 75 shares of treasury stock at $44 a share.

Question 68

Use the following to answer questions
On March 1,2016,Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value,6% preferred stock.The dividend will be paid on May 1,2016 to the stockholders of record as of April 1,2016.

-The entry to record the dividend on March 1 will have which of the following financial statement effects?

Question 69

Use the following to answer questions
Gilligan Corporation was established on February 15,2014.Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock.As of December 2016,Gilligan's stockholders' equity accounts report the following balances:
At the end of 2016,Gilligan decides to issue a 5% stock dividend.
At the time of issue,the market price of the stock was $22 per share.


-What is the correct journal entry to record this transaction?

Question 70

What effect will the declaration and distribution of a stock dividend have on net income and cash flows?

Question 71

Use the following to answer questions
Gilligan Corporation was established on February 15,2014.Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock.As of December 2016,Gilligan's stockholders' equity accounts report the following balances:
At the end of 2016,Gilligan decides to issue a 5% stock dividend.
At the time of issue,the market price of the stock was $22 per share.


-Calculate the number of shares outstanding after the stock dividend is issued.

A)57,750 shares
B)55,000 shares
C)52,250 shares
D)525,000 shares

Question 72

Montana Company was authorized to issue 200,000 shares of common stock.The company had issued 50,000 shares of stock when it purchased 10,000 shares of treasury stock.The number of outstanding shares of common stock was:

A)190,000.
B)60,000.
C)40,000.
D)50,000.

Question 73

The declaration and issuance of a stock dividend will

A)decrease the current ratio
B)have an effect on the current ratio that depends on the market price of the stock at the time the dividend is declared
C)increase the current ratio
D)have no effect on the current ratio

Question 74

Use the following to answer questions
On March 1,2016,Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value,6% preferred stock.The dividend will be paid on May 1,2016 to the stockholders of record as of April 1,2016.

-Which of the following reflects the financial statement effects on the May 1,2016 date of payment?

Question 75

With respect to the current ratio,the declaration of a cash dividend will:

A)have no effect on the current ratio.
B)have an effect that depends on the market price of the stock at the time the dividend is declared.
C)decrease the current ratio.
D)increase the current ratio.

Question 76

Curtain Co.paid dividends of $6,000;$12,000;and $20,000 during 2014,2015 and 2016,respectively.The company had 1,000 shares of 5%,$200 par value preferred stock outstanding that paid a cumulative dividend.The amount of dividends received by the common shareholders during 2016 would be:

A)$4,000.
B)$6,000.
C)$8,000.
D)$10,000.

Question 77

Helena Corporation declared a 2-for-1 stock split on 8,000 shares of $6 par value common stock.If the market price of the stock had been $25 a share before the split,the par value,number of shares,and approximate market value after the split would be:

Question 78

Which of the following is a negative or contra stockholders' equity account?

A)Retained Earnings
B)Paid-in Capital in Excess of Par
C)Treasury Stock
D)Appropriated Retained Earnings

Question 79

The payment of a previously declared cash dividend will

A)decrease assets and equity.
B)increase liabilities and decrease equity.
C)decrease liabilities and increase equity.
D)None of these answer choices are correct.

Question 80

Which of the following statements is a reason why a company would buy treasury stock?

A)Because management believes the market price of stock is undervalued.
B)To have stock available to issue to employees in stock option plans.
C)To avoid a hostile takeover.
D)All of these are reasons a company would buy treasury stock.