Question 1

Dallas Sports Ltd has 100 shares of $15, noncumulative, preferred shares outstanding, and $160,000 of common shares outstanding. In the company's first year of operation, no dividends were paid, but during the second year Dallas Sports paid dividends of$24,000. The dividend should be distributed as follows:

Accepted Answer

The preferred shares have a dividend of $15 per share, totaling $1,500 for 100 shares. Since they are noncumulative, they do not receive dividends for the first year. Therefore, in the second year, $1,500 goes to preferred shares and the remaining $22,500 goes to common shares.

Question 2

Common shares:

Accepted Answer

Common shares represent residual equity in a corporation, meaning they are the last to claim on assets and earnings after debts and other obligations are satisfied.

Question 3

If a corporation that has only one class of shares, or if there is more than one class, the class that has no preference over the other classes of shares, is called:

Accepted Answer

Common shares are the basic form of ownership in a corporation and do not have preference over other classes of shares.

Question 4

Callable preferred shares give the shareholders the option of exchanging their preferred shares into common shares at a specified rate.

Accepted Answer

Callable preferred shares give the issuing company the right, but not the obligation, to buy back the shares at a predetermined price after a certain date, not the shareholders the option to convert into common shares.

Question 5

A new corporation ended its first year of operations with assets of $100,000, liabilities of $75,000, and contributed capital common shares) of $10,000. What was thecorporation's profit for the year?

Accepted Answer

The answer of A new corporation ended its first year...

Question 6

The accounting equation for a corporation is:

Accepted Answer

The accounting equation for a corporation is Assets = Liabilities + Equity. This equation shows that the total assets of a corporation are equal to the sum of its liabilities and equity.

Question 7

Zach Sports Ltd has 1,000 shares of $5.50, cumulative preferred shares and 10,000common shares issued and outstanding. In the previous year which was the first year of operations), the company paid total dividends of $1,000. The amount that must be paid to the preferred shareholders in the current year before any dividend is paid to common shareholders is:

Accepted Answer

The answer of Zach Sports Ltd has 1,000 shares of...

Question 8

A proxy is:

Accepted Answer

A proxy is a legal document that allows an agent to vote on behalf of a shareholder.

Question 9

When a corporation issues only one class of shares they are:

Accepted Answer

When a corporation issues only one class of shares, they are typically common shares, which represent ownership in the company and come with voting rights.

Question 10

Barb Inc issued 500 common shares in payment of a $1,900 bill from its accountant for assistance in filing its charter. The entry to record this transaction will include:

Accepted Answer

The issuance of shares in exchange for services is recorded by crediting the Common Shares account, reflecting the increase in equity.

Question 11

Lucie Corporation was formed on January 1 of the current year. The corporate charter authorized the company to issue 100,000 common shares. During the first month ofoperation, the corporation issued 300 shares to its lawyer in payment of a $5,600 bill for preparing the articles of incorporation. The entry to record this transaction wouldinclude:

Accepted Answer

The correct entry would be to debit Organization Costs for $5,600 to record the expense incurred for legal services, and credit Common Shares for the same amount to reflect the issuance of shares as payment.

Question 12

Pam Corporation sold 10,000 common shares at $25 per share cash. The entry to record this transaction would include:

Accepted Answer

The entry would include a credit to Common Shares for $250,000 (10,000 shares x $25 per share), reflecting the increase in equity from the sale of shares.

Question 13

Unpaid preferred dividends are called dividends in arrears.

Accepted Answer

This is correct. Unpaid preferred dividends are referred to as dividends in arrears.

Question 14

Bruce Corporation issued 8,000 common shares in exchange for land that has a fair market value of $184,000. The entry to record this transaction would include:

Accepted Answer

The entry would include a credit to Common Shares for $184,000, reflecting the fair market value of the land received in exchange for the shares.

Question 15

The total amount of cash and other assets received by a corporation from its shareholders in exchange for common shares is included in:

Accepted Answer

Contributed capital represents the total amount of cash and other assets that shareholders have invested in the corporation in exchange for common shares.

Question 16

All of the following are given as possible motivations for a corporation to issue preferred shares except:

Accepted Answer

The answer of All of the following are given as...

Question 17

Quality Cleaning Corp. issued 50 no-par-value common shares for land with a market value of $4,000. Dillon had originally issued common shares at $100 two years ago, but there is currently no market value available for their shares. The amount of contributed capital arising from this transaction is:

Accepted Answer

The contributed capital is based on the fair market value of the land received, which is $4,000, as there is no current market value for the shares.

Question 18

Buying shares in a corporation is attractive to investors because:

Accepted Answer

All the options listed are advantages of buying shares in a corporation: shares are easily transferable, shareholders have limited liability, they are not agents of the corporation, and corporations have unlimited life.

Question 19

Tech Inc's board of directors voted to declare a common cash dividend of $.0.75 per share. The company has 15,000 common shares authorized, with 10,000 issued and outstanding. The amount of the dividend is:

Accepted Answer

The dividend amount is calculated by multiplying the dividend per share ($0.75) by the number of shares issued and outstanding (10,000), resulting in $7,500.

Question 20

Dillon Snowboards Ltd issued 60 no-par-value common shares for $10,000. The amount of contributed capital arising from this transaction is:

Accepted Answer

The amount of contributed capital is equal to the amount of cash received for the shares, which is $10,000.

Quiz 12: Organization and Operation of Corporations