Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
1) A corporation is a business organized under federal law that is a separate legal entity.
2) Most well-known companies are corporations and tend to be large multinational businesses.
3) Which of the following statements regarding corporations is incorrect?
A) Corporations dominate business activity in the United States.
B) Corporations are businesses organized under state law and do not have an existence that is separate
from their owners.
C) Most well-known corporations tend to be large multinational businesses.
D) Corporations are separate legal entities.
4) A corporation is a separate legal entity that is organized independently of its owners.
5) Stockholders of a corporation are not personally liable for the corporation’s debt.
6) The stock of public corporations cannot be purchased on a stock exchange.
7) Double taxation occurs when corporations make dividend payments to stockholders.
8) Higher start-up costs and expensive government regulations are disadvantages of corporations.
9) Which of the following is true of a corporation?
A) A corporation cannot be privately held.
B) The earnings of a corporation may be subject to double taxation.
C) A corporation has a limited life.
D) The stockholders of a corporation have unlimited liability for the corporation’s debt.
10) Lack of mutual agency is best described as which of the following?
A) The liabilities of the corporation cannot be extended to the personal assets of the stockholder.
B) Shares of stock can be readily purchased and sold by investors on an organized stock exchange.
C) Stockholders are not authorized to sign contracts or make business commitments on behalf of the
corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay income tax on corporate
dividends.
11) Which of the following statements is true of a corporation?
A) Shareholders can be required to pay debts of the corporation.
B) Shares of stock cannot be readily purchased and sold by investors on an organized stock exchange.
C) Shareholders are authorized to sign contracts or make business commitments on behalf of the
corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay income tax on the
dividends received.
12) Which of the following corporate characteristics is a disadvantage of a corporation?
A) Stockholders have limited liability.
B) A corporation has a continuous life.
C) There is no mutual agency between the stockholders and the corporation.
D) Earnings of a corporation may be subject to double taxation.
13) Which of the following is an advantage of the corporate form of business?
A) less degree of government regulation
B) limited liability of stockholders
C) separation of ownership and management
D) low start-up costs
14) Trent Williams is a sole proprietor of a successful business. He is interested in incorporating to
protect his personal assets. Which advantage of incorporation is most applicable? What are other
advantages of organizing as a corporate entity?
15) Jefferson Anderson is a sole proprietor of a successful business. He is interested in incorporating to
protect his personal assets. What are some disadvantages of organizing as a corporate entity?
16) Following is a list of advantages and disadvantages of the corporate form of business. Identify each
characteristic as either an advantage (A) or a disadvantage (D).
Corporate Characteristic
Advantage (A) or
Disadvantage (D)
Entity has continuous life.
Exposure to double taxation is
evident.
Government regulation is
expensive.
Transfer of ownership is easy.
Entity has continuous life.
A
evident.
Government regulation is
expensive.
D
17) Following is a list of advantages and disadvantages of the corporate form of business. Identify each
characteristic as either an advantage (A) or a disadvantage (D).
Corporate Characteristic
Advantage (A) or
Disadvantage (D)
Entity can raise more money
than a partnership or sole
proprietor.
Startup costs are higher than
other business forms.
Stockholders’ liability is limited.
There is no mutual agency
among the stockholders and the
corporation.
Entity can raise more money
than a partnership or sole
proprietor.
A
Startup costs are higher than
other business forms.
D
Stockholders’ liability is limited.
A
There is no mutual agency
among the stockholders and the
corporation.
A
19) Preferred stockholders receive a dividend preference over common stockholders.
20) Paid-in capital is externally generated capital and results from transactions with outsiders.
21) Stated value stock is no-par stock that has been assigned an amount similar to par value.
22) Retained earnings represents amounts received from stockholders of a corporation in exchange for
stock.
23) Par value is an arbitrary amount that is assigned by the state when the corporate charter is issued.
24) For accounting purposes, par value stock is treated the same as stated value stock except for the
account names.
25) The par value of a stock has no relation to the market value.
26) Paid-in capital and retained earnings are internally generated equity.
27) The corporate charter identifies the maximum number of shares of stock the corporation may issue,
which is called “available for issue” stock.
28) Outstanding stock represents shares of stock that ________.
A) are held by the stockholders
B) give the owners certain advantages
C) have been authorized by state law
D) have been issued but may or may not be held by stockholders
29) Which of the following is a basic right of stockholders?
A) Stockholders may sell their stock back to the company if they wish.
B) Stockholders may authorize a business contract on behalf of the corporation.
C) Stockholders may receive dividends from corporate earnings.
D) Stockholders may determine the issue price of common stock.
30) Which of the following is a true statement?
A) Stockholders are guaranteed annual dividends.
B) Stockholders receive their proportionate share of any assets remaining after the corporation pays its
debts and liquidates.
C) Stockholders may authorize a business contract on behalf of the corporation.
D) Stockholders may vote only if they physically attend the annual stockholders’ meeting.
31) The par value of stock is ________.
A) the current selling price of stock
B) the highest price for which a share can sell
C) the price paid if the corporation purchases its own stock back
D) the amount assigned by a company to a share of its stock
32) The two basic sources of stockholders’ equity are ________.
A) common stock and bonds
B) common stock and preferred stock
C) paid-in capital and retained earnings
D) no-par and stated value stock
33) Paid-in capital consists of ________.
A) amounts received from customers
B) amounts raised by issuing bonds or preferred stocks
C) earnings generated by the corporation
D) amounts received from stockholders in exchange for stock