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Chapter 13 Accounting for Corporations
MULTIPLE CHOICE QUESTIONS
1)
A corporation is a legal entity separate from its owners.
A)
True
B)
False
2)
Corporations avoid many of the state regulations and controls that proprietorships and partnerships
are subject to.
A)
True
B)
False
3)
Organization expenses of a corporation often include legal fees and promoter fees.
A)
True
B)
False
4)
Shareholders in a corporation have the power to bind the corporation to contracts.
A)
True
B)
False
5)
A proxy is a document that gives a designated agent the right to vote a shareholder's stock.
A)
True
B)
False
6)
Common shareholders always share equally with all other shareholders in dividends.
A)
True
B)
False
7)
A preemptive right means shareholders can purchase their proportional share of common stock
issued later by the corporation.
A)
True
B)
False
8)
Stock is attractive to investors because stockholders are not liable for the corporation's actions and
debts and because stock is easily transferred.
A)
True
B)
False
9)
A registrar keeps stockholder records and prepares official lists of stockholders and dividend
payments.
A)
True
B)
False
10)
Stockholders' equity consists of paid-in capital and retained earnings.
A)
True
B)
False
11)
The price at which a share of stock is bought or sold is known as par value.
A)
True
B)
False
12)
Paid-in capital is the total amount of cash and other assets the corporation receives from its
stockholders in exchange for its stock.
A)
True
B)
False
13)
The total number of shares outstanding is the authorized stock.
A)
True
B)
False
14)
If a corporation is authorized to issue 1,000 shares of $5 common stock, it is said to have $5,000 of
stock outstanding.
A)
True
B)
False
15)
Minimum legal capital requirements are intended to protect creditors.
A)
True
B)
False
16)
Stated value stock is no-par stock that is assigned a "stated" value per share by the corporation's
board of directors.
A)
True
B)
False
17)
A corporation may be authorized to issue both common and preferred stock.
A)
True
B)
False
18)
Common stock always carries a preference for receiving dividends over preferred stock.
A)
True
B)
False
19)
Special rights often granted to preferred stock include a preference for receiving dividends and
additional voting privileges.
A)
True
B)
False
20)
Cumulative preferred stock carries the right to be paid both current and all prior periods' unpaid
dividends before any dividends are paid to common shareholders.
A)
True
B)
False
21)
Retained earnings generally consist of a company's cumulative net income less any net losses and
dividends declared since its inception.
A)
True
B)
False
22)
Retained earnings are part of the stockholders' claims on the company's net assets.
A)
True
B)
False
23)
The term restricted retained earnings refers to statutory but not contractual restrictions.
A)
True
B)
False
24)
A common statutory restriction is reported on the income statement whereas; a common
contractual restriction is reported in the stockholders' equity section of the balance sheet.
A)
True
B)
False
25)
If the dividends account is not recorded as a reduction to Retained Earnings on the date of
declaration, the dividends account is closed to Retained Earnings at the end of the accounting
period.
A)
True
B)
False
26)
A company made an error in recording the Year 1 purchase of computer equipment as an expense.
This was discovered in Year 2. The item should be reported as a prior period adjustment on the
Year 2 income statement.
A)
True
B)
False
27)
Changes in accounting estimates are accounted for in current and future periods.
A)
True
B)
False
28)
Earnings per share is the amount of income earned per share of a company's outstanding
(weighted-average) common stock.
A)
True
B)
False
29)
If a company has no preferred stock, basic earnings per share is equal to net income divided by the
number of weighted average common shares outstanding.
A)
True
B)
False
30)
If a company has noncumulative preferred stock, basic earnings per share is equal to net income
less preferred dividends declared divided by the number of weighted average common shares
outstanding.
A)
True
B)
False
31)
Robin Company had net income of $67,000. The company had 9,000 weighted average common
shares outstanding. The basic earnings per share equal $7.44 per share.
A)
True
B)
False
32)
The price-earnings ratio reveals information about the stock market's expectations for a company's
future earnings growth.
A)
True
B)
False
33)
Stocks with a price-earnings ratio less than 20 to 25 are likely to be overpriced.
A)
True
B)
False
34)
The price-earnings ratio is computed by dividing earnings per share by the market price per share.
A)
True
B)
False
35)
A company has earnings per share of $6.50. Its dividend per share is $0.50, and its market price per
share is $80. Its price-earnings ratio equals 13.
A)
True
B)
False
36)
Dividend yield shows the annual amount of cash dividends distributed to common shares relative
to the stock's market price.
A)
True
B)
False
37)
Dividend yield is defined as the annual cash dividends per share divided by the market price per
share of a company's stock.
A)
True
B)
False
38)
Growth stocks generally pay large dividends on a regular basis.
A)
True
B)
False
39)
Dividend yield is computed by dividing earnings per share by the market value per share.
A)
True
B)
False
40)
Book value per share reflects the value per share if a company is liquidated at balance sheet
amounts.
A)
True
B)
False
41)
The main limitation in using book value per share for stock valuation models is the potential
difference between recorded value and market value for both assets and liabilities.
A)
True
B)
False
42)
Dividing stockholders' equity applicable to common shares by the number of common shares
outstanding yields the book value per common share.
A)
True
B)
False
43)
If a corporation receives assets other than cash in exchange for stock, it records the assets received
at their market value as of the date of the transaction.
A)
True
B)
False
44)
A corporation may not legally give shares of its stock to promoters in exchange for their services in
organizing the corporation.
A)
True
B)
False
45)
When no-par stock is not assigned a stated value, the total amount received is recorded in the
Common Stock account.
A)
True
B)
False
46)
The date of record is the date that directors vote to pay a cash dividend to shareholders.
A)
True
B)
False
47)
A debit balance in retained earnings is referred to as an accumulated deficit.
A)
True
B)
False
48)
The declaration of cash dividends increases retained earnings.
A)
True
B)
False
49)
The journal entry to record the declaration of dividends on common stock includes a debit to
Retained Earnings and a credit to Common Dividend Payable.
A)
True
B)
False
50)
A stock split is the distribution of additional shares of stock to stockholders according to their
percent of ownership.
A)
True
B)
False
51)
A stock dividend does not reduce a corporation's assets or its stockholders' equity.
A)
True
B)
False
52)
Large stock dividends are recorded at par or stated value.
A)
True
B)
False
53)
Common Stock Dividend Distributable is a liability account.
A)
True
B)
False
54)
Common Stock Dividend Distributable is an equity account.
A)
True
B)
False
55)
Small stock dividends are recorded at par or stated value.
A)
True
B)
False
56)
A stock dividend is a distribution of corporate assets that returns part of the original investment to
shareholders.
A)
True
B)
False
57)
A reverse stock split increases the market value per share and the par value per share of stock.
A)
True
B)
False
58)
Declaration of a stock dividend results in a liability being recorded.
A)
True
B)
False
59)
A stock split increases total stockholders' equity.
A)
True
B)
False
60)
A large stock dividend only occurs when a distribution of more than 50% of previously outstanding
shares is issued.
A)
True
B)
False
