CHAPTER 13: CORPORATIONS: ORGANIZATION, STOCK TRANSACTIONS,
AND DIVIDENDS
1.
Twenty percent of all businesses in the United States are corporations, and they account for 80% of the total
business dollars generated.
a.
True
b.
False
2.
A corporation is a separate entity for accounting purposes but not for legal purposes.
a.
True
b.
False
3.
The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the
stockholder.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
4.
Under the Internal Revenue Code, corporations are required to pay federal income taxes.
a.
True
b.
False
5.
Double taxation is a disadvantage of a corporation because the corporation has to pay income taxes at twice the
rate applied to partnerships.
a.
True
b.
False
6.
The initial owners of stock of a newly formed corporation are called directors.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
7.
While some businesses have been granted charters under state laws, most businesses receive their charters under
federal laws.
a.
True
b.
False
8.
Organizational expenses are classified as intangible assets on the balance sheet.
a.
True
b.
False
9.
The two main sources of stockholders’ equity are investments contributed by stockholders and net income retained
in the business.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
10.
Retained Earnings represents past net income less past dividends, therefore any balance in this account would be
listed on the income statement.
a.
True
b.
False
11.
The net increase or decrease in Retained Earnings for a period is recorded by closing entries.
a.
True
b.
False
12.
The balance in Retained Earnings should be interpreted as representing surplus cash left over for dividends.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
13.
A deficit in Retained Earnings is reported in the stockholders’ equity section of the balance sheet.
a.
True
b.
False
14.
When no-par common stock with a stated value is issued for cash, the common stock account is credited for an
amount equal to the cash proceeds.
a.
True
b.
False
15.
The par value of common stock must always be equal to its market value on the date the stock is issued.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
16.
For accounting purposes, stated value is treated the same way as par value.
a.
True
b.
False
17.
The issuance of common stock affects both paid–in capital and retained earnings.
a.
True
b.
False
18.
The main source of paid–in capital is from issuing stock.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
19.
The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares
issued.
a.
True
b.
False
20.
The amount of capital paid in by the stockholders of the corporation is called legal capital.
a.
True
b.
False
21.
If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the dividends per share would be $4.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
22.
If 50,000 shares are authorized, 41,000 shares are issued, and 2,000 shares are reacquired, the number of
outstanding shares is 43,000.
a.
True
b.
False
23.
Preferred stockholders must receive their current-year dividends before the common stockholders can receive any
dividends.
a.
True
b.
False
24.
If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common
stockholders.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
25.
Paid–in capital may originate from real estate transactions.
a.
True
b.
False
26.
The par value of stock is an assigned per share amount defined in many states as legal capital.
a.
True
b.
False
27.
A large public corporation normally uses registrars and transfer agents to maintain records of the stockholders.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
28.
When common stock is issued in exchange for land, the land should be recorded in the accounts at the par value of
the stock issued.
a.
True
b.
False
29.
When a corporation issues stock at a premium, it reports the premium as an other income item on the income
statement.
a.
True
b.
False
30.
When no-par stock is issued, Common Stock is credited for the selling price of the stock issued.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
31.
A large retained earnings account means that there is cash available to pay dividends.
a.
True
b.
False
32.
When the board of directors declares a cash or stock dividend, this action decreases retained earnings.
a.
True
b.
False
33.
If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are held as treasury stock, a cash
dividend of $1 per share would amount to $15,000.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
34.
The declaration of a cash dividend decreases a corporation‘s stockholders equity and decreases its assets.
a.
True
b.
False
35.
One of the prerequisites to paying a cash dividend is sufficient retained earnings.
a.
True
b.
False
36.
Cash dividends become a liability to a corporation on the date of record.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
37.
The declaration and issuance of a stock dividend does not affect the total amount of a corporation‘s assets,
liabilities, or stockholders‘ equity.
a.
True
b.
False
38.
The declaration of a stock dividend decreases a corporation‘s stockholders’ equity and increases its liabilities.
a.
True
b.
False
39.
Before a stock dividend can be declared or paid, there must be sufficient cash.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
40.
The day on which the board of directors of the corporation distributes a dividend is called the declaration date.
a.
True
b.
False
41.
A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.
a.
True
b.
False
42.
The stock dividends distributable account is listed in the current liability section of the balance sheet.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
43.
Cash dividends are normally paid on shares of treasury stock.
a.
True
b.
False
44.
The cost method of accounting for the purchase and sale of treasury stock is a commonly used method.
a.
True
b.
False
45.
Under the cost method, when treasury stock is purchased by the corporation, the par value and the price at which
the stock was originally issued are important.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
46.
If 100 shares of treasury stock were purchased for $50 per share and then sold at $60 per share, $1,000 of income
is reported on the income statement.
a.
True
b.
False
47.
A sale of treasury stock may result in a decrease in paid-in capital. All decreases should be charged to Paid-In
Capital from Sale of Treasury Stock.
a.
True
b.
False
48.
Treasury Stock is listed in the stockholders‘ equity section on the balance sheet.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
49.
A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific purpose.
a.
True
b.
False
50.
A prior period adjustment should be reported as an adjustment to the retained earnings balance at the beginning of
the period in which the adjustment was made.
a.
True
b.
False
51.
The amount of a corporation‘s retained earnings that has been restricted/appropriated should be reported in the
notes to the financial statements.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
52.
The cost of treasury stock is deducted from total paid-in capital and retained earnings in determining total stockholders’
equity.
a.
True
b.
False
53.
The retained earnings statement may be combined with the income statement.
a.
True
b.
False
54.
If paid-in-capital in excess of par/preferred stock is $30,000, preferred stock is $200,000, paid-in capital in excess of
par/common stock is $20,000, common stock is $525,000, and retained earnings is $105,000 (deficit), the total
stockholders‘ equity is $880,000.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
55.
A corporation has 10,000 shares of $100 par stock outstanding. If the corporation issues a 5-for-1 stock split, the
number of shares outstanding after the split will be 40,000.
a.
True
b.
False
56.
The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more
investors to enter the market for the company‘s shares.
a.
True
b.
False
57.
The reduction in the par or stated value of common stock, accompanied by the issuance of a proportionate number
of additional shares, is called a stock split.
a.
True
b.
False
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
58.
A corporation has 12,000 shares of $20 par stock outstanding that has a current market value of $150. If the
corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $50.
a.
True
b.
False
59.
A stock split results in a transfer at market value from retained earnings to paid-in capital.
a.
True
b.
False
60.
If a company has preferred stock, the preferred stock dividend is added to net income when computing earnings
per common share.
a.
True
b.
False