Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
61.
Which of the following is not a characteristic of a corporation?
a.
The financial loss that a stockholder may suffer from owning stock in a public company is limited.
b.
Cash dividends paid by a corporation are deductible as expenses by the corporation.
c.
A corporation can own property in its name.
d.
Corporations are required to file federal income tax returns.
62.
Characteristics of a corporation include
a.
shareholders who are mutual agents
b.
direct management by the shareholders (owners)
c.
its inability to own property
d.
shareholders who have limited liability
63.
One of the main disadvantages of the corporate form is the
a.
professional management
b.
double taxation of dividends
c.
charter
d.
requirement to stock
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
64.
A disadvantage of the corporate form of business entity is
a.
mutual agency for stockholders
b.
unlimited liability for stockholders
c.
corporations are subject to more governmental regulations
d.
the ease of transfer of ownership
65.
Under the corporate form of business organization,
a.
ownership rights are easily transferred
b.
a stockholder is personally liable for the debts of the corporation
c.
stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the
corporation
d.
stockholders wishing to sell their corporate shares must get the approval of other stockholders
66.
Those most responsible for the major policy decisions of a corporation are the
a.
management
b.
board of directors
c.
employees
d.
stockholders
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
67.
Which one of the following would not be considered an advantage of the corporate form of organization?
a.
government regulation
b.
separate legal existence
c.
continuous life
d.
limited liability of stockholders
68.
Which of the following is not true of a corporation?
a.
It may enter into binding legal contracts in its own name.
b.
It may sue and be sued.
c.
The acts of its owners bind the corporation.
d.
It may buy, own, and sell property.
69.
The ability of a corporation to obtain capital is
a.
less than the ability of a partnership
b.
about the same as the ability of a partnership
c.
restricted because of the limited life of the corporation
d.
enhanced because of limited liability and ease of share transferability
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
70.
Which of the following statements concerning taxation is accurate?
a.
Corporations pay federal income taxes but not state income taxes.
b.
Corporations pay federal and state income taxes.
c.
Only the owners must pay taxes on corporate income.
d.
Corporations pay income taxes but their owners do not.
71.
The term deficit is used to refer to a debit balance in which of the following accounts of a corporation?
a.
Retained Earnings
b.
Treasury Stock
c.
Organizational Expenses
d.
Common Stock
72.
Stockholders‘ equity
a.
is usually equal to cash on hand
b.
includes paid-in capital and liabilities
c.
includes retained earnings and paid-in capital
d.
is shown on the income statement
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
73.
The state charter allows a corporation to issue only a certain number of shares of each class of stock. This amount
of stock is called
a.
treasury stock
b.
issued stock
c.
outstanding stock
d.
authorized stock
74.
Which of the following is not a right possessed by common stockholders of a corporation?
a.
the right to vote in the election of the board of directors
b.
the right to receive a minimum amount of dividends
c.
the right to sell their stock to anyone they choose
d.
the right to share in assets upon liquidation
75.
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000
shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?
a. 10,000
b. 40,000
c. 30,000
d. 50,000
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
76.
The par value per share of common stock represents the
a.
minimum selling price of the stock established by the articles of incorporation.
b.
minimum amount the stockholder will receive when the corporation is liquidated
c.
dollar amount assigned to each share
d.
amount of dividends per share to be received each year
77.
Nebraska Inc. issues 3,000 shares of common stock for $45,000. The stock has a stated value of $10 per
share. The journal entry to record the stock issuance would include a credit to Common Stock for
a. $30,000
b. $45,000
c. $15,000
d. $3,000
78.
The excess of issue price over par of common stock is termed a(n)
a.
discount
b.
income
c.
deficit
d.
premium
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
79.
The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal
fees for organizing the corporation includes a credit to
a.
Organizational Expenses
b.
Goodwill
c.
Common Stock
d.
Cash
80.
The price at which a stock can be sold depends upon a number of factors. Which statement below is not one of
those factors?
a.
the financial condition, earnings record, and dividend record of the corporation
b.
investor expectations of the corporation‘s earning power
c.
how high the par value is
d.
general business and economic conditions and prospects
81.
The entry to record the issuance of common stock at a price above par includes a debit to
a.
Organizational Expenses
b.
Common Stock
c.
Cash
d.
Paid-In Capital in Excess of Par—Common Stock
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
82.
Kansas Company acquired a building valued at $210,000 for property tax purposes in exchange for 12,000 shares of
its $5 par common stock. The stock is widely traded and selling for $15 per share. At what amount should the
building be recorded by Kansas Company?
a. $60,000
b. $180,000
c. $210,000
d. $120,000
83.
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 30,000
shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
a. 35,000
b. 70,000
c. 25,000
d. 30,000
84.
Par value
a.
is the monetary value assigned per share in the corporate charter
b.
represents what a share of stock is worth
c.
represents the original selling price for a share of stock
d.
is established for a share of stock after it is issued
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
85.
The authorized stock of a corporation
a.
must be recorded in a formal accounting entry
b.
only reflects the initial capital needs of the company
c.
is indicated in its by-laws
d.
is indicated in its charter
86.
If Dakota Company issues 1,500 shares of $6 par common stock for $75,000,
a.
Common Stock will be credited for $75,000
b.
Paid-In Capital in Excess of Par will be credited for $9,000
c.
Paid-In Capital in Excess of Par will be credited for $66,000
d.
Cash will be debited for $66,000
87.
If common stock is issued for an amount greater than par value, the excess should be credited to
a.
Retained Earnings
b.
Cash
c.
Legal Capital
d.
Paid-In Capital in Excess of Par
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
88.
The Sneed Corporation issues 10,000 shares of $50 par preferred stock for cash at $75 per share. The entry to
record the transaction will consist of a debit to Cash for $750,000 and a credit or credits to
a.
Preferred Stock for $750,000
b.
Preferred Stock for $500,000 and Paid-In Capital in Excess of Par—Preferred Stock for $250,000
c.
Preferred Stock for $500,000 and Retained Earnings for $250,000
d.
Paid-In Capital from Preferred Stock for $750,000
89.
Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. When the transaction is recorded,
credits are made to
a.
Common Stock, $14,000
b.
Common Stock, $10,000, and Paid-In Capital in Excess of Par, $4,000
c.
Common Stock, $4,000, and Paid-In Capital in Excess of Stated Value, $10,000
d.
Common Stock, $10,000, and Retained Earnings, $4,000
90.
Nexis Corp. issues 1,000 shares of $15 par value common stock at $22 per share. When the transaction is
recorded, credits are made to:
a.
Common Stock, $15,000, and Paid-In Capital in Excess of Par, $7,000
b.
Common Stock, $22,000, and Retained Earnings, $15,000
c.
Common Stock, $7,000, and Paid-In Capital in Excess of Stated Value, $15,000
d.
Common Stock, $22,000
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
91.
Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par
common stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends per share for preferred and common stock for the first year.
a. $0.50 and $0.10 b. $0.00 and $0.10
c. $0.50 and $0.00 d. $2.00 and $0.00
92.
When Wisconsin Corporation was formed on January 1, the corporate charter provided for 100,000 share of $10
par value common stock. The following transaction was among those engaged in by the corporation during its first
month of operation: The corporation issued 8,500 shares of stock at a price of $16 per share.
The entry to record the above transaction would include a
a.
debit to Cash for $85,000
b.
credit to Common Stock for $136,000
c.
credit to Paid in Capital in Excess of Par for $51,000
d.
debit to Common Stock for $85,000
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
93.
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000
shares were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to
be paid if a $2 per share dividend is declared?
a. $60,000
b. $20,000
c. $120,000
d. $100,000
94.
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000
shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be
paid if a $2 per share dividend is declared?
a. $80,000
b. $10,000
c. $90,000
d. $100,00
95.
The date on which a cash dividend becomes a binding legal obligation is on the
a.
declaration date
b.
date of record
c.
payment date
d.
last day of fiscal year
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
96.
The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to
a.
decrease total liabilities and stockholders’ equity.
b.
increase total expenses and total liabilities
c.
increase total assets and stockholders’ equity
d.
decrease total assets and stockholders’ equity
97.
Which of the following is the appropriate general journal entry to record the declaration of a cash dividends?
a.
Retained Earnings
Cash
b.
Cash Dividends Payable
Cash
c.
Paid-In Capital
Cash Dividends Payable
d.
Cash Dividends
Cash Dividends Payable
98.
Texas Inc. has 10,000 shares of 6%, $125 par value, cumulative preferred stock and 50,000 shares of $1 par value
common stock outstanding at December 31. What is the annual dividend on the preferred stock?
a.
$75 per share
b.
$75,000 in total
c.
$10,000 in total
d.
$0.75 per share
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
99.
Which of the following is not a prerequisite to paying a cash dividend?
a.
formal action by the board of directors
b.
market value in excess of par value per share
c.
sufficient cash
d.
sufficient retained earnings
100.
The liability for a dividend is recorded on which of the following dates?
a.
the date of record
b.
the date of payment
c.
the last day of the fiscal year
d.
the date of declaration
101.
A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the
company declared a 2% stock dividend on a date when the market price was $11 a share. What is the amount
transferred from the retained earnings account to paid–in capital accounts as a result of the stock dividend?
a. $3,200
b. $6,400
c. $4,800
d. $8,800
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
102.
A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the
company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the
declaration and issuance of the stock dividend is to
a.
decrease retained earnings, increase common stock, and increase paid-in capital
b.
increase retained earnings, decrease common stock, and decrease paid-in capital
c.
increase retained earnings, decrease common stock, and increase paid-in capital
d.
decrease retained earnings, increase common stock, and decrease paid-in capital
103.
A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the
company declared a 4% stock dividend on a date when the market price was $12 a share. What is the amount
transferred from the retained earnings account to paid–in capital accounts as a result of the stock dividend?
a. $12,800
b. $19,200
c. $32,000
d. $48,800
104.
Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par
common stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends per share for preferred and common stock for the second year.
a. $2.25 and $0.00 b. $2.25 and $0.45
c. $0.00 and $0.45 d. $2.00 and $0.45
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
105.
Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par
common stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends per share for preferred and common stock for the third year.
a. $4.50 and $0.25 b. $3.25 and $0.25
c. $4.50 and $0.90 d. $2.00 and $0.25
106.
Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par
common stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends in arrears for preferred stock for the second year.
a. $25,000 b. $10,000
c. $0 d. $30,000
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
107.
When a stock dividend is declared, which of the following accounts is credited?
a.
Common Sock
b.
Dividend Payable
c.
Stock Dividends Distributable
d.
Retained Earnings
108.
Treasury stock shares are
a.
shares held by the U.S. Treasury Department
b.
part of the total outstanding shares but not part of the total issued shares of a corporation
c.
unissued shares that are held by the treasurer of the corporation
d.
issued shares that have been reacquired by a corporation
109.
On January 1, Vermont Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All
40,000 shares had been issued in a prior period at $20.00 per share. On February 1, Vermont purchased 3,750
shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1.
The journal entry to record the purchase of the treasury shares on February 1, would include a
a.
credit to Treasury Stock for $90,000
b.
debit to Treasury Stock for $90,000
c.
debit to a loss account for $112,500
d.
credit to a gain account for $112,500
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
110.
Which statement below is not a reason for a corporation to buy back its own stock.
a.
resale to employees
b.
bonus to employees
c.
for supporting the market price of the stock
d.
to increase the shares outstanding
111.
How is treasury stock shown on the balance sheet?
a.
as an asset
b.
as a decrease in stockholders’ equity
c.
as an increase in stockholders’ equity
d.
treasury stock is not shown on the balance sheet
112.
The excess of sales price of treasury stock over its cost should be credited to
a.
Treasury Stock Receivable
b.
Premium on Capital Stock
c.
Paid-In Capital from Sale of Treasury Stock
d.
Income from Sale of Treasury Stock
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
113.
Treasury stock that was purchased for $3,000 is sold for $3,500. As a result of these two transactions combined
a.
income will be increased by $500
b.
stockholders‘ equity will be increased by $3,500
c.
stockholders‘ equity will be increased by $500
d.
stockholders‘ equity will not change
114.
Treasury stock that had been purchased for $5,600 last month was reissued this month for $8,500. The journal
entry to record the reissuance would include a credit to
a.
Treasury Stock for $8,500
b.
Paid-In Capital from Sale of Treasury Stock for $8,500
c.
Paid-In Capital in Excess of Par—Common Stock for $2,900
d.
Paid-In Capital from Sale of Treasury Stock for $2,900
115.
A corporation purchased 1,000 shares of its own $5 par common stock at $10 and subsequently sold 500 of the
shares at $20. What is the amount of revenue realized from the sale?
a.
$0
b. $5,000
c. $2,500
d. $10,000
Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
116.
A corporation purchases 10,000 shares of its own $10 par common stock for $35 per share, recording it at cost.
What will be the effect on total stockholders’ equity?
a.
increase, $100,000
b.
increase, $350,000
c.
decrease, $100,000
d.
decrease, $350,000
117.
What is the total stockholders’ equity based on the following account balances?
Common Stock $375,000
Paid-In Capital in Excess of Par 90,000
Retained Earnings 190,000
Treasury Stock 15,000
a. $670,000
b. $655,000
c. $640,000
d. $565,000