College Accounting, 12e (Slater)
Chapter 18 Corporations: Organizations and Stock
18.1 Learning Objective 18-1
1) The articles of incorporation are:
A) submitted by the incorporators to the IRS for approval.
B) submitted by the incorporators to the Office of the Secretary of State for approval.
C) submitted by the incorporators to Securities and Exchange Commission for approval.
D) submitted by the incorporators to the Governor of the State for approval.
2) Articles of incorporation contain all of the following except:
A) the names of the directors.
B) the location of the business.
C) the life expectancy (usually forever) of the business.
D) the nature of the business.
3) Characteristics of a corporation include:
A) stockholders having unlimited liability.
B) direct management by the stockholders.
C) stockholders having limited liability.
D) choosing a board of directors.
4) The ownership of the corporation consists of:
A) the governing body.
B) the officers of the corporation.
C) the stockholders
D) the board of directors.
5) Officers of the corporation are:
A) appointed by the stockholders.
B) stockholders of the corporation.
C) appointed by the board of directors.
D) None of these answers are correct.
6) Which of the following is not a characteristic of a corporation?
A) Ease of formation
B) No mutual agency
C) Unlimited life
D) Limited liability
7) Which of the following is a characteristic of a corporation?
A) The stockholders have limited liability.
B) When stockholders sell their shares, the corporation is dissolved.
C) A corporation cannot own property in its name.
D) Cash dividends to the stockholders are non-taxable.
8) A major disadvantage of a corporation is the:
A) difficulty in transferring ownership.
B) limited life.
C) difficulty in raising capital.
D) double taxation of income to the corporation and of dividends paid to shareholders.
9) The major parts of the Stockholders’ Equity section of the balance sheet are:
A) Paid-in Capital and Retained Earnings.
B) Stock and Retained Earnings.
C) Stock, Paid-in Capital, and Retained Earnings.
D) Authorized Stock and Preferred Stock.
10) Stockholders’ investment appears in:
A) Paid-in Capital.
B) Owner’s Equity.
C) Retained Earnings.
D) Cash.
11) Authorized capital stock is:
A) shares listed in the charter.
B) shares issued to the corporation’s officers.
C) shares sold and in stockholder possession.
D) shares that pay dividends.
12) Which of the following would normally not appear in the Stockholders’ Equity section of the balance
sheet?
A) Cash
B) Paid-in Capital
C) Common Stock
D) Preferred Stock
13) Issued stock is:
A) authorized shares of stock that can be sold.
B) stock only sold to another company.
C) shares sold and in stockholders’ possession.
D) stock sold to stockholders.
14) Preemptive rights allow a stockholder to:
A) share in profits first.
B) maintain a proportionate ownership interest in the corporation.
C) vote their shares at the annual meeting
D) dispose or sell their stock without notice.
15) Common stockholders have all the following rights except:
A) the right to prior claims of profit over preferred stockholders.
B) the right to vote.
C) the right to sell their stock.
D) the right to share in assets upon liquidation after creditors and preferred stockholders.
16) Preferred stockholders have what right over common stockholders?
A) Voting rights
B) Prior claim to dividends
C) More risk than common stockholders
D) Preemptive rights
17) If preferred stock is cumulative, the preferred stockholders:
A) have a right to certain dividends every year.
B) may receive a bonus.
C) will always receive a yearly dividend.
D) All of these answers are correct.
18) One type of preferred stock that provides for the payment of preferred dividends that are in arrears is
called:
A) non-participating.
B) cumulative.
C) non-cumulative.
D) participating.
19) Preferred stock is considered to be non-cumulative when:
A) preferred stockholders get their yearly dividend and a percent of what is left over, sharing with
common stockholders.
B) preferred stockholders have a right to the current year’s dividend, but do not receive holdovers from
past years when dividends were not paid.
C) preferred stockholders have a right to a certain dividend every year.
D) None of these answers are correct.
20) If only one type of stock is issued, it is:
A) no-par preferred stock.
B) preferred stock.
C) legal capital.
D) common stock.
21) Dividends in arrears occur when the company does not pay dividends to:
A) cumulative preferred stockholders.
B) non-cumulative preferred stockholders.
C) participating preferred stockholders.
D) non-participating common stockholders.
22) Par value is equal to:
A) market value of the stock.
B) the amount stated in the charter or legal capital.
C) retained earnings.
D) the initial price at which the stock is sold.
23) Corporations can issue:
A) par value shares.
B) no-par value shares.
C) stated value shares.
D) All of these answers are correct.
24) Voting rights are a characteristic of which type stock?
A) Common but not preferred
B) Preferred but not common
C) Both common and preferred
D) Neither common or preferred
25) A form issued by the corporation that shows the name of the stockholder and the number of shares
owned is called a(n):
A) article of incorporation.
B) charter.
C) proxy.
D) stock certificate.
26) An amount determined by the corporation directors and assigned to no-par value stock is:
A) par value.
B) stated value.
C) book value.
D) market value.
27) A share of stock may be sold at any given time according to the stock’s:
A) stated value.
B) book value.
C) market value.
D) par value.
28) Each share of capital stock of a corporation gives its owner the right to:
A) share in the assets if the corporation liquidates.
B) set company policy.
C) hire and fire employees.
D) manage the daily operations of the business.
29) An advantage of a corporation would be:
A) limited liability for the shareholders.
B) unlimited life.
C) double taxation (income of corporation and dividends to shareholders).
D) both A and B are correct.
30) Cox Corporation has issued 1,000 shares of stock. Janis owns 200 shares. If the corporation issues an
additional 500 shares, how many shares does Janis have the preemptive right to purchase?
A) 100 shares
B) 200 shares
C) 500 shares
D) None
31) The financial loss that each stockholder in a corporation can incur is limited to the amount invested by
the stockholder.
32) A change in ownership terminates the corporation.
33) The stockholders of a corporation have mutual agency.
34) The Articles of Incorporation are submitted to the Secretary of State.
35) A stock certificate is released for authorized stock.
36) Stockholders pay federal income tax on their stock dividends.
37) Corporations are subject to more government regulations than sole proprietorships and partnerships.
38) Double taxation is said to be a disadvantage of a corporation.
39) Retained Earnings is the account in which a corporation’s net income and net losses are placed.
40) When a corporation has only one class of stock, it will be common stock.
41) A company would rarely sell its stock for below par value.
42) A corporation is not required to pay dividends.
43) Shares of outstanding stock always equal the number of shares of authorized stock.
44) A common shareholder’s right to purchase an equivalent percentage of new stock is his preemptive
right.
45) A corporation shares its profits with stockholders in the form of dividends.
46) Cumulative preferred stock means that the preferred stockholders have a right to a certain dividend
every year.
47) The two main sources of stockholders‘ equity are investments by stockholders and net income
retained in the corporation.
48) List and discuss the following:
a. Rights of common stockholders
b. Rights of preferred stockholders
49) List and discuss the (a) advantages and (b) disadvantages of the corporation form of business.
18.2 Learning Objective 18-2
1) The entry to record MidIowa.net selling 800 shares of $6.00 par value common stock at $8.00 would be
to:
A) debit Cash $6,400; credit Common Stock $4,800; credit Paid-in Capital in Excess of Par Value-Common
$1,600.
B) debit Cash $4,800; credit Common Stock $4,800.
C) debit Cash $6,400; debit Paid-in Capital in Excess of Par Value-Common $1,600; credit Common Stock
$8,000.
D) None of these answers are correct.
2) The entry to record selling 300 shares of no-par common stock with a stated value of $60 for $70 would
be to:
A) debit Cash $21,000; credit Common Stock $21,000.
B) debit Cash $18,000; credit Common Stock $18,000.
C) debit Cash $21,000; credit Common Stock $18,000; debit Paid-in Capital in Excess of Par Value–
Common $3,000.
D) debit Cash $21,000; credit Common Stock $18,000; credit Paid-in Capital in Excess of Stated Value–
Common $3,000.
3) The entry to record selling 150 shares of no-par common stock with a stated value of $30 for $40 would
be to:
A) debit Common Stock for $6,000; credit Cash for $6,000.
B) debit Cash for $6,000; credit Common Stock for $6,000.
C) debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in Excess of Stated Value-
Common for $1,500.
D) debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in Excess of Par Value–
Common for $1,500.
4) Five hundred shares of $25 par common stock was exchanged for a piece of equipment with a fair
market value of $13,500. The journal entry to record the transaction would include a credit to:
A) Equipment for $12,500.
B) Debit to Common Stock for $12,500.
C) Credit to Paid-In Capital in Excess of Par-Common for $1,000.
D) Credit to Common Stock for $13,500.
5) When stock is exchanged for non-cash assets:
A) debit the asset for prior book value; credit Common Stock for cash received.
B) debit assets for market value; credit Common Stock for par value and, if needed, Paid–in Capital in
Excess of Par.
C) debit assets for market value; credit Common Stock for market value.
D) debit assets for par value; credit Common Stock for par value.
6) Organization costs are:
A) part of the company‘s start-up and are listed as expenses.
B) listed as an intangible asset on the balance sheet.
C) a current asset on the balance sheet.
D) another expense on the income statement.
7) Revenue earned by the business was recorded as additional paid-in capital. This error would cause:
A) the period’s net income to be understated.
B) the period’s net income to be overstated.
C) the period end assets to be overstated.
D) None of these are correct.
8) Common stock was sold in excess of par; the excess was credited to Sales. This error would cause:
A) the period’s net income to be understated.
B) the period’s net income to be overstated.
C) the period end assets to be overstated.
D) None of these are correct.
9) No entry was recorded for the exchange of stock for land. This error would cause:
A) the period end stockholders’ equity to be understated.
B) the period end stockholders’ equity to be overstated.
C) the period’s net income to be understated.
D) Both A and C are correct.
10) RH Corporation Stockholders’ Equity section includes the following information:
Preferred Stock
$ 11,000
Paid-in Capital in Excess of Par-Preferred
17,000
Common Stock
16,000
Paid-in Capital in Excess of Par-Common
4,000
Retained Earnings
7,000
Total paid-in capital is:
A) $48,000.
B) $55,000.
C) $27,000.
D) $21,000.
11) The Zonga Corporation Stockholders’ Equity section includes the following:
Preferred Stock
$ 22,000
Common Stock
48,000
Paid-in Capital in Excess of Par-Preferred
2,980
Paid-in Capital in Excess of Par-Common
3,400
Retained Earnings
7,350
Total paid-in capital is:
A) $83,730.
B) $76,380.
C) $70,000.
D) $77,350.
12) The Collins Corporation Stockholders’ Equity section includes the following:
Preferred Stock
$ 12,000
Common Stock
15,000
Paid-in Capital in Excess of Par-Preferred
2,700
Paid-in Capital in Excess of Par-Common
4,100
Retained Earnings
8,200
What was the total amount preferred stock was sold for?
A) $12,000
B) $14,700
C) $16,100
D) $20,200
13) The TM Stockholders’ Equity section includes the following:
Preferred Stock
$ 3,800
Common Stock
7,700
Paid-in Capital in Excess of Par-Preferred
400
Paid-in Capital in Excess of Par-Common
2,250
Retained Earnings
6,000
What was the total amount common stock was sold for?
A) $7,700
B) $13,700
C) $11,500
D) $9,950
14) The Harvester Corporation issued 40 shares of $20 par value stock to its accountant. The shares are in
full payment for her $900 fee for assistance in setting up the new company. The entry to record the
issuance of the stock would include a:
A) credit to Common Stock for $900.
B) debit to Common Stock for $900.
C) credit to Common Stock for $800.
D) debit to Common Stock for $800.
15) In exchange for $1,500 legal services to help set up the new company, Hickory Grove Corporation
issued 100 shares of $10 par value stock to its attorney. The entry to record the issuance of the stock
would include a:
A) credit to Common Stock for $1,000.
B) debit to Common Stock for $1,000.
C) credit to Common Stock for $1,500.
D) debit to Paid-in Capital in Excess of Par Value for $500.
16) Washington Corporation issued 4,000 shares of its $20 par value common stock for $23 per share. The
entry to record the issuance would include a:
A) debit to Cash for $80,000.
B) credit to Common Stock for $12,000.
C) credit to Common Stock for $80,000.
D) debit to Paid-in Capital in Excess of Par Value for $12,000.
17) The Logan Company issued 140 shares of its $12 par value stock for $14 per
share. The entry to record the receipt of cash and issuance of the stock would include a:
A) debit to Cash of $1,680; credit to Common Stock for $1,680.
B) debit to Cash for $1,960.
C) credit to Common Stock for $1,960.
D) debit to Discount on Common Stock for $280
18) Sunrise Online issued 500 shares of its $10 common stock in exchange for equipment with a fair
market value of $7,500. The entry to record the transaction would include a:
A) debit to Equipment for $5,000.
B) debit to Common Stock for $5,000.
C) credit to Paid-in Capital in Excess of Par Value for $2,500.
D) credit to Common Stock Subscribed for $5,000.
19) Dolly’s Best issued 200 shares of its $10 common stock in exchange for used packaging equipment
with a fair market value of $2,400. The entry to record the acquisition of the equipment would include a:
A) debit to Equipment for $2,000.
B) debit to Paid-in Capital in Excess of Par for $400.
C) credit to Common Stock for $2,400.
D) debit to Equipment for $2,400.
20) When a company sells stock at an amount greater then par value, the excess amount is referred to as:
A) a discount.
B) a premium.
C) a bonus.
D) Companies cannot sell stock for more than par value.
21) If stock shares are sold at more than their par value, the excess money is called:
A) earnings.
B) paid-in capital in excess of par.
C) gain on issue of stock.
D) discount on issue of stock.
22) ABC sells 400 shares of its $23 par common stock for $27. The entry would entail a credit(s) of:
A) Cash of $9,200.
B) Paid-in Capital in Excess of Par-Common for $800; Common Stock for $10,800.
C) Paid-in Capital in Excess of Par-Common for $1,600; Common Stock for $9,200.
D) Common Stock for $10,800.
23) The sale of common stock above par was recorded by crediting Common Stock for the total amount.
This error would cause:
A) the period end stockholders’ equity to be overstated.
B) the period end stockholders’ equity to be understated.
C) the period’s net income to be understated.
D) None of these are correct.