Orion Ch. 11

Which of the following is true about corporations?

A A stockholder is personally liable for the debts of the corporation.

B The corporation’s life is stipulated in its charter.

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 corporation shares must get the approval of other stockholders.

B The corporation’s life is stipulated in its charter.

In what way is a corporation different from a sole proprietorship or partnership?

A A corporation’s temporary accounts are closed at the end of the accounting period.

B A corporation is an accounting economic entity.

C A corporation is organized for the purpose of making a profit.

D A corporation is subject to more federal and state government regulations.

D A corporation is subject to more federal and state government regulations.

Most states DO/DO NOT permit the sale of common stock below par.

do not

The issuance of common stock affects
This is correct answer :

A only the paid-in capital account

B both the paid-in capital account and the retained earnings account

C only the income statement

D only the retained earnings account

A only the paid-in capital account

When a corporation purchases treasury stock, the acquisition

A requires that a gain or loss be recognized on the income statement

B increases the company’s total assets and total stockholders’ equity

C has no effect on total assets and total stockholders’ equity

D decreases the company’s total assets and total stockholders’ equity

Answer is D : decreases the company’s total assets and total stockholders’ equity

Which of the following are preferences that are granted only to owners of preferred stock? Select all that apply.

A the right to vote

B the right to receive dividends in arrears before common stockholders receive dividends

C first claim to dividends

D preference to corporate assets in case of liquidation

B the right to receive dividends in arrears before common stockholders receive dividends C first claim to dividends D preference to corporate assets in case of liquidation

____ ____ ______ are preferred dividends that are not declared when preferred stock is cumulative.

Dividends in arrears

Which of the following statements is true?

A
A stock split will increase the number of shares outstanding and will increase total stockholders’ equity.

B
Both a stock split and a stock dividend will increase the number of shares outstanding but will have no effect on total stockholders’ equity.

C
Both a stock split and a stock dividend will increase the number of shares outstanding and will both increase total stockholders’ equity.

D
A stock split will increase the number of shares outstanding but will decrease total stockholders’ equity.

correct Answer is B : Both a stock split and a stock dividend will increase the number of shares outstanding but will have no effect on total stockholders’ equity.

Which of the following statements about a cash dividend are true? Select all that apply.

A Shareholders usually vote to determine the amount of income to be distributed in the form of a dividend.

B The legality of a dividend does not indicate a company’s ability to pay a dividend.

C The legality of a cash dividend depends on state corporation laws.

D Dividends are not a liability until declared.

B The legality of a dividend does not indicate a company’s ability to pay a dividend. D Dividends are not a liability until declared.

When a company offers a ________, this event does NOT require a formal journal entry on a corporation’s books.

A
100% stock dividend

B
2 for 1 stock split

C
$1.00 per share cash dividend

D
2% stock dividend

B 2 for 1 stock split

Restricting retained earnings for the cost of treasury stock purchased is a ________ restriction.

A
contractual

B
voluntary

C
stock

D
legal

D : legal

Taft Industries had 250,000 shares of common stock outstanding before a stock split occurred and 500,000 shares outstanding after the stock split. The stock split was

A
1-for-5

B
2-for-5

C
2-for-1

D
5-for-1

B 2-for-5

Which of the following statements about the retained earnings statement is true?

A
It will not reflect net losses.

B
It is the owners’ equity statement for a corporation.

C
It will, in some cases, fail to reconcile the beginning and ending retained earnings balances.

D
The amount of retained earnings cannot be associated with the balance of any asset account.

D The amount of retained earnings cannot be associated with the balance of any asset account.

Paid-in capital would appear under ________ on a balance sheet.

A
capital stock

B
additional paid-in capital

C
stockholders’ equity

D
contra to stockholders’ equity

C stockholders’ equity

________ is generally NOT reported for each class of stock on the balance sheet.

A
Number of shares authorized

B
Market value

C
Par value

D
Number of shares issued

B Market value

o find the return on common stockholders’ equity, divide net income available to common stockholders by

A
average common stockholders’ equity

B
ending total stockholders’ equity

C
ending common stockholders’ equity

D
average total stockholders’ equity

A average common stockholders’ equity

When companies set their dividend payout, they generally aim for a rate that is

A
low

B
sustainable

C
variable

D
high

B sustainable

When a company declares a stock dividend, the declaration will

A
change the total of stockholders’ equity

B
increase total liabilities

C
increase total assets

D
increase paid-in capital

D increase paid-in capital

Which of the following statements about retained earnings restrictions is NOT true?

A
Long-term debt contracts may impose a restriction on retained earnings as a condition for the loan.

B
The board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposes.

C
Companies will not disclose retained earnings restrictions unless specifically requested by the stockholder.

D
Many states require a corporation to restrict retained earnings for the cost of treasury stock purchased.

C Companies will not disclose retained earnings restrictions unless specifically requested by the stockholder.

Which of the following are reasons that a company would acquire treasury stock? Select all that apply.

A to reissue shares to officers under compensation plans

B to have additional shares available to use in acquiring other companies

C as an asset investment

D to increase trading of the company’s stock in the securities market

A to reissue shares to officers under compensation plans B to have additional shares available to use in acquiring other companies D to increase trading of the company’s stock in the securities market

A cash dividend becomes a binding legal obligation on the declaration date.

A
True

B
False

A True

The rights or preferences associated with preferred stock include which of the following? Select all that apply.

A : a priority claim to receive dividends in arrears before common stockholders receive dividend.

B : a priority claim to corporate assets in case of liquidation.

C : a priority claim to dividends.

D : the right to vote.

A : a priority claim to receive dividends in arrears before common stockholders receive dividend. B : a priority claim to corporate assets in case of liquidation. C : a priority claim to dividends.

Which of the following statements is true?

A :
The number of shares of issued stock equals unissued shares minus authorized shares.

B :
The number of shares of issued stock equals outstanding shares plus treasury shares.

C :
The number of shares of issued stock equals authorized shares minus treasury shares.

D :
The number of shares of issued stock equals outstanding shares plus authorized shares.

B : The number of shares of issued stock equals outstanding shares plus treasury shares.

Purchasing treasury stock is sometimes done to eliminate a hostile shareholder buyout.

A :
True

B :
False

A: True

Treasury stock should be reported in the financial statements of a corporation as a deduction from total paid-in capital and retained earnings.

A
True

B
False

A True

Declared dividends are necessary in order for a corporation to pay a cash dividend.

A :
True

B :
False

A : True

By dividing total cash dividends paid by net income, you can compute

A
return on preference stockholders’ equity.

B
payout ratio.

C
capital ratio.

D
return on common stockholders’ equity.

B payout ratio.

When stock is issued in exchange for a noncash asset, the value recorded for the shares issued is best determined by the par value of the shares.

A
True

B
False

B False

A corporation can enter into binding legal contracts in its’ own name.

A :
True

B :
False

A: True

Treasury stock is a corporation’s own stock, which has been reacquired and held for future use.

A :
True

B :
False

A: True

Dividends in arrears on cumulative preferred stock should be disclosed in the notes to the financial statements.

A :
True

B :
False

A: True

Harrison Corporation issues 39,000 shares of $50 par value preferred stock for cash at $60 per share. The effects of the transaction above will be under both _______ ________ and additional paid-in capital sections.

Capital Stock

In calculating total stockholders’ equity, which of the following are added?

A
total paid-in capital and retained earnings

B
total paid-in capital and common stock

C
retained earnings and paid-in capital in excess of par value

D
treasury stock and common stock

A total paid-in capital and retained earnings

In published annual reports, the individual sources of additional paid-in capital

A :
are often combined.

B :
are added to current liabilities.

C :
are shown in detail.

D :
are included in the notes to financial statements.

A : are often combined.

A corporation purchases 8,000 shares of its own $5 par common stock for $8 per share, recording it at cost. What will be the effect on total stockholders’ equity?

A :
increase of $64,000

B :
decrease of $40,000

C :
increase of $40,000

D :
decrease of $64,000

D : decrease of $64,000

The acquisition of treasury stock by a corporation decreases its total assets and total stockholders’ equity.

A
True

B
False

A True

When a company acquires treasury stock by buying back stock from shareholders, it
_____________ the number of shares outstanding.

decreases

Which of the following statements are true? Select all that apply.

A Capital stock and additional paid-in capital are two classifications of paid-in capital on the balance sheet.

B Restrictions on retained earnings appear in notes to the financial statement.

C Restrictions on retained earnings appear under stockholders’ equity on a balance sheet.

D Paid-in capital appears under stockholders’ equity on a balance sheet.

A Capital stock and additional paid-in capital are two classifications of paid-in capital on the balance sheet. B Restrictions on retained earnings appear in notes to the financial statement. D Paid-in capital appears under stockholders’ equity on a balance sheet.

The authorized stock of a corporation is indicated in its by-laws.

A
True

B
False

B: False