ACCT 206 Chapter 11 Proprietorships, Partnerships, and Corporations

Which of the following financial statements are affected when a company purchases treasury stock? (Select all that apply) -Balance Sheet -Income Statement -Statement of Changes in Stockholders' Equity -Statement of Cash Flows

-Balance Sheet -Statement of Changes in Stockholders' Equity -Statement of Cash Flows

How will paying cash dividend that was previously declared affect a corporation's financial statements? (Select all that apply) -Cash flow from financing activities will increase -Net income will decrease -Cash flow from financing activities will decrease -Net income will not be affected -Cash flow from financing activities will not be affected -Net income will increase

-Cash flow from financing activities will decrease -Net income will not be affected

Book value per share is (Select all that apply) -the price of stock on the date it was originally sold to an investor. -the value investors are willing to pay for a share of stock. -calculated by dividing total stockholders' equity by the number of shares of stock owned by investors. -measured in historical dollars.

-calculated by dividing total stockholders' equity by the number of shares of stock owned by investors. -measured in historical dollars.

A partner's capital account will appear in which of the following financial statements?

Balance Sheet

_______________ stockholders bear the highest risk of losing their investment if a company is forced to liquidate.

Common (Preferred shareholders frequently are guaranteed a liquidation value in the case of bankruptcy before assets are distributed to common stockholders.)

Which for of business organization offers the greatest ease of transferring ownership?

Corporations

(T/F) Partnerships and proprietorships are usually managed by their owners.

True

A corporation becomes legally obligated to make a cash dividend on the _______________ date.

declaration

Double taxation refers to the fact that

income is taxed first a the corporate level and a second time when stockholders receive dividends

A company's financial statements are not impacted on the date of ________________ of a cash dividend.

record

Match the terms shown in the left column with the definitions 1. Authorized Stock 2. Issued Stock 3. Outstanding Stock 4. Treasury Stock 5. The maximum number of shares a company can legally issue 6. The number of shares currently owned by investors 7. The total number of shares the company has sold to investors 8. The number of shares of stock that a company has repurchased from its investors

1-5 2-7 3-6 4-8

(T/F) Companies issue only one class of common stock.

False

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line would show

$240,000 of cash inflow from financing activities (10,000 x $24 = $240,000. Cash flow is not affected by the stated value of stock.)

Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock. The stock has a current market value of $5.20 per share. Based on this information, the book value per share of the stock is

$3.20 (($50,000 stock + $30,000 retained earnings)/ 25,000 shares of stock = $3.20 per share)

The par value represents the: (Select all that apply) -maximum liability of the investors. -price investors must pay to obtain a share of stock. -minimum amount of assets that must be retained in the company as protection for creditors. -market value on the date of issue.

-maximum liability of the investors. -minimum amount of assets that must be retained in the company as protection for creditors.

The __________________ value of stock is an arbitrary amount established by the board of directors of a corporation.

par

Owner contributions and retained earnings are combined in a single capital account on the balance sheet of ____________________.

proprietorships

Stock certificates are used as evidence of ownership in what type of business organization?

Corporations

The journal entry to record the cash payment for a previously declared dividend will include a ___________________ (debit/credit) to the dividends payable account, and a ___________________ (debit/credit) to the cash.

debit; credit

The journal entry to record the issue of no par value stock for $25 cash will include a _________________ (debit/credit) to the cash account, a ________________ (debit/credit) to the common stock account.

debit; credit

The journal entry to record the issue of $10 par value stock for $25 cash will include a __________________ (debit/credit) to the cash account, a ___________________ (debit/credit) to the common stock account, and a ___________________ (debit/credit) additional paid in capital in excess of par value account.

debit; credit; credit

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 and Year 2. In Year 3, Cloud paid $30,000 of cash dividends. What was the amount of dividends paid to common stockholders?

$12,000 (5,000 shares x $20 x 6% = $6,000 annual x 3 years = $18,000 due to preferred stockholders. $30,000 total dividend - $18,000 preferred stock distribution = $12,000 common stock distribution.)

Which of the following statements is true? (Select all that apply) -Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders. -If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever. -Dividends in arrears must be paid before a company can pay interest on debt. -Like creditors, preferred stockholders can force a company into bankruptcy if dividends in arrears are not paid.

-Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders. -If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever.

Which of the following are privileges that are frequently assigned to preferred stockholders? (Select all that apply) -Preferred stock has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to creditors. -Preferred stock has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders. -Preferred stock have the exclusive right to vote in the election of members of the board of directors. -Preferred stock dividends are paid before dividends are distributed to common stockholders.

-Preferred stock has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders. -Preferred stock dividends are paid before dividends are distributed to common stockholders.

The journal entry to record the purchase of treasury stock will include a _____________________ (debit/credit) to the cash account, a __________________ (debit/credit) to the treasury stock account.

credit; debit

___________________ (Common/Preferred) stock is normally listed before ___________________ (common/preferred) stock in the stockholders' section of the balance sheet.

Preferred; common

How will declaring a cash dividend affect a corporation's financial statements?

Total liabilities will increase and total stockholders' equity will decrease

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid $30,000 of cash dividends in a year when no dividends were in arrears. Based on this information,

$6,000 would be paid to preferred stockholders and $24,000 would be paid to common stockholders. (5,000 shares x $20 x 6%= $6,000 annual due to preferred stockholders. $30,000 total dividends - $6,000 preferred stock distribution = $24,000 common stock distribution.)

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's balance sheet would show

$90,000 of paid-in capital in excess of stated value ($24 issue price - $15 stated value = $9 in excess of stated x 10,000 shares = $90,000)

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Which of the following financial statements would be affected by the stock issue? (Select all that apply) -Balance Sheet -Statement of Cash Flows -Income Statement -Statement of Changes in Stockholders' Equity

-Balance Sheet -Statement of Cash Flows -Statement of Changes in Stockholders' Equity

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury stock for $30 per share,: (Select all that apply) -there would be no impact on stockholders' equity -Stanley would recognize a $500 increase in additional paid-in capital from treasury stock transactions. -there wold be no impact on the income statement. -Stanley would recognize a $500 gain on the sale of treasury stock.

-Stanley would recognize a $500 increase in additional paid-in capital from treasury stock transactions. -there wold be no impact on the income statement.

When a company issues no-pare common stock, the: (Select all that apply) -company cannot pay dividends because there is no par value on which dividends can be based. -entire amount of the proceeds is placed into the Additional Paid-in Capital in Excess of Par Value account. -cash inflow is classified as a financing activity. -entire amount of the proceeds is placed into the Common Stock account.

-cash inflow is classified as a financing activity. -entire amount of the proceeds is placed into the Common Stock account.

The journal entry to record the declaration of a cash dividend will include a (select all that apply) -credit to the dividends payable account -debit to the dividends -credit to the cash account -debit to the dividends payable

-debit to the dividends -credit to the dividends payable account

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. At the time treasury stock is purchased, the amount of Stanley's: (Select all that apply) -net income would not be affected -cash flow from financing activities would decrease by $5,000 -cash flow from financing activities would not be affected -net income would increase by $2,000 -cash flow from financing activities would increase by $2,000 -net income would decrease by $5,000

-net income would not be affected -cash flow from financing activities would decrease by $5,000

The term withdrawal may appear in the financial statements of a: (Select all that apply) -proprietorship -corporation -partnership -not-for-profit organization

-proprietorship -partnership

When a corporation appropriates retained earnings,: (Select all that apply) -total liabilities decrease -total liabilities are not affected -total assets decrease -total liabilities increase -total assets are not affected -total assets increase

-total liabilities are not affected -total assets are not affected

Which of the following business forms offers the benefit of continuity of existence?

Corporations

____________________ (Proprietorships/Partnerships/Corporations) are able to generate billions of dollars of capital b pooling the resources of millions of owners through public stock and bond offerings.

Corporations

What is a chief advantage of the corporate form of business?

Limited liability

A _____________________ (corporation/partnership/proprietorship) is owned by a single individual who is responsible for making business and profit distribution decisions.

proprietorship

When a corporation purchases its own stock, the stock purchased is called ______________ (common/preferred/treasury) stock.

treasury