Accounting Final

___ 4. Creditors only have corporate assets to satisfy their claims.

AA . Limited liability

14. In a partnership mutual agency means a. both partners must sign a contract in order for it to be binding. b. each partner acts on behalf of the partnership when engaging in partner business. c. each partner must consult the other before making any major business decisions. d. the act of any partner is not binding on all other partners, especially when partners act beyond the scope of their aurthority.

B

15. Which one of the following is an advantage of a partnership? a. Mutual agency b. Ease of decision making c. Limited life d. Unlimited liability

B

16. In a partnership each partner's initial investment should be recorded at the fair _______ value of the assets at the date of their transfer to the partnership. a. book b. market c. investment d. asset

B

25. Which one of the following is not an ownership right of a stockholder in a corporation? a. To vote in the election of directors b. To declare dividends on the common stock c. To share in assets upon liquidation d. To share in corporate earnings

B

33. The effect of a stock dividend is to a. decrease total assets and stockholders' equity. b. change the composition of stockholders' equity. c. decrease total assets and total liabilities. d. increase the book value per share of common stock.

B

34. Which of the following is not a significant date with respect to dividends? a. The declaration date b. The incorporation date c. The record date d. The payment date

B

Bell Boutique Inns issues 6,000 shares of $50 par value preferred stock for cash at $60 per share. 31. The entry to record the transaction will consist of a debit to Cash for $360,000 and a credit or credits to a. Preferred Stock $360,000. b. Preferred Stock $300,000 and Paid-in Capital in Excess of Par Value—Preferred Stock $60,000. c. Preferred Stock $300,000 and Retained Earnings $60,000. d. Paid-in Capital from Preferred Stock $360,000.

B

___ 7. The correction of an error in previously issued financial statements.

B. Prior period adjustment

13. Which one of the following is not a characteristic of a partnership? a. Co-ownership of property b. Mutual agency c. Unlimited life d. Unlimited liability

C

17. The values assigned to assets during the formation of a partnership must a. equal in value. b. include the effect of inflation. c. be agreed upon by all of the partners. d. be recorded by the partnership.

C

20. The dominant form of business organization in the United States in terms of dollar sales volume, earnings, and employees is a. the sole proprietorship. b. the partnership. c. the corporation. d. not known.

C

23. Which of the following is not true of a corporation? a. It may buy, own, and sell property. b. It may sue and be sued. c. The acts of its owners bind the corporation. d. It may enter into binding legal contracts in its own name.

C

24. Which of the following statements concerning taxation is accurate? a. Partnerships pay state income taxes but not federal income taxes. b. Corporations pay federal income taxes but not state income taxes. c. Corporations pay federal and state income taxes. d. Only the owners must pay taxes on corporate income.

C

37. Corporations generally issue stock dividends in order to a. increase the market price per share. b. exceed stockholders' dividend expectations. c. increase the marketability of the stock. d. decrease the amount of capital in the corporation.

C

Bell Boutique Inns issues 6,000 shares of $50 par value preferred stock for cash at $60 per share. 32. In the stockholders' equity section, the effects of the transaction in the previous problem will be reported a. entirely within the capital stock section. b. entirely within the additional paid-in capital section. c. under both the capital stock and additional paid-in capital sections. d. entirely under the retained earnings section.

C

___ 5. Responsible to stockholders for corporate activity.

C. Board of directors

11. Which one of the following is not a characteristic of a sole proprietorship? a. Easy formation b. No dilution of profits c. Limited life d. Limited liability

D

18. In a partnership the basis of division of net income or net loss is usually referred to as a. the profit and loss ratio. b. the income and loss ratio. c. the income ratio. d. all of the above.

D

27. Which of the following represents the largest number of common shares? a. Treasury shares b. Issued shares c. Outstanding shares d. Authorized shares

D

28. Treasury stock is a. stock issued by the U.S. Treasury Department. b. stock purchased by a corporation and held as an investment in its treasury. c. corporate stock issued by the treasurer of a company. d. a corporation's own stock which has been reacquired but not canceled.

D

29. Treasury stock should be reported in the financial statements of a corporation as a(n) a. investment. b. liability. c. deduction from total paid-in capital. d. deduction from total paid-in capital and retained earnings.

D

30. Treasury Stock is a(n) a. contra asset account. b. retained earnings account. c. asset account. d. contra stockholders' equity account.

D

35. The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to a. decrease current liabilities and stockholders' equity. b. increase total assets and stockholders' equity. c. increase current liabilities and stockholders' equity. d. decrease stockholders' equity and total assets.

D

36. Baden Bagels Inc. has 5,000 shares of 8%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2005. There were no dividends declared in 2004. The board of directors declares and pays a $50,000 dividend in 2005. What is the amount of dividends received by the common stockholders in 2005? a. $0 b. $40,000 c. $50,000 d. $10,000

D

38. A small stock dividend is defined as a. less than 30% but greater than 25% of the corporation's issued stock. b. between 50% and 100% of the corporation's issued stock. c. more than 30% of the corporation's issued stock. d. less than 20-25% of the corporation's issued stock.

D

39. Jade Juices Inc. had 200,000 shares of common stock outstanding before a stock split occurred, and 400,000 shares outstanding after the stock split. The stock split was a. 2 for 4. b. 4 for 1. c. 1 for 4. d. 2 for 1.

D

40. If the board of directors authorizes a $100,000 restriction of retained earnings for a future hotel expansion, the effect of this action is to a. decrease total assets and total stockholders' equity. b. increase stockholders' equity and to decrease total liabilities. c. decrease total retained earnings and increase total liabilities. d. reduce the amount of retained earnings available for dividend declarations.

D

___ 10. A pro rata distribution of the corporation's own stock to stockholders.

D. Stock dividend

A debit balance in the Retained Earnings account is identified as a deficit.

true

Dividends may be declared and paid in cash or stock.

true

In a partnership each partner is personally and individually liable for all partnership liabilities.

true

In a partnership the same basis of division usually applies to both net income and net loss.

true

Organization costs are expensed immediately, even though they conceptually benefit the corporation over its entire life.

true

When preferred stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears.

true

Each partner's initial investment in a partnership should be recorded at the book value of the asset at the date of their transfer to the partnership.

false

If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

false

The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified

false

Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a Loss on Sale of Treasury Stock being recognized on the income statement.

fase

41. A corporation has a separate __________________________ apart from its owners.

41. legal existence

42. Stockholders elect the _______________, who in turn hire the ______________ of the company who have day to day responsibility for running the corporation.

42. board of directors, officers

43. If stock is issued in exchange for noncash assets, the assets should be valued at the _____________________ of the consideration ___________________ or the assets _____________________, whichever is more clearly evident.

43. fair market value, given up, received

44. The entry to record the declaration of a stock dividend increases _________________, and decreases ________________.

44. Paid-in Capital, Retained Earnings

45. Corporations sometimes segregate retained earnings into two categories: (1)________________ retained earnings and (2)________________ retained earnings.

45. restricted, unrestricted

12. One major challenge of owning a sole proprietorship is a. raising funds on one person's collateral. b. finding shareholders. c. the division of net income. d. double taxation.

A

19. Partnership net income or net loss is shared equally unless a. the partnership contract specifically indicates the manner in which net income and net loss are to be divided. b. at the end of the year the partners agree to divide the income at a different percentage. c. one partner has put more effort and time into the business than the other. d. the government changes their tax laws requiring the partners to pay more personal income taxes.

A

21. The chief accounting officer in a company is known as the a. controller. b. treasurer. c. vice-president. d. president.

A

22. The two ways that a corporation can be classified by ownership are a. publicly held and privately held. b. stock and non-stock. c. inside and outside. d. majority and minority.

A

26. If stock is issued for a noncash asset, the asset should be recorded on the books of the corporation at a. fair market value. b. cost. c. zero. d. a nominal amount.

A

___ 1. The date the board of directors formally declares a dividend.

E. Declaration date

___ 6. The amount assigned to each share of stock in the corporate charter.

G. Par value

___ 2. The amount that must be retained in the business for the protection of creditors.

H. Legal capital

___ 9. Corporation's own stock that has been reacquired by the corporation but not retired.

I. Treasury stock

___ 3. Preferred stockholders have a right to receive current and unpaid prior-year dividends before common stockholders receive any dividends.

J. Cumulative feature

___ 8. Enables stockholders to maintain their same percentage ownership when new shares are issued.

Preemptive right