Chapter 13 T/F

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A corporation is a separate entity for accounting purposes but not for legal purposes.

F

A large retained earnings account means that there is cash available to pay dividends.

F

Before a stock dividend can be declared or paid, there must be sufficient cash.

F

By-laws are part of the business's charter or articles of incorporation.

F

Cash dividends are normally paid on shares of treasury stock.

F

Cash dividends become a liability to a corporation on the date of record.

F

Double taxation is a disadvantage of a corporation because the same party has to pay taxes twice on the income.

F

If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $14,000.

F

If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 39,000.

F

If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders.

F

Organizational expenses are classified as intangible assets on the balance sheet.

F

Retained earnings represents past net incomes less past dividends, therefore any balance in this account would be listed on the income statement.

F

The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.

F

The balance in retained earnings should be interpreted as representing surplus cash left over for dividends.

F

The corporation was defined as a separate legal entity by Chief Justice Marshall during the twentieth century.

F

The initial owners of stock of a newly formed corporation are called directors.

F

The issuance of common stock affects both paid-in capital and retained earnings.

F

The par value of common stock must always be equal to its market value on the date the stock is issued.

F

Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.

F

Twenty percent of all businesses in the United States are corporations and they account for 80% of the total business dollars generated.

F

When a corporation issues stock at a premium, it reports the premium as an other income item on the income statement.

F

When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds.

F

While some businesses have been granted charters under state laws, most businesses receive their charters under federal laws.

F

A corporation can be organized for the purpose of making a profit or it may be nonprofit.

T

A deficit in Retained Earnings is reported in the stockholders' equity section of the balance sheet.

T

Although preferred stockholders have a greater chance of receiving a regular dividend, common stockholders have a greater chance of receiving large dividends.

T

For accounting purposes, stated value is treated the same way as par value.

T

One of the prerequisites to paying a cash dividend is sufficient retained earnings.

T

Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership.

T

Preferred stock has contractual preference over common stock in certain areas.

T

Preferred stockholders generally do not have the right to vote for the board of directors.

T

Some corporations have stopped issuing stock certificates to stockholders.

T

The balance in retained earnings at the end of the period is created by closing entries.

T

The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder.

T

The journal entry to record the purchase of treasury stock will cause total stockholders' equity to decrease by the amount of the cost of the treasury stock.

T

The main source of paid-in-capital is from issuing stock.

T

The number of common shares outstanding can never be greater than the number of shares issued.

T

The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares issued.

T

The retained earnings statement may be combined with the income statement.

T

The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.

T

Treasury Stock is listed in the stockholders' equity section on the balance sheet.

T

Treasury stock is a contra stockholders' equity account.

T

Treasury stock should not be classified as a current asset.

T

Under the Internal Revenue Code, corporations are required to pay federal income taxes.

T

When no-par stock is issued, the Common Stock account is credited for the selling price of the stock issued.

T

When the board of director's declares a cash or stock dividend, this action decreases retained earnings.

T


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