chapter 8 acc

Ogilvie Corporation issued 19,000 shares of no-par stock for $30 per share. Ogilvie was authorized to issue 42,000 shares. What effect will this event have on the company's financial statements? a.Increase assets by $1,260,000, increase stockholders' equity by $1,260,000. b.Increase assets by $570,000, increase stockholders' equity by $570,000. c.Increase cash flow from investing activities by $570,000. d.None of these answer choices are correct.

Increase assets by $570,000, increase stockholders' equity by $570,000. Assets (cash) and stockholders' equity (common stock) both increase by $570,000 (19,000 shares × $30). The cash inflow is a financing activity, not an investing activity.

the class or type of stock that every corporation must have is preferred stock.

false All corporations must have common stock.

The issuance of a stock dividend will: Multiple Choice decrease total assets. increase retained earnings. decrease paid-in capital. not affect total equity.

not affect total equity. Stock dividends decrease retained earnings and increase common stock and paid-in capital in excess of par value. There is no overall impact on stockholders' equity.

Liability is a significant disadvantage of the partnership form of business organization.

true Partners in a general partnership are personally liable for the actions they take in the name of their company.

A separate capital account would be maintained for each partner in a partnership

true The capital account indicates the ownership interest of each partner.

At the end of the accounting period, Houston Company had $5,200 of par value common stock issued, additional paid-in capital in excess of par value − common of $6,100, retained earnings of $6,000, and $2,500 of treasury stock. The total amount of stockholders' equity is: $19,800. $8,800. $14,600. $14,800.

$14,800. $5,200 common stock + $6,100 additional paid-in capital in excess of par value + $6,000 retained earnings − $2,500 treasury stock = $14,800

Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet? A corporation. A municipality. A sole proprietorship.

A corporation. Only a corporation issues stock; as such, it is the only type of entity that would have a paid-in capital in excess of par (or stated) value account.

Which of the following statements is a reason why a company would buy treasury stock? Because management believes the market price of stock is undervalued. To have stock available to issue to employees in stock option plans. To avoid a hostile takeover. All of these are reasons a company would buy treasury stock.

All of these are reasons a company would buy treasury stock. The purchase of treasury stock reduces the number of shares outstanding, which can boost market price and guard against hostile takeover. It also makes shares available for employee stock benefits.

Which of the following statements best describes the term "par value?" a.The number of shares currently in the hands of stockholders. b.The amount that must be paid to purchase a share of stock. c.Determined by dividing total stockholders' equity by the number of shares of stock. d.An amount used in determining a corporation's legal capital.

An amount used in determining a corporation's legal capital. While par value is used to determine legal capital, it has no real economic significance.

Where is treasury stock reported on a corporation's balance sheet? As an addition to total paid-in capital As a deduction from total stockholders' equity, following retained earnings As a deduction from total paid-in capital As a deduction from retained earnings

As a deduction from total stockholders' equity, following retained earnings Treasury stock is a contra equity account that reduces total stockholders' equity. It is listed after the retained earnings section. It does not affect paid-in capital or retained earnings.

Which form of business organization is established as a legal entity separate from its owners? Multiple Choice Sole proprietorship Partnership Corporation

Corporation Corporations are owned by shareholders. Corporations file and pay income taxes on their own.

A partner is responsible for his/her own actions, but not for actions taken by another partner on behalf of the partnership.

False Partners are held responsible for the actions of other partners taken on behalf of the partnership. This is a disadvantage of partnerships.

The payment of a previously declared cash dividend will: decrease assets and equity. increase liabilities and decrease equity. decrease liabilities and increase equity. None of these answer choices are correct

None of these answer choices are correct. The payment will decrease assets (cash) and decrease liabilities (dividends payable).

Which of the following terms designates the maximum number of shares of stock that a corporation may issue? Number of shares issued Number of shares authorized Par value Number of shares outstanding

Number of shares authorized When a corporation is formed, it is authorized by the state to issue a maximum number of shares. The number of shares it initially issues is much lower.

On January 2, Year 1, Torres Corporation issued 20,000 shares of $10 par-value common stock for $11 per share. Which of the following statements is true? The common stock account will increase by $220,000. The cash account will increase by $200,000. Total stockholders' equity will increase by $200,000. The paid-in capital in excess of par value account will increase by $20,000.

The paid-in capital in excess of par value account will increase by $20,000. The cash account will increase by $220,000 (20,000 × $11), the common stock account will increase by $200,000 (20,000 × $10 par value), and the paid-in capital in excess of par value account will increase by $20,000 (20,000 × $1).

Which of the following is a negative or contra equity account? Retained earnings Paid-in capital in excess of par value Treasury stock Appropriated retained earnings

Treasury stock Treasury stock is a contra equity account that is reported as a negative number (that is, a reduction of total stockholders' equity) on the balance sheet.

A corporation is a legal entity created by the authority of a state government, separate and distinct from its owners

True A corporation is a separate legal entity from its owners, while a sole proprietorship is not. A corporation must be registered with the state government.

A distribution by a sole proprietorship to the owner is called a withdrawal.

True Withdrawals are distributions to the owners of sole proprietorships. Dividends are distributions to corporate stockholders.

The term "double taxation" refers to which of the following? a.Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation. b.In a partnership, both partners are required to claim their share of net income on their tax returns. c.A sole proprietorship must pay income taxes on its net income and d.the owner is also required to pay income taxes on withdrawals.

a.Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation. Corporations pay income taxes on their earnings; dividends are not deductible in terms of computing those earnings. Stockholders then pay income taxes on the dividends they receive from corporations.

Which of the following is not normally a preference given to the holders of preferred stock? a.The right to receive a specified amount of dividends prior any being paid to common stockholders. b.The right to vote before the common stockholders at the corporation's annual meeting. c.The right to receive preference over common stockholders as to the distribution of assets during a liquidation process. d.All of these are preferences given to preferred stock.

b.The right to vote before the common stockholders at the corporation's annual meeting. Preferred stockholders do not have voting rights.

Establishing a sole proprietorship generally requires the owner to get a charter from the state government. t or f

false Sole proprietorships do not require registration with state government.

A corporation must record a liability for cash dividends on the date of record.

false The liability dividends payable is recorded on the declaration date, not on the date of record.

a)Double taxation refers to the fact that both a partnership and its partners must pay income tax on the earnings of the partnership. b)A sole proprietorship is an accounting entity separate from its owner. c)Limited liability is a benefit to both corporations and partnerships, but not to sole proprietorships d)Unlike a partnership, a corporation is not terminated when a major stockholder withdraws his or her investment. e)Sole proprietorships are, generally, subject to fewer governmental regulations than corporations.

false true false true true a) This is false. Double taxation refers to the fact that a corporation's dividends are taxable to both the corporation and its shareholders. b) This is true. While a sole proprietorship is not a separate legal entity from its owner, it is a separate accounting entity. c) This is false. Limited liability is not a benefit to partnerships. d) This is true. A corporation is not terminated upon withdrawal of a stockholder, but a partnership is terminated upon withdrawal of a partner. e) This is true. Corporations are typically subject to greater governmental regulations.

Ix Company issued 14,000 shares of $10 par value common stock at a market price of $20. As a result of this accounting event, the amount of stockholders' equity would: increase by $280,000. be unaffected. increase by $150,000. increase by $140,000.

increase by $280,000. Common stock will increase by $140,000, the par value, and paid-in capital in excess of par value will increase by $140,000, for a total increase in stockholders' equity of $280,000.

When the common stock account is disclosed on the balance sheet, it is reported at: current market value. average issue price. par or stated value. lower of cost or market.

par or stated value. The par value of the stock is recorded in the common stock account and any additional amount received is recorded in the paid-in capital in excess of par value account.