Accounting Chapter 8-Proprietorship, Partnerships and Corporations

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

Which of the following financial statements would be affected by the issue of no-par common stock?

Balance Sheet, Statement of changes in stockholders' equity, Statement of cash flows NOT: Income statement

Chandler Company declared and paid a cash dividend. Which of the following choices accurately reflects how this event would affect the company's financial statements?

Choice B. Assets = Liability + Equity Revenue - Expense = Net Income Cash Flow - = NA + - NA - NA = NA -FA

A _______________ continues its life even after the owner(s) have departed

Corporation

Which form of business organization offers the greatest opportunity to raise capital?

Corporations

____________________ are able to generate billions of dollars of capital by pooling the resources of millions of owners through public stock and bond offerings.

Corporations

Which of the following statements is true?

Corporations are not legally required to declare cash dividends

Which form of business organization offers the greatest opportunity to raise capital?

Corporations. Because corporations have millions of owners, they have the opportunity to raise large amounts of capital.

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

Declaration

When a company issued no-par common stock, the:

Entire amount of the proceeds is placed into the Common Stock account, Cash inflow is classified as a financing activity.

True or false: The stayed value of a share of stock is established by the federal government.

False

Which of the following statements are true?

Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are in general, taxed as partnerships, S Corporations are taxed as proprietorships or partnerships.

Which of the following statements is true?

Many states allow corporations to issue no-par stock, To minimize the amount of assets that owners must maintain in the business, many corporations issue stock with very low par values.

The par value represents the:

Maximum liability of the investors, Minimum amount of assets that must be retained in the company as protection for creditors

Book value per share is

Measured in historical dollars, Calculated by dividing total stockholders' equity by the number of shares of stock owned by investors.

Which of the following characteristics make transferring the ownership of a proprietorship difficult?

Most proprietorships are owner operated, A buyer must purchase the entire business.

How will paying a cash dividend that was previously declared affect a corporation's financial statements?

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

The payment of a previously declared cash dividend will:

None of these answers are correct: Decrease assets and equity, Increase liabilities and decrease equity, Decrease liabilities and increase equity

Which of the following statements is true?

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 its lost forever.

Assume that Base Line Inc. is authorized to issue 50,000 shares of $15 par 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?

Statement of changes in stockholders' equity, Balance Sheet, Statement of cash flows NOT: Income statement

How do stockholders benefit from investing in the capital stock of another company?

Stockholders may receive dividends, The market value of the investment may increase

Suppose company A buys the stock of Company B. How does the investment affect Company A's financial statements?

The Cash account decreases, The investment in Company B account increases.

Which of the following statements are true?

The balance sheet of a proprietorship contains a single Owner's Capital account. Owner withdrawals are shown in the capital statement of a proprietorship.

Assume that Base Line Inc. is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue,:

The income statement would not be affected, Cash flow from FA would increase by $240,000, Total assets would increase by $240,000

Assume that Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue,

The income statement would not be affected, Total assets would increase by $240,000 [the company would receive $240,000 (10,000 shares x $24 per share) of cash]

Rex Corporation declared a cash dividend on June 1, Year 1 to be paid to stockholders on record as of October 1, Year 1. How will the financial statements be affected on the date of record, October 1, Year 1?

The statement of cash flows will not be affected (Net cash from financing activities will decrease when the dividend is paid), The balance sheet will not be affected.

Which of the following statements is true?

To minimize the amount of assets that owners must maintain in the business, many corporations issue stock with very low par values, Many states allow corporations to issue no-par stock.

How will paying a cash dividend that was previously declared affect a corporation's financial statements?

Total assets and total liabilities will decrease.

When a company makes a cash payment for a dividend that was previously declared,:

Total assets will decrease, Total liabilities will decrease

At the time treasury stock is purchased, the amount of:

Total assets would decrease, Total stockholders' equity would decrease

Which of the following statements are true?

Trading on a stock exchange is limited to the stockbrokers who are members of the exchange, The stock of closely held companies is not sold on major stock exchanges.

Which of the following is a negative or contra equity account?

Treasury stock

A sole proprietorship is owned by a single individual who is responsible for making business and profit distribution decisions.

True

True or false: Relationships between shareholders are critically important when assessing the capacity to control a corporation through stock ownership.

True

(Widely/Closely) held companies can generally be controlled with smaller percentages of ownership than (Widely/Closely) held companies.

Widely, Closely

Purchasing treasury stock is a(n)

asset use event. Assets and stockholders' equity decrease by the cost of the purchase.

If a company reissues its Treasury Stock,

its stockholders' equity increases.

Assume that Base Line Inc. 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.

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 dividend - $6,000 preferred stock distribution = $24,000 common stock distribution.

If reported earnings are (more/less) than analysts expect, the market value of the reporting company's stock will likely decline.

Less

Companies that had paid dividends in the past are (less/more) likely to pay dividends in the future.

More

The term withdrawal may appear in the financial statements of a:

Partnership, Proprietorship

Which of the following are privileges that are frequently assigned to preferred 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.

Owner contributions and retained earnings are combined in a single capital account on the balance sheets of _____________

Proprietorship

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

Record

Which of the following statements are true?

The stock of closely held companies is not sold on major stock exchanges, Trading on a stock exchange is limited to the stockbrokers who are members of the exchange.

True or falze: Partnerships and proprietorships are usually managed by their owners.

True

Treasury stock is

A contra equity account shown on the balance sheet.

The term "Retained Earnings" is best explained by which of the following statements?

A measure of capital generated through operating activities

Which of the following statements is a reason why a company would buy treasury stock?

All of these are reasons 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.

Declaring a cash dividend is a(n)

Claims exchange event

_______________ stockholders have the greatest potential for rewards when a corporation prospers.

Common

Distributions to owners of proprietorships are called

withdrawals.

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

$6,000. 5,000 shares x $20 x 6% = 6,000 annual preferred dividend. Since the preferred stock is noncumulative, there are no dividends in arrears.

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

Balance sheet

Stock certificates are used as evidence of ownership in which of the following types of business organization?

Corporations

Double taxation refers to fact that

Income is taxed first at the corporate level and a second time when stockholders receive dividends.

Which of the following is a chief advantage of the corporate form of business?

Limited liability

Which of the following statements are true?

Owner withdrawals are shown in the capital statement of proprietorship, The balance sheet of a proprietorship contains a single Owner's Capital account

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

Stated

Which of the following are common rights assigned investors who own common stock?

The right to participate in the election of directors, The right to vote on significant matters that affect the corporate charter, The right to share in the distribution of profits

Distributions to owners of proprietorships are called

Withdrawals

Match the account title shown with the order in which they are presented in the stockholders' equity section of a balance sheet.

1. Par Value Preferred Stock 2. Stated Value Common Stock 3. Class B Common Stock 4. Paid-in Capital in Excess of Par Value Preferred Stock 5. Paid-in Capital in Excess of Stated Value Common Stock 6. Retained Earnings

1. Authorized Stock 2. Issued Stock 3. Outstanding stock 4. Treasury stock

1. The maximum number of shares a company can legally issue 2. The total number of share the company has sold to investors 3. The number of shares currently owned by investors 4. The number of shares of stock that a company has repurchased from its investors

True or false: Companies only issue one class of common stock

False