ACCOUNTING chapter 8 Smartbook

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. Immediately after the issue, Base Line's balance sheet will show ______ of paid-in-capital in excess of par value.

$24-$15=$9 x 10,000 shares= 90,000

Which of the following statements are true? -Common stockholders have the right to buy and sell stock. -When a company liquidates, common stockholders are the least likely investors to bear the risk of loss. -Common stockholders do not have the right to vote on matters that affect the corporate charter. -All corporations have common stock.

-Common stockholders have the right to buy and sell stock. -All corporations have common stock.

Which of the following is not normally included in the articles of incorporation? -The expected life which may be listed as in perpetuity -The names and addresses of the members of the first board of directors -The corporation's name and proposed date of incorporation -A forecast of projected profitability

A forecast of projected profitability

If a company is forced to liquidate, the highest risk of losing their investment rests with ______ stockholders.

COMMON stockholders

Creditors cannot claim owners' personal assets as payment for the company's debts if the company is organization as a(n) __________

corporation

A chief advantage of the corporate form of business is ______.

limited liability

Distributions to owners of proprietorships are called _______:

withdrawals

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. Which financial statements were affected by the stock issue?

-Statement of cash flows -Balance sheet

The maximum number of shares of stock corporations are legally permitted to issue is the ______ number of shares.

AUTHORIZED number of shares

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

FALSE

Corporations normally list _________ stock before ________ stock in the stockholders' section of the balance sheet.

Preferred stock before common stock

When a company issues 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

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

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

Which of the following statements are 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. -Since the par value represents the legal capital, it constitutes the most important characteristic of stock. -Par value represents the purchase price of stock offered to executives and other premium investors.

-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.

Which of the following statements are true? -The balance sheet of a proprietorship contains a single Owner's Capital account. -Distributions to the owner of a proprietorship are called dividends. -The Retained Earnings account is shown on the balance sheet of a proprietorship. -Owner withdrawals are shown in the capital statement of a proprietorship.

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

Which of the following statements are true? -A partnership is a separate legal entity created by the authority of a state government. -Corporations are subject to less regulation than proprietorships. -The requirements for establishing a corporation vary from state to state. -A proprietorship is the simplest form of business organization to organize and operate.

-The requirements for establishing a corporation vary from state to state. -A proprietorship is the simplest form of business organization to organize and operate.

Which of the following statements are true? -Treasury stock is stock that a company has repurchased from its investors. -Outstanding stock is stock that has a high probability of a significant increase in market value. -The number of shares outstanding may be less than the number of shares issued. -Authorized stock is the number of shares the members of the board of directors is permitted to purchase.

-Treasury stock is stock that a company has repurchased from its investors. -The number of shares outstanding may be less than the number of shares issued.

Preferred stock ______. -has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders -always pays a dividend yearly, with any unpaid amounts paid in future years -has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to creditors -dividends are paid before dividends are distributed to common stockholders

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

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 -the value investors are willing to pay for a share of stock -the price of stock on the date it was originally sold to an investor

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

The par value represents the ______. -minimum amount of assets that must be retained in the company as protection for creditors, when multiplied by the number of shares of stock issued -maximum liability of the investors -market value on the date of issue -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, when multiplied by the number of shares of stock issued -maximum liability of the investors

When a corporation buys treasury stock, the: -total amount of stockholders' equity increases. -number of shares of stock outstanding decreases. -number of shares of stock authorized is not affected.

-number of shares of stock outstanding decreases. -number of shares of stock authorized is not affected.

Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value preferred 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 was not affected. -total stockholder's equity increased by $150,000. -cash flow from financing activities increased by $240,000. -total liabilities increased by $90,000. -total assets increase by $240,000.

-the income statement was not affected. -cash flow from financing activities increased by $240,000. -total assets increase by $240,000.

Which of the following is NOT normally included in the articles of incorporation?

A forecast of projected profitability

The greatest potential for rewards when a corporation prospers rests with ______ stockholders.

COMMON stockholders

No-par stock may have a(n) ________ value which is an arbitrary amount established by the board of directors to the stock

STATED value

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 that has a current market value of $5.20 per share. Based on this The book value per share of the stock is:

book value= (50,000 + 30,000)/25,000 = $3.20 shares