ACCT Exam 4
a corporation has lower taxes and less paperwork relative to sole-proprietorships and partnerships
false; a corporation has higher taxes and more paperwork relative to sole-proprietorships and partnerships
angel investors that focus on companies at or near bankruptcy
false; angel investors are wealthy individuals in the business community willing to risk investment funds on a promising business venture
authorized stock is the number of shares that have been sold to investors
false; authorized stock is the total number of shares available to sell, stated in the company's articles of incorporation. Issued stock is the number of shares that have been sold to investors
cumulative preferred stock means that dividends accumulate interest during the year
false; cumulative preferred stock means that shares receive priority for future dividends, if dividends are not paid in a given year
dividends are paid on all shares issued by the company including treasury stock
false; dividends are not paid on treasury shares repurchased by the company
earnings per share is useful in comparing earnings performance across companies
false; earnings per share is useful in comparing earnings performance for the same company over time. earnings per share cannot be used to compare across companies because of differences in the number of shares outstanding among companies
if a company purchases shares of another company, it records this transaction as treasury stock
false; if a company purchases shares of another company, it records this transaction as an investment and not as treasury stock
Retained Earnings is the amount stockholders have invested in the company
false; paid-in capital
par value has a direct relationship to the market value of the common stock
false; par value is the legal capital per share of stock that's assigned when the corporation is first established. Par value has no relationship to the market value of the common stock
Common stock is listed before preferred stock in the balance sheet
false; preferred stock is listed before common stock in the balance sheet
in the event a corporation is dissolved, common stockholders receive preference over preferred stockholders in the distribution of assets
false; preferred stockholders receive preference over common stockholders in the distribution of assets in the event the corporation is dissolved
a stock split has no effect on the total of any account in SE
true
all publicly held corporations in the United States are regulated by the Securities and Exchange Commission
true
an S corporation allows a company to enjoy a limited liability as a corporation, but tax treatment as a partnership
true
convertible preferred stock allows the stockholder to convert shares of preferred stock into common stock at a specified conversion ratio
true
earnings per share (EPS) measures the net income earned per share of common stock outstanding
true
if a company has expenses that are more than revenues, the net loss decreases retained earnings
true
no journal entry is made to record a stock split
true
par value is the legal capital per share of stock that's assigned when the corporation is first established
true
retained earnings represent the earnings retained in the corporation- earnings not paid out as dividends to stockholders
true
stock repurchases reduce the number of shares outstanding, thereby increasing earnings per share
true
the number of shares outstanding is equal to the number of shares issued minus the number of shares repurchased
true
the return on equity measures the ability of company management to generate earnings from the resources that owners provide
true
the statement of stockholders' equity shows how each equity account changed during the year
true
total assets, total liabilities and total SE do not change as a result of a stock dividend
true
treasury stock is the repurchase of a company's own issued stock
true
we calculate earnings per share as net income divided by the average shares outstanding during the period
true
Which of the following stages of equity financing comes last in the traditional order of progression? A. Investment by friends and family of the founders B. Investment by the founders of the business C. Initial public offering (IPO) D. Outside investment by "angel" investors and venture capital firms
C. Initial public offering (IPO)
which of the following is a disadvantage of an S Corporation? A. Double Taxation B.Liability C. Restrictions on number of stockholders D. Inability to transfer ownership
C. Restrictions on number of stockholders
which of the following accounts is not reported in the SE section of the balance sheet A. Treasury Stock B. Common Stock C. Sales revenue D. Retained Earnings
C. Sales revenue
advantages of the corporate form of business include which of the following
ability to raise capital, ability to transfer ownership and limited liability
the disadvantages of the corporate form of business include
additional taxes
In terms of total sales, assets and earnings, the dominant form of business organization is a:
corporation
which of the following statements regarding the corporate form of business is correct
disadvantages are that the business is subject to government regulations and double taxation on its income
small stock dividends are recorded by debiting Retained Earnings for the par value per share
false; small stock dividends are recorded by debiting Retained Earnings for the market value, rather than the par value per share
the amount of retained earnings equal net income minus dividends for the current year
false; the amount of retained earnings equals all net income, less all dividends, since the company began operations
the stockholders' equity section of the balance sheet shows how each equity account changed during the year
false; the stockholders' equity section of the balance sheet presents the balance of each equity account at a point in time. The Statement of SE shows how each account changed during the period
treasury stock is a contra-equity account because treasury stock increases total SE
false; treasury stock is a contra-equity account because treasury stock decreases total SE
we compute the return on equity ratio by dividing net income by ending SE
false; we compute the return on equity ratio by dividing net income by average SE
Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following except
low government regulation
issued stock refers to the number of shares
outstanding plus treasury shares
the correct order from the smallest number of shares to the largest number of shares is
outstanding, issued and authorized
authorized common stock refers to the total number of shares
that can be issued
common stockholders usually have all of the following rights except:
to participate in the day-to-day operations
Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company
true
Owners in a sole proprietorship or a partnership can be held personally liable for debts the company has incurred, over and beyond the investment they have made
true
we calculate the PE ratio as the stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis
true
we can estimate the average purchase cost of treasury stock per share by dividing the treasury stock balance by the number of shares repurchased
true
we record treasury stock at the cost of the shares acquired
true
we usually record preferred stock as equity and report it in the stockholders' equity section of the balance sheet just above common stock
true
when we reissue treasury stock, we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital
true
Outstanding stock is the number of shares held by investors
true; issued stock is the number of shares that have been sold to investors. Outstanding stock is the number of shares held by investors. Issued stock includes treasury stock. Outstanding stock excludes treasury stock.
a corporation has limited liability and attracting outside investment is easier relative to sole-proprietorships and partnerships
true; two advantages of a corporation relative to sole-proprietorships and partnerships are 1. limited liability and 2. the ability to raise capital and transfer ownership
assets plus liabilities equal SE
false
outstanding common stock refers to the total number of shares
issued less treasury stock
which of the following is a reason that a corporation would prefer to issue stock instead of bonds?
the risk of going bankrupt is less
Paid-in Capital is the amount stockholders have invested in the company
true
a company credits additional paid-in capital for the portion of the cash proceeds above par value received for the issuance of stock
true