Intro to Corporate Accounting - Capital Structure - Exam 1

Which of the following is an incorrect statement about a corporation?

A corporation may be formed in writing, orally, or implied

Which of the following statements reflects the transferability of ownership rights in a corporation?

A stockholder may dispose of part or all of his shares

What is ordinarily the first step in the formation of a corporation?

Application for incorporation to the appropriate Secretary of State

A company would not acquire treasury stock

As an asset investment

Preferred stockholders have a priority over common stockholders as to

Both dividends and assets in the event of liquidation

In the stockholders' equity section of the balance sheet, the classification of capital stock consists of

Common stock and preferred stock

Which of the following statements concerning taxation is accurate?

Corporations pay federal and state income taxes.

The purchase of treasury stock

Decreases common stock outstanding

Treasury stock should be reported in the financial statements of a corporation as a(n)

Deduction form total paid-in capital and retained earnings

T/F A corporation can issue more shares than it is authorized in its charter, if the board of directors approves of an increase in the number of authorized shares.

False

T/F A corporation is not an entity which is separate and distinct from its owners.

False

T/F A corporation must be incorporated in each state in which it does business.

False

T/F A journal entry is required for the authorization of capital stock

False

T/F As soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized.

False

T/F Corporations are subject to fewer state and federal regulations than partnerships or proprietorships

False

T/F Creditors have a legal claim on the personal assets of the owners of a corporation if the corporation does not pay its debts

False

T/F Dividends in arrears on cumulative preferred stock are considered a liability.

False

T/F Each stockholder in a corporation has a separate capital account in the stockholders' equity section of the balance sheet.

False

T/F If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

False

T/F Limited liability of stockholders, government regulations, and additional taxes are the major disadvantages of a corporation

False

T/F Publicly held corporations usually issue stock directly to investors

False

T/F Retained Earnings is usually subtracted from paid-in capital to arrive at ttl stockholders' equity.

False

T/F Retained earnings is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock

False

T/F The acquisition of treasury stock by a corporation increases total assets and total stockholders'

False

T/F The board of directors of a corporation legally owns the corporation

False

T/F The market price of common stock is usually the same as its par value

False

T/F The market value of a corporation's stock is determined by the number of shares that the corporation has been authorized to issue.

False

T/F The number of issued shares is always greater than or equal to the number of authorized shares

False

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

False

T/F The stockholders' equity section of a corporation's balance sheet consists of (1) paid-in capital, (2) retained earnings, and (3) drawings.

False

T/F The term "capital surplus" can be used instead of "additional paid-in capital"

False

T/F The transfer of stock from one owner to another requires the approval of either the corporation or other stockholders

False

T/F When a corporation has only one class of capital stock, it is identified as preferred stock.

False

T/F When a corporation is formed, organization costs are recorded as an asset.

False

T/F stock can be issued only in exchange for cash.

False

T/F the Net income of a corporation is not taxed as a separate entity

False

T/F most of the largest U.S. corporations are privately held corporations

False (publicly)

Which of the following would NOT be considered an advantage of the corporate form of organization?

Government regulation

A corporation's minimum legal capital is established by recording the par or stated value of the number of shares:

Issued

Which of the following would not be true of a privately held corporation?

Its shares are regularly traded on the New York Stock Exchange.

Which of the following statements is not considered a disadvantage of the corporate form of organization?

Limited liability of stockholders

Dividends in arrears on cumulative preferred stock

Must be paid before common stockholders can receive a dividend

A corporation whose stock is regularly traded on a national securities exchange is a

Publicly held corporation

Which of the following is not true of a corporation?

The acts of its owners bind the corporation.

Stockholders of a corporation directly elect

The board of directors

Under the corporate form of business organization

The corporation's life is stipulated in its charter

Which of the following factors does not affect the initial market price of a stock?

The par value of the stock

Which of the following is not a right or preference associated with preferred stock?

The right to vote

Which one of the following is not an ownership right of a stockholder in a corporation?

To declare dividends on the common stock

T/F A corporation acts under its own name rather than in the name of its stockholders.

True

T/F A corporation can be organized for the purpose of making a profit or it may be not-for-profit

True

T/F A corporation is an entity separate and distinct from its owners

True

T/F A privately held corporation does not offer its stock for sale to the general

True

T/F A stockholder has the right to vote in the election of the board of directors.

True

T/F A successful corporation can have a continuous and perpetual life.

True

T/F As a legal entity, a corporation has most of the rights and privileges of a person

True

T/F Corporation management is both an advantage and a disadvantage of a corporation compared to a proprietorship or a partnership

True

T/F Corporations may buy, own, and sell property; borrow money; enter into legally binding contracts; and sue and be sued.

True

T/F Dividends are declared out of retained earnings

True

T/F Each share of common stock gives the stockholder the ownership rights to vote at stockholder meets, share in corporate earnings, keep the same percentage ownership when new shares of stock are issued, and share in assets upon liquidation.

True

T/F In the stockholders' equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified

True

T/F Preferred stock has contractual preference over common stock in certain areas.

True

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

True

T/F Retained Earnings are a part of stockholders' equity

True

T/F The cash proceeds from issuing par value stock may be equal to or greater than, but not less than par value

True

T/F The chief accounting officer of a corporation is the controller

True

T/F The cost of a noncash asset acquired in exchange for common stock should be either the fair value of the consideration given up or the consideration received, whichever is more clearly determinable

True

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

True

T/F The par value of stock issued for noncash assets is never a factor in determining the cost of the assets received

True

T/F The trading of capital stock on a securities exchange involves the transfer of already issued shares from an existing stockholder to another investor

True

T/F Treasury stock is a contra stockholders' equity account

True

T/F Treasury stock should not be classified as a current asset

True

T/F Under the cost method, Treasury stock is debited at the price paid to reacquire the shares, and the same amount is credited to Treasury Stock when the shares are sold.

True

T/F When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock becomes legal capital

True

Taylor Corporation issues 20,000 shares of $50 par value preferred stock for cash at $90 per share. In the stockholders' equity section, the effects of the transaction above will be reported

Under both the capital stock and additional paid-in capital sections

Treasury stock is

a corporation's own stock which has been issued and subsequently reacquired but not retired.

Paid-in capital from treasury stock would appear on a balance sheet under the category

additional paid-in capital

Two classifications appearing in the paid-in capital section of the balance sheet are

capital stock and additional paid-in capital

If a corporation has only one class of stock, it is referred to as

common stock

Treasury stock is a(n)

contra stockholders' equity account

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

corporation is subject to more federal and state government regulations

Treasury stock is generally accounted for by the

cost method

The acquisition of treasury stock by a corporation

decreases its total assets and total stockholders' equity

When common stock is issued for services or non-cash assets, cost should be

either the fair value of the consideration given up or the consideration received, whichever is more clearly evident

The ability of a corporation to obtain capital is

enhanced because of limited liability and ease of share transferability

T/F Organizational costs are capitalized by debiting an intangible asset entitled organization costs

false

T/F Treasury stock purchased for $35 per share that is reissued at $31 per share, results in a Loss on sale of treasury stock being recognized on the income statement

false

Additional paid-in capital includes all of the following except the amounts paid in

for the par value of common stock

Each of the following is reported for common stock except the

liquidation value

When the selling price of treasury stock is greater than its cost, the company credits the difference to

paid-in capital from treasury stock

Additional paid-in capital includes all of the following except

paid-in capital in excess of book value

Capital Stock to which the charter has assigned a value per share is called

par value stock

If preferred stock is cumulative, the

preferred dividends not declared in a given year are called dividends in arrears.

The two ways that a corporation can be classified by purpose are

profit and not-for-profit

The two ways that a corporation can be classified by ownership are

publicly held and privately held

Each of the following is correct regarding treasury stock except that it has been

retired

The term residual claim refers to a stockholders' right to

share in assets upon liquidation

Dividends in arrears on cumulative preferred stock

should be disclosed in the notes on the financial statements

Information that is not generally reported for each class of stock on the balance sheet is

the market value

Legal capital per share cannot be equal to the

total proceeds from the sale of par value stock above par value