Accounting Chapter 11 Review Questions

What is the purpose of the articles of incorporation? What information do they provide?

The articles of incorporation constitute a legal document that is filed with the appropriate state agency requesting the official formation of a corporation. The articles of incorporation generally set forth the name of the corporation, the proposed date of incorporation, the purpose for which the corporation is formed, the expected life of the corporation, provisions for the capital stock of the corporation, and the names and addresses of the members of the board of directors

Discuss the purpose of a partnership agreement. Is such an agreement necessary for partnership formation?

The partnership agreement is a legal agreement that defines the responsibilities of each partner and specifies the division of profits and losses. In order to form a partnership, there must be some type of agreement. It can simply be the agreement between parties to perform certain duties or make certain contributions of resources or services. While a written agreement is not required for legal purposes, a written document reduces the chance for of misunderstanding.

What is meant by the phrase sepearate legal entity? To which type of business organization does it apply?

The phrase separate legal entity simply means that the business organization operates separately from its owners. The corporation is referred to as a "separate legal entity" and conducts business with the same rights and responsibilities as a person.

How are sole proprietorships formed?

The sole proprietorship is formed when an individual decides to engage in some activity that provides goods or services, with the intent of making a profit.

What is the function of the stock certificate?

The stock certificate is issued as evidence of ownership in a corporation and represents a certain proportionate share of the business ownership.

What prompted Congress to pass the Securities Act of 1933 and the Securities Exchange Act of 1934? What is the purpose of these laws?

The stock market crash of 1929 and the subsequent economic depression led to the passage of the Securities and Exchange Acts of 1933 and 1934. These acts were passed to regulate the issuance of stock and govern exchanges of publicly traded stock. A part of this regulation extends to the formulation of certain accounting policies for companies listed on the stock exchanges (publicly traded stock).

What are the three major forms of business organizations? Describe each

The three major forms of business organizations are the sole proprietorship, the partnership, and the corporation. The sole proprietorship is a business owned by one individual. The partnership is a business that is owned by two or more persons with the intent to make a profit. The corporation is a legal entity that is organized according to the laws of the state in which it is formed. The business organization is separate from its owners.