Chapter 11 SmartBook

Which of the following statements are true? - 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.

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 amount of a preferred stock dividend is usually stated on the stock certificate. - An advantage of preferred stock is that their dividends are usually unlimited. - 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.

The amount of a preferred stock dividend is usually stated on the stock certificate. 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.

Assume that Base Line Incorporated 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. This stock issue affects the ______.

Statement of Cash Flows Balance Sheet

Purchasing treasury stock affects the ______.

Statement of Cash Flows Balance Sheet

The issue of no-par common stock affects the ______.

Statement of Cash Flows Balance Sheet

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 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 common stockholders?

$12,000 Reason: 5,000 shares × $20 x 6% = $6,000 annual × 3 years = $18,000 due to preferred stockholders. $30,000 total dividend - $18,000 preferred stock distribution = $12,000 common stock distribution.

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 no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. How much of the distributions will go to the preferred stockholders?

$18,000 Reason: 5,000 shares × $20 × 6% = $6,000 annual preferred dividend. The preferred stockholders will receive two years of dividends that are in arrears plus the dividend due for the current year for a total of $18,000 ($6,000 × 3 years).

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. Immediately after the issue, Base Line would show $ - of cash inflow from - activities

$240000 financing

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

Which of the following statements are true? - Partnerships are separate taxable entities. - Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships or proprietorships. - S Corporation income is taxed at the individual level. - S Corporation status is available only to large corporations whose stock is widely held.

- Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships or proprietorships. - S Corporation income is taxed at the individual level.

Which of the following statements are true? - S Corporation status is available only to large corporations whose stock is widely held. - Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships or proprietorships. - S Corporation income is taxed at the individual level. - Partnerships are separate taxable entities.

- Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships or proprietorships. - S Corporation income is taxed at the individual level.

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

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

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. - Numerous laws specifically affect the operations of proprietorships and partnerships. - The extensive regulations of trading on stock exchanges began in the 1080s

- 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.

Corporations ______.

- are established under rules that vary from state to state - are separate legal entities created by the authority of a state government

The Securities and Exchange Commission (SEC) has the authority to ______.

- enforce securities law - establish accounting principles for corporations registered on a stock exchange - defer its rule-making authority to independent, private sector organizations such as the Financial Accounting Standards Board (FASB)

JVL Corporation paid $15 per share to buy back 100 shares of $5 par value common stock that had originally been issued at $18 per share. The purchase increases the Treasury Stock account by $ -

1500

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, the preferred stockholders received $ - and the common stockholders received $ -

6000 24000

Which of the following characteristics make transferring the ownership of a proprietorship difficult? - A buyer must purchase the entire business. - Proprietorships are subject to heavy government regulation. - Most proprietorships are owner-operated. - Proprietorships are subject to double taxation.

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

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

A forecast of projected profitability

Match the terms shown in the left column with the definitions shown in the right column. Terms: Authorized Stock, Issued Stock, Outstanding Stock, and Treasury Stock Definitions: The maximum number of shares a company can legally issue, The number of shares currently owned by investors, The total number of shares the company has sold to investors, and The number of shares of stock that a company has repurchased from its investors

Authorized Stock - The maximum number of shares a company can legally issue Issued Stock - The total number of shares the company has sold to investors Outstanding Stock - The number of shares currently owned by investors Treasury Stock - The number of shares of stock that a company has repurchased from its investors

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. This stock issue affects the ______.

Balance Sheet Statement of Cash Flows

Paying a previously declared dividend affects the ______.

Balance Sheet Statement of Cash Flows

Which form of business organization offers the greatest ease of transferring ownership?

Corporation

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

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

Which of the following statements is true? - Corporations are not legally required to declare cash dividends. - Dividends are recorded as expenses on the declaration date. - A corporation becomes legally obligated to pay a dividend on the date of record. - A corporation must recognize a liability for a dividend on the payment date.

Corporations are not legally required to declare cash dividends.

Which of the following statements are true? - Partnerships do not have a Retained Earnings account because all earnings are distributed directly to each partner's capital account immediately. - All partners receive an equal share of earnings. - Partnerships do not maintain separate capital accounts for each partner. - Proprietorships and partnerships account for owner contributions, retained earnings and withdrawals in the same way. - The term withdrawals may be found in the financial statements of both proprietorships and partnerships.

Partnerships do not have a Retained Earnings account because all earnings are distributed directly to each partner's capital account immediately. The term withdrawals may be found in the financial statements of both proprietorships and partnerships.

Small companies can avoid double taxation by electing ______ status.

S corporation LLC

The Public Company Accounting Oversight Board (PCAOB) was created by the

Sarbanes-Oxley Act of 2002

Which of the following statements are true? - The Retained Earnings account is shown on the balance sheet of a proprietorship. - Distributions to the owner of a proprietorship are called dividends. - The balance sheet of a proprietorship contains a single Owner's Capital account. - 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? - Outstanding stock is stock that has a high probability of a significant increase in market value. - 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. - 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.

Treasury stock is ______ on the balance sheet.

a contra equity

Stock with a stated value is accounted for exactly the same way as stock with ______ value.

a par

At the time treasury stock is purchased, total assets ______.

and total stockholders' equity both decrease

Cumulative dividends ______.

are dividends that accumulate for future payment when a company fails to pay a periodic dividend may also be called dividends in arrears

Purchasing treasury stock is a(n) ______ transaction.

asset use

Recording the cash payment of a previously declared dividend decreases ______.

assets liabilities

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

authorized

Partners capitals account appear on the the ______.

balance sheet only

When a company issues no-par common stock, the ______.

cash inflow is classified as a financing activity entire amount of the proceeds is placed into the Common Stock account

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

common

The benefit of continuity of existence is an advantage of being organized as a(n) -

corporation

The life of a ______ continues even after the owner(s) have departed.

corporation

Billions of dollars of capital may be generated by pooling the resources of millions of owners through public stock and bond offerings for companies organized as -

corporations

Stock certificates are used as evidence of ownership in ______.

corporations

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

corportation

When par or stated value stock is issued, the amount received above the par or stated value is recorded in the ______ account.

paid-in capital in excess of par (or stated) value

A corporation becomes legally obligated to pay a cash dividend on the - date

declaration

ABC Corporation paid $15,000 to the Internal Revenue Service (IRS) on profits earned and their stockholders paid an additional $6,000 to the IRS for the dividends received from ABC. This phenomenon is commonly called - -

double taxation

The Public Company Accounting Oversight Board (PCAOB) is empowered to ______.

impose disciplinary and remedial sanctions for violations of its rules, securities law and professional auditing and accounting standards

Double taxation refers to the fact that ______.

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

Declaring a cash dividend ______.

increases liabilities and decreases stockholders' equity

Declaring a cash dividend affects ______.

liabilities retained earnings

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

limited liability

Common stockholders ______.

may share in the distributions of profits have the right to share in the distribution of corporate assets in the case of liquidation may have a right to vote in the election of the board of directors

Par value represents the ______.

minimum amount of assets that must be retained in the company as protection for creditors maximum liability of the investors

When a corporation buys treasury stock, the ______.

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

Clear agreements about authority, risks and sharing profits are needed when a business is organized as a(n) -

partnership

The term withdrawal may appear in the financial statements of a ______.

partnership proprietorship

Two or more individuals share ownership in ______.

partnerships

The date that a company settles its dividend liability is called the - date.

payment

The date that a company settles its dividend liability is the _____ date.

payment

Corporations are usually managed on a daily basis by ______.

professional executives

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

proprietorships

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

record

The party that owns the stock on the date of ______ is legally entitled to a cash dividend.

record

A business owned by a single individual that is usually be established simply by obtaining a local business license is a(n) - -

sole proprietorship

No legal ownership agreement is required for ______.

solo proprietorships

When par or stated value stock is issued, the total amount received is ______.

split between two equity accounts

Like par value, - value is an arbitrary amount assigned by the board of directors to a share of stock.

stated

Preferred stock ______.

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

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 cash flow from financing activities increased by $240,000 total assets increase by $240,000

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 was not affected total assets increased by $240,000

When a corporation purchases its own stock, the stock purchased is called

treasury

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

true