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