Chapter 8 Exercise

Which of the following characteristics make transferring the ownership of a proprietorship difficult?

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

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

Blank 1: corporation

The ability to raise huge amounts of capital is generally limited to organizations organized as

Blank 1: corporations

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

Corporation

Congress gave legal authority to establish accounting principles for corporations that are registered on the exchange to the ______

SEC

Treasury stock is ______ on the balance sheet.

a contra equity

A partnership balance sheet includes ______.

a separate capital account for each partner

If a company reissues its Treasury Stock, its ______ increase(s)

stockholders' equity total assets

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 financial statement is affected on both the date of declaration and the payment date of a dividend?

Balance Sheet

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. Which financial statements were affected by the stock issue?

Balance sheet Statement of cash flows

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.

Corporations become legally obligated to pay dividends on the ______.

declaration date

The issue of no-par common stock does not affect the ______.

income statement

Declaring a cash dividend ______.

increases liabilities and decreases stockholders' equity

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

limited liability

Cumulative dividends ______.

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

Book value per share is ______.

measured in historical dollars calculated by dividing total stockholders' equity by the number of shares of stock owned by investors

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

Which of the following statements are true?

rading on a stock exchange is limited to the stockbrokers who are members of the exchange. The stock of closely held companies is not sold on major stock exchanges.

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

record

True or false: The financial statement effects of issuing stated value stock are identical to the financial statement effects of issue par value stock

true

Distributions to owners of proprietorships are called

withdrawals

Which of the following statements are true?

A proprietorship is the simplest form of business organization to organize and operate. The requirements for establishing a corporation vary from state to state.

True or false: The stated value of a share of stock is established by the federal government.

False

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.

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

Blank 1: corporation

Corporations normally list ______stock before _________stock in the stockholders' section of the balance sheet.

Blank 1: preferred Blank 2: common

No-par stock may have a(n)_________ value which is an arbitrary amount established by the board of directors to the stock.

Blank 1: stated

Which of the following statements is true? The date of record comes before the date of declaration. The party that owns stock on the date of payment is entitled to receive a cash dividend. Corporations are not legally required to declare cash dividends. A corporation is not legally obligated to pay a dividend until after the date of record.

Corporations are not legally required to declare cash dividends.

Which of the following statements are true?

Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders. If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever.

Which of the following statements are true?

The number of shares outstanding may be less than the number of shares issued. Treasury stock is stock that a company has repurchased from its investors.

Which of the following statements are true? Multiple select question. Corporations are subject to less regulation than proprietorships. A partnership is a separate legal entity created by the authority of a state government. The requirements for establishing a corporation vary from state to state. A proprietorship is the simplest form of business organization to organize and operate.

The requirements for establishing a corporation vary from state to state. A proprietorship is the simplest form of business organization to organize and operate.

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

common

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

corporation

Stock certificates are used as evidence of ownership in ______. Multiple choice question.

corporations

Preferred stock ______.

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

True or false: The stated value of a share of stock is established by the federal government.

he stated value is established by the corporation's board of directors under the authority of a state government not the federal government. False

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

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 ______.

total assets increase by $240,000 cash flow from financing activities increased by $240,000 the income statement was not affected

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

treasury

Common stockholders have the right to ______.

vote on significant matters that affect the corporate charter share in the distribution of profits participate in the election of directors

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. Hoe much of the distributions will go to the preferred stockholders?

$18,000 Reason: 5,000 shares × $20 x 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).

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

authorized

If a company is forced to liquidate, the highest risk of losing their investment rests with ______ stockholders.

common Reason: Preferred shareholders frequently are guaranteed a liquidation value in the case of bankruptcy before assets are distributed to common stockholders.

Authorized stock matches Choice, The maximum number of shares a company can legally issueThe maximum number of shares a company can legally issue Issued stock matches Choice, The total number of share the company has sold to investorsThe total number of share the company has sold to investors Outstanding stock matches Choice, The number of shares currently owned by investorsThe number of shares currently owned by investors Treasury stock matches Choice, The number of shares of stock that a company has repurchased from its investorsThe number of shares of stock that a company has repurchased from its investors

-

Choice, Par Value Preferred Stock Par Value Preferred Stock 2 matches Choice, Stated Value Common Stock Stated Value Common Stock 3 matches Choice, Class B Common Stock Class B Common Stock 4 matches Choice, Paid-in Capital in Excess of Par Value Preferred Stock Paid-in Capital in Excess of Par Value Preferred Stock 5 matches Choice, Paid-in Capital in Excess of Stated Value Common Stock Paid-in Capital in Excess of Stated Value Common Stock 6 matches Choice, Retained Earnings Retained Earnings

.

Which of the following statements are true? Numerous laws specifically affect the operations of proprietorships and partnerships. Trading on a stock exchange is limited to the stockbrokers who are members of the exchange. The stock of closely held companies is not sold on major stock exchanges. The extensive regulations of trading on stock exchanges began in the 1080s.

Trading on a stock exchange is limited to the stockbrokers who are members of the exchange. The stock of closely held companies is not sold on major stock exchanges.

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

True

True or false: The financial statement effects of issuing stated value stock are identical to the financial statement effects of issue par value stock.

True

The Sarbanes-Oxley Act gave the ______ authority to set and enforce standards for auditors of public companies.

PCAOB

Which of the following statements are true?

S Corporations are taxed as proprietorships or partnerships. Limited liability companies (LLCs) offer many of the benefits of corporate ownership, yet are, in general, taxed as partnerships.

true?

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.

A corporation becomes legally obligated to make a cash dividend on the______date

Blank 1: declaration

Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock that has a current market value of $5.20 per share. Based on this The book value per share of the stock is

$3.20 Reason: ($50,000 stock + $30,000 retained earnings) ÷ 25,000 shares of stock = $3.20 per share.

Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock that has a current market value of $5.20 per share. Based on this The book value per share of the stock is ______.

$3.20 Reason: ($50,000 stock + $30,000 retained earnings) ÷ 25,000 shares of stock = $3.20 per share.

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

Corporations

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 are true?

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.

Double taxation refers to the fact that ______.

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

The par value represents the ______.

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

Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury stock for $30 per share, Stanley will _______

recognize a $500 increase in additional paid-in capital from treasury stock report the $3,000 as a financing activity

A company repurchased 2,000 shares of its $10 par value stock for $15 per share. Under the most common method of accounting for treasury stock, ______.

the entire $30,000 will be recognized in Treasury Stock