Question 1

Corporations rarely issue stock at a discount because firms generally set very low par values and the practice is even illegal in many states.

Accepted Answer

A) True 
 B)False

Question 2

Match the terms with the definitions.
-An agreement in which a buyer contracts to buy shares of a corporation at a specific price.

Accepted Answer

A) authorized stock 
B) board of directors 
C) bylaws 
D) premium 
E) capital stock subscription
F)preferred stock
G)paid-in capital
H)cumulative preferred stock
I)dividends
J)double taxation
K)outstanding stock
L)no-par stock 
A) authorized stock 
B) board of directors 
C) bylaws 
D) premium 
E) capital stock subscription
F)preferred stock
G)paid-in capital
H)cumulative preferred stock
I)dividends
J)double taxation
K)outstanding stock
L)no-par stock

Question 3

The stockholders elect a board of directors and the board determines corporate policies and selects the corporate officers.

Accepted Answer

A) True 
 B)False

Question 4

One of the major advantages of the corporate form of ownership is the relaxation of governmental regulations.

Accepted Answer

A) True 
 B)False

Question 5

A company receives a subscription for 4,000 shares of $1 par value common stock at $10 per share. The journal entry for this transaction would include a debit to

Accepted Answer

A)  Common Stock Subscriptions Receivable, $40,000. 
B)  Common Stock Subscribed, $40,000. 
C)  Common Stock, $40,000. 
D)  Premium on Common Stock, $40,000. 
A)  Common Stock Subscriptions Receivable, $40,000. 
B)  Common Stock Subscribed, $40,000. 
C)  Common Stock, $40,000. 
D)  Premium on Common Stock, $40,000.

Question 6

Usually, any stockholder can transfer stock to another person without the knowledge or the consent of the other stockholders, as long as they have received permission from the corporation.

Accepted Answer

A) True 
 B)False

Question 7

Withdrawals in a sole proprietorship or partnership are equivalent to which of the following in a corporation?

Accepted Answer

A)  net income 
B)  dividends 
C)  salaries 
D)  retained earnings 
A)  net income 
B)  dividends 
C)  salaries 
D)  retained earnings

Question 8

Treasury Stock is a company investment in its own stock and is reported as an asset.

Accepted Answer

A) True 
 B)False

Question 9

If shares of stock are sold or exchanged for more than par value, the excess is called

Accepted Answer

A)  a discount. 
B)  a gain. 
C)  a premium. 
D)  earnings. 
A)  a discount. 
B)  a gain. 
C)  a premium. 
D)  earnings.

Question 10

The price at which a share of capital stock may be purchased or sold at a given time is called its

Accepted Answer

A)  market value. 
B)  par value. 
C)  stated value. 
D)  book value. 
A)  market value. 
B)  par value. 
C)  stated value. 
D)  book value.

Question 11

Limited liability of the owners means that the stockholders of a corporation share a personal liability for all debts of the corporation.

Accepted Answer

A) True 
 B)False

Question 12

A subscription for 4,000 shares of $10 par value common stock was accepted. Upon receipt of the balance owed on the stock subscription, a stock certificate was issued to the subscriber. The journal entry to issue the stock certificate would include a debit to

Accepted Answer

A)  Common Stock, $40,000. 
B)  Common Stock, $20,000. 
C)  Common Stock Subscribed, $40,000. 
D)  Common Stock Subscribed, $20,000. 
A)  Common Stock, $40,000. 
B)  Common Stock, $20,000. 
C)  Common Stock Subscribed, $40,000. 
D)  Common Stock Subscribed, $20,000.

Question 13

Treasury stock is classified as a(n)

Accepted Answer

A)  asset. 
B)  contra-asset. 
C)  stockholders' equity account. 
D)  contra-stockholders' equity account. 
A)  asset. 
B)  contra-asset. 
C)  stockholders' equity account. 
D)  contra-stockholders' equity account.

Question 14

The officers of the corporation generally manage the business and are responsible to the board of directors.

Accepted Answer

A) True 
 B)False

Question 15

Match the terms with the definitions.
-Preferred stock on which the dividends are limited to the stated dividend rate.

Accepted Answer

A) preemptive right 
B) participating preferred stock 
C) par value 
D) capital stock 
E) organization costs
F)charter
G)common stock
H)nonparticipating preferred stock
I)noncumulative preferred stock
J)no-par stock
K)incorporators
L)issued stock
M)market value
N)mutual agency 
A) preemptive right 
B) participating preferred stock 
C) par value 
D) capital stock 
E) organization costs
F)charter
G)common stock
H)nonparticipating preferred stock
I)noncumulative preferred stock
J)no-par stock
K)incorporators
L)issued stock
M)market value
N)mutual agency

Question 16

Preferred stock that is given a right to share with the common stock in dividends in excess of a stated dividend rate is said to be

Accepted Answer

A)  participating. 
B)  nonparticipating. 
C)  cumulative. 
D)  noncumulative. 
A)  participating. 
B)  nonparticipating. 
C)  cumulative. 
D)  noncumulative.

Question 17

Stated value is a value assigned to each share by the corporate president and printed on the stock certificate.

Accepted Answer

A) True 
 B)False

Question 18

If shares of preferred stock are sold at par value for cash, the transaction would be entered by

Accepted Answer

A)  debiting Cash and crediting Preferred Stock. 
B)  debiting Preferred Stock and crediting Cash. 
C)  debiting Preferred Stock Subscriptions Receivable and crediting Preferred Stock. 
D)  debiting Preferred Stock Subscribed and crediting Preferred Stock. 
A)  debiting Cash and crediting Preferred Stock. 
B)  debiting Preferred Stock and crediting Cash. 
C)  debiting Preferred Stock Subscriptions Receivable and crediting Preferred Stock. 
D)  debiting Preferred Stock Subscribed and crediting Preferred Stock.

Question 19

The corporate form of organization offers which of the following disadvantages?

Accepted Answer

A)  dissolution upon the death of a stockholder 
B)  attorney's fees 
C)  limited life 
D)  unlimited liability 
A)  dissolution upon the death of a stockholder 
B)  attorney's fees 
C)  limited life 
D)  unlimited liability

Question 20

When a corporation issues stock for noncash assets, it records the transaction at the fair market value of the assets or of the stock, whichever can be more clearly determined.

Accepted Answer

A) True 
 B)False

Exam 20: Corporations: Organization and Capital Stocks

Corporations rarely issue stock at a discount because firms generally set very low par values and the practice is even illegal in many states.

Match the terms with the definitions. -An agreement in which a buyer contracts to buy shares of a corporation at a specific price.

The stockholders elect a board of directors and the board determines corporate policies and selects the corporate officers.

One of the major advantages of the corporate form of ownership is the relaxation of governmental regulations.

A company receives a subscription for 4,000 shares of $1 par value common stock at $10 per share. The journal entry for this transaction would include a debit to

Usually, any stockholder can transfer stock to another person without the knowledge or the consent of the other stockholders, as long as they have received permission from the corporation.

Withdrawals in a sole proprietorship or partnership are equivalent to which of the following in a corporation?

Treasury Stock is a company investment in its own stock and is reported as an asset.

If shares of stock are sold or exchanged for more than par value, the excess is called

The price at which a share of capital stock may be purchased or sold at a given time is called its

Limited liability of the owners means that the stockholders of a corporation share a personal liability for all debts of the corporation.

A subscription for 4,000 shares of $10 par value common stock was accepted. Upon receipt of the balance owed on the stock subscription, a stock certificate was issued to the subscriber. The journal entry to issue the stock certificate would include a debit to

Treasury stock is classified as a(n)

The officers of the corporation generally manage the business and are responsible to the board of directors.

Match the terms with the definitions. -Preferred stock on which the dividends are limited to the stated dividend rate.

Preferred stock that is given a right to share with the common stock in dividends in excess of a stated dividend rate is said to be

Stated value is a value assigned to each share by the corporate president and printed on the stock certificate.

If shares of preferred stock are sold at par value for cash, the transaction would be entered by

The corporate form of organization offers which of the following disadvantages?

When a corporation issues stock for noncash assets, it records the transaction at the fair market value of the assets or of the stock, whichever can be more clearly determined.

Introduction to Accounting

Analyzing Transactions: the Accounting Equation

The Double-Entry Framework

Journalizing and Posting Transactions

Adjusting Entries and the Work Sheet

Financial Statements and the Closing Process

Accounting for Cash

Payroll Accounting: Employee Earnings and Deductions

Payroll Accounting: Employer Taxes and Reports

Accounting for Sales and Cash Receipts

Accounting for Purchases and Cash Payments

Special Journals

Accounting for Merchandise Inventory

Adjustments and the Work Sheet for a Merchandising Business

Financial Statements and Year-End Accounting for a Merchandising Business

Accounting for Accounts Receivable

Accounting for Notes and Interest

Accounting for Long-Term Assets

Accounting for Partnerships

Corporations: Earnings, Taxes, Distributions, and the Retained Earnings Statement

Corporations: Bonds

Statement of Cash Flows

Analysis of Financial Statements

Departmental Accounting

Manufacturing Accounting: The Job Order Cost System

Manufacturing Accounting: The Work Sheet and Financial Statements

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