Exam 8: Proprietorships, Partnerships, and Corporations

Chisolm Corporation issued 10,000 shares of $5 par common stock for $22 per share. As a result of this transaction, Chisolm's legal capital increased by $50,000.

Rocco Corporation decides to issue a 7.5% stock dividend on 20,000 outstanding shares of $10 stated value common stock. The distribution is made at the time the market value of the stock is $50 a share. How will the entry to record this transaction affect the company's equity accounts?

Kellogg, Inc. purchased 200 shares of its own $20 par value stock for $30 cash per share. Which of the following answers reflects how this purchase of treasury stock would affect Kellogg's financial statements?

A corporation might buy some of its own stock to help keep the market price from falling.

Preferred stockholders generally have no voting rights in a corporation.

Which of the following entities would report income tax expense on its income statement?

Indicate whether each of the following statements is true or false. _____ a) An appropriation of retained earnings limits the amount available for dividends. _____ b) Appropriating retained earnings is considered an asset exchange transaction. _____ c) An appropriation is recorded as a decrease to the appropriated retained earnings account and an increase to retained earnings. _____ d) One reason for an appropriation of retained earnings is that there may be restrictive covenants in credit agreements. _____ e) An appropriation has no effect on the accounting equation.

What effect will the declaration and distribution of a stock dividend have on net income and cash flows?

Seymore Corp. has the following number of shares of stock outstanding: Seymore will distribute $80,000 to the two classes of stockholders this year. Not counting the current year, the preferred stock dividends are one year in arrears. Indicate whether each of the following statements is true or false. _____ a) Preferred stockholders will receive $16,000 of cash dividends in the current year. _____ b) After all required preferred dividends are paid, preferred and common stockholders will share the remaining dividend. _____ c) Common stockholders will receive $48,000 of cash dividend in the current year. _____ d) The amount of common dividends per share that stockholders will receive in the current year is $6.40. _____ e) The amount of dividends in arrears is zero after the $80,000 of dividends have been paid.

The payment of a previously declared cash dividend will:

Which of the following is not normally a preference given to the holders of preferred stock?

Which of the following is not a reason why a corporation may choose to not pay dividends?

Where is treasury stock reported on a corporation's balance sheet?

Which of the following is a negative or contra equity account?

Indicate whether each of the following items is true or false. _____ a) Many successful corporations do not pay dividends to their stockholders. _____ b) Careful study of the financial statements will give investors the ability to predict future movements in the market price of a corporation's stock. _____ c) The chief executive officer (CEO) of a corporation is usually not also a member of the board of directors. _____ d) Dismissing an incompetent manager can be complicated when a company is experiencing entrenched management. _____ e) The number of shares to purchase in order to attain "significant influence" of a corporation can readily be determined from the financial statements.

Chadwick Associates retained $850,000 of net income in the business in Year 1. If $75,000 was appropriated to satisfy the restrictive covenant of a loan agreement, what are the financial statements effects of the appropriation?

A separate capital account would be maintained for each partner in a partnership.

On March 1, Year 1, Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value, 6% preferred stock. The dividend will be paid on May 1, Year 1 to the stockholders of record as of April 1, Year 1. How will the entry to record the dividend on March 1 affect the financial statements?

A benefit of corporations is that they are free from double taxation.

Articles of incorporation, prepared by a business that wishes to incorporate, normally include the corporation's name and purpose, its location, and provisions for capital stock.