Question 1

When evaluating the liquidity of a proprietorship, creditors will likely base their decision on:

Accepted Answer

A)  The business ability to generate a profit. 
B)  Previous debts of the business. 
C)  The financial strength of the owner. 
D)  The total assets owned by the business. 
A)  The business ability to generate a profit. 
B)  Previous debts of the business. 
C)  The financial strength of the owner. 
D)  The total assets owned by the business.

Question 2

A corporation is a legal entity that may enter into contracts, may sue or be sued, and is responsible for its own debts.

Accepted Answer

A) True 
 B)False

Question 3

Regardless of whether partners in a partnership work in the company, each partner is allocated an
equal share of profits.

Accepted Answer

A) True 
 B)False

Question 4

Assets contributed to a partnership by a partner would be recorded at:

Accepted Answer

A)  Historical cost. 
B)  Fair market value. 
C)  Cost less depreciation. 
D)  Potential value. 
A)  Historical cost. 
B)  Fair market value. 
C)  Cost less depreciation. 
D)  Potential value.

Question 5

Retained earnings are a fund of cash the business has earned from profitable operations.

Accepted Answer

A) True 
 B)False

Question 6

Sue and Al form a partnership. Sue invests $20,000 and Al invests $25,000. In the first year the partnership earns $60,000. Sue withdraws $7,500 and Al withdraws $12,000. Each receives a salary of $15,000 and the remainder is divided 60% to Al and 40% to Sue. Prepare a schedule showing the capital accounts for Sue and Al.

Accepted Answer

The answer of Sue and Al form a partnership. Sue...

Question 7

Which of the following is a characteristic of a corporation?

Accepted Answer

A)  Mutual agency. 
B)  Stockholder liability for business debts. 
C)  Indefinite existence. 
D)  Taxable at individual rates. 
A)  Mutual agency. 
B)  Stockholder liability for business debts. 
C)  Indefinite existence. 
D)  Taxable at individual rates.

Question 8

The net income of a sole proprietorship should compensate the owner for all of the following except:

Accepted Answer

A)  Personal service. 
B)  The income taxes paid by the owner. 
C)  Capital invested by the owner. 
D)  The risk taken by the owner. 
A)  Personal service. 
B)  The income taxes paid by the owner. 
C)  Capital invested by the owner. 
D)  The risk taken by the owner.

Question 9

A partnership has a limited life and each partner has unlimited personal liability.

Accepted Answer

A) True 
 B)False

Question 10

John's Metalworks Incorporated recently issued 10,000 shares of stock in exchange for $100,000. Metalworks' journal entry to record this transaction included:

Accepted Answer

A)  A debit to Capital Stock for $10,000. 
B)  A debit to Cash for $100,000. 
C)  A credit to Capital Stock for $10,000. 
D)  A credit to Cash for $100,000. 
A)  A debit to Capital Stock for $10,000. 
B)  A debit to Cash for $100,000. 
C)  A credit to Capital Stock for $10,000. 
D)  A credit to Cash for $100,000.

Question 11

When a corporation receives cash or other assets from its owners in a sale of capital stock, it records these investment transactions by crediting Retained Earnings.

Accepted Answer

A) True 
 B)False

Question 12

An S corporation must have a maximum of ____ stockholders.

Accepted Answer

A)  25. 
B)  65. 
C)  70. 
D)  75. 
A)  25. 
B)  65. 
C)  70. 
D)  75.

Question 13

In order to form a corporation, the corporation must obtain a charter from:

Accepted Answer

A)  The federal government. 
B)  A state government. 
C)  The Securities and Exchange Commission. 
D)  The stockholders of the corporation. 
A)  The federal government. 
B)  A state government. 
C)  The Securities and Exchange Commission. 
D)  The stockholders of the corporation.

Question 14

The adjusting entry to record income taxes in an unprofitable period would debit Income Tax Payable and credit Income Tax Expense.

Accepted Answer

A) True 
 B)False

Question 15

When deciding the form of organization of a new business the factors to consider would be all of the following except:

Accepted Answer

A)  The need to raise large amounts of capital. 
B)  The need for continuity in business operations. 
C)  The potential profits of the organization. 
D)  The personal liabilities of the owners. 
A)  The need to raise large amounts of capital. 
B)  The need for continuity in business operations. 
C)  The potential profits of the organization. 
D)  The personal liabilities of the owners.

Question 16

Stockholders of an S corporation pay taxes on their share of the corporate net income whether they receive it or not.

Accepted Answer

A) True 
 B)False

Question 17

Salary allowances to partners when dividing net income:

Accepted Answer

A)  Are not expenses of the business. 
B)  Do not get recorded. 
C)  Are recorded. 
D)  Are not accounted for. 
A)  Are not expenses of the business. 
B)  Do not get recorded. 
C)  Are recorded. 
D)  Are not accounted for.

Question 18

X Corporation had a net income of $375,000 in 2011. The Board of Directors declared a dividend of $0.25 a share on the 150,000 shares outstanding on December 13 to be paid on December 23. Retained earnings on January 01, 2012 were $630,000.
(a) Prepare the journal entries for the declaration of the dividends and for the payment of these dividends.
(b) Prepare the Retained Earnings Statement at the end of 2011.

Accepted Answer

The answer of X Corporation had a net income of...

Question 19

The Board of Directors of a corporation:

Accepted Answer

A)  Are not responsible for hiring other professional managers. 
B)  Do not decide whether profits will be distributed to stockholders. 
C)  Make major policy decisions. 
D)  Are members of a government agency. 
A)  Are not responsible for hiring other professional managers. 
B)  Do not decide whether profits will be distributed to stockholders. 
C)  Make major policy decisions. 
D)  Are members of a government agency.

Question 20

A corporation, as well as a partnership, must file a corporate income tax return and pay tax on its earnings.

Accepted Answer

A) True 
 B)False

Exam 28: Forms of Business Organization

When evaluating the liquidity of a proprietorship, creditors will likely base their decision on:

A corporation is a legal entity that may enter into contracts, may sue or be sued, and is responsible for its own debts.

Regardless of whether partners in a partnership work in the company, each partner is allocated an equal share of profits.

Assets contributed to a partnership by a partner would be recorded at:

Retained earnings are a fund of cash the business has earned from profitable operations.

Which of the following is a characteristic of a corporation?

The net income of a sole proprietorship should compensate the owner for all of the following except:

A partnership has a limited life and each partner has unlimited personal liability.

John's Metalworks Incorporated recently issued 10,000 shares of stock in exchange for $100,000. Metalworks' journal entry to record this transaction included:

When a corporation receives cash or other assets from its owners in a sale of capital stock, it records these investment transactions by crediting Retained Earnings.

An S corporation must have a maximum of ____ stockholders.

In order to form a corporation, the corporation must obtain a charter from:

The adjusting entry to record income taxes in an unprofitable period would debit Income Tax Payable and credit Income Tax Expense.

When deciding the form of organization of a new business the factors to consider would be all of the following except:

Stockholders of an S corporation pay taxes on their share of the corporate net income whether they receive it or not.

Salary allowances to partners when dividing net income:

The Board of Directors of a corporation:

A corporation, as well as a partnership, must file a corporate income tax return and pay tax on its earnings.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

The Time Value of Money: Future Amounts and Present Values Answer Key

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