Exam 8: Proprietorships, partnerships, and Corporations

Ease of transferability of ownership is one of the important advantages of the corporate form of business organization.

On January 1,2012,the organizers of the Parsons Corporation obtained their charter and issued 10,000 shares of $1 par common stock for $4 per share.During 2012,the corporation earned $30,000 in cash revenue and paid $20,000 in cash expenses,not including income tax.The income tax rate was 30%,and the company's income tax expense was $3,000.The company declared and paid cash dividends totaling $2,000.Using the above information,prepare an income statement and a balance sheet for the Parsons Corporation.

The book value of a share of stock is generally approximately equal to the market or selling price of the stock.

Corey and Malinda started a partnership on January 1,2012.Corey invested $25,000 in the business,and Malinda invested $20,000.The partnership agreement stated that profits would be divided between the partners based on their initial investment in the partnership.The business's net income for 2010 was $36,000.During the year,Corey withdrew $8,000,and Malinda withdrew $6,000.The balances in the partners' accounts at the end of 2012 were

Double taxation is a significant disadvantage of the partnership form of business organization.

Describe how the following transactions affect the balance sheet,income statement,and statement of cash flows of Askins,Inc.: a)On 2/1/12,Askins purchased for cash,in the open market,1,000 shares of its own common stock at $40 per share. b)On 7/1/12,200 of the shares purchased on 2/1/12 were sold at $43 per share.

Explain any differences in recording the initial issue of stock for a)par-value,b)stated-value,and c)no-par common stock.

When the Common Stock account is disclosed on the balance sheet,it is reported at the ________ of the common stock.

On June 10,2012 Thetford Builders,Inc.,a publicly traded company,announced that it had been awarded a contract to build a football stadium at a contract price of $500 million.This contract would increase its projected revenues by 25% over the next three years.Which of the following statements is correct in regards to this announcement?

A corporation should recognize losses but not gains related to treasury stock transactions.

Mitchell Company was authorized to issue 50,000 shares of common stock.The company issued 27,000 shares of stock and later purchased 5,000 shares of treasury stock.The number of outstanding shares of common stock is:

Which of the following statements is a reason why a company would buy treasury stock?

Preferred stockholders' claims to a corporation's assets take precedence over the claims of some creditors in the event of liquidation of the corporation.

Allen Corporation was organized on July 15,2012.It was authorized to issue 150,000 shares of $25 par value common stock and 50,000 shares of 6% cumulative preferred stock.The preferred stock had a stated value of $50 per share.The following stock transactions relate to Allen Corporation. Issued 55,000 shares of common stock for $33 per share. Issued 2,750 shares of the class A preferred stock for $62 per share. Issued 27,500 shares of common stock for $35 per share. Required: a)Indicate the effect of each of these transactions on Allen's financial statements.Include dollar amounts in the model,below.After recording the three transactions,calculate column totals. b)After these transactions have been recorded,what is the total amount of stockholders' equity? c)After these transactions have been recorded,how many shares of common stock are outstanding?

The executives that manage a corporation on a daily business are hired by the company's stockholders.

The difference between the corporate form of business organization and other forms is most clearly shown in which of the following sections of the financial statements?

Austin Corporation was authorized to issue 100,000 shares of $10 par common stock.During 2012 Austin issued 30,000 shares at a market price of $15 per share.On December 1,2012,Austin declared a cash dividend of $2 per share payable on December 30 to stockholders of record as of December 15. Required: a)Indicate effect on financial statements on the date of declaration,date of record,and date of payment of the cash dividends.Use the model below. b)What kind of transaction is the declaration of a cash dividend? c)What kind of transaction is the payment of a cash dividend?

What effect will payment of the dividend on May 1 have on Garrison's financial statements?

On what date do dividends become a legal liability of a corporation?

A corporation's board of directors declares a dividend to common shareholders.This dividend consists of a specified amount of additional shares of common.This is what type of transaction?