Question 1

When the issuing corporation retains the right to repurchase shares of preferred stock at a specified price, the preferred stock is said to be:

Accepted Answer

A) callable. 
B) convertible. 
C) participating. 
D) nonparticipating.

Question 2

Assets acquired through the issuance of stock are recorded at their historical cost.

Accepted Answer

A) True 
 B)False

Question 3

A corporation has 2,000 shares of 10 percent, $50 par-value preferred stock and 20,000 shares of $5 par-value common stock outstanding. If the board of the directors declares dividends totaling $80,000, the common stockholders will receive a dividend of:

Accepted Answer

A) $3.50 a share. 
B) $7.50 a share. 
C) $8.00 a share. 
D) $10.00 a share.

Question 4

On July 1, 2019, Abbott Corporation received a subscription from Brad Jones for 1,200 shares of its $1 par-value common stock at a price of $20 a share. Jones made a payment of $10 per share on the stock at the time of the subscription. Record the receipt of the subscription and the cash payment on page 1 of a general journal. Then, using the same page of the general journal, record the payment of the balance of Jones' subscription and issuance of the stock on August 1, 2019. Omit the descriptions.

Accepted Answer

The answer of On July 1, 2019, Abbott Corporation received...

Question 5

The entry to record the issuance of 2,000 shares of $1 par-value common stock for $8 a share consists of a debit to Cash for $16,000 and:

Accepted Answer

A) a credit to Common Stock for $2,000 and a credit to Paid-in Capital in Excess of Par Value
-Common Stock for $14,000. 
B) a credit to Common Stock for $2,000 and a credit to Gain on Sale of Common Stock for
$14,000. 
C) a credit to Common Stock for $14,000 and a credit to Treasury Stock for $2,000. 
D) a credit to Common Stock for $16,000

Question 6

The stockholders' ledger for a class of stock is a subsidiary ledger, and the total shares shown in the subsidiary ledger must agree with the number of shares in the capital stock account for that class.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is not correct?

Accepted Answer

A) The Paid-in Capital in Excess of Par Value-Common Stock account appears in the Stockholders' Equity section of the balance sheet. 
B) The Subscriptions Receivable account is shown in the Stockholders' Equity section of the balance sheet. 
C) The balance of the Common Stock account appears in the Stockholders' Equity section of the balance sheet. 
D) The balance of the Preferred Stock account appears in the Stockholders' Equity section of the balance sheet.

Question 8

The Mayfair Corporation was organized on August 1, 2019. The firm is authorized to issue 80,000 shares of no-par-value common stock with a stated value of $20 per share and 20,000 shares of $50 par-value, 12 percent preferred stock. Record the selected transactions on page 1 of a general journal. Omit descriptions.
Aug. 1 Issued 600 shares of common stock to Justin Baker for $20 a share.
1 Issued 450 shares of preferred stock to Austin Moore at par value.
6 Issued 300 shares of common stock to Mandie Brown for $24 a share.
10 Received a subscription for 800 shares of preferred stock from Lauren Durio for
$55 a share, payable in two installments due on the 15th and 31st of August.
15 Received payment of stock subscription installment due from Lauren Durio (one-half of the purchase price).
31 Received the balance due on the stock subscription of August 10 from Lauren Durio. Issued the stock.

Accepted Answer

The answer of The Mayfair Corporation was organized on August...

Question 9

Stocks may have a(n)--------- , or stated value.

Accepted Answer

The answer of Stocks may have a(n)--------- , or stated...

Question 10

Common Stock Subscribed is an equity account.

Accepted Answer

A) True 
 B)False

Question 11

Organization costs are carried indefinitely as an intangible asset in the records of the corporation.

Accepted Answer

A) True 
 B)False

Question 12

Cary Company, a newly organized corporation, received a bill from its lawyers for $7,500 for time spent in organizing the company.
1. How should these costs be treated for federal income tax purposes?
2. How should they be treated in the company's financial statements?

Accepted Answer

The answer of Cary Company, a newly organized corporation, received...

Question 13

Match the accounting terms with the description by entering the proper letter in the space provided.
A. Authorized capital stock R. No-par-value stock
B. Bylaws S. Organization costs
C. Callable preferred stock T. Par value
D. Capital stock ledger U. Participating preferred stock
E. Capital stock transfer journal V. Preemptive right
F. Common stock W. Preference dividend
G. Convertible preferred stock X. Preferred stock
H. Corporate charter Y. Registrar
I. Cumulative preferred stock Z. Shareholder
J. Dividends AA. Stated value
K. Limited liability company (LLC)BB. Stock certificate
L. Limited liability partnership (LLP)CC. Stockholders' equity
M. Liquidation value DD. Stockholders' ledger
N. Market value EE. Subchapter S corporation (S)
O. Minute book FF. Subscribers' ledger
P. Noncumulative preferred stock GG. Subscription book
Q. Nonparticipating preferred stock HH. Transfer agent
1. A subsidiary ledger that contains an account receivable for each stock subscriber
2. Preferred stock that conveys the right to convert that stock to common stock after a specified date or during a period of time
3. A basic or stated dividend rate for preferred stock that must be paid before dividends can be paid on common stock
4. Stock that conveys to its owners the right to only the preference dividend amount specified o the stock certificate
5. A person or institution that handles all stock transfers and transfer records for a corporation
6. The costs associated with establishing a corporation
7. A document issued by a state government that establishes a corporation
8. An amount assigned by the corporate charter to each share of stock for accounting purposes
9. Stock that conveys the right not only to the preference dividend amount but also to a share o other dividends paid
10. A list of the stock subscriptions received
11. A shareholder's right to purchase a proportionate amount of any new stock issued at a later date
12. Stock that conveys to its owners the right to receive the preference dividend for the current year and any prior years in which the preference dividend was not paid before common stockholders receive any dividends
13. Distributions of the profits of a corporation to its shareholders
14. Provides limited liability to the owners, who can elect to have the profits taxed at the corporate level or on their individual tax returns
15. The guidelines for conducting a corporation's business affairs
16. The general class of stock issued when no other class of stock is authorized; each share carries the same rights and privileges as every other share.
17. The number of shares authorized for issue by the corporate charter
18. A partnership that provides limited liability for all partners
19. Stock that gives the issuing corporation the right to repurchase the preferred shares from th stockholders at a specific price
20. Stock that is not assigned a par value in the corporate charter
21. A class of stock that has special claims on the corporate profits or, in case of liquidation, on corporate assets
22. A person or institution in charge of the issuance and transfer of a corporation's stock
23. A person who owns shares of stock in a corporation; also called a stockholder
24. The corporate equivalent of owners' equity; also called shareholders' equity
25. The form by which capital stock is issued; this document indicates the name of the
corporation, the name of the stockholder , the class of stock, and the number of shares to be transferred to the new owner.
26. The value that can be assigned to no-par-value stock by a board of directors for accounting purposes
27. A record of stock transfers used for posting to the stockholders' ledger
28. Value of assets to be applied to preferred stock, usually par value or an amount in excess of par value, if the corporation is liquidated
29. The price per share at which stock is bought and sold
30. A subsidiary ledger that contains a record of each stockholder's purchases, transfers, and current balance of shares owned; also called stockholders' ledger
31. Another term for capital stock ledger
32. A book in which accurate and complete records of all meetings of stockholders and director are kept
33. Stock that conveys to its owners the stated preference dividend for the current year but no rights to dividends for years in which none were declared
34. An entity formed as a corporation that meets the requirements of Subchapter S of the Intern Revenue Code to be treated essentially as a partnership, so that the corporation pays no income tax

Accepted Answer

The answer of Match the accounting terms with the description...

Question 14

The entry to record the issuance of 600 shares of $2 par-value common stock for $10 a share consists of a debit to Cash for $6,000 and:

Accepted Answer

A) a credit to Common Stock for $4,000 and a debit to Treasury Stock for $2,000. 
B) a credit to Common Stock for $4,800 and a credit to Paid-in Capital in Excess of Par Value
-Common Stock for $1,200. 
C) a credit to Common Stock for $1,200 and a credit to Gain on Sale of Common Stock for
$4,800. 
D) a credit to Common Stock for $1,200 and a credit to Paid-in Capital in Excess of Par Value
-Common Stock for $4,800.

Question 15

An investor agrees to pay a preferred stock subscription in two monthly installments. Each collection will include a debit to Cash and a credit to:

Accepted Answer

A) Preferred Stock Subscribed. 
B) Preferred Stock. 
C) Subscriptions Receivable-Preferred. 
D) Common Stock Subscribed.

Question 16

Which of the following statements is correct?

Accepted Answer

A) Shareholders have personal liability for a corporation's debts. 
B) Shareholders must obtain the consent of other shareholders to sell their shares or buy more shares. 
C) Limited liability partnership (LLP)partners have liability for their own actions and the actions of those under their control or supervision. 
D) Shareholders are legally prohibited from acting as an officer or employee of a corporation.

Question 17

The Preferred Stock account is shown in the:

Accepted Answer

A) Stockholders' Equity section of the balance sheet. 
B) Long-Term Liabilities section of the balance sheet. 
C) Current Liabilities section of the balance sheet. 
D) Assets section of the balance sheet.

Question 18

Santorini Corporation has outstanding 300,000 shares of $70 par-value preferred stock, issued at an average price of $84 a share. The preferred stock is convertible into common stock at the rate of four shares of common stock for each share of preferred stock. Maryann Miller owns 925 shares of the preferred stock. During the current year she decides to convert 250 shares into common stock. How many shares of common stock will she receive?

Accepted Answer

The answer of Santorini Corporation has outstanding 300,000 shares of...

Question 19

Chicagoland Landscape Company, a newly organized corporation, received a bill from its lawyers for $10,000 for time spent in organizing the company.
1. How should these costs be treated in the company's accounting records? Why?
2. How should they be treated for federal income tax purposes?

Accepted Answer

The answer of Chicagoland Landscape Company, a newly organized corporation,...

Question 20

The outstanding stock of Adam Baum Company is composed of 25,000 shares of $100 par, 2%, cumulative preferred stock and 200,000 shares of $5 par common stock. Dividends have not been paid for the current year or the previous year. If $180,000 is to be distributed as dividends for the current year, what total amount will be distributed to the preferred stockholders?

Accepted Answer

A) $200,000. 
B) $100,000 
C) $50,000. 
D) $80,000.

Exam 20: Corporations: Formation and Capital Stock Transactions

When the issuing corporation retains the right to repurchase shares of preferred stock at a specified price, the preferred stock is said to be:

Assets acquired through the issuance of stock are recorded at their historical cost.

A corporation has 2,000 shares of 10 percent, $50 par-value preferred stock and 20,000 shares of $5 par-value common stock outstanding. If the board of the directors declares dividends totaling $80,000, the common stockholders will receive a dividend of:

The entry to record the issuance of 2,000 shares of $1 par-value common stock for $8 a share consists of a debit to Cash for $16,000 and:

The stockholders' ledger for a class of stock is a subsidiary ledger, and the total shares shown in the subsidiary ledger must agree with the number of shares in the capital stock account for that class.

Which of the following statements is not correct?

Stocks may have a(n)--------- , or stated value.

Common Stock Subscribed is an equity account.

Organization costs are carried indefinitely as an intangible asset in the records of the corporation.

Cary Company, a newly organized corporation, received a bill from its lawyers for $7,500 for time spent in organizing the company. 1. How should these costs be treated for federal income tax purposes? 2. How should they be treated in the company's financial statements?

The entry to record the issuance of 600 shares of $2 par-value common stock for $10 a share consists of a debit to Cash for $6,000 and:

An investor agrees to pay a preferred stock subscription in two monthly installments. Each collection will include a debit to Cash and a credit to:

Which of the following statements is correct?

The Preferred Stock account is shown in the:

Chicagoland Landscape Company, a newly organized corporation, received a bill from its lawyers for $10,000 for time spent in organizing the company. 1. How should these costs be treated in the company's accounting records? Why? 2. How should they be treated for federal income tax purposes?