Chapter 13

Question 1

A business organized under state
law that is a separate legal entity

Answer 1

Corporation

Question 2

Name 4 advantages of a corporation

Answer 2

1. They raise more money
2. Has continuous life
3. The transfer of corporate ownership is easy
4. Limited liability for owners

Question 3

Name 4 disadvantages of corporations

Answer 3

1. Ownership and management are separate
2. The earning of a corporation may be subject to double taxation
3. Government regulation is expensive
4. Start-up costs are higher than other business forms

Question 4

The maximum number of shares
of stock that the corporate charter
allows the corporation to issue.

Answer 4

Authorized Stock

Question 5

Stock that has been issued but may
or may not be held by stockholders.

Answer 5

Issued Stock

Question 6

Paper evidence of ownership in a
corporation.

Answer 6

Stock Certificate

Question 7

Represents the individual’s
ownership of the corporation’s
capital.

Answer 7

Capital Stock

Question 8

Issued stock in the hands of
stockholders

Answer 8

Outstanding Stock

Question 9

Stockholder’s right to maintain their
proportionate ownership in the
corporation.

Answer 9

Preemptive Right

Question 10

4 stock holder rights

Answer 10

1. Vote
2. Dividends
3. Liquidation
4. Preemptive right

Question 11

is an amount assigned by a company to a share of its stock. Has no relation to the market value, which is the price at which the stock is bought and sold

Answer 11

Par value

Question 12

No-par stock that has been assigned
an amount similar to par value.

Answer 12

Stated Value Stock

Question 13

A corporation’s equity that includes
paid-in capital and retained earning

Answer 13

Stockholders’ Equity

Question 14

Represents amounts received from
the stockholders of a corporation in
exchange for stock.

Answer 14

Paid-in-capital

Question 15

Equity earned by profitable
operations of a corporation that is
not distributed to stockholders.

Answer 15

Retained Earnings

Question 16

The amount that the corporation
receives from issuing stock.

Answer 16

Issue Price

Question 17

Represents amounts received from
stockholders in excess of par value

Answer 17

Paid-in Capital in excess of par

Question 18

The portion of stockholders’ equity
that cannot be used for dividends.

Answer 18

Legal Dividends

Question 19

A preferred stock dividend is in
arrears if the dividend has not been
paid for the year and the preferred
stock is cumulative

Answer 19

Dividend in Arrears

Question 20

Preferred stock whose owners must
receive all dividends in arrears plus
the current year dividend before the
corporation pays dividends to the
common stockholders.

Answer 20

Cumulative preferred Stock

Question 21

Preferred stock whose owners do
not receive passed dividends.

Answer 21

Noncumulative preferred stock

Question 22

A distribution by a corporation of its
own stock to its stockholders.

Answer 22

Stock dividends

Question 23

Amount of a company’s net
income (loss) for each share of its
outstanding common stock. (Net
incomePreferreddividends)/ −
Weightedaveragenumberof
common shares outstanding.

Answer 23

Earnings per share

Question 24

Restriction of a portion of retained
earnings that is recorded by a
journal entry.

Answer 24

appropriations of retained earnings

Question 25

How is EPS calculated

Answer 25

net income - preferred dividends / weighted average number of common shares outstanding

Question 26

is the ratio of the market price of a share of common stock to the company’s earnings per share.

Answer 26

price/earnings ratio
= market price of common stock/EPS