Chapter 13: Accounting for Corporations

Question 1

What are the two types of corporations?

Answer 1

Privately held, does not offer its stock for public sale and usually has few stockholders.

Publicly held, corporation offers its stock for public sale and can have thousands of stockholders.

Question 2

Does a preference for dividends ensure dividends?

Answer 2

No. If the directors do not declare a dividend, neither the preferred nor the common stockholders receive one.

Question 3

Roger owns 100 shares of $10 par, 5% noncumulative preferred stock. There are no dividends declared or paid. What is Roger entitled to?

Answer 3

$0

Question 4

Tyler issues 100 shares of $10 par value preferred stock for $5,000 cash. How do you record this entry

Answer 4

credit; $1,000, because 100 x $10 par value. excess would be credited to Paid-In Capital account.

Question 5

Preferred stock usually carries a preference for dividends, meaning that…

Answer 5

dividends are allocated to preferred shareholders before they are issued to common shareholders.

Question 6

_______ preferred stock confers no right to prior period unpaid dividends.

Answer 6

Noncumulative.

Question 7

Max issues 100 shares of $1 par value preferred stock for $3,000 cash. How would this be recorded?

Answer 7

Credit, $100

Question 8

Stockholders’ equity, reported on the balance sheet, consists of which of the following accounts?

Answer 8

Paid-In Capital and Retained Earnings.

Question 9

Anchor authorizes a $.50 cash dividend to its $100,000 shares of common stock issued and outstanding. What would be the journal entry?

Answer 9

Debit, Common Dividend Payable

Credit, Cash

Question 10

What are the disadvantages of the corporate form of business?

Answer 10

Government regulation and corporate taxation.

Question 11

John agrees to contribute equipment with a fair market value of $5,000 in exchange for 100 shares of Rio Inc.’s common stock with a par value of $1 per share, How is this recorded

Answer 11

Paid-In Capital in excess of par value and common stock

Question 12

Niren authorizes $1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this will incude a _____ to Common stock, $1 par for $____.

Answer 12

credit, $100.

Question 13

Rank the following groups with highest to lowest

board of directors
employees
stockholders
president, vp, other officers

Answer 13

Stockholders
Board of Directors
President, Vp. Officers
Employees

Question 14

What are the three important dates when the board of directors authorizes a cash dividend?

Answer 14

date of declaration
date of record
date of payment

Question 15

Advantages of a Corporation

Answer 15

limited liability, ease of capital accumulation, transfer rights, and lack of mutual agency. continuous life.

Question 16

________ value stock is no-par stock to which the directors assigned a certain value per share, This value becomes the minimum legal capital per share in this case,

Answer 16

Stated.

Question 17

The ____ value per share is the price at which a stock is bought and sold.

Answer 17

market.

Question 18

A small stock dividend is a distribution of ___% or less of previously outstanding shares.

Answer 18

25%

Question 19

What is a contra equity account?

Answer 19

treasury stock

Question 20

____stock is the number of shares that a corporation’s charter allows it to sell. The number of these shares usually exceeds the number of shares issued (and outstanding), often by a large amount.

Answer 20

Authorized.

Question 21

____Value stock is stock not assigned a value per share by the corporate charter. Its advantage is that it can be issued at any price without the possibility of a minimum legal capital.

Answer 21

No-par.

Question 22

____ _____ is an account that consists of a company’s cumulative net income less any losses and dividends declared since its inception.

Answer 22

retained earnings.

Question 23

stockholders’ equity reported on the balance sheet consists of which of the following accounts?

Answer 23

Retained earnings, paid-in capital.