Chapter 13: Corporations Flashcards
Which of the following is NOT a major advantage of a corporate form of organization?
(a) Separate legal existence.
(b) Continuous life.
(c) Government regulations.
(d) Transferable ownership rights.
(c) Government regulations are a disadvantage of a corporation.
A major disadvantage of a corporation is:
(a) limited liability of stockholders.
(b) additional taxes.
(c) transferable ownership rights.
(d) separate legal existence.
(b) Additional taxes are a disadvantage of a corporation.
Costs incurred in the formation of a corporation:
(a) do not include legal fees.
(b) are expensed as incurred.
(c) are recorded as an asset.
(d) provide future benefits whose amounts and timing are easily determined.
(b) Costs incurred in the formation of a corporation are expensed as incurred.
Which of the following statements is false?
(a) Ownership of common stock gives the owner a
voting right.
(b) The stockholders’ equity section begins with paid-in
capital.
(c) The authorization of capital stock does not result in a formal accounting entry.
(d) Legal capital per share applies to par value stock but not to no-par value stock.
(d) Legal capital per share applies to both par value stock and no-par value stock. Many states no longer require a par value and therefore use other means to determine legal capital.
Total stockholders’ equity (in the absence of treasury stock) equals:
(a) Total paid-in capital + Retained earnings.
(b) Paid-in capital + Capital stock + Retained earnings.
(c) Capital stock + Additional paid-in capital - Retained earnings.
(d) Common stock + Retained earnings.
(a) Total stockholders’ equity = Total paid-in capital + Retained earnings.
The account Retained Earnings is:
(a) a subdivision of paid-in capital.
(b) net income retained in the corporation.
(c) reported as an expense in the income statement.
(d) closed to capital stock.
(b) Retained Earnings is net income retained in the corporation.
A-Team Corporation issued 1,000 shares of $5 par value stock for land. The stock is actively traded at $9 per share. The land was advertised for sale at $10,500. The land should be recorded at: (a) $4,000. (b) $5,000. (c) $9,000. (d) $10,500.
(c) Cost is either the fair value of the consideration given up or the fair value of the consideration received, whichever is more clearly determinable. The most clearly determinable value in this noncash transaction is the fair value of the consideration given up of $9,000 ($9 per share * 1,000).
ABC Corporation issues 1,000 shares of $10 par value common stock at $13 per share. In recording the transaction, credits are made to:
(a) Common Stock $10,000 and Paid-in Capital in
Excess of Stated Value $3,000.
(b) Common Stock $13,000.
(c) Common Stock $10,000 and Paid-in Capital in
Excess of Par $3,000.
(d) Common Stock $10,000 and Retained Earnings
$3,000.
(c) Common Stock should be credited for $10,000 and Paid-in Capital in Excess of Par should be credited for $3,000. The stock is par value stock, not stated value stock, and this excess is contributed, not earned, capital.
Lucroy Corporation issues 100 shares of $10 par value
preferred stock at $12 per share. In recording the transaction, credits are made to:
(a) Preferred Stock $1,200.
(b) Preferred Stock $1,000 and Retained Earnings
$200.
(c) Preferred Stock $1,000 and Paid-in Capital in
Excess of Preferred Value $200.
(d) Preferred Stock $1,000 and Paid-in Capital in
Excess of Par—Preferred Stock $200.
(d) Preferred Stock should be credited for $1,000 and Paid-In Capital in Excess of Par-Preferred Stock should be credited for $200.
Treasury stock may be repurchased:
(a) to reissue the shares to officers and employees under bonus and stock compensation plans.
(b) to signal to the stock market that management believes the stock is underpriced.
(c) to have additional shares available for use in the acquisition of other companies.
(d) More than one of the above.
(d) Corporations repurchase treasury stock to have additional shares available for use in acquisition, to reissue shares under bonus and stock compensation plans, and to signal to the stock market that management believes the stock is underpriced. Although the other choices are true statements, choice (d) is the better answer.
XYZ, Inc. sells 100 shares of $5 par value treasury stock at $13 per share. If the cost of acquiring the shares was $10 per share, the entry for the sale should include credits to:
(a) Treasury Stock $1,000 and Paid-in Capital from
Treasury Stock $300.
(b) Treasury Stock $500 and Paid-in Capital from
Treasury Stock $800.
(c) Treasury Stock $1,000 and Retained Earnings $300. (d) Treasury Stock $500 and Paid-in Capital in Excess
of Par $800.
(a) Treasury Stock should be credited for $1,000 (100 shares * $10, the acquisition price). Paid-in Capital from Treasury Stock should be credited for the difference between the $1,000 and the cash received of $1,300 (100 shares * $13), or $300.
In the stockholders’ equity section, the cost of treasury stock is deducted from:
(a) total paid-in capital and retained earnings.
(b) retained earnings.
(c) total stockholders’ equity.
(d) common stock in paid-in capital.
(a) The cost of treasury stock is deducted from total paid-in capital and retained earnings.
Which of the following is NOT reported under additional paid-in capital?
(a) Paid-in capital in excess of par.
(b) Common stock.
(c) Paid-in capital in excess of stated value.
(d) Paid-in capital from treasury stock.
(b) Common stock is reported in the capital stock section of paid-in capital, not in the additional paid-in capital section.
In the stockholders’ equity section of the balance
sheet, common stock:
(a) is listed before preferred stock.
(b) is added to total capital stock.
(c) is part of paid-in capital.
(d) is part of additional paid-in capital.
(c) Common stock is part of paid-in capital.
