corporations test1 pt 2

Question 1

Advantages of Corporations: (5)

Answer 1

Separate legal existence.

Continuous life (separate from owners).

Raising capital through stock sales.

Transferable ownership (through stock markets).

Limited liability for stockholders.

Question 2

Disadvantages of Corporations: (3)

Answer 2

owner is separate from management (sometimes not aligned with shareholders’ interests).

Double taxation on corporate earnings and dividends.

Regulatory costs (e.g., Sarbanes-Oxley Act).

Question 3

Forming a Corporation:(4)

Answer 3

“application of incorporation” with the state.

“charter or articles of incorporation.”

“Bylaws” are established for corporate operations.

“Costs”

Question 4

Retained Earnings:
Net income _____ retained earnings.
Net loss and dividends _______ retained earnings.

Answer 4

increases
decrease

Question 5

Closing Entries:

Answer 5

Close revenue to income summary

Close individual expenses to income summary

Transfer Income summary (net income/loss) to Retained Earnings.

Transfer the dividends to Retained Earnings.

Question 6

Retained Earnings normally have a _____balance unless there’s accumulated net losses (called a _____).

Retained earnings do NOT represent cash, as cash is used in operations.

Answer 6

credit
deficit

cash

Question 7

Document ownership and may include par value or no-par stock.

Answer 7

Stock Certificates

Question 8

the minimum paid-in capital required by some states for creditor protection.

Answer 8

Legal capital

Question 9

Types of Stock:

_________- Regular ownership, equal rights per share.
__________- Has preference rights, like priority in dividends. Can be cumulative or noncumulative.

Answer 9

Common Stock:

Preferred Stock:

Question 10

If stock is issued above par value, it’s sold at a _________

If stock is issued below par value, it’s sold at a_________

If issued for assets like land or equipment, the ________ of the assets is recorded.

Answer 10

premium

discount.

fair market value