final

Question 1

What is in a good partnership agreement

Answer 1

amounts to be invested
limits on withdrawals
distributions of income and losses
rules for the admission and withdrawal of partners

Question 2

separate legal entity - corporation

Answer 2

it can own property in its name, can incur its own liabilities and sell stock and is subject to taxes

Question 3

continuous life and transferability of ownership - corporation

Answer 3

stockholders own the stock of a corporation, they can buy and sell stock without affecting the corporations operations

Question 4

public corporation –

Answer 4

corporation whose shares of stock are traded in public markets

Question 5

private or nonpublic corporations –

Answer 5

coporations whose shares of stock are not trade publicly; are usually owned by a small group of investors

Question 6

corporate structure

Answer 6

stockholders appoint board of directors who select officers and other major officers to manage day-to-day addairs and the officers hire employees

Question 7

forming a corporation

Answer 7

fle an articles of incorporation with the state
state grants a charter (articles of incorporation which formally create the corporation)
corporate management and board of directors prepare a set of bylaws which are the rules and procedures for the corporations affairs

Question 8

rights of shareholders

Answer 8

o the right to vote in matters concerning the corporation
o rights to share in distributions of earnings
o the right to chare in assets upon liquidation

Question 9

par value stock –

Answer 9

a dollar amount assigned to each share of stock

Question 10

no-par stock –

Answer 10

stock issued with no par

Question 11

no par stock with stated value –

Answer 11

in some states, the board of directors is required to assign some value to no-par stock

Question 12

cumulative preferred stock –

Answer 12

stock that has a right to receive regular dividends that were not paid in prior years

Question 13

dividends in arrears –

Answer 13

cumulative preferred stock dividends that have not been paid in prior years

Question 14

legal requirements for dividends

Answer 14

o sufficient retained earnings
o sufficient cash
o formal action by the board of directors

Question 15

• how do stock dividends affect stockholder equity accounts and total stockholder’s equity

Answer 15

o they only affect stockholders equity

o the amount of the stock dividend is transferred from retained earnings to paid in capital

Question 16

• why do companies buy treasury stock

Answer 16

o to provide shares for resale to employees
o to reissue as bonuses to employees
o to support the market price of the stock

Question 17

• restrictions on retained earnings

Answer 17

o the use of retained earrnings for payment of dividends may be restricted by action of a corporations board of directors
o also called appropriations
o remain part of retained earnings
o legal – state law may require a restriction of retained earnings
o contractual – a corporation may enter into contracts that require restrictions of retained earnings
o discretionary – a corporations board of directors may restrict retained earnings voluntarily

Question 18

• how do corporations finance their operations

Answer 18

o short-term debt such as purchasing goods or services on account
o long-term debt such as issuing bonds or notes payable
o equity such as issuing common or preferred stock

Question 19

• what are the elements of a bond indenture

Answer 19

o	face amount
o	cupon rate
o	starting dates
o	interest payment dates
o	maturity dates/ term

Question 20

o term –

Answer 20

when all bonds mature at the same time

Question 21

o serial –

Answer 21

when bonds mature over several dates

Question 22

o callable –

Answer 22

bonds that can be redeemed by a corporation prior to maturity

Question 23

o convertible –

Answer 23

bonds that may be exchanged for shares of common stock

Question 24

• why are bond prices and interest payments inversely related

Answer 24

o when you purchase a bond at a discount you pay more interest because you have to pay back more than you initially received, so the interest payment is increases as the carrying amount of the bond increases by you paying on it
o when you purchase a bond at a premium you pay less interest because you have to pay back less money than you borrowed, s the interest expense decreases as the carrying amount on the bond deceases

Question 25

• Why do companies invest in the stocks and bonds of other companies?

Answer 25

o To temporarily invest idle cash
o To earn interest, dividends, and capital gains
o (For Equity Investments) to establish a long term relationship with another company by acquiring voting shares
o To gain controlling interest in another company (more than 50% ownership) in order to achieve access to greater market share; or vertical integration

Question 26

• Adjust the investment to Fair Value at the end of the year

Answer 26

o use the Valuation Allowance account, the offsetting entry is to Unrealized Gain or Loss
o included in the income statement if trading investment, included in the stockholder’s equity section of the balance sheet if it is an available for sale investment

Question 27

• trading investments –

Answer 27

debt and equity securities that are purchased to earn short term profits from changes in their market prices

Question 28

• available-for-sale investments –

Answer 28

debt and equity securities that are not held for trading, not held to maturity and not held for strategic reasons

Question 29

• line department –

Answer 29

directly involved in producing goods or services to the customers

Question 30

• staff department –

Answer 30

provides services to the departments with line or staff responsibilities

Question 31

• controller

Answer 31

chief management accountant

Question 32

• how to get gross profit percentage –

Answer 32

gross profit / sales