Question 1

The corporate form of organization offers which of the following disadvantages?

Accepted Answer

A)   dissolution upon the death of a stockholder
B)   attorney's fees
C)   limited life
D)   unlimited liabilityE) C) and D)
F) All of the above

Question 2

The price at which a share of capital stock may be purchased or sold at a given time is called its

Accepted Answer

A)   market value.
B)   par value.
C)   stated value.
D)   book value.E) A) and B)
F) A) and C)

Question 3

The stockholders elect a board of directors and the board determines corporate policies and selects the corporate officers.

Accepted Answer

A) True 
 B)False

Question 4

One of the major advantages of the corporate form of ownership is the relaxation of governmental regulations.

Accepted Answer

A) True 
 B)False

Question 5

A subscription for 4,000 shares of $10 par value common stock was accepted. Upon receipt of the balance owed on the stock subscription, a stock certificate was issued to the subscriber. The journal entry to issue the stock certificate would include a debit to

Accepted Answer

A)   Common Stock, $40,000.
B)   Common Stock, $20,000.
C)   Common Stock Subscribed, $40,000.
D)   Common Stock Subscribed, $20,000.E) C) and D)
F) A) and B)

Question 6

Stated value is a value assigned to each share by the corporate president and printed on the stock certificate.

Accepted Answer

A) True 
 B)False

Question 7

Limited liability of the owners means that the stockholders of a corporation share a personal liability for all debts of the corporation.

Accepted Answer

A) True 
 B)False

Question 8

If shares of preferred stock are sold at par value for cash, the transaction would be entered by

Accepted Answer

A)   debiting Cash and crediting Preferred Stock.
B)   debiting Preferred Stock and crediting Cash.
C)   debiting Preferred Stock Subscriptions Receivable and crediting Preferred Stock.
D)   debiting Preferred Stock Subscribed and crediting Preferred Stock.E) C) and D)
F) A) and D)

Question 9

Match the terms with the definitions.
-Preferred stock on which the dividends are limited to the stated dividend rate.

Accepted Answer

A)  preemptive right
B)  participating preferred stock
C)  par value
D)  capital stock
E)  organization costsF) charterG) common stockH) nonparticipating preferred stockI) noncumulative preferred stockJ) no-par stockK) incorporatorsL) issued stockM) market valueN) mutual agencyO) C) and I)
P) A) and D)

Question 10

Treasury Stock is a company investment in its own stock and is reported as an asset.

Accepted Answer

A) True 
 B)False

Question 11

Corporations rarely issue stock at a discount because firms generally set very low par values and the practice is even illegal in many states.

Accepted Answer

A) True 
 B)False

Question 12

The officers of the corporation generally manage the business and are responsible to the board of directors.

Accepted Answer

A) True 
 B)False

Question 13

Treasury stock is classified as a(n)

Accepted Answer

A)   asset.
B)   contra-asset.
C)   stockholders' equity account.
D)   contra-stockholders' equity account.E) All of the above
F) B) and D)

Question 14

Preferred stock that is given a right to share with the common stock in dividends in excess of a stated dividend rate is said to be

Accepted Answer

A)   participating.
B)   nonparticipating.
C)   cumulative.
D)   noncumulative.E) B) and C)
F) None of the above

Question 15

If shares of stock are sold or exchanged for more than par value, the excess is called

Accepted Answer

A)   a discount.
B)   a gain.
C)   a premium.
D)   earnings.E) C) and D)
F) None of the above

Question 16

Match the terms with the definitions.
-An agreement in which a buyer contracts to buy shares of a corporation at a specific price.

Accepted Answer

A)  authorized stock
B)  board of directors
C)  bylaws
D)  premium
E)  capital stock subscriptionF) preferred stockG) paid-in capitalH) cumulative preferred stockI) dividendsJ) double taxationK) outstanding stockL) no-par stockM) A) and I)
N) A) and D)

Question 17

Withdrawals in a sole proprietorship or partnership are equivalent to which of the following in a corporation?

Accepted Answer

A)   net income
B)   dividends
C)   salaries
D)   retained earningsE) A) and B)
F) None of the above

Question 18

When a corporation issues stock for noncash assets, it records the transaction at the fair market value of the assets or of the stock, whichever can be more clearly determined.

Accepted Answer

A) True 
 B)False

Question 19

A company receives a subscription for 4,000 shares of $1 par value common stock at $10 per share. The journal entry for this transaction would include a debit to

Accepted Answer

A)   Common Stock Subscriptions Receivable, $40,000.
B)   Common Stock Subscribed, $40,000.
C)   Common Stock, $40,000.
D)   Premium on Common Stock, $40,000.E) B) and D)
F) A) and B)

Question 20

Usually, any stockholder can transfer stock to another person without the knowledge or the consent of the other stockholders, as long as they have received permission from the corporation.

Accepted Answer

A) True 
 B)False

Exam 20: Corporations: Organization and Capital Stocks

If shares of stock are sold or exchanged for more than par value, the excess is called

Correct AnswerverifiedShow Answer

A subscription for 4,000 shares of $10 par value common stock was accepted. Upon receipt of the balance owed on the stock subscription, a stock certificate was issued to the subscriber. The journal entry to issue the stock certificate would include a debit to

Correct AnswerverifiedShow Answer

If shares of preferred stock are sold at par value for cash, the transaction would be entered by

Correct AnswerverifiedShow Answer

Preferred stock that is given a right to share with the common stock in dividends in excess of a stated dividend rate is said to be

Correct AnswerverifiedShow Answer

Treasury Stock is a company investment in its own stock and is reported as an asset.

Correct AnswerverifiedShow Answer

Withdrawals in a sole proprietorship or partnership are equivalent to which of the following in a corporation?

Correct AnswerverifiedShow Answer

Stated value is a value assigned to each share by the corporate president and printed on the stock certificate.

Correct AnswerverifiedShow Answer

The price at which a share of capital stock may be purchased or sold at a given time is called its

Correct AnswerverifiedShow Answer

The officers of the corporation generally manage the business and are responsible to the board of directors.

Correct AnswerverifiedShow Answer

The corporate form of organization offers which of the following disadvantages?

Correct AnswerverifiedShow Answer

Match the terms with the definitions. -An agreement in which a buyer contracts to buy shares of a corporation at a specific price.

Correct AnswerverifiedShow Answer

The stockholders elect a board of directors and the board determines corporate policies and selects the corporate officers.

Correct AnswerverifiedShow Answer

Usually, any stockholder can transfer stock to another person without the knowledge or the consent of the other stockholders, as long as they have received permission from the corporation.

Correct AnswerverifiedShow Answer

Treasury stock is classified as a(n)

Correct AnswerverifiedShow Answer

Match the terms with the definitions. -Preferred stock on which the dividends are limited to the stated dividend rate.

Correct AnswerverifiedShow Answer

One of the major advantages of the corporate form of ownership is the relaxation of governmental regulations.

Correct AnswerverifiedShow Answer

A company receives a subscription for 4,000 shares of $1 par value common stock at $10 per share. The journal entry for this transaction would include a debit to

Correct AnswerverifiedShow Answer

When a corporation issues stock for noncash assets, it records the transaction at the fair market value of the assets or of the stock, whichever can be more clearly determined.

Correct AnswerverifiedShow Answer

Limited liability of the owners means that the stockholders of a corporation share a personal liability for all debts of the corporation.

Correct AnswerverifiedShow Answer

Corporations rarely issue stock at a discount because firms generally set very low par values and the practice is even illegal in many states.

Correct AnswerverifiedShow Answer

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