Question

21.

Which of the following is not a characteristic of a corporation?

Corporations are required to file federal income tax returns.

The financial loss that a stockholder may suffer from owning stock in a public company is limited.

A corporation can own property in its name.

Cash dividends paid by a corporation are deductible as expenses by the corporation.

22.

Those most responsible for the major policy decisions of a corporation are the

a. board of directors.

b. employees.

c. management.

d. stockholders.

23.

Which of the following is not true of a corporation?

It may sue and be sued.

It may buy, own, and sell property.

The acts of its owners bind the corporation.

It may enter into binding legal contracts in its own name.

24.

Stockholders' equity

a. includes retained earnings and paid-in capital.

b. is usually equal to cash on hand.

c. is shown on the income statement.

d. includes paid-in capital and liabilities.

25.

Nebraska Inc. issues 3,000 shares of common stock for $45,000. The stock has a stated value of $10 per share. The journal entry to record the stock issuance would include a credit to Common Stock for

$45,000

$30,000

$3,000

$15,000

26.

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?

30,000

40,000

50,000

10,000

27.

Par value

a. represents what a share of stock is worth.

b. is established for a share of stock after it is issued.

c. represents the original selling price for a share of stock.

d. is the monetary value assigned per share in the corporate charter.

28.

The Sneed Corporation issues 10,000 shares of $50 par preferred stock for cash at $75 per share. The entry to record the transaction will consist of a debit to Cash for $750,000 and a credit or credits to

a. Paid-In Capital from Preferred Stock for $750,000.

b. Preferred Stock for $500,000 and Paid-In Capital in Excess of Par—Preferred Stock for $250,000.

c. Preferred Stock for $500,000 and Retained Earnings for $250,000.

d. Preferred Stock for $750,000.

29.

What is the total stockholders' equity based on the following account balances?

Common Stock	$375,000
Paid-In Capital in Excess of Par	90,000
Retained Earnings	190,000
Treasury Stock	15,000

$565,000

$670,000

$655,000

$640,000

30.

Significant changes in stockholders' equity are reported in

a. retained earnings statement.

b. statement of cash flows.

c. statement of stockholders' equity.

d. income statement.

Answer 1

21) Correct Option- Cash dividends paid by a corporation are deductible as expenses by the corporation.

Reason- Cash dividends paid by the corporation is treated as part of shareholder's equity.

22) Correct option- Board of Directors are most responsible for the major policy decisions of a corporation.

Reason- Board of directors are responsible to take major decision regarding the corporation on behalf of their shareholders to maximize their interests.

23) Correct option- The acts of its owners bind the corporation.

Reason- It is not a characteristics of corporation as The act of its Directors bind the corporation.

24) Correct Option- Shareholder's equity includes retained earnings and paid-in capital.

Reason- The owners funds (equity include paid up capital as well as money retained by the company for future use)

25) Since the stock has stated value of $10 per share and 3000 shares of common stock was issued therefore in the journal record 10*3000= $30000 will be recorded for issuance of common stock by the company. Rest $15000 will be recorded as premium charged on common stock.

26) Total number of shares outstanding will be 30000 shares as out of 40000 shares originally issued, 10000 shares were reacquired during the year hence 30000 shares are outstanding.

27) Correct Option- Par value is the monetary value assigned per share in the corporate charter. It represents monetary value assigned to company's stock. It can vary company to company.

28) Correct option- Preferred Stock for $500,000 and Paid-In Capital in Excess of Par—Preferred Stock for $250,000. as $25 per share is the premium charged on 10000 shares and $50 per share is the par value hence preferred stock will amount to $500,000

29) Correct option is $640,000. The Total Shareholder's equity recorded in the balance sheet will be equal to Common Stock+ Retained Earnings+ Paid in Capital Excess of Par - Treasury stock)

i.e. 375000+ 90000+190000- 15000 = $640,000

30) Correct option - statement of stockholders' equity. All the significant changes in the shareholder's equity are recorded in statement of stockholder's equity. Moreover if there are cash inflows or cash outflow then it may also be recorded in the cash flow statement under cash flow from financing activities only when there are cash transactions.