Question

True or False? Corporations

1_____ Shareholders’ equity for a corporation consists of contributed capital and retained earnings.

2_____ The owner of a corporation is called a director.

3_____ The payment of business profits to the owners of a corporate business is known as drawings.

4_____ A dividend is a distribution of retained earnings.

5_____ The shareholders provide all of the financing for a corporation

6_____ One of the advantages of investing in preferred shares is that you will always be paid your dividend.

7_____ The members of the Board of Directors are elected by the owners of the corporation: that is, by the common and preferred shareholders.

8_____ Both interest to the creditors and dividends to the preferred shareholders must be paid each year.

9_____ A corporation is discontinued if the only shareholder dies.

10_____ The market price of common shares is shown on the balance sheet.

11_____ If a corporation goes bankrupt, the common shareholders are required to pay the creditors from their own resources.

12_____ In a year of huge profits, the preferred shareholders can expect higher than normal dividends.

13_____ The balance in retained earnings represents the cumulative earnings of a company since its inception, less the total dividends paid out.

14_____ The main goal of a responsible financial manager is high profits.

Answer 1

1_____ Shareholders’ equity for a corporation consists of contributed capital and retained earnings.
TRUE . This is beacuse shareholder's funds on the balance sheet are the sum of the equity share capital provided by them to the corporation and the profits earned by the corporate in the due course of the business and any other extra-ordinary incomes.
Shareholder's equity can also reduce in case the corporation incurs any losses in unfortunate circumstances as just like profits earned, losses incurred are also added to the corporations shareholder's equity, thus reducing the shareholder's equity.

2_____ The owner of a corporation is called a director.
FALSE. This is because it is not necessary that an owner of the corporation will necessarily be a director. He might or might not be a director of the corporation. Generally, shareholders of the organizatioon are called the Owners of the corporation. Director is a person appointed for taking crucial decisions, monitoring and implementing the strategic course of actions for the corporation, and is responsible for day to day business of the organizations.
Therefore, a director may also be the owner in case he owns the shares of the corporation also. Elsewise, he might just be seen as an agent of the actual owners (shareholders) for the corporation to carry out business of the company .

3_____ The payment of business profits to the owners of a corporate business is known as drawings.
FALSE. Payment of business profits to the owners i.e. the sharehodlers of a corporate business is called dividend.  
However, if there is a sole proprietorship or the owner of the business withdraws money from the business for his/her personal use, it is called drawings from the business.

4_____ A dividend is a distribution of retained earnings.
FALSE. Net Profit After Tax for any corporation can be divided into two components: dividends paid to its shareholder's and retained earnings (which are then shown as the part of shareholder's equity). Thus, dividend is the part of the net profit earned by the corporation and not the retained earnings.
Infact, in other words, profit not retained is divided amongst the shareholders and vice versa.
Net profit = Dividends Paid + Retained Earnings