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Exam 8: Proprietorships, Partnerships, and Corporations

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Question 41

Multiple Choice

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On March 1, Year 1, Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value, 6% preferred stock. The dividend will be paid on May 1, Year 1 to the stockholders of record as of April 1, Year 1. Which of the following reflects the financial statement effects on the May 1, Year 1 date of payment?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

E) A) and B)
F) None of the above

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Question 42

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A partner is responsible for his/her own actions, but not for actions taken by another partner on behalf of the partnership.

A) True
B) False

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Question 43

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On February 2, Year 1, the Farmer Corporation issued 9,000 shares of no-par stock for $17 per share. The next day, the stock's price jumped on the New York Stock Exchange to $21 per share. Which of the following answers describes the effect of the February 2, Year 1 transaction?

Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances: On December 31, Year 1, Gilligan decides to issue a 5% stock dividend. At the time of issue, the market price of the stock was $22 per share. What is the dollar value of the stock dividend issued by Gilligan Corporation?

On June 10, Year 1, Burton Builders, Inc., a publicly traded company, announced that it had been awarded a contract to build a football stadium at a contract price of $500 million. This contract would increase its projected revenues by 20% over the next three years. Which of the following statements is correct with regard to this announcement?

At the end of the accounting period, Houston Company had $12,000 of par value common stock issued, additional paid-in capital in excess of par value - common of $11,000, retained earnings of $12,000, and $4,000 of treasury stock. The total amount of stockholders' equity is:

Indicate whether each of the following statements about treasury stock is true or false. _____ a) One reason for a corporation to buy its own stock is to boost its net income when treasury stock is reissued for a higher price. _____ b) Corporations may buy back their own stock (treasury stock) to avoid hostile takeovers. _____ c) Purchasing treasury stock reduces the number of issued shares. _____ d) The treasury stock account is classified as a negative equity account.

Lack of ease in transferability of ownership is one of the important disadvantages of the corporate form of business organization.

Indicate whether each of the following statements is true or false. _____ a) Double taxation refers to the fact that both a partnership and its partners must pay income tax on the earnings of the partnership. _____ b) A sole proprietorship is an accounting entity separate from its owner. _____ c) Limited liability is a benefit to both corporations and partnerships, but not to sole proprietorships. _____ d) Unlike a partnership, a corporation is not terminated when a major stockholder withdraws his or her investment. _____ e) Sole proprietorships are, generally, subject to fewer governmental regulations than corporations.

A reason often given for a corporate stock split is to:

Which of the following statements best describes the term "par value?"

Which form of business organization is established as a legal entity separate from its owners?

Llewelyn Company purchased 1,000 shares of its own $10 par value common stock when the market price of the stock was $36 per share. How would this event affect the company's financial statements?

Which of the following statements is a reason why a company would buy treasury stock?

A purchase of treasury stock is an asset use transaction.

Montana Company was authorized to issue 200,000 shares of common stock. The company had issued 50,000 shares of stock when it purchased 10,000 shares of treasury stock. The number of outstanding shares of common stock was:

A distribution by a sole proprietorship to the owner is called a withdrawal.

A corporation is a legal entity created by the authority of a state government, separate and distinct from its owners.

On January 12, Year 1, Gilliam Corporation issued 550 shares of $12 par-value common stock for $15 per share. The number of shares authorized is 5,000, and the number of shares outstanding prior to this transaction is 1,200. Which of the following answers describes the effect of the January 12, Year 1 transaction?

On September 1, Year 1, Orville Corporation has unrestricted Retained Earnings of $600,000, Appropriated Retained Earnings of $400,000, Cash of $850,000, and Accounts Payable of $50,000. What is the maximum amount that can be used for cash dividends?