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Exam 8: Proprietorships, Partnerships, and Corporations

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Question 51

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The par value of a company's stock:

A) dictates the initial price of the stock.
B) may be revised each time a company issues more shares of stock.
C) is generally greater than market value.
D) has little connection to the market value of the stock.

E) C) and D)
F) None of the above

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Question 52

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The term "double taxation" refers to which of the following?

A) Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on their dividends.
B) In a partnership, both partners are required to claim their share of net income on their tax returns.
C) A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals.
D) A sole proprietorship must pay income taxes to both the state government and the federal government.

E) A) and B)
F) A) and D)

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Question 53

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Which of the following describes the type of management structure that is in place when board members are reluctant to fire an incompetent chief executive officer?

The number of shares of stock outstanding generally is greater than the number of shares of stock issued.

Blair Scott started a sole proprietorship by depositing $75,000 cash in a business checking account. During the accounting period the business borrowed $30,000 from a bank, earned $18,000 of net income, and Scott withdrew $12,000 cash from the business. Based on this information, at the end of the accounting period Scott's capital account contained a balance of:

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 number of shares outstanding after the stock dividend is issued?

Flagler Corporation shows a total of $660,000 in its common stock account and $1,600,000 in its paid-in capital in excess of par value - common stock account. The par value of Flagler's common stock is $8. How many shares of Flagler stock have been issued?

A corporation must record a liability for cash dividends on the date of record.

The following items appeared on the financial statements of Monroe, Inc. on December 31, Year 1: On September 10, Year 2, when the market value of the Monroe stock was $140, the company declared and distributed an 8% stock dividend. Indicate whether each of the following statements is true or false. _____ a) Retained earnings would increase by $224,000 as a result of the stock dividend. _____ b) The balance in common stock would increase by $64,000 as a result of the stock dividend. _____ c) Total paid-in capital would be $2,224,000 after the dividend had been distributed. _____ d) Total equity would not be affected by the dividend. _____ e) Cash flow from financing activities would increase by $224,000 as a result of the stock dividend.

Liability is a significant disadvantage of the partnership form of business organization.

When a corporation records a stock dividend, it decreases the retained earnings account for the par value of the stock.

In accordance with restrictive debt covenants, Maynard Company appropriated $20,000 of retained earnings. How would the appropriation affect the financial statements?

Indicate whether each of the following statements about stockholders' equity is true or false. _____ a) Preferred stockholders generally have no preference to assets when the company is liquidated. _____ b) Preferred stockholders generally have a preference to dividends. _____ c) Preferred stock carries voting rights that give the preferred stockholders greater power in the corporation's decision-making process than common stockholders have. _____ d) Preferred stockholders generally receive a set or fixed amount of dividends. _____ e) If a corporation has issued noncumulative preferred stock, common stockholders may receive greater dividends than if the corporation has issued cumulative preferred stock.

Helena Corporation declared a 2-for-1 stock split on 8,000 shares of $6 par value common stock. If the market price of the stock had been $25 a share before the split, the par value, number of shares, and approximate market value after the split would be: