Download Chapter 11 Objective Questions - Garnet Valley School District

Chapter 11 Objective Questions
True/False
Indicate whether the statement is true or false.
____
1. Since stock is frequently traded on stock exchanges, corporations do not need to keep track of who owns the
stock.
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2. Subscriptions Receivable is listed in the Current Assets section of the balance sheet.
____
3. The first step in forming a corporation is depositing money in the corporation's checking account to pay
expenses such as legal fees and filing costs.
____
4. A corporation is obligated to pay a dividend when it has been declared by the board of directors.
____
5. Owners of corporations elect a board of directors to conduct the day-to-day management of the business.
____
6. In the United States, the offering, buying, and selling of stock is regulated by the Securities and Exchange
Commission (SEC).
____
7. Preferred stock derives its name from the fact that preferred stockholders get the first right to vote in all
matters of business that come before the stockholders.
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8. As payments are received on stock subscriptions, the corresponding portion of the capital stock is issued to
the investor.
____
9. The portion of net income that a business retains may be used to finance future business expansion and
improvement.
____ 10. As an investor, you must own the stock on the date of record to receive a dividend declared by the
corporation.
____ 11. Total shares of ownership in a corporation are known as common stock.
____ 12. When dividends are paid, most corporations issue a separate check to each investor.
____ 13. Since the incorporators are the investors forming the corporation, a separate capital account is maintained for
each of these stockholders.
____ 14. The common stock dividend rate may be less than, equal to, or more than the preferred dividend rate.
____ 15. Sharing in the earnings of a corporation is a right of stockholders that is exercised when the stock is sold.
____ 16. Preferred stockholders are guaranteed to receive their dividend each year, while common stockholders are
only entitled to receive dividends when a dividend has been declared by the board of directors.
____ 17. No transaction is recorded in the accounting records on the date of record for dividends.
____ 18. When a corporation earns a profit, it is required to distribute a portion of the earnings to the stockholders.
____ 19. When dividends are declared, the journal entry credits Dividends Payable, a liability account.
____ 20. A corporation maintains a separate record of its net income and its issued capital stock by recording net
income in the capital account Retained Earnings.
____ 21. When a corporation has issued both preferred and common stock, the dividend to be paid on the common
shares is calculated before the dividend to be paid on the preferred shares.
____ 22. Corporations may issue two basic kinds of stock: common and preferred.
____ 23. Paid-in capital appears in the Stockholders' Equity section of the balance sheet.
____ 24. A special checking account is often used to deposit the money to be used to pay the dividends.
____ 25. If a corporation issues only one type of stock, it is known as common stock.
____ 26. Stock Subscribed–Common is classified as an Current Asset on the corporation's balance sheet.
____ 27. The three important dates connected with paying a dividend, in their order of occurrence are date of
declaration, date of payment, and date of record.
____ 28. Corporations may contract with investors to sell capital stock with payment to be received at a later date.
____ 29. All corporations are incorporated by the federal government in the United States.
____ 30. When one investor sells his or her stock to another investor, no entry is made in the accounting records of the
corporation.
____ 31. A board of directors determines corporate policies.
____ 32. A board of directors handles day-to-day management.
____ 33. One preference usually given to preferred stockholders is the right to vote at stockholder meetings.
____ 34. A corporation, by law, must issue one type of stock, either common or preferred.
____ 35. Stated value is similar to par value in that both must be printed on stock certificates.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 36. Assets of a nonphysical nature that have value for a business are ____.
a. difficult to value
c. intangible assets
b. goodwill assets
d. long-term capital assets
____ 37. When a common stock subscription has been fully paid, the account credited to record the issuance of the
stock is ____.
a. Capital Stock–Common
c. Subscriptions Receivable
b. Paid-In Capital–Common
d. Stock Subscribed–Common
____ 38. The group of persons elected by the stockholders to manage a corporation is called a(n) ____.
a. board of directors
c. management team
b. intangible resource
d. stock market
____ 39. A person or business who handles the details of issuing and transferring stock certificates is known as a ____.
a. bank agent
c. stock trader
b. stock broker
d. transfer agent
____ 40. A share of stock that has no authorized value printed on the stock certificate is called ____.
a. authorized-value stock
c. par-value stock
b. no-par value stock
d. stated-value stock
____ 41. A value assigned to a share of stock and printed on the stock certificate is the ____.
a. assigned value
c. par value
b. market price
d. stated value
____ 42. The date that determines which stockholders are to receive dividends is known as the ____.
a. date of declaration
c. date of obligation
b. date of payment
d. date of record
____ 43. The approved articles of incorporation are called the ____.
____ 44.
____ 45.
____ 46.
____ 47.
____ 48.
____ 49.
____ 50.
____ 51.
____ 52.
____ 53.
____ 54.
____ 55.
____ 56.
____ 57.
a. authorization directive
c. incorporation document
b. charter
d. permission to begin operations
On the date of record, Ryan Corp. has 1,000 shares of 10%, $100.00 par-value preferred stock and 100,000
shares of $1.00 par-value common stock outstanding. The declared amount of the dividend is $40,000.00. The
amount of dividend available to common stockholders is ____.
a. $10,000.00
c. $30,000.00
b. $20,000.00
d. $40,000.00
Fees and other expenses of organizing a corporation are called ____.
a. application fees
c. corporate organization fees
b. attorney fees
d. organization costs
A written application requesting permission to form a corporation is called the ____.
a. application for incorporation
c. charter
b. articles of corporation
d. stock certificate
On the date of record, Natural Essence Co. has 2,000 shares of 9%, $100.00 par-value preferred stock and
10,000 shares of $10.00 par-value common stock outstanding. The declared amount of the dividend is
$25,000.00. The total dividend to be paid on the preferred stock is ____.
a. $18,000.00
c. $10,000.00
b. $20,000.00
d. $7,000.00
Entering into an agreement with a corporation to buy capital stock and pay at a later date is known as ____.
a. buying stock on credit
c. subscribing for capital stock
b. buy-now, pay-later
d. trading stock
Written evidence of the number of shares that each stockholder owns in a corporation is called a(n) ____.
a. articles of ownership
c. preferred stock offering
b. charter
d. stock certificate
The date on which a board of directors votes to distribute a dividend is called the ____.
a. date of declaration
c. date of obligation
b. date of payment
d. date of record
An organization with the legal rights of a person and that may be owned by many persons is known as a(n)
____.
a. corporation
c. partnership
b. illegal entity
d. proprietorship
The account debited when a stock subscription for common stock is received is ____.
a. Capital Stock–Common
c. Subscriptions Receivable
b. Paid-In Capital–Common
d. Stock Subscribed–Common
No-par-value stock that is assigned a value by a corporation is called ____.
a. assigned-value stock
c. assigned-no-par-value stock
b. no-par value stock
d. stated-value stock
Each unit of ownership in a corporation is known as a(n) ____.
a. stock subscription
c. ownership share
b. share of stock
d. dividend
A share of stock that has an authorized value printed on the stock certificate is called ____.
a. authorized-value stock
c. par-value stock
b. no-par value stock
d. stated-value stock
Usually one of the incorporators agrees to pay organization costs until ____.
a. the corporation's charter is granted
c. all stock is subscribed
b. all outstanding stock is paid for
d. the corporation hires employees
Recording organization costs initially as an intangible asset and then charging a portion each year as an
expense is an application of the accounting concept ____.
a. Materiality
c. Matching Expenses with Revenue
b. Historical Cost
d. Business Entity
____ 58. No-par-value stock that is assigned a value by the corporation is called ____.
a. par-value stock
c. no-par value stock with a price
b. stated value stock
d. outstanding stock
____ 59. Action by the board of directors to distribute corporate earnings to stockholders is called ____.
a. declaring a dividend
c. distributing retained earnings
b. liquidation
d. realization
____ 60. The entry to issue stock certificates to a subscriber for common stock is a ____.
a. debit to Capital Stock–Common and a credit to Stock Subscribed–Common
b. debit to Stock Subscribed–Common and a credit to Capital Stock–Common
c. debit to Stock Subscribed–Common and a credit to Subscriptions Receivable–Common
d. debit to Subscriptions Receivable–Common and a credit to Stock Subscribed–Common