Which of the following is NOT a characteristic of a corporation? a. Unlimited liability of stockholders b. Transferable ownership rights c. Continuous life d. Separate legal existence 9. In what state are the majority of US companies incorporated? a. Georgia b. Washington c. Delaware d. California 10. What is a preemptive right? a. Ability to vote in an election of board of directors b. Ability to keep the same percentage ownership when new shares of stock are issued c. Ability to receive dividends before common shareholders d. Ability to share in assets upon liquidation of a company in proportion to an individual’s holdings/ownership 11. A company’s own stock that has been issued and required is called a. Repurchased stock b. Repossessed stock c. Contra-common stock d. Treasury stock 12. On this date related to dividends, no journal entry is required. a. Declaration date b. Record date c. Payment date d. All of the above require a journal entry
The Correct Answer and Explanation is:
Let’s break this down:
- Which of the following is NOT a characteristic of a corporation?
- Answer: a. Unlimited liability of stockholders
- Explanation: One of the defining characteristics of a corporation is that stockholders have limited liability, meaning their personal assets are not at risk for the debts and obligations of the corporation. The other options — transferable ownership rights, continuous life, and separate legal existence — are typical features of a corporation.
- In what state are the majority of US companies incorporated?
- Answer: c. Delaware
- Explanation: Delaware is known for its business-friendly laws, especially regarding corporate governance and taxes. Because of this, most large and even small corporations choose to incorporate in Delaware. Delaware offers advantages like a well-established legal framework for business disputes, minimal state taxes, and flexible laws.
- What is a preemptive right?
- Answer: b. Ability to keep the same percentage ownership when new shares of stock are issued
- Explanation: A preemptive right gives existing shareholders the opportunity to maintain their proportionate ownership in a company when it issues additional shares. Without this right, new shares could dilute the value of the existing shares by reducing their percentage of ownership in the company.
- A company’s own stock that has been issued and repurchased is called:
- Answer: d. Treasury stock
- Explanation: Treasury stock refers to shares that were once issued and outstanding but have been repurchased by the corporation. These shares are essentially held in the company’s treasury and can be reissued or canceled.
- On this date related to dividends, no journal entry is required:
- Answer: b. Record date
- Explanation: The record date is simply the date that determines which shareholders are entitled to receive the dividend. No journal entry is required on this date. However, the declaration date requires a journal entry to record the liability for the dividend, and the payment date involves another journal entry to record the disbursement of funds.
In summary:
- The characteristic that’s not true about a corporation is unlimited liability of stockholders.
- Delaware is the state most companies incorporate in due to its favorable business laws.
- Preemptive rights allow shareholders to maintain their ownership percentage.
- Treasury stock refers to repurchased shares.
- No journal entry is required on the record date for dividends.
