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:
Here are the correct answers and explanations for each of the questions:
1. Which of the following is NOT a characteristic of a corporation?
- a. Unlimited liability of stockholders
- Explanation: This is NOT a characteristic of a corporation. In a corporation, stockholders (shareholders) enjoy limited liability, meaning they are not personally responsible for the debts or liabilities of the corporation. Their liability is limited to the amount they have invested in the company. The other options are characteristics of corporations:
- b. Transferable ownership rights: The ownership of a corporation can be transferred easily through the buying and selling of stock.
- c. Continuous life: A corporation continues to exist even if ownership changes or shareholders die.
- d. Separate legal existence: A corporation is a separate legal entity from its shareholders, meaning it can own property, enter into contracts, and sue or be sued in its own name.
9. In what state are the majority of US companies incorporated?
- c. Delaware
- Explanation: The majority of US companies, particularly large corporations, are incorporated in Delaware. Delaware is known for its business-friendly laws, including flexible corporate structures and a well-established body of corporate case law. It also has a specialized court, the Delaware Court of Chancery, which is well-known for resolving corporate disputes quickly and efficiently.
10. What is a preemptive right?
- b. Ability to keep the same percentage ownership when new shares of stock are issued
- Explanation: A preemptive right allows existing shareholders to maintain their proportionate ownership in the company by purchasing additional shares before the company offers them to the public. This ensures that their percentage of ownership does not get diluted when new shares are issued.
11. A company’s own stock that has been issued and repurchased is called:
- d. Treasury stock
- Explanation: Treasury stock refers to shares that were previously issued to shareholders but have been bought back by the corporation. These shares are held by the company itself and are not considered when calculating earnings per share or dividends. Treasury stock can be reissued or retired at a later date.
12. On this date related to dividends, no journal entry is required:
- b. Record date
- Explanation: The record date is the date on which the company determines which shareholders are eligible to receive the dividend. No journal entry is required on the record date because it is merely a date for determining eligibility, not a transaction. The journal entries related to dividends typically occur on the declaration date (when the dividend is announced) and the payment date (when the dividend is paid).
