2014 Pearson Canada Inc.

151 © 2014 Pearson Canada Inc.Accounting, Vol. 2, 9e Cdn. Ed. (Horngren)

Chapter 13 Corporations: Share Capital and the Balance Sheet

Objective 13-1 1) A corporation is a separate legal entity apart from its owners.

Answer: TRUE

Diff: 1 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

2) Shareholders in a corporation are personally liable for the debts of the corporation.

Answer: FALSE

Diff: 1 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

3) All shares issued by a corporation have voting rights.

Answer: FALSE

Diff: 1 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

4) Double taxation refers to the fact that a corporation pays tax on its taxable earnings and the shareholder also pays personal tax on all of the corporation's taxable income.

Answer: FALSE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

5) It is easier to achieve continuous life using the corporate structure for an organization.

Answer: TRUE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Comprehension

Objective: 13-1 Identify the characteristics of a corporation

6) Unlimited liability is one of the advantages of the corporate structure for an organization.

Answer: FALSE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

Accounting Volume 2 Canadian 9th Edition Horngren Test Bank Visit TestBankDeal.com to get complete for all chapters

152 © 2014 Pearson Canada Inc.7) Mutual agency is one of the disadvantages of the corporate structure for an organization.

Answer: FALSE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

8) The most that a shareholder can lose on an investment in a corporation's shares is the cost of the investment.

Answer: TRUE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

9) Corporations pay the same taxes as partnerships and proprietorships.

Answer: FALSE

Diff: 1 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

10) Retained earnings is debited to transfer net income to the retained earnings account during the closing process.

Answer: FALSE

Diff: 2 Type: TF Learning Outcome: A-14 Apply basic accounting methods to record and evaluate share transactions, cash and stock dividends, and stock splits

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

11) Retained earnings represents investments by the shareholders of the corporation.

Answer: FALSE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

12) A debit balance in retained earnings is referred to as a deficit.

Answer: TRUE

Diff: 1 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

13) The policy-making body of a corporation is called the board of directors.

Answer: TRUE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

153 © 2014 Pearson Canada Inc.14) Corporate bylaws are established by provincial governments to regulate company operations in the interest of the public.

Answer: FALSE

Diff: 2 Type: TF Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

15) The document(s) used by a government to grant permission to form a corporation is called (a):

• proxy
• articles of incorporation
• share certificate
• bylaw agreement

Answer: B

Diff: 1 Type: MC

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

16) All of the following represent advantages of corporations over other business entities except:

• unlimited shareholders' liability
• continuity of existence
• separate legal entity
• ease of transferring ownership

Answer: A

Diff: 2 Type: MC Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

17) Which of the following statements describing a corporation is true?

• Shareholders are the creditors of a corporation.
• Shareholders own the business and manage its day-to-day operations.
• A corporation is subject to greater governmental regulation than a proprietorship or a partnership.
• When ownership of a corporation changes, the corporation terminates.

Answer: C

Diff: 2 Type: MC Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

18) Which of the following forms of business organizations is a distinct legal entity?

• partnership
• corporation
• proprietorship
• only proprietorship and partnership

Answer: B

Diff: 1 Type: MC Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

154 © 2014 Pearson Canada Inc.

19) Shareholders' liability for corporation debts is generally limited to:

• the cost of their investment
• the market value of the shares
• the par value of the shares
• total shareholders' equity

Answer: A

Diff: 1 Type: MC Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

20) Which of the following is a disadvantage of the corporate form of business organization?

• mutual agency
• government regulation
• limited liability
• difficulty in transferring ownership

Answer: B

Diff: 2 Type: MC Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

21) Which of the following forms of business organizations terminates when the ownership structure changes?

• corporation
• partnership
• share capital
• shareholders' equity

Answer: B

Diff: 1 Type: MC Learning Outcome: A-03 Analyze and record transactions and their effect on the financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation

22) Share capital represents:

• investments by the creditors of a corporation
• capital that the corporation has earned through profitable operations
• investments by the shareholders of a corporation
• retained earnings

Answer: C

Diff: 1 Type: MC Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements

Skill: Knowledge

Objective: 13-1 Identify the characteristics of a corporation