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TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)Reporting procedures are the same for private and public corporations.
Answer:True False
2)A limited liability company is a corporation for professionals such as lawyers and accountants.
Answer:True False
3)A corporation is a legal entity separate from its owners.
Answer:True False
4)Corporations can be either public or limited.
Answer:True False
5)A privately held corporation has a limited life because it is tied to the physical lives of its owners.
Answer:True False
6)Shares are attractive to investors because shareholders are not liable for the corporation's actions and debts and because shares are easily transferred.
Answer:True False
7)The income of a corporation is taxed twice, first as corporate income and then as personal income to shareholders who receive cash dividends.
Answer:True False
8)Authorized shares are the total number of shares outstanding.
Answer:True False
9)Organization costs may be paid for by giving shares to promoters of a corporation in exchange for their services in organizing the corporation.
Answer:True False
10)An underwriter keeps shareholder records and prepares official lists of shareholders and dividend payments.
Answer:True False
11)The statement of changes in equity for a corporation shows both how retained earnings and share capital have changed during the accounting period.
Answer:True False
12)Profits or losses are recorded in a share capital account.
Answer:True False
13)The equity of a corporation changes because of profits or losses, distributions of incomes (dividends) and shareholder investments.
Answer:True False
1 Fundamental Accounting Principles Volume 2 Canadian 15th Edition Larson Test Bank Visit TestBankDeal.com to get complete for all chapters
14)Income tax expense is recorded with the operating expenses on the income statement for a corporation.
Answer:True False
15)The equity section of a corporation's balance sheet is called Corporation Equity.
Answer:True False
16)The two main areas of the equity section of a corporation's balance sheet are share capital and retained earnings.
Answer:True False
17)The equity section for the single proprietorship can be called owner's equity because the equity belongs to the owner. The equity section for a corporation can be called shareholders' equity because the equity belongs to a group of owners known as shareholders.
Answer:True False
18)Whether a business is organized as a corporation or as a proprietorship, the profit reported on the income statement will be the same.
Answer:True False
19)The main differences between profit reported by a proprietorship and a corporation are income tax expense and salaries paid to owners.
Answer:True False
20)When a corporation sells shares directly, it pays a brokerage house to issue the shares.
Answer:True False
21)A corporation can issue two general types of shares: common and preferred.
Answer:True False
22)Common shares usually carry a preference for dividends.
Answer:True False
23)Special rights for preferred shares may include a preference in receiving dividends and in the distribution of assets if the corporation is liquidated.
Answer:True False
24)One of the preference rights for preferred shares is the right to vote.
Answer:True False
25)If a corporation is authorized to issue 1,000 preferred shares, which have a current market value of $80 per share, it has $80,000 worth of shares outstanding.
Answer:True False
26)Shares are most commonly issued for cash.
Answer:True False
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27)If shares are issued for non-cash assets, the assets are always recorded at the current market value of the shares.
Answer:True False
28)Whenever the dividend rate on preferred shares is higher than the rate the corporation earns on its assets, the effect of issuing preferred shares is to increase the dividend rate earned by common shareholders.
Answer:True False
29)Corporations issue preferred shares in order to raise capital without sacrificing control of the corporation and to increase the return earned by common shareholders.
Answer:True False
30)The use of preferred shares to increase return to common shareholders is an example of financial leverage.
Answer:True False
31)When preferred shares are issued, this will always cause an increase in the future return to common shareholders.
Answer:True False
32)Preferred shares are seen by some investors as being less risky and having a greater dividend rate than common shares.
Answer:True False
33)When issuing shares, the initial investment is credited to Retained Earnings.
Answer:True False
34)When issuing common shares, the initial investment is credited to Common Shares.
Answer:True False
35)Dividends represent the distribution of profits to the shareholders of a corporation.
Answer:True False
36)Dividends represent the distribution of profits to the managers of a corporation.
Answer:True False
37)The shareholders can vote to pay themselves a dividend.
Answer:True False
38)The liability for preferred dividends declared is recorded on the date of record.
Answer:True False
39)The date of record is the date the directors vote to pay a dividend to shareholders.
Answer:True False
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40)The declaration of cash dividends reduces retained earnings.
Answer:True False
41)Cumulative preferred shares carry the right to be paid both current and all prior periods' unpaid dividends before any dividends are paid to common shareholders.
Answer:True False
42)Unpaid preferred dividends are called dividends in arrears.
Answer:True False
43)Callable preferred shares give the shareholders the option of exchanging their preferred shares into common shares at a specified rate.
Answer:True False
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.44)Dillon Snowboards Ltd issued 60 no-par-value common shares for $10,000. The amount of
contributed capital arising from this transaction is:
A)$6,000. B)$100. C)$600. D)$10,000. E)$1,000.
Answer:D
45)Quality Cleaning Corp. issued 50 no-par-value common shares for land with a market value of $4,000. Dillon had originally issued common shares at $100 two years ago, but there is currently no market value available for their shares. The amount of contributed capital arising from this
transaction is:
A)$1,000. B)$4,000. C)$6,000. D)$600. E)$100.
Answer:B
46)Dallas Sports Ltd has 100 shares of $15, noncumulative, preferred shares outstanding, and $160,000 of common shares outstanding. In the company's first year of operation, no dividends were paid, but during the second year Dallas Sports paid dividends of $24,000. The dividend should be distributed
as follows:
A)$3,000 preferred; $21,000 common.B)$7,000 preferred; $7,000 common.C)$1,400 preferred; $12,600 common.D)$1,500 preferred; $22,500 common.E)$12,000 preferred; $12,000 common.
Answer:D
47)Zach Sports Ltd has 1,000 shares of $5.50, cumulative preferred shares and 10,000 common shares issued and outstanding. In the previous year (which was the first year of operations), the company paid total dividends of $1,000. The amount that must be paid to the preferred shareholders in the
current year before any dividend is paid to common shareholders is:
A)$3,500. B)$12,000. C)$10,000. D)$1,000. E)$4,500.
Answer:C
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