MCQs_Company Shares

August 11th, 2017

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The stockholders of a corporation have unlimited liability.

True

False

Which of these is not a major advantage of a corporation?

A.	Separate legal existence

B.	Continuous life

C.	Government regulations

D.	Transferable ownership rights

Which one of the following is a major disadvantage of a corporation?

A.	Limited liability of stockholders

B.	Additional taxes

C.	Transferable ownership rights

D.	Limited life

Which of the following is not a characteristic of a corporation?

A.	Separate legal existence

B.	Unlimited liability for stockholders

C.	Easy transfer of ownership interests

D.	Ability to acquire capital easily

Which of the following is a disadvantage of the corporate business form?

A.	No income taxes

B.	Government regulation

C.	Continuous life

D.	Easy acquisition of capital

Which of the following is not a stockholder’s right?

A.	The preemptive right

B.	The right to share in dividends

C.	The right to vote in the election for the board of directors

D.	The right to participate in management decisions

Ernest, an individual, receives $100 from Vernon Corp. in dividends and is in the 28% tax bracket. Vernon Corp. already paid corporate taxes on the $100 at a 20% tax rate. How much in personal taxes will Ernest need to pay?

$28

$20

The par value of corporate shares issued represents a corporation’s legal capital.

True

False

Which of these statements is false?

A.	Ownership of common stock gives the owner a voting right.

B.	The stockholders’ equity section begins with paid-in capital amounts.

C.	The authorization of capital stock does not result in a formal accounting entry.

D.	Legal capital is intended to protect stockholders.

10.

If a corporation issues 1,000 shares of $3 par common stock for $7 a share, how much is the legal capital?

$7,000

$3,000

$4,000

11.

Which of the following represents the amount per share of stock that must be retained in the business for the protection of corporate creditors?

A.	Legal capital

Par value

C.	Market value

D.	Stated value

12.

Which of the following represents the maximum number of shares a corporation can issue?

A.	Outstanding shares

B.	Issued shares

C.	Authorized shares

D.	Treasury shares

13.

DT Inc. issued 3,000 shares of $5 par value common stock for $6 per share. Which of the following is one part of the journal entry to record the issuance?

A.	Debit to Paid-in Capital in Excess of Par Value for $3,000

B.	Debit to Cash for $15,000

C.	Credit to Common Stock for $15,000

D.	Credit to Common Stock for $18,000

14.

Wynola, Inc. issued 1,000 shares of common stock at $10 per share. If the stock has a par value of $4 per share, which of the following will be part of the journal entry to record the issuance?

A.	Credit to Common Stock for $4,000

B.	Debit to Cash for $4,000

C.	Credit to Paid-in Capital in Excess of Par Value for $10,000

D.	Debit to Retained Earnings for $6,000

15.

Harrison, Inc. issued 4,000 shares of common stock at $12 per share. If the stock has a par value of $0.50 per share, which of the following will be part of the journal entry to record the issuance?

A.	Credit to Common Stock for $2,000

B.	Debit to Cash for $4,000

C.	Credit to Paid-in Capital in Excess of Par Value for $48,000

D.	Debit to Retained Earnings for $46,000

16.

Harrison, Inc. issued 600 shares of common stock at $10 per share. If the stock was no-par value stock, which of the following will be part of the journal entry to record the issuance?

A.	Debit to Cash for $600

B.	Credit to Paid-in Capital in Excess of Par for $600

C.	Credit to Common Stock for $6,000

D.	Debit to Paid-in Capital $6,000

17.

The 13th Street Grill issued 10,000 of $1 par value common stock for $5 per share. Which of the following will be part of the journal entry to record the issuance?

A.	A debit of $10,000 to Common Stock

B.	A debit of $50,000 to Common Stock

C.	A credit of $10,000 to Common Stock

D.	A credit of $50,000 to Common Stock

18.

Dynatech issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, which accounts are credited?

A.	Common Stock $10,000 and Gain on Stock Sale $2,000

B.	Common Stock $12,000

C.	Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000

D.	Common Stock $10,000 and Retained Earnings $2,000

19.

When treasury stock is purchased, the number of outstanding shares decreases.

True

False

20.

For what reason might a company acquire treasury stock?

A.	To reissue the shares to officers and employees under bonus and stock compensation plans

B.	To signal to the stock market that management believes the stock is overpriced

C.	To increase profit

D.	To increase the number of shares of stock outstanding

21.

Which one of the following decreases when a corporation purchases treasury stock?

A.	Authorized shares

B.	Issued shares

C.	Treasury shares

D.	Outstanding shares

22.

What method is normally used to account for treasury stock?

A.	Stated value method

B.	Legal value method

C.	Par value method

D.	Cost method

23.

If 1,000 shares of $5 par common stock are reacquired by a corporation for $12 a share, by how much will total stockholders’ equity be reduced?

$5,000

$12,000

$7,000

24.

A corporation sold 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited to record the repurchase of the 100 shares?

A.	Common Stock for $1,200

B.	Treasury Stock for $1,200

C.	Treasury Stock for $200

D.	Cash for $1,200

25.

Which of the following increases when a corporation purchases treasury stock?

A.	Number of shares authorized

B.	Number of shares issued

C.	Number of treasury shares

D.	Number of outstanding shares

26.

A cumulative dividend feature means that preferred stockholders must be paid only current-year dividends before common stockholders receive dividends.

True

False

27.

Dividends in arrears are reported as a current liability on the balance sheet.

True

False

28.

A corporation has cumulative preferred stock on which it pays dividends of $20,000 per year. The dividends are in arrears for two years. If the corporation plans to distribute $90,000 as dividends in the current year, how much will the common stockholders receive?

$20,000

$30,000

$40,000

$60,000

29.

Which one of the following statements is incorrect?

A.	Dividends cannot be paid on common stock while any dividend on preferred stock is in arrears.

B.	Dividends in arrears on preferred are not considered a liability.

C.	Dividends may be paid on common stock while dividends are in arrears on preferred stock.

D.	When preferred stock is noncumulative, any dividend passed in a year is lost forever.

30.

Which one of the following is nota right of preferred stockholders?

A.	Priority in relation to dividends

B.	Priority voting rights

C.	Priority to the assets in the event of liquidation

D.	Priority to dividends, assets and voting rights.

31.

Which of the following is a feature associated only with preferred stock?

A.	Dividend preference

B.	Preference to assets in the event of liquidation

C.	Cumulative dividends

D.	All of the answer choices are correct

32.

M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2014. No dividends were declared in 2012 or 2013. If M-Bot wants to pay $375,000 of dividends in 2014, how much will common stockholders receive?

$295,000

$215,000

$135,000

33.

How are dividends in arrears reported in the financial statements?