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ACC 255 Chp 11

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

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Limited liability of stockholders
Transferable ownership rights
Limited life
Additional taxes

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

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Unlimited liability for stockholders
Separate legal existence
Easy transfer of ownership interests
Ability to acquire capital easily

Unlimited liability for stockholders
Correct answer. Correct! Because a corporation is a separate legal entity and because of the government’s desire to protect stockholders, corporations are heavily regulated.

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

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Easy acquisition of capital
No income taxes
Government regulation
Continuous life

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

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The preemptive right
The right to share in dividends
The right to vote in the election for the board of directors
The right to participate in management decisions

The right to participate in management decisions
Which of these statements is false?

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The stockholders’ equity section begins with paid-in capital amounts.
Legal capital is intended to protect stockholders.
The authorization of capital stock does not result in a formal accounting entry.
Ownership of common stock gives the owner a voting right.

Legal capital is intended to protect stockholders.
Which of the following represents the maximum number of shares a corporation can issue?

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Treasury shares
Outstanding shares
Issued shares
Authorized shares

Authorized shares
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?

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Debit to Cash for $15,000
Debit to Paid-in Capital in Excess of Par Value for $3,000
Credit to Common Stock for $15,000
Credit to Common Stock for $18,000

Credit to Common Stock for $15,000
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?

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Debit to Cash for $4,000
Credit to Paid-in Capital in Excess of Par Value for $10,000
Debit to Retained Earnings for $6,000
Credit to Common Stock for $4,000

Credit to Common Stock for $4,000
The Streetaddress13th 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?

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A debit of $10,000 to Common Stock
A debit of $50,000 to Common Stock
A credit of $10,000 to Common Stock
A credit of $50,000 to Common Stock

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

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Common Stock $12,000
Common Stock $10,000 and Gain on Stock CityplaceSale $2,000
Common Stock $10,000 and Retained Earnings $2,000
Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000

Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000
For what reason might a company acquire treasury stock?

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To increase profit
To increase the number of shares of stock outstanding
To reissue the shares to officers and employees under bonus and stock compensation plans
To signal to the stock market that management believes the stock is overpriced

To reissue the shares to officers and employees under bonus and stock compensation plans
Which one of the following decreases when a corporation purchases treasury stock?

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Outstanding shares
Issued shares
Authorized shares
Treasury shares

Outstanding shares
What method is normally used to account for treasury stock?

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Cost method
Stated value method
Par value method
Legal value method

Cost method
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?

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$7,000
$5,000
$12,000
$0

$12,000
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?

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Treasury Stock for $1,200
Treasury Stock for $200
Cash for $1,200
Common Stock for $1,200

Treasury Stock for $1,200
Which of the following is a feature associated only with preferred stock?

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Dividend preference
Cumulative dividends
Preference to assets in the event of liquidation
All of the answer choices are correct

All of the answer choices are correct
On which date are entries for cash dividends required?

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Record date and the payment date
Declaration date and the payment date
Declaration date and the record date
Declaration date, record date, and payment date

Declaration date and the payment date
Which one of the following is not true concerning a retained earnings restriction?

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It is reported as a loss on the income statement.
It makes a portion of the balance of retained earnings unavailable for dividends.
It may arise from legal, contractual, or voluntary causes.
It generally is disclosed in the notes to the financial statements.

It is reported as a loss on the income statement.
Which of the following does not affect retained earnings?

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Net income
Dividends
Additional investment by stockholders
Net loss

Additional investment by stockholders
How is common stock listed in the stockholders’ equity section of the balance sheet?

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Before preferred stock
As part of paid-in capital
After retained earnings
Subtracted from treasury stock

As part of paid-in capital
corporation shows the following account balances:

Retained earnings $300,000
Treasury stock 10,000
Dividends payable 20,000
Paid-in capital in excess of par value 55,000
Common stock 200,000

How much is total stockholders’ equity?

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$565,000
$545,000
$525,000
$555,000

$545,000
A corporation shows the following account balances:

Retained earnings $400,000
Treasury stock?common 20,000
Paid-in capital in excess of par value?common 55,000
Treasury stock?preferred 30,000
Common stock 200,000
Preferred stock 180,000
Paid-in capital in excess of par value?preferred 60,000

How much is total stockholders’ equity?

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$845,000
$885,000
$895,000
$945,000

$845,000
Consider the following data for a corporation:

Net income $800,000
Preferred stock dividends $50,000
Market price per share of stock $25
Average common stockholders’ equity $4,000,000
Cash dividends declared on common stock $20,000

What is the return on common stockholders’ equity?

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20.00%
21.25%
19.50%
18.75%

18.75%
Jaylo Inc. had net income of $500,000, net sales of $10,000,000 and paid cash dividends of $200,000 to the common stockholders. How much is Jaylo’s payout ratio?

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2%
4%
20%
40%

40%
Rynadune Inc. reported net income of $186,000 during 2014 and paid dividends of $26,000 on common stock. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common stockholders’ equity was $1,200,000 on January 1, 2014, and $1,600,000 on December 31, 2014. How much is the company’s return on common stockholders’ equity for 2014?

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7.1%
13.3%
10.0%
9.0%

9.0%

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