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Accounting Chapter 11

Stockholders of a corporation directly elect
the board of directors.
Which one of the following would not be considered an advantage of the corporate form of organization?
Government regulation.
Which of the following statements is not considered a disadvantage of the corporate form of organization?
Limited liability of stockholders.
Which of the following phrases is not descriptive of the corporate form of business?
Unlimited liability.
A corporation has the following account balances: Common Stock, $1 par value, $80,000; Paid-in Capital in Excess of Par Value, $2,700,000. Based on this information, the
number of shares issued is 80,000.
The amount of stock that may be issued according to the corporation’s charter is referred to as the
authorized stock.
If Pratt Company issues 5,000 shares of $5 par value common stock for $210,000, the account
Cash will be debited for $210,000.
The Paid-in Capital in Excess of Par Value is increased in the accounting records when
capital stock is issued at an amount greater than par value.
S. Lawyer performed legal services for E. Corp. Due to a cash shortage, an agreement was reached whereby E. Corp. would pay S. Lawyer a legal fee of approximately $15,000 by issuing 8,000 shares of its common stock (par $1). The stock trades on a daily basis and the market price of the stock on the day the debt was settled is $1.80 per share. Given this information, the best journal entry for E. Corp. to record for this transaction is
legal expense 14,400
common stock 8,000
paid in capital in 6,400
excess of par-common
Johnson Company issued 900 shares of no-par common stock for $15,300. Which of the following journal entries would be made if the stock has no stated value?
cash 15,300
common stock 15,300
no par value
Treasury stock is
a corporation’s own stock, which has been reacquired and held for future use.
A corporation purchases 15,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders’ equity?
Decrease by $525,000.
Treasury Stock is a(n)
contra stockholders’ equity account.
Logan Corporation issues 50,000 shares of $50 par value preferred stock for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $3,000,000 and a credit or credits to
Preferred Stock for $2,500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for $500,000.

50,000 × $50 = $2,500,000; ($60 – $50) × 50,000

Dividends in arrears on cumulative preferred stock
should be disclosed in the notes to the financial statements.
The date on which a cash dividend becomes a binding legal obligation is on the
declaration date.
The board of directors of Bosco Company declared a cash dividend on November 15, 2014, to be paid on December 15, 2014, to stockholders owning the stock on November 30, 2014. Given these facts, the date of November 30, 2014, is referred to as the
record date.
The board of directors of Yancey Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August 15, 2014, to stockholders of record on July 31, 2014. The correct entry to be recorded on July 15, 2014, will include a
debit to Cash Dividends.
The board of directors of Benson Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August 15, 2014, to stockholders of record on July 31, 2014. The effects of the journal entry to record the payment of the dividend on August 15, 2014, are to
decrease liabilities and decrease assets.
On the dividend record date
no entry is required.
A stock split will
have no effect on retained earnings.
What is the total stockholders’ equity based on the following account balances?

Common Stock

$1,800,000

Paid-In Capital in Excess of Par

120,000

Retained Earnings

570,000

Treasury Stock

60,000

$2,430,000

1,800,000 + $120,000 + $570,000 – $60,000 =

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