Question 1

In the stockholders' equity section paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified.

Accepted Answer

The stockholders' equity section typically includes separate line items for paid-in capital and retained earnings, and the sources of paid-in capital (such as common stock, preferred stock, additional paid-in capital) are usually identified.

Question 2

Organizational costs are capitalized by debiting an intangible asset entitled Organization Costs.

Accepted Answer

Organizational costs are expensed as incurred according to U.S. GAAP, rather than being capitalized as an intangible asset.

Question 3

Preferred stockholders generally do not have the right to vote for the board of directors.

Accepted Answer

This is because preferred stock is typically issued as a means of providing a fixed income to shareholders, rather than giving them an ownership stake in the company. However, there may be exceptions depending on the specific terms of the preferred stock.

Question 4

Stockholders of a corporation directly elect

Accepted Answer

Stockholders of a corporation directly elect the board of directors, who are responsible for making major decisions and overseeing the management of the corporation. They do not directly elect the president or treasurer, and certainly not all employees of the corporation.

Question 5

Treasury stock is a contra stockholders' equity account.

Accepted Answer

Treasury stock is a contra stockholders' equity account because it reduces the amount of equity the company has available for distribution to shareholders.

Question 6

The cost of a noncash asset acquired in exchange for common stock should be either the fair value of the consideration given up or the consideration received whichever is more clearly determinable.

Accepted Answer

This statement is in accordance with the generally accepted accounting principles (GAAP) and is stated in the Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) 845, Nonmonetary Transactions.

Question 7

The dominant form of business organization in the United States in terms of dollar sales volume earnings and employees is

Accepted Answer

Corporations typically generate the highest dollar sales volume and earnings, and have the most employees compared to sole proprietorships and partnerships. While exact statistics may vary from year to year, corporations generally dominate in terms of size and revenue in the United States.

Question 8

Treasury stock purchased for $35 per share that is reissued at $31 per share results in a Loss on Sale of Treasury Stock being recognized on the income statement.

Accepted Answer

There would be a gain on sale of treasury stock since the reissued price of $31 per share is lower than the purchase price of $35 per share.

Question 9

The number of common shares outstanding can never be greater than the number of shares issued.

Accepted Answer

This is because all issued shares are either common shares or preferred shares. If the number of common shares outstanding were to exceed the number of shares issued, it would mean that there are negative shares, which is impossible.

Question 10

The cash proceeds from issuing par value stock may be equal to or greater than but not less than par value.

Accepted Answer

This is because par value represents the minimum amount for which shares can be issued, and if the cash proceeds are less than par value, it would mean the company is selling its shares for less than their minimum assigned value.

Question 11

Which one of the following is a privately held corporation?

Accepted Answer

Cargill Inc. is a privately held corporation, meaning it is not publicly traded on a stock exchange and its shares are not available for purchase by the general public. Intel (A), General Electric (B), and Caterpillar Inc. (C) are all publicly traded corporations.

Question 12

The term "Capital surplus" can be used instead of "Additional Paid-in Capital".

Accepted Answer

The answer of The term "Capital surplus" can be used...

Question 13

Preferred stock has contractual preference over common stock in certain areas.

Accepted Answer

Preferred stock typically has privileges such as priority in receiving dividends and priority in receiving assets in the event of liquidation, which common stock does not have.

Question 14

In published annual reports subdivisions within the stockholders' equity section are seldom presented but additional information is frequently included in the footnotes to the financial statements.

Accepted Answer

Subdivisions within the stockholders' equity section are usually not separately presented in annual reports, but further information may be found in the footnotes.

Question 15

Under the cost method Treasury Stock is debited at the price paid to reacquire the shares and the same amount is credited to Treasury Stock when the shares are sold.

Accepted Answer

This statement is true. Under the cost method of accounting for treasury stock, the shares are initially recorded at their cost on the balance sheet as a contra equity account. When the shares are sold or retired, the treasury stock account is credited at the cost amount and any difference between the cost and the selling price is recorded as a gain or loss on the income statement.

Question 16

A successful corporation can have a continuous and perpetual life.

Accepted Answer

A successful corporation can continue to operate and generate profit indefinitely as long as it is managed effectively and meets market demand.

Question 17

Dividends in arrears on cumulative preferred stock are considered a liability.

Accepted Answer

Dividends in arrears on cumulative preferred stock are not considered a liability until they are declared by the company's board of directors. Until then, they are only a disclosure in the financial statements' notes.

Question 18

Treasury stock should not be classified as a current asset.

Accepted Answer

Treasury stock is typically classified as a contra-equity account on the balance sheet, reducing the total amount of stockholders' equity. It is not considered a current asset because it represents shares of a company's own stock that have been repurchased and are no longer outstanding. As such, they cannot be readily converted into cash in the short term like current assets such as cash, accounts receivable, and inventory.

Question 19

The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.

Accepted Answer

The acquisition of treasury stock decreases total stockholders' equity because it represents the company buying back its own shares of stock. However, total assets will not change as the cash used to purchase the treasury stock is simply transferred to the equity section of the balance sheet.

Question 20

Under the corporate form of business organization

Accepted Answer

The corporation's life is stipulated in its charter, which sets forth the duration of the corporation's existence, which can be perpetual or for a specific period of time. A stockholder is not personally liable for the debts of the corporation in a corporate form of business organization. Stockholders' acts cannot bind the corporation unless they have been appointed as agents of the corporation. Stockholders are not required to get approval from other stockholders to sell their shares in a corporation, although there may be restrictions and procedures set forth in the corporation's bylaws or shareholder agreements.

Quiz 13: Corporations: Organization and Capital Stock Transactions