Question 1

The total amount of stock that a corporation's charter allows it to issue is referred to as:
A) Issued stock
B) Outstanding stock
C) Common stock
D) Preferred stock
E) Authorized stock

Accepted Answer

The total amount of stock that a corporation's charter allows it to issue is referred to as authorized stock. Therefore, the correct answer is (E) Authorized stock.

Question 2

When a company declares cash dividends,retained earnings is reduced.

Accepted Answer

When a company declares cash dividends, money is paid out to shareholders from the company's retained earnings. This reduces the company's retained earnings balance on the balance sheet.

Question 3

A stock option is also called a stock dividend.

Accepted Answer

A stock option is a contract that gives the holder the right, but not the obligation, to buy or sell a specific stock at a predetermined price and date, while a stock dividend is a portion of a company's earnings that is paid out in the form of additional shares of stock to existing shareholders. They are two distinct concepts and should not be confused with each other.

Question 4

Changes in accounting estimates are accounted for in current and future periods.

Accepted Answer

Changes in accounting estimates are recognized prospectively, meaning they are accounted for in current and future periods. This is in contrast to changes in accounting principles, which are applied retrospectively.

Question 5

Dividend yield is defined as the market price per share of a company's stock divided by its earnings per share.

Accepted Answer

Dividend yield is defined as the dividends per share divided by the market price per share.

Question 6

A proxy is:
A) A legal document that gives a designated agent of a stockholder the power to vote the stock.
B) A contractual commitment by an investor to purchase unissued shares of stock.
C) An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.
D) The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.
E) An arbitrary amount assigned to no-par stock by the corporation's board of directors.

Accepted Answer

A proxy is a legal document that gives a designated agent of a stockholder the power to vote the stock. This allows the stockholder to have a say in company decisions without physically attending a shareholder meeting.

Question 7

An amount of assets defined by state law that stockholders must invest and leave invested in a corporation is called the:
A) Par value of preferred.
B) Minimum legal capital.
C) Premium capital.
D) Stated value.
E) Working capital.

Accepted Answer

The minimum legal capital is the amount of assets that state law requires stockholders to invest and leave invested in a corporation. It serves as a cushion to protect the corporation's creditors in case the corporation goes bankrupt. The par value of preferred, stated value, premium capital, and working capital are all different concepts and not directly related to the minimum legal capital.

Question 8

Minimum legal capital requirements often prohibit dividends when the dividends reduce stockholders' equity below the minimum specified amount.

Accepted Answer

This is because legal capital is the minimum amount of capital that a company must maintain in order to protect the interests of its creditors. If dividends are paid out such that they reduce stockholders' equity below the minimum required legal capital amount, this could potentially leave the company unable to pay its debts and obligations to its creditors. Therefore, to protect creditors, many jurisdictions impose restrictions on companies paying out dividends that reduce their stockholders' equity below the minimum legal capital requirements.

Question 9

A corporation is a separate legal entity from its owners.

Accepted Answer

A corporation is a legal entity that is separate from its owners or shareholders. It has its own rights, responsibilities, and liabilities. This means that the corporation can enter into contracts, enter into legal disputes, and own property in its own name, separate from its owners.

Question 10

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:
A) Preemptive right
B) Proxy right
C) Right to call
D) Financial leverage
E) Voting right

Accepted Answer

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called Preemptive right. It allows the shareholders to maintain their ownership percentage and prevents the dilution of their shares.

Question 11

The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings,dividends,and economic opportunities.

Accepted Answer

The price-earnings ratio (P/E ratio) is commonly used to assess a company's valuation and the stock market's expectations for its future growth in earnings. It compares a company's stock price to its earnings per share (EPS), revealing how much investors are willing to pay per dollar of earnings. A high P/E ratio indicates that the stock is potentially overvalued, while a low P/E ratio may suggest that the stock is undervalued. The P/E ratio also indicates the market's expectations for future earnings growth, dividends, and economic opportunities.

Question 12

A corporation can issue both common and preferred stock.

Accepted Answer

A corporation can indeed issue both common and preferred stock. Common stock is typically the most well-known type of stock, representing ownership in a company and giving shareholders the right to vote on certain company decisions. Preferred stock, on the other hand, typically does not come with voting rights but often has a higher dividend payout and priority over common stock in the event of bankruptcy.

Question 13

The costs of bringing a corporation into existence,including legal fees,promoter fees,and amounts paid to obtain a charter,are called:
A) Minimum legal capital
B) Stock subscriptions
C) Organization costs
D) Cumulative costs
E) Prepaid fees

Accepted Answer

The costs of bringing a corporation into existence, including legal fees, promoter fees, and amounts paid to obtain a charter, are called organization costs. Minimum legal capital refers to the minimum amount of money a corporation must have to start operating. Stock subscriptions refer to the amounts paid by shareholders for the shares they purchase. Cumulative costs and prepaid fees are not related to the costs of bringing a corporation into existence.

Question 14

A debit balance in retained earnings is often referred to as a retained earnings deficit.

Accepted Answer

A retained earnings deficit occurs when the company's net losses and dividend payments in a given period exceed its retained earnings from previous periods. This results in a negative balance in the retained earnings account, which is often referred to as a debit balance in retained earnings.

Question 15

Authorized stock is the total number of shares outstanding.

Accepted Answer

Authorized stock refers to the maximum number of shares a company is allowed to issue according to its articles of incorporation. It does not necessarily mean that all of these shares are currently outstanding or in circulation.

Question 16

Earnings per share is calculated by dividing the total number of common shares outstanding by net income.

Accepted Answer

Earnings per share is calculated by dividing net income by the total number of common shares outstanding.

Question 17

When all of the authorized shares have the same rights and characteristics,the stock is called:
A) Preferred stock
B) Common stock
C) Par value stock
D) Stated value stock
E) No-par value stock

Accepted Answer

When all authorized shares have the same rights and characteristics, it indicates that they are common stock. Preferred stock has different rights and characteristics compared to common stock. Par value stock denotes a minimum value assigned to each share by the company, whereas stated value stock has a fixed value higher than the par value. No-par value stock means the company does not assign a par value or minimum value to the shares.

Question 18

Earnings per share is the amount of income earned per share of a company's outstanding (weighted-average)common stock.

Accepted Answer

Earnings per share (EPS) is indeed the amount of income earned per share of a company's outstanding (weighted-average) common stock. It is calculated by dividing net income by the total number of shares outstanding. EPS is an important metric in evaluating a company's profitability, and is often used by investors to determine the relative value of a stock.

Question 19

Par value of a stock refers to the:
A) Issue price of the stock.
B) Value assigned to a share of stock by the corporate charter.
C) Market value of the stock on the date of the financial statements.
D) Maximum selling price of the stock.
E) Dividend value of the stock.

Accepted Answer

Par value of a stock refers to the value assigned to a share of stock by the corporate charter. This value has no relation to the issuing price, market value, or dividend value of the stock. It merely represents the minimum price at which the stock can be issued.

Question 20

Common stock always carries a preference for receiving dividends over preferred stock.

Accepted Answer

Preferred stock holders typically have priority in receiving dividends over common stock holders.

Quiz 11: Corporate Reporting and Analysis

The total amount of stock that a corporation's charter allows it to issue is referred to as:

When a company declares cash dividends,retained earnings is reduced.

A stock option is also called a stock dividend.

Changes in accounting estimates are accounted for in current and future periods.

Dividend yield is defined as the market price per share of a company's stock divided by its earnings per share.

A proxy is:

An amount of assets defined by state law that stockholders must invest and leave invested in a corporation is called the:

Minimum legal capital requirements often prohibit dividends when the dividends reduce stockholders' equity below the minimum specified amount.

A corporation is a separate legal entity from its owners.

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a: