Question 1

A corporation issues 1,500 shares of common stock for $ 32,000. The stock has a stated value of $10 per share. The journal entry to record the stock issuance would include a credit to Common Stock for

Accepted Answer

The credit to Common Stock is calculated by multiplying the number of shares issued (1,500) by the stated value per share ($10), resulting in $15,000.

Question 2

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?

Accepted Answer

The number of shares outstanding is equal to the total number of shares issued minus the number of shares reacquired. Therefore, the number of shares outstanding is 60,000 (original issuance) - 10,000 (shares reacquired) = 50,000.

Question 3

If Everly Company issues 1,000 shares of $5 par value common stock for $75,000, the account

Accepted Answer

The Par Value of the common stock is $5 per share, so 1,000 shares at $5 par value is equal to a total of $5,000. The remaining $70,000 is the amount paid that exceeds the par value, so it should be credited to Paid-in Capital in excess of Par Value. Therefore, the correct entry is:

Debit Cash for $75,000
Credit Common Stock for $5,000
Credit Paid-in Capital in excess of Par Value for $70,000

Question 4

Which of the following is not true of a corporation?

Accepted Answer

The acts of its owners do not bind the corporation. A corporation is a separate legal entity from its owners, and their personal actions do not affect the corporation's liability or legal standing.

Question 5

The entry to record the issuance of common stock at a price above par includes a debit to

Accepted Answer

The answer of The entry to record the issuance of...

Question 6

The authorized stock of a corporation

Accepted Answer

The authorized stock of a corporation is indicated in its charter. The charter is a legal document that outlines the company's purpose, structure, and governance. It is filed with the state in which the corporation is incorporated and governs how the corporation operates. The number of shares of stock that a corporation is authorized to issue is typically specified in the charter.

Question 7

Which of the following is not a right possessed by common stockholders of a corporation?

Accepted Answer

There is no minimum amount of dividends that common stockholders are guaranteed to receive. The amount and frequency of dividends are at the discretion of the board of directors. All of the other options listed are rights typically possessed by common stockholders.

Question 8

The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal fees for organizing the corporation includes a credit to

Accepted Answer

When a company issues stock as a form of payment, it credits the stock account (in this case, Common Stock) for the par value of the shares issued. Since the stock is issued at par, the Common Stock account is credited with the total par value of the shares issued. There is no cash involved, and the transaction does not directly affect Organizational Expenses or Goodwill accounts.

Question 9

The excess of issue price over par of common stock is termed a(n)

Accepted Answer

The excess of issue price over par of common stock is called premium.

Question 10

Those most responsible for the major policy decisions of a corporation are the

Accepted Answer

The board of directors is responsible for making major policy decisions in a corporation. They are a group of elected individuals who act as the governing body of the corporation and are responsible for setting strategic goals and overall direction for the company. Management is responsible for implementing these decisions, while employees are responsible for executing the day-to-day operations of the company. Stockholders have the power to vote on major decisions, but they do not hold direct responsibility for policy-making.

Question 11

The state charter allows a corporation to issue only a certain number of shares of each class of stock. This amount of stock is called

Accepted Answer

The state charter specifies the maximum number of shares a corporation can issue, which is called authorized stock. Treasury stock refers to shares that have been bought back by the company and are held in reserve, issued stock refers to shares that have been sold by the company and are in the hands of investors, and outstanding stock refers to the total number of shares that are currently held by investors.

Question 12

Which one of the following would not be considered an advantage of the corporate form of organization?

Accepted Answer

Government regulation is not an advantage of the corporate form of organization because it involves compliance costs and limits the freedom of the corporation to operate as it sees fit. The other choices, B, C, and D, are advantages of the corporate form of organization: B) Separate legal existence allows the corporation to own property, enter into contracts, and sue or be sued in its own name; C) Continuous life means the corporation continues to exist even if the owners (stockholders) die, leave, or sell their shares; D) Limited liability of stockholders means the owners (stockholders) are only liable for the amount of their investment in the corporation, and not personally responsible for its debts or obligations.

Question 13

Par value

Accepted Answer

Par value is the monetary value assigned per share in the corporate charter. It does not represent the worth or selling price of a share of stock. It is established before the share is issued.

Question 14

The par value per share of common stock represents

Accepted Answer

The answer of The par value per share of common...

Question 15

The ability of a corporation to obtain capital is

Accepted Answer

The option D is correct because limited liability and ease of share transferability provide enhancement to the ability of a corporation to obtain capital. Limited liability attracts more investors as they are not personally liable for the corporation's debts or legal issues. On the other hand, the ease of share transferability allows investors to easily buy or sell their shares, making investment and divestment more convenient. These two factors combined make corporations more attractive to investors, providing them with more access to capital than partnerships or sole proprietorships.

Question 16

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?

Accepted Answer

The number of shares outstanding is calculated by subtracting the number of shares that have been repurchased from the number originally issued.

100,000 (original shares issued) - 45,000 (shares issued) - 5,000 (shares repurchased) = 50,000 shares outstanding.

Question 17

Merritt Company acquired a building valued at $190,000 for property tax purposes in exchange for 12,000 shares of its $5 par common stock. The stock is widely traded and selling for $15 per share. At what amount should the building be recorded by Merritt Company?

Accepted Answer

The building should be recorded at the fair value, which is the market value of the stock given, since the stock is widely traded. Therefore, the building should be recorded at 12,000 shares x $15/share = $180,000.

Question 18

The price at which a stock can be sold depends upon a number of factors. Which statement below is not one of those factors?

Accepted Answer

The par value of a stock is a nominal value assigned to shares of stock and is not a factor that directly affects the price at which the stock can be sold.

Question 19

If common stock is issued for an amount greater than par value, the excess should be credited to

Accepted Answer

Any amount received over the par value of common stock is credited to the account Paid-in Capital in Excess of Par Value. This account is a part of the stockholders' equity section of the balance sheet and represents the additional amount that shareholders have paid to purchase the company's common stock.

Question 20

Which of the following statements concerning taxation is accurate?

Accepted Answer

Corporations are required to pay both federal and state income taxes. The owners may also be required to pay taxes on any income they receive from the corporation, such as dividends or salaries, but this is separate from the corporate income tax.

Quiz 11: Corporations: Organization, Stock Transactions, and Dividends