Question 1

In terms of business volume, the dominant form of business organization is the:
A)Partnership.
B)Corporation.
C)Limited liability company.
D)Proprietorship.

Accepted Answer

Corporations are generally the dominant form of business organization in terms of business volume due to their ability to easily raise capital, limited liability for shareholders, and perpetuity of existence.

Question 2

Paid-in capital must consist solely of amounts invested by shareholders.

Accepted Answer

False

Question 3

Under GAAP, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the property is different from its carrying value on the declaration date.

Accepted Answer

According to GAAP, when a property dividend is declared, the fair value of the property needs to be recognized, which may result in a gain or loss if the fair value differs from its carrying value on the declaration date. Therefore, the statement is true.

Question 4

Two of the three primary account classifications within shareholders' equity are:
A)Preferred stock and retained earnings.
B)The par value of common stock and retained earnings.
C)Paid-in capital and retained earnings.
D)Preferred and common stock.

Accepted Answer

The two primary account classifications within shareholders' equity are paid-in capital, which represents the amount shareholders have invested in the company through the purchase of stock, and retained earnings, which represents the accumulated profits of the company that have not been distributed as dividends. Preferred and common stock are types of stock that fall under the paid-in capital category. Par value is a nominal value assigned to shares of stock and is not a classification of shareholders' equity.

Question 5

Outstanding common stock is:
A)Stock that is performing well on the New York Stock Exchange.
B)Stock that has been authorized by the state for issue.
C)Stock held in the corporate treasury.
D)Stock in the hands of shareholders.

Accepted Answer

Outstanding common stock is the stock that has already been issued by the company and is held by shareholders. This is different from stock in the corporate treasury, which has been authorized by the state for issue but has not yet been distributed to investors. The performance of the stock on the New York Stock Exchange is not relevant to whether it is outstanding.

Question 6

Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth.

Accepted Answer

During down times, companies may use stock buybacks to manipulate their earnings per share by decreasing the number of outstanding shares, which can mask a slowdown in earnings growth. Investors should be cautious and thoroughly assess a company's overall financial health before making investment decisions.

Question 7

The corporate charter sometimes is known as (a):
A)Articles of incorporation.
B)Statement of organization.
C)By-laws.
D)Registration statement.

Accepted Answer

The corporate charter is also known as Articles of Incorporation. It is a legal document that establishes a corporation and outlines its purpose, structure, and key operating procedures.

Question 8

Noncash assets received as consideration for the issue of stock are always valued based on the fair value of the stock.

Accepted Answer

Noncash assets received as consideration for the issue of stock can be valued based on either the fair value of the assets received or the fair value of the stock issued, whichever is more clearly determinable.

Question 9

The net assets of a corporation are equal to:
A)Contributed capital.
B)Retained earnings.
C)Shareholders' equity.
D)None of the above.

Accepted Answer

Net assets refer to the total assets of a corporation minus its total liabilities. Shareholders' equity, which includes contributed capital and retained earnings, represents the residual interest in the assets of a corporation after deducting liabilities. Therefore, choice C, shareholders' equity, is the best answer as it encompasses both contributed capital and retained earnings.

Question 10

Stock dividends cause a reduction in retained earnings, but they never reduce total shareholders' equity.

Accepted Answer

The answer of Stock dividends cause a reduction in retained...

Question 11

Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions.

Accepted Answer

Stock designated as preferred typically has preferential rights over common stock in terms of dividend payments and liquidation distributions.

Question 12

Treasury stock transactions never increase retained earnings or net income.

Accepted Answer

Treasury stock transactions involve the purchase of a company's own stock, which reduces the amount of outstanding shares but does not impact the company's earnings or profits. Therefore, these transactions do not impact retained earnings or net income.

Question 13

Corporations are formed in accordance with:
A)The Model Business Corporation Act.
B)Federal statutes.
C)The laws of individual states.
D)Federal trade commission regulations.

Accepted Answer

Corporations are formed in accordance with the laws of individual states. Each state has its own set of rules and regulations for forming a corporation, including requirements for filing articles of incorporation, naming directors, and issuing stock.

Question 14

Issued stock refers to the number of shares:
A)Outstanding plus treasury shares.
B)Shares issued for cash.
C)In the hands of shareholders.
D)That may be issued under state law.

Accepted Answer

Issued stock consists of both outstanding shares (held by shareholders) and treasury shares (held by the company itself). This reflects the total number of shares that have been issued by the company. Shares that may be issued under state law refer to authorized stock, which is not yet part of the issued stock until it is actually issued by the company. Shares issued for cash are a subset of issued stock, but do not include shares issued for non-cash assets or services.

Question 15

The Model Business Corporation Act:
A)Uses the words "common" and "preferred" in describing distinguishing characteristics of stock.
B)Defines legal capital as the amount of net assets not available for distribution to shareholders.
C)Provides guidance for choosing an appropriate par value for new issues of stock.
D)Has affected the laws of most states.

Accepted Answer

The Model Business Corporation Act has been influential in shaping the laws of most states regarding corporate governance and organization, among other things. Choices A, B, and C are also correct statements about the Model Business Corporation Act, but they are not as comprehensive as choice D.

Question 16

Dividends in arrears on cumulative preferred stock are liabilities to be paid at a later date.

Accepted Answer

The answer of Dividends in arrears on cumulative preferred stock...

Question 17

Mandatorily redeemable preferred stock is reported as a liability.

Accepted Answer

Mandatorily redeemable preferred stock is considered a liability because the issuer is required to redeem the shares at a fixed or determinable date or at the option of the shareholder.

Question 18

Details of each class of stock must be reported:
A)On the face of the balance sheet only.
B)In disclosure notes only.
C)On the face of the balance sheet or in disclosure notes.
D)On the face of the balance sheet and in disclosure notes.

Accepted Answer

The answer of Details of each class of stock must...

Question 19

Cash dividends become a binding liability as of the record date.

Accepted Answer

The answer of Cash dividends become a binding liability as...

Question 20

Restrictions on retained earnings must be disclosed in the body of the balance sheet.

Accepted Answer

The answer of Restrictions on retained earnings must be disclosed...

Quiz 18: Shareholders Equity Key

In terms of business volume, the dominant form of business organization is the:

Paid-in capital must consist solely of amounts invested by shareholders.

Under GAAP, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the property is different from its carrying value on the declaration date.

Two of the three primary account classifications within shareholders' equity are:

Outstanding common stock is:

Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth.

The corporate charter sometimes is known as (a) :

Noncash assets received as consideration for the issue of stock are always valued based on the fair value of the stock.

The net assets of a corporation are equal to:

Stock dividends cause a reduction in retained earnings, but they never reduce total shareholders' equity.

Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions.

Treasury stock transactions never increase retained earnings or net income.

Corporations are formed in accordance with:

Issued stock refers to the number of shares:

The Model Business Corporation Act:

Dividends in arrears on cumulative preferred stock are liabilities to be paid at a later date.

Mandatorily redeemable preferred stock is reported as a liability.

Details of each class of stock must be reported:

Cash dividends become a binding liability as of the record date.

Restrictions on retained earnings must be disclosed in the body of the balance sheet.