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    Corporations, stock, dividends, equity: practice set

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    1. Characteristics of a corporation include
    Shareholders who are mutual agents
    Direct management by the shareholders (owners)
    Its inability to own property
    Shareholders who have limited liability

    2. Under the corporate form of business organization
    Ownership rights are easily transferred.
    A stockholder is personally liable for the debts of the corporation.
    Stockholders' acts can bind the corporation even though the stockholders have not
    been appointed as agents of the corporation.
    Stockholders wishing to sell their corporation shares must get the approval of
    other stockholders.

    3. 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
    Treasury stock
    Issued stock
    Outstanding stock
    Authorized stock

    4. 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?
    5,000
    45,000
    40,000
    50,000

    5. 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
    $15,000
    $32,000
    $17,000
    $2,000

    6. If Everly Company issues 1,000 shares of $5 par value common stock for $75,000, the account
    Common Stock will be credited for $75,000.
    Paid-in Capital in excess of Par Value will be credited for $5,000.
    Paid-in Capital in excess of Par Value will be credited for $70,000.
    Cash will be debited for $70,000.

    7. The journal entry to issue 1,000,000 shares of $6 par common stock for $8.00 per share on January 2nd would be:

    8. When Bayou Corporation was formed on January 1, 20xx, the corporate charter provided for 100,000 share of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 9,000 shares of stock at a price of $23.00 per share.

    The entry to record the above transaction would include a
    Debit to Cash for $90,000
    Credit to Common Stock for $207,000
    Credit to Paid in Capital in Excess of Par- for $117,000
    Debit to Common Stock for $90,000

    9. On January 1, 20xx, Swenson Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, 20xx, Swenson purchased 3,000 shares of treasury stock for $21 per share and later sold the treasury shares for $24 per share on March 1, 20xx.

    The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a
    Credit to Treasury Stock for $63,000.
    Debit to Treasury Stock for $63,000.
    Debit to a loss account for $9,000
    Credit to a gain account for $9,000.

    10. 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 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $1 per share dividend is declared?
    $60,000
    $5,000
    $100,000
    $55,000

    11. The date on which a cash dividend becomes a binding legal obligation is on the
    Declaration date.
    Date of record.
    Payment date.
    Last day of the fiscal year end.

    12. What is the total stockholders' equity based on the following account balances?

    $740,000
    $730,000
    $720,000
    $640,000

    13. A corporation purchases 10,000 shares of its own $10 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity?
    Increase, $100,000
    Increase, $350,000
    Decrease, $100,000
    Decrease, $350,000

    14. Which of the following is not classified as paid-in capital on the balance sheet?
    Common stock
    Common stock distributable
    Donated capital
    Treasury stock

    15. Which of the following amounts should be disclosed in the stockholders' equity section of the balance sheet?
    The number of shares of common stock outstanding
    The number of shares of common stock issued
    The number of shares of common stock authorized
    All of the above

    16. A corporation has 40,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be
    120,000 shares
    40,000 shares
    80,000 shares
    13,333 shares

    Question 15:

    15. Based on the following data, what is the acid-test ratio, rounded to one decimal point? (Data attached in the attached file now):

    3.4
    3.0
    2.2
    1.8

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    Solution Preview

    1. Characteristics of a corporation include
    Shareholders who are mutual agents
    Direct management by the shareholders (owners)
    Its inability to own property
    **Shareholders who have limited liability

    Owners with limited liability and professional management.

    2. Under the corporate form of business organization
    **Ownership rights are easily transferred.
    A stockholder is personally liable for the debts of the corporation.
    Stockholders' acts can bind the corporation even though the stockholders have not
    been appointed as agents of the corporation.
    Stockholders wishing to sell their corporation shares must get the approval of
    other stockholders.

    Stock certificates make it easy to buy and sell ownership units.

    3. 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
    Treasury stock
    Issued stock
    Outstanding stock
    **Authorized stock

    State authorizes shares. Issued means sold to owner and is usually only a fraction of the authorized shares.

    4. 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?
    5,000
    45,000
    **40,000
    50,000

    Issued less repurchases = outstanding

    5. 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 ...

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