When a partnership is liquidated, what happens?

Liabilities are paid or settled

When a partner is unable to pay a capital deficiency, what happens?

The deficiency is absorbed by the remaining partners.

Stockholders' equity consists of which of the following?

Paid-in capital (or contributed) capital and retained earnings

Is the cumulative net income (and loss) not distributed as dividends to its stockholders

Where should a material error in calculating and reporting amortization expense discovered in Year 2 be reported?

On the Year 2 statement of retained earnings

The dividend yield is computed by dividing:

Annual cash dividends per share by the market value (price) per share

A lease is a contractual agreement between a lessor (asset owner) and a lessee (asset renter or tenant) that grants the lessee the right to use the asset for a period of time in return for cash (rent) payments.

Explain the difference between an operating lease and a finance lease.

Operating leases are long-term leases that do not meet any of the five criteria for a finance lease. Finance leases are long-term leases where the lessee receives substantially all remaining benefits of the asset. The lessee records the leased item as its own asset along with a lease liability at the start of the lease term.

What is treasury stock? What reasons might a company hold treasury stock?

Treasury stock is the company’s own issued shares that it reacquires. Corporations acquire shares of their own stock for reasons such as using the shares to acquire another corporation, avoiding a hostile takeover of the company, reissuing them to employees as compensation, and maintaining a strong market for their stock.

Explain the difference between a large stock dividend and a small stock dividend. In addition, explain how to record these two types of stock dividends.

A large stock dividend is a distribution of more than 25% of previously outstanding shares. A large stock dividend is recorded by capitalizing retained earnings for an amount equal to the par or stated value of the shares. A small stock dividend is a distribution of less than or equal to 25% of the previously outstanding shares.

What is a stock split? How is a stock split different from a stock dividend?

A stock split is the distribution of additional shares to stockholders according to their present ownership. When a stock split occurs, the corporation “calls in” its outstanding shares and issues more than one new share in exchange for each old share. Splits can be done in any ratio. Stock splits reduce the par or stated value per share. Equity remains unchanged. Stock dividends are distributions of additional shares of the corporation’s own stock to its stockholders without the receipt of any payment in return. A stock dividend does not change the par or stated value per share, but total paid-in capital is increased and total retained earnings is decreased.

Explain how cumulative preferred stock differs from noncumulative preferred stock.

Cumulative preferred stock gives its owners the right to be paid both the current and all prior periods’ unpaid dividends before any dividend is paid to common stockholders. Noncumulative preferred stock does not have the right to prior periods’ unpaid dividends if they were not declared in those prior periods.

What are the rights generally granted to common stockholders?

Common stockholders generally have the right to vote at stockholders’ meetings; sell or otherwise dispose of their stock; receive the same dividend, if any on each share of common stock; purchase their proportional share of any common stock later issued by the corporation; and share in any assets remaining after creditors are paid when and if the corporation is liquidated.

What is a corporation?

A corporation is an entity created by law that is separate from its owners and having many of the same rights and privileges granted to individuals. Ownership of corporations is represented by shares of stock. Owners of the stock are called shareholders or stockholders.

Identify the key advantages and disadvantages of corporations.

Advantages of corporations include: limited liability of stockholders, ease of ownership transfer, continuous life, lack of mutual agency for stockholders, and ease of capital accumulation. Two disadvantages of corporations are: government regulation and double taxation.

Explain the steps involved in the liquidation of a partnership.

Three steps are involved in the liquidation process: (1) Record the sale of assets for cash and any gain or loss is allocated to partners using their income-and-loss sharing ratio; (2) Liabilities of the partnership are paid; and, (3) Any remaining cash is distributed to the partners based on their capital balances.

A type of bond which is backed by the issuer's general credit standing and is riskier than secured debt.

Collateral for a note or bond can:

Reduce the risk of loss in comparison with unsecured debt.

An advantage of bonds is:

Bonds do not affect owner control.

A disadvantage of bond financing is:

Bonds pay periodic interest and require the repayment of par value at maturity.

Accounting II Exam 1 Flashcards

Student preview

43 questions

Show all answers

1.

FLASHCARD QUESTION

Front

A partnership in which all partners have mutual agency and unlimited liability is called:

Back

General Partnership

2.

FLASHCARD QUESTION

Front

The withdrawal account of each partner is:

Back

Closed to that partner's capital account

3.

FLASHCARD QUESTION

Front

Which of the following statements is true?

Partners are employees of the partnership.
Salaries to partners are expenses on the partnership income statement.
Salary allowances are expenses.
Salary allowances usually reflect the relative value of services provided by partners.

Back

Salary allowances usually reflect the relative value of services provided by partners.

4.

FLASHCARD QUESTION

Front

A capital deficiency means that:

Back

A partner has a debit balance in their capital account

5.

FLASHCARD QUESTION

Front

A partnership that has general and limited partners, where the limited partners have no personal liability beyond the amounts they invest in the partnership is a:

Back

Limited partnership

6.

FLASHCARD QUESTION

Front

What does partnership accounting NOT do?

Back

Tax the business entity

7.

FLASHCARD QUESTION

Front

Which of the following is NOT a way in which a partner can withdraw from a partnership?

Closing the business and liquidating its assets under the mutual agency principle
Selling his/her interest to another person for cash
Receiving cash from the partnership in the amount of his/her interest
Receiving assets from the partnership in the amount of his/her interest

Back

Closing the business and liquidating its assets under the mutual agency principle

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