Corporations: Organization and Capital Stock Transactions

Under the corporate form of business organization

• a.   a stockholder is personally liable for the debts of the corporation.

• b.         stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation

• c.   the corporation's life is stipulated in its charter.

• d.         stockholders wishing to sell their corporation shares must get the approval of other stockholders

Stockholders of a corporation directly elect

• a.         the president of the corporation

• b.   the board of directors.

• c.   the treasurer of the corporation.

• d.   all of the employees of the corporation.

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

• a.   corporation is organized for the purpose of making a profit.

• b.   corporation is subject to more federal and state government regulations.

• c.   corporation is an accounting economic entity.

• d.   corporation’s temporary accounts are closed at the end of the accounting period.

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

• a.   Limited liability of owners

• b.   Separate legal existence

• c.   Continuous life

• d.   Government regulation

Andy Eggers has invested $150,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Eggers stand to lose?

• a.   Up to his total investment of $150,000.

• b.   Zero.

• c.   The $150,000 plus any personal assets the creditors demand.

• d.   $100,000.

Which of the following statements reflects the transferability of ownership rights in a corporation?

• a.   If a stockholder decides to transfer ownership, he must transfer all of his shares.

• b.   A stockholder may dispose of part or all of his shares.

• c.   A stockholder must obtain permission from the board of directors before selling shares.

• d.   A stockholder must obtain permission from at least three other stockholders before selling shares.

Which of the following statements concerning taxation is accurate?

• a.   Partnerships pay state income taxes but not federal income taxes.

• b.   Corporations pay federal income taxes but not state income taxes.

• c.   Corporations pay federal and state income taxes.

• d.   Only the owners must pay taxes on corporate income.

Which of the following factors does not affect the initial market price of a stock?

• a.   The company's anticipated future earnings

• b.   The par value of the stock

• c.   The current state of the economy

• d.   The expected dividend rate per share

A corporation has the following account balances: Common stock, $1 par value, $30,000; Paid-in Capital in Excess of Par, $650,000. Based on this information, the

• a.   legal capital is $680,000.

• b.   number of shares issued is 30,000.

• c.   number of shares outstanding is 680,000.

• d.   average price per share issued is $11.25.

Capital stock to which the charter has assigned a value per share is called

• a.   par value stock.

• b.   no-par value stock.

• c.   stated value stock.

• d.   assigned value stock.