ACG1

A retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate.  Which of the following is not a valid reason for this owner to incorporate?

• All of these are good reasons to change a sole proprietorship into a corproation.

• The owner wants to decrease the taxes paid by the business.

• The owner want to be able to more easily transfer ownership of the business.

• The owner wants to raise capital for expansion

• The owner wants to limit his or her personal liability.

A disadvantage of the corporate form of business is

• taxation

• limited liability.

• continuous existence.

• its status as a separate legal entity.

•  

  ease of transfer of ownership.

Stockholders have certain rights.  One of these rights is called residual claim.  The term residual claim refers to a stockholders’ right to

• share in assets upon liquidation in proportion to their holdings.

• declare dividends.

• exchange their stock for bonds.

• vote in election of board of directors.

• keep the same percentage ownership when new shares of stock are issued.

A corporation issued 5,000 shares of $15 par value preferred stock at $18 per share.  Which of the following will be part of the journal entry to record the corporation's issuance of preferred stock?

• Debit Cash for $75,000

• Credit to Paid-in Capital in Excess of Par Value—Preferred Stock for $15,000

• Debit to Cash for $15,000

•  

  Credit to Preferred Stock for $90,000

• Debit to Retained Earnings for $15,000

Which of the following is a feature associated with preferred stock?

• Preference to assets in the event of liquidation

• All of the answer choices are correct

• Cumulative dividends

• Dividend preference

• Dividends in arrears are not considered to be a liability

A corporation declared a cash dividend of $2.00 per share on 50,000 shares of common stock on July 15.  The dividend is to be paid one month later on August 15 to stockholders of record on July 31.  The correct entry to be recorded on the date of payment of August 15 will include a

• debit to the Dividends Payable account and a credit to the Cash account.

• debit to the Dividends account and a credit to the Cash account.

• debit to the Retained Earnings account and a credit to the Dividends Payable account.

• debit to the Dividends account and a credit to the Dividends Payable account.

• No journal entry is required.

A corporation declared a cash dividend of $1.00 per share on 20,000 shares of common stock on January 15.  The dividend is to be paid one month later on February 15 to stockholders of record on January 31.  Which of the following summarizes the effects of the journal entry recorded on the date of record on January 31?

• It decreases stockholders’ equity and decreases assets.

• It decreases stockholders’ equity and increases liabilities.

• No journal entry is recorded on the date of record.

• It decreases liabilities and decreases assets.

• It increases stockholders’ equity and increases liabilities.

Placing a restriction on retained earnings will

• disclose that a portion of retained earnings is unavailable for dividends.

• assure that a company has sufficient cash for a specific purpose.

• increase the corporation’s stock price.

• increase total stockholders’ equity.

• decrease total stockholders’ equity.

A corporation began business by issuing 200,000 shares of $5 par value common stock for $24 per share.  During its first year, the corporation sustained a net loss of $40,000.  The year-end account balances would show

• a $4,800,000 credit balance in the Common Stock account.

• a $1,000,000 credit balance in the Common Stock account.

• a $40,000 credit balance in the Retained Earnings account.

• a $4,800,000 credit balance in the Paid-in Capital in Excess of Par Value account.

• a $3,800,000 debit balance in the Paid-in Capital in Excess of Par account