Intermediate Accounting Section 2

What is a key characteristic of a corporation that distinguishes it from partnerships?

• Shared management responsibilities

• Temporary existence

• Personal liability for debts

• Limited liability of shareholders

Which type of stock typically has a fixed dividend rate?

• Cumulative stock

• Preferred stock

• Common stock

• Treasury stock

What happens to the ownership rights of shareholders when they sell their shares?

• They lose all rights

• They retain voting rights

• They transfer ownership rights

• They gain additional shares

In the event of liquidation, which group has priority over common shareholders?

• Preferred shareholders

• Bondholders

• Employees

• Management

What is the primary purpose of issuing capital stock?

• To pay off debts

• To raise funds for operations

• To increase market share

• To reduce taxes

If a company declares a stock dividend, what is the expected effect on the market price per share?

• Double the price

• Increase in price

• No effect

• Decrease in price

What is the accounting treatment for issuing shares for non-cash assets?

• Record at market value of the assets

• Record at par value only

• No entry required

• Record at book value of the assets

What is the term for the cumulative amount of profit earned by a company, less dividends declared?

• Retained earnings

• Share premium

• Common stock

• Treasury stock

Which of the following is NOT a characteristic of preferred stock?

• Priority in liquidation

• Fixed dividend

• Cumulative dividends

• Voting rights

What must a corporation have in order to pay a cash dividend?

• High market share

• Retained earnings and adequate cash

• No outstanding debts

• Approval from all shareholders