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Exam 8: Proprietorships, Partnerships, and Corporations

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Question 1

Multiple Choice

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Which answer would represent the financial statement presentation of the stockholders' equity section on the balance sheet after the following transactions? 1) Issued 200 shares of $20 par value common stock for $50 a share. Five hundred shares are authorized. "2) Purchased 75 shares of treasury stock at $44 a share. "

A) Choice A
B) Choice B
C) Choice C
D) Choice D

E) All of the above
F) B) and D)

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Question 2

True/False

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Proprietorships are not separate legal entities; their earnings are taxable to the owners and not to the business itself.

A) True
B) False

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Question 3

Multiple Choice

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Fred and Barney started a partnership. Fred invested $20,000 in the business and Barney invested $32,000. The partnership agreement stipulated that profits would be divided as follows: Each partner would receive a 15% return on invested capital with the remaining income being distributed equally between the two partners. Assuming that the partnership earned $38,000 during an accounting period, the amount of income assigned to the two partners would be:

The stock market crash of 1929 and the subsequent Great Depression resulted in the beginning of extensive regulation of corporations.

Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances: On December 31, Year 1, Gilligan decides to issue a 5% stock dividend. At the time of issue, the market price of the stock was $22 per share. How will the issuance of the stock dividend affect the financial statements?

The term "Retained Earnings" is best explained by which of the following statements?

The class or type of stock that every corporation must have is preferred stock.

On July 1, Year 1, Village Bookstore, Inc. appropriated retained earnings in the amount of $36,000 for a future remodeling project in the basement of the bookstore. On June 30, Year 1, the balance of Retained Earnings was $82,800 and the Cash balance was $43,200. Which of the following answers shows the effect of the July 1 event on the financial statements?

The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act of 2002.

For Year 1, the Sacramento Corporation had beginning and ending Retained Earnings balances of $208,054 and $231,012 respectively. Also during Year 1, the corporation declared and paid cash dividends of $29,000 and issued stock dividends valued at $16,000. Total expenses were $32,916. Based on this information, what was the amount of total revenue for Year 1?

Which of the following terms designates the maximum number of shares of stock that a corporation may issue?

Preferred stockholders' claims to a corporation's assets take precedence over the claims of some creditors.

An appropriation of retained earnings places a limit on the amount of dividends a corporation can declare.

Which of the following is not considered an advantage of the corporate form of business organization?

Weller Corporation issued 10,000 shares of no-par common stock for $25 per share. This event increases the common stock account by $250,000.

Curtain Co. paid dividends of $6,000; $12,000; and $20,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,000 shares of 5%, $200 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

The issuance of a stock dividend will:

In a closely held corporation, exchanges of stock are limited to transactions between individuals.

When the common stock account is disclosed on the balance sheet, it is reported at:

Powell Corporation had $10 par stock with a market price of $60, when it declared a 2-for-1 stock split. After the stock split, the number of shares outstanding will double, and the market price of the stock should drop to about $30.