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Exam 8: Proprietorships, Partnerships, and Corporations

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Question 51

True/False

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A corporation should recognize losses but not gains related to treasury stock transactions.

A) True
B) False

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Question 52

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

A) Money set aside for the redemption of bonds payable.
B) A measure of equity generated by a corporation through its operating activities.
C) Cash retained in a separate bank account designated for emergency uses.
D) The difference between total revenue and total expenses in an accounting period.

E) B) and C)
F) None of the above

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Question 53

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When a company purchases treasury stock:

During 2014, the Hartnett Corporation and the Chapel Corporation reported net incomes of $100,000 and $250,000 respectively. Both companies had 200,000 shares of common stock issued and outstanding. At December 31, 2014, the market price per share of Hartnett's stock was $31 and Chapel's' stock was $35. Required: a) Calculate the price-earnings ratio for each company. b) Based on the price-earnings ratios computed in part (a), which company do investors believe has more potential for future income growth? State your reason.

Hill Country Corporation has 90,000 shares of $10 par value common stock issued and outstanding. If Hill Country Corporation issued a 2-for-1 stock split, what dollar amount would be shown for common stock on the balance sheet after the stock split?

What is the meaning of "par value" of stock?

In which section of the balance sheet would Treasury Stock be reported?

Tyrone Gonzales started a sole proprietorship by depositing $30,000 cash in a business checking account. During the accounting period the business earned $16,000 of net income and Gonzales withdrew $10,000 cash from the business. Based on this information, at the end of the accounting period, Gonzales' capital account contained a balance of:

A reason often given for a stock split is:

Corporations are more heavily regulated by governments than are sole proprietorships and partnerships.

Double taxation is a significant disadvantage of the partnership form of business organization.

Indicate how each of the following transactions affects the financial statements model, below: a) Issued 40,000 shares of common stock with a $20 par value for cash of $25 per share. b) Purchased 400 shares of treasury stock (common stock) at $30 per share. c) Resold 100 shares of the treasury stock at $35 per share.

The Garza Company was started on January 1, 2012 as a sole proprietorship. The initial investment from J. Garza, the owner, was $40,000. During 2012, the business earned $30,000 in cash revenue and paid $20,000 in cash expenses. Ms. Garza withdrew from the business $2,000 for her personal use. Using the above information, prepare an income statement, a capital statement, and a balance sheet for the Garza Company.

Which of the following is a reason why a corporation may choose not to pay cash dividends?

At the time that Stellar Company issued a 2-for-1 stock split, the company had 1,000 shares of $5 par value common stock outstanding. Stockholders' equity also included $14,000 of additional paid in capital in excess of par value and $20,000 of retained earnings. Immediately after the stock split,

Establishing a sole proprietorship generally requires the owner to get a charter from the state government.

On February 2, 2014, Barker's Pool Supply Corporation issued 900 shares of no-par stock for $7 per share. Within two hours of the issue, the stock's price jumped on the UMSL stock exchange to $11 per share. Which of the following answers describes the effect of the February 2, 2014 transaction?

Which of the following statements is a reason why a company would buy treasury stock?

Liu Corporation's balance sheet reflected the following information.

On June 10, 2014 Thetford Builders, Inc., a publicly traded company, announced that it had been awarded a contract to build a football stadium at a contract price of $500 million. This contract would increase its projected revenues by 25% over the next three years. Which of the following statements is correct in regards to this announcement?