MCQs_Company Shares

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1.

The
stockholders of a corporation have unlimited liability.

A.

True

B.

False

2.

Which
of these is not a major advantage of a corporation?

A.

Separate
legal existence

B.

Continuous
life

C.

Government
regulations

D.

Transferable
ownership rights

3.

Which
one of the following is a major disadvantage of a
corporation?

A.

Limited
liability of stockholders

B.

Additional
taxes

C.

Transferable
ownership rights

D.

Limited
life

4.

Which
of the following is not a characteristic of a corporation?

A.

Separate
legal existence

B.

Unlimited
liability for stockholders

C.

Easy
transfer of ownership interests

D.

Ability
to acquire capital easily

5.

Which
of the following is a disadvantage of the corporate business
form?

A.

No
income taxes

B.

Government
regulation

C.

Continuous
life

D.

Easy
acquisition of capital

6.

Which
of the following is not a stockholder’s right?

A.

The
preemptive right

B.

The
right to share in dividends

C.

The
right to vote in the election for the board of directors

D.

The
right to participate in management decisions

7.

Ernest,
an individual, receives $100 from Vernon Corp. in dividends and is in the 28%
tax bracket. Vernon Corp. already paid corporate taxes on the $100 at a 20%
tax rate. How much in personal taxes will Ernest need to pay?

A.

$0

B.

$28

C.

$8

D.

$20

8.

The par
value of corporate shares issued represents a corporation’s legal capital.

A.

True

B.

False

9.

Which
of these statements is false?

A.

Ownership
of common stock gives the owner a voting right.

B.

The
stockholders’ equity section begins with paid-in capital amounts.

C.

The
authorization of capital stock does not result in a formal accounting
entry.

D.

Legal
capital is intended to protect stockholders.

10.

If a
corporation issues 1,000 shares of $3 par common stock for $7 a share, how
much is the legal capital?

A.

$7,000

B.

$3,000

C.

$4,000

D.

$0

11.

Which
of the following represents the amount per share of stock that must be
retained in the business for the protection of corporate creditors?

A.

Legal
capital

B.

Par
value

C.

Market
value

D.

Stated
value

12.

Which
of the following represents the maximum number of shares a corporation can
issue?

A.

Outstanding
shares

B.

Issued
shares

C.

Authorized
shares

D.

Treasury
shares

13.

DT Inc.
issued 3,000 shares of $5 par value common stock for $6 per share. Which of
the following is one part of the journal entry to record the issuance?

A.

Debit
to Paid-in Capital in Excess of Par Value for $3,000

B.

Debit
to Cash for $15,000

C.

Credit
to Common Stock for $15,000

D.

Credit
to Common Stock for $18,000

14.

Wynola,
Inc. issued 1,000 shares of common stock at $10 per share. If the stock has a
par value of $4 per share, which of the following will be part of the journal
entry to record the issuance?

A.

Credit
to Common Stock for $4,000

B.

Debit
to Cash for $4,000

C.

Credit
to Paid-in Capital in Excess of Par Value for $10,000

D.

Debit
to Retained Earnings for $6,000

15.

Harrison,
Inc. issued 4,000 shares of common stock at $12 per share. If the stock has a
par value of $0.50 per share, which of the following will be part of the
journal entry to record the issuance?

A.

Credit
to Common Stock for $2,000

B.

Debit
to Cash for $4,000

C.

Credit
to Paid-in Capital in Excess of Par Value for $48,000

D.

Debit
to Retained Earnings for $46,000

16.

Harrison,
Inc. issued 600 shares of common stock at $10 per share. If the stock was
no-par value stock, which of the following will be part of the journal entry
to record the issuance?

A.

Debit
to Cash for $600

B.

Credit
to Paid-in Capital in Excess of Par for $600

C.

Credit
to Common Stock for $6,000

D.

Debit
to Paid-in Capital $6,000

17.

The
13th Street Grill issued 10,000 of $1 par value common stock for $5 per
share. Which of the following will be part of the journal entry to record the
issuance?

A.

A
debit of $10,000 to Common Stock

B.

A
debit of $50,000 to Common Stock

C.

A credit
of $10,000 to Common Stock

D.

A
credit of $50,000 to Common Stock

18.

Dynatech
issues 1,000 shares of $10 par value common stock at $12 per share. When the
transaction is recorded, which accounts are credited?

A.

Common
Stock $10,000 and Gain on Stock Sale $2,000

B.

Common
Stock $12,000

C.

Common
Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000

D.

Common
Stock $10,000 and Retained Earnings $2,000

19.

When
treasury stock is purchased, the number of outstanding shares decreases.

A.

True

B.

False

20.

For
what reason might a company acquire treasury stock?

A.

To
reissue the shares to officers and employees under bonus and stock
compensation plans

B.

To
signal to the stock market that management believes the stock is overpriced

C.

To
increase profit

D.

To
increase the number of shares of stock outstanding

21.

Which
one of the following decreases when a corporation purchases treasury stock?

A.

Authorized
shares

B.

Issued
shares

C.

Treasury
shares

D.

Outstanding
shares

22.

What
method is normally used to account for treasury stock?

A.

Stated
value method

B.

Legal
value method

C.

Par
value method

D.

Cost
method

23.

If
1,000 shares of $5 par common stock are reacquired by a corporation for $12 a
share, by how much will total stockholders’ equity be reduced?

A.

$5,000

B.

$12,000

C.

$0

D.

$7,000

24.

A
corporation sold 1,000 shares of its $2.00 par value common stock for $10.00
per share and later repurchased 100 of those shares for $12.00 per share.
Which of the following will be debited to record the repurchase of the 100
shares?

A.

Common
Stock for $1,200

B.

Treasury
Stock for $1,200

C.

Treasury
Stock for $200

D.

Cash
for $1,200

25.

Which
of the following increases when a corporation purchases treasury stock?

A.

Number
of shares authorized

B.

Number
of shares issued

C.

Number
of treasury shares

D.

Number
of outstanding shares

26.

A
cumulative dividend feature means that preferred stockholders must be paid
only current-year dividends before common stockholders receive dividends.

A.

True

B.

False

27.

Dividends
in arrears are reported as a current liability on the balance sheet.

A.

True

B.

False

28.

A
corporation has cumulative preferred stock on which it pays dividends of
$20,000 per year. The dividends are in arrears for two years. If the
corporation plans to distribute $90,000 as dividends in the current year, how
much will the common stockholders receive?

A.

$20,000

B.

$30,000

C.

$40,000

D.

$60,000

29.

Which
one of the following statements is incorrect?

A.

Dividends
cannot be paid on common stock while any dividend on preferred stock is in
arrears.

B.

Dividends
in arrears on preferred are not considered a liability.

C.

Dividends
may be paid on common stock while dividends are in arrears on preferred
stock.

D.

When
preferred stock is noncumulative, any dividend passed in a year is lost
forever.

30.

Which
one of the following is nota right of preferred
stockholders?

A.

Priority
in relation to dividends

B.

Priority
voting rights

C.

Priority
to the assets in the event of liquidation

D.

Priority
to dividends, assets and voting rights.

31.

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

A.

Dividend
preference

B.

Preference
to assets in the event of liquidation

C.

Cumulative
dividends

D.

All
of the answer choices are correct

32.

M-Bot
Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred
stock outstanding at December 31, 2014. No dividends were declared in 2012 or
2013. If M-Bot wants to pay $375,000 of dividends in 2014, how much will
common stockholders receive?

A.

$0

B.

$295,000

C.

$215,000

D.

$135,000

33.

How are
dividends in arrears reported in the financial statements?

A.

As a
liability

B.

As an
expense

C.

In a
footnote

D.

As an
equity item

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