OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
Multiple Choice
1. LO 14.1 Which of the following is not a characteristic that sets preferred stock apart from
common stock?
A. voting rights
B. dividend payments
C. transferability
D. ownership
Solution
D
2. LO 14.1 Issued stock is defined as stock that ________.
A. is available for sale
B. that is held by the corporation
C. has been sold to investors
D. has no voting rights
Solution
C
3. LO 14.1 Your friend is considering incorporating and asks for advice. Which of the following
is not a major concern?
A. colors for the logo
B. which state in which to incorporate
C. number of shares of stock to authorize
D. selection of the corporation name
Solution
A
4. LO 14.1 Par value of a stock refers to the ________.
A. issue price of a stock
B. value assigned by the incorporation documents
C. maximum selling price of a stock
D. dividend to be paid by the corporation
Solution
B
5. LO 14.1 Which of the following is not one of the five primary responsibilities of the
Securities and Exchange Commission (the SEC)?
A. inform and protect investors
B. regulate securities law
C. facilitate capital formation
D. assure that dividends are paid by corporations
Solution
D
6. LO 14.1 When a C corporation has only one class of stock it is referred to as ________.
A. stated value stock
B. par value stock
Page 1 of 32
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
C. common stock
D. preferred stock
Solution
C
7. LO 14.1 The number of shares that a corporation’s incorporation documents allows it to sell is
referred to as ________.
A. issued stock
B. outstanding stock
C. common stock
D. authorized stock
Solution
D
8. LO 14.2 The total amount of cash and other assets received by a corporation from the
stockholders in exchange for the shares is ________.
A. always equal to par value
B. referred to as retained earnings
C. always below its stated value
D. referred to as paid-in capital
Solution
D
9. LO 14.2 Stock can be issued for all except which of the following?
A. accounts payable
B. state income tax payments
C. property such as a delivery truck
D. services provided to the corporation such as legal fees
Solution
B
10. LO 14.3 A company issued 40 shares of $1 par value common stock for $5,000. The journal
entry to record the transaction would include which of the following?
A. debit of $4,000 to common stock
B. credit of $20,000 to common stock
C. credit of $40 to common stock
D. debit of $20,000 to common stock
Solution
C
11. LO 14.3 A company issued 30 shares of $.50 par value common stock for $12,000. The
credit to additional paid-in capital would be ________.
A. $11,985
B. $12,000
C. $15
D. $10,150
Solution
A
12. LO 14.3 A corporation issued 100 shares of $100 par value preferred stock for $150 per
share. The resulting journal entry would include which of the following?
A. a credit to common stock
Page 2 of 32
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
B. a credit to cash
C. a debit to paid-in capital in excess of preferred stock
D. a debit to cash
Solution
D
13. LO 14.3 The date the board of directors votes to declare and pay a cash dividend is called
the:
A. date of stockholder’s meeting
B. date of payment
C. date of declaration
D. date of liquidation
Solution
C
14. LO 14.3 Which of the following is true of a stock dividend?
A. It is a liability.
B. The decision to issue a stock dividend resides with shareholders.
C. It does not affect total equity but transfers amounts between equity components.
D. It creates a cash reserve for shareholders.
Solution
C
15. LO 14.4 Stockholders’ equity consists of which of the following?
A. bonds payable
B. retained earnings and accounts receivable
C. retained earnings and paid-in capital
D. discounts and premiums on bond payable
Solution
C
16. LO 14.4 Retained earnings is accurately described by all except which of the following
statements?
A. Retained earnings is the primary component of a company’s earned capital.
B. Dividends declared are added to retained earnings.
C. Net income is added to retained earnings.
D. Net losses are accumulated in the retained earnings account.
Solution
B
17. LO 14.4 If a company’s board of directors designates a portion of earnings for a particular
purpose due to legal or contractual obligations, they are designated as ________.
A. retained earnings payable
B. appropriated retained earnings
C. cumulative retained earnings
D. restricted retained earnings
Solution
D
18. LO 14.4 Corrections of errors that occurred on a previous period’s financial statements are
called ________.
A. restrictions
Page 3 of 32
, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
B. deficits
C. prior period adjustments
D. restatements
Solution
C
19. LO 14.4 Owner’s equity represents which of the following?
A. the amount of funding the company has from issuing bonds
B. the sum of the retained earnings and accounts receivable account balances
C. the total of retained earnings plus paid-in capital
D. the business owner’s/owners’ share of the company, also known as net worth or net
assets
Solution
D
20. LO 14.5 Which of the following is a measurement of earnings that represents the profit
before interest, taxes, depreciation and amortization are subtracted?
A. net income
B. retained earnings
C. EBITDA
D. EPS
Solution
C
21. LO 14.5 Which of the following measures the portion of a corporation’s profit allocated to
each outstanding share of common stock?
A. retained earnings
B. EPS
C. EBITDA
D. NOPAT
Solution
B
22. LO 14.5 The measurement of earnings concept that consists of a company’s profit from
operations after taxed are subtracted is ________.
A. ROI
B. EPS
C. EBITDA
D. NOPAT
Solution
D
23. LO 14.5 The correct formula for the calculation of earnings per share is ________.
A. (Net income + Preferred dividends) / Weighted average common shares outstanding
B. Net income / Weighted average common shares outstanding
C. (Net income – Preferred dividends) / Weighted average common shares outstanding
D. (Net income – Preferred dividends) / Treasury shares outstanding
Solution
C
24. LO 14.5 Most analysts believe which of the following is true about EPS?
Page 4 of 32
Chapter 14: Corporation Accounting
Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
Multiple Choice
1. LO 14.1 Which of the following is not a characteristic that sets preferred stock apart from
common stock?
A. voting rights
B. dividend payments
C. transferability
D. ownership
Solution
D
2. LO 14.1 Issued stock is defined as stock that ________.
A. is available for sale
B. that is held by the corporation
C. has been sold to investors
D. has no voting rights
Solution
C
3. LO 14.1 Your friend is considering incorporating and asks for advice. Which of the following
is not a major concern?
A. colors for the logo
B. which state in which to incorporate
C. number of shares of stock to authorize
D. selection of the corporation name
Solution
A
4. LO 14.1 Par value of a stock refers to the ________.
A. issue price of a stock
B. value assigned by the incorporation documents
C. maximum selling price of a stock
D. dividend to be paid by the corporation
Solution
B
5. LO 14.1 Which of the following is not one of the five primary responsibilities of the
Securities and Exchange Commission (the SEC)?
A. inform and protect investors
B. regulate securities law
C. facilitate capital formation
D. assure that dividends are paid by corporations
Solution
D
6. LO 14.1 When a C corporation has only one class of stock it is referred to as ________.
A. stated value stock
B. par value stock
Page 1 of 32
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
C. common stock
D. preferred stock
Solution
C
7. LO 14.1 The number of shares that a corporation’s incorporation documents allows it to sell is
referred to as ________.
A. issued stock
B. outstanding stock
C. common stock
D. authorized stock
Solution
D
8. LO 14.2 The total amount of cash and other assets received by a corporation from the
stockholders in exchange for the shares is ________.
A. always equal to par value
B. referred to as retained earnings
C. always below its stated value
D. referred to as paid-in capital
Solution
D
9. LO 14.2 Stock can be issued for all except which of the following?
A. accounts payable
B. state income tax payments
C. property such as a delivery truck
D. services provided to the corporation such as legal fees
Solution
B
10. LO 14.3 A company issued 40 shares of $1 par value common stock for $5,000. The journal
entry to record the transaction would include which of the following?
A. debit of $4,000 to common stock
B. credit of $20,000 to common stock
C. credit of $40 to common stock
D. debit of $20,000 to common stock
Solution
C
11. LO 14.3 A company issued 30 shares of $.50 par value common stock for $12,000. The
credit to additional paid-in capital would be ________.
A. $11,985
B. $12,000
C. $15
D. $10,150
Solution
A
12. LO 14.3 A corporation issued 100 shares of $100 par value preferred stock for $150 per
share. The resulting journal entry would include which of the following?
A. a credit to common stock
Page 2 of 32
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
B. a credit to cash
C. a debit to paid-in capital in excess of preferred stock
D. a debit to cash
Solution
D
13. LO 14.3 The date the board of directors votes to declare and pay a cash dividend is called
the:
A. date of stockholder’s meeting
B. date of payment
C. date of declaration
D. date of liquidation
Solution
C
14. LO 14.3 Which of the following is true of a stock dividend?
A. It is a liability.
B. The decision to issue a stock dividend resides with shareholders.
C. It does not affect total equity but transfers amounts between equity components.
D. It creates a cash reserve for shareholders.
Solution
C
15. LO 14.4 Stockholders’ equity consists of which of the following?
A. bonds payable
B. retained earnings and accounts receivable
C. retained earnings and paid-in capital
D. discounts and premiums on bond payable
Solution
C
16. LO 14.4 Retained earnings is accurately described by all except which of the following
statements?
A. Retained earnings is the primary component of a company’s earned capital.
B. Dividends declared are added to retained earnings.
C. Net income is added to retained earnings.
D. Net losses are accumulated in the retained earnings account.
Solution
B
17. LO 14.4 If a company’s board of directors designates a portion of earnings for a particular
purpose due to legal or contractual obligations, they are designated as ________.
A. retained earnings payable
B. appropriated retained earnings
C. cumulative retained earnings
D. restricted retained earnings
Solution
D
18. LO 14.4 Corrections of errors that occurred on a previous period’s financial statements are
called ________.
A. restrictions
Page 3 of 32
, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 14: Corporation Accounting
B. deficits
C. prior period adjustments
D. restatements
Solution
C
19. LO 14.4 Owner’s equity represents which of the following?
A. the amount of funding the company has from issuing bonds
B. the sum of the retained earnings and accounts receivable account balances
C. the total of retained earnings plus paid-in capital
D. the business owner’s/owners’ share of the company, also known as net worth or net
assets
Solution
D
20. LO 14.5 Which of the following is a measurement of earnings that represents the profit
before interest, taxes, depreciation and amortization are subtracted?
A. net income
B. retained earnings
C. EBITDA
D. EPS
Solution
C
21. LO 14.5 Which of the following measures the portion of a corporation’s profit allocated to
each outstanding share of common stock?
A. retained earnings
B. EPS
C. EBITDA
D. NOPAT
Solution
B
22. LO 14.5 The measurement of earnings concept that consists of a company’s profit from
operations after taxed are subtracted is ________.
A. ROI
B. EPS
C. EBITDA
D. NOPAT
Solution
D
23. LO 14.5 The correct formula for the calculation of earnings per share is ________.
A. (Net income + Preferred dividends) / Weighted average common shares outstanding
B. Net income / Weighted average common shares outstanding
C. (Net income – Preferred dividends) / Weighted average common shares outstanding
D. (Net income – Preferred dividends) / Treasury shares outstanding
Solution
C
24. LO 14.5 Most analysts believe which of the following is true about EPS?
Page 4 of 32
