Summary Business Accounting

Accounting 25th Edition Solution




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Chapter 13--Corporations: Organization, Stock Transactions, and
Dividends Key

,1. Twenty percent of all businesses in the United States are corporations and they account for 80% of the total
business dollars generated.
FALSE



2. A corporation is a separate entity for accounting purposes but not for legal purposes.
FALSE



3. The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested
by the stockholder.
TRUE



4. Under the Internal Revenue Code, corporations are required to pay federal income taxes.
TRUE



5. Double taxation is a disadvantage of a corporation because the same party has to pay taxes twice on the
income.
FALSE



6. The initial owners of stock of a newly formed corporation are called directors.
FALSE



7. While some businesses have been granted charters under state laws, most businesses receive their charters
under federal laws.
FALSE



8. Organizational expenses are classified as intangible assets on the balance sheet.
FALSE



9. The two main sources of stockholders' equity are investments contributed by stockholders and net income
retained in the business.
TRUE

,10. Retained earnings represents past net incomes less past dividends, therefore any balance in this account
would be listed on the income statement.
FALSE



11. The balance in Retained Earnings at the end of the period is created by closing entries.
TRUE



12. The balance in Retained Earnings should be interpreted as representing surplus cash left over for dividends.
FALSE



13. A deficit in Retained Earnings is reported in the stockholders' equity section of the balance sheet.
TRUE



14. When no-par common stock with a stated value is issued for cash, the common stock account is credited for
an amount equal to the cash proceeds.
FALSE



15. The par value of common stock must always be equal to its market value on the date the stock is issued.
FALSE



16. For accounting purposes, stated value is treated the same way as par value.
TRUE



17. The issuance of common stock affects both paid-in capital and retained earnings.
FALSE



18. The main source of paid-in-capital is from issuing stock.
TRUE

, 19. The number of shares of outstanding stock is equal to the number of shares authorized minus the number of
shares issued.
FALSE



20. The amount of capital paid in by the stockholders of the corporation is called legal capital.
FALSE



21. If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the dividends per share
would be $4.
TRUE



22. If 50,000 shares are authorized, 41,000 shares are issued, and 2,000 shares are reacquired, the number of
outstanding shares is 43,000.
FALSE



23. Preferred stockholders must receive their current year dividends before the common stockholders can
receive any dividends.
TRUE



24. If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common
stockholders.
FALSE



25. Paid-in capital may originate from real estate donated to the corporation.
TRUE



26. The par value of stock is an arbitrary per share amount defined in many states as legal capital.
TRUE



27. A large public corporation normally uses registrars and transfer agents to maintain records of the
stockholders.
TRUE