Question

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

Answer 1

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

d. Corporations are required to file federal income tax returns.

2. Characteristics of a corporation include

d. Shareholders who have limited liability

3. One of the main disadvantages of the corporate form is the

b. Double taxation of dividends


4. Under the corporate form of business organization

a. Ownership rights are easily transferred.


5. Those most responsible for the major policy decisions of a corporation are the

b. Board of directors.


6. Stockholders' equity

d. Is shown on the income statement

7. The price at which a stock can be sold depends upon a number of factors. Which statement below is not one of those factors?

b. Investor expectations of the corporation's earning power


8. Which of the following accounts below is reported in the paid-in capital/stockholders' equity section of the corporate balance sheet?

b. Stock Dividends


9. The excess of issue price over par of common stock is termed a(n)

d. Premium

Answer 2

Answer:

1. b; 2. d; 3. b; 4. a; 5. b; 6. c; 7. c; 8. d; 9. d; 10. c.

11.

April 1st Dr Cash                                                 $220,000

               Cr Common stock                               $50,000

               Cr Paid-up capital - common stock    $170,000

(to record the issuance of 10,000 common shares $5 par value at $22)  

April 7    Dr Cash                                                  $520,000

               Cr Preferred stock                                $250,000

               Cr Paid-up capital - preferred stock    $270,000  

(to record the issuance of 5,000 shares $50 par value at $104)              

Explanation:

1. Cash dividends is not a form of expenses in a corporation, in fact it is the distribution of earnings from corporation to its shareholders; thus not tax deducted.

2. In a corporation, shareholders are only liable to the amount of shareholding they possess. Thus, their liability to the corporation is limited.

3. One of the main disadvantage of corporation is the double taxation system. It is because a corporation and its shareholders are considered to be two separate legal entities so they all have to pay their income tax. This makes the income earned at the corporate is liable for paying corporate tax before it is paid to its shareholders under the form of dividend which is once again being taxed as at individual level since it is one of the income source(s) of the shareholders.

4. Shareholders can easily traded their owneship in a corporation through selling/buying its share without asking permission from the corporation's other shareholders or its management. Moreover, usually the market value of these shares are at a appropriate level for trading at individual level.

5. Though Management runs the daily business activities, Management's activities should be under the direction of other major policy decisions (eg: growth strategy in the next 5 years) of a corporation which is made by Board of Directors.

6. Stock's equity simply includes all the amount that shareholders have been contributed to a corporation under the form of buying/holding its common/preferred stock and the amount of net earnings a corporation retained.

7. The price of a stock is usually valued by assesing its current financial health including its financial position, earnings, risks and prospects. From that, potential stock investors form up an expectation on the stock price.

8.  As explained in 6, the answered is d.

9. Stock issued at price over par value is termed a premium.

10. As there is 60,000 issued and 10,00 reacquired, the outstanding is 60k -10k =50k.

11. Descriptions are put under each journal entry for explanation.