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Exam 11: Proprietorships, partnerships, and Corporations

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Question 21

Multiple Choice

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

A) Because management believes the market price of the stock is undervalued.
B) To have stock available to issue to employees in stock option plans.
C) To avoid a hostile takeover.
D) All of these are reasons a company would buy treasury stock.

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

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Question 22

Multiple Choice

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Which of the following statements best describes the term "par value?"

A) The number of shares currently in the hands of stockholders
B) The amount that must be paid to purchase a share of stock
C) Determined by dividing total stockholder's equity by the number of shares of stock
D) An amount used in determining a corporation's legal capital

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

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Question 23

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The number of shares of stock outstanding generally is greater than the number of shares of stock issued.

Fred and Barney started a partnership.During Year 1,Fred invested $20,000 in the business and Barney invested $32,000.The partnership agreement called for each partner to receive an annual distribution equal to 15% of his capital contribution.Any further earnings were to be retained in the business and divided equally between the partners.The partnership reported net income of $38,000 during Year 1.How will the $38,000 of net income be split between Fred and Barney respectively? (Hint: Consider both the cash withdrawals and allocation of remaining income.) Fred Barney

On September 1,Year 1,Orville Corporation has unrestricted retained earnings of $600,000,appropriated retained earnings of $400,000,cash of $850,000,and accounts payable of $50,000.What is the maximum amount that can be used for cash dividends?

Which of the following entities would have a "Paid-in Capital in Excess" account in the equity section of the balance sheet?

Chadwick Associates retained $850,000 of net income in the business in Year 1.If $75,000 was appropriated to satisfy the restrictive covenant of a loan agreement,what are the effects of the appropriation on the elements of the financial statements?

Kellogg,Inc.purchased 200 shares of its own $20 par value stock for $30 cash per share.Which of the following answers reflects how this purchase of treasury stock would affect the elements of Kellogg's financial statements?

Which form of business organization is established as a separate legal entity?

Chisolm Corporation issued 10,000 shares of $5 par common stock for $22 per share.As a result of this transaction,Chisolm's legal capital increased by $50,000.

Helena Corporation declared a 2-for-1 stock split on 8,000 shares of $6 par value common stock.If the market price of the stock had been $25 a share before the split,the par value,number of shares,and approximate market value after the split would be:

A partner is responsible for his/her own actions,but not for actions taken by another partner on behalf of the partnership.

A purchase of treasury stock is an asset use transaction.

[The following information applies to the questions displayed below.] Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock. As of December 31, Year 3, Gilligan's stockholders' equity accounts report the following balances: At the end of Year 3, Gilligan decides to issue a 5% stock dividend. At the time of issue, the market price of the stock was $22 per share. -What is the number of shares outstanding after the stock dividend is issued?

On February 2,Year 1,Farmer Corporation issued 9,000 shares of no-par stock for $17 per share.Within two hours of the issue,the stock's price jumped on the New York Stock Exchange to $21 per share.Which of the following answers describes the effect of the February 2 transaction on the elements of the financial statements?

Ben Weaver is planning to invest in one of the following companies based on their average performance over the past five years,summarized below. If Ben is looking for a company that is likely to achieve rapid growth in revenues and profitability,which one should he choose?

The earnings of sole proprietorships are taxable to the owners rather than the company itself.

Treasury Stock is reported on the balance sheet between the liabilities and stockholders' equity sections.

Which of the following is a contra equity account?

Personal liability is a significant disadvantage of the partnership form of business organization.