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Exam 12: Corporations: Organization, Stock Transactions, and Dividends

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Question 1

Multiple Choice

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Which of the following statements concerning taxation is accurate?

A) Corporations pay federal income taxes but not state income taxes.
B) Corporations pay federal, and often state, income taxes.
C) Only the owners must pay taxes on corporate income.
D) Corporations pay income taxes but their owners do not.

E) C) and D)
F) None of the above

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Question 2

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If a company has preferred stock, the preferred stock dividend is added to net income when computing earnings per common share.

A) True
B) False

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Question 3

Multiple Choice

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Treasury stock that had been purchased for $5,600 last month was reissued this month for $8,500. The journal entry to record the reissuance would include a credit to

A large retained earnings account means that there is cash available to pay dividends.

On March 4 of the current year, Barefoot Bay, Inc. reacquired 5,000 shares of its common stock at $89 per share. On August 7, Barefoot Bay sold 3,500 of the reacquired shares at $100 per share. The remaining 1,500 shares were sold at $88 per share on November 29. (a) Joumalize the transaction of March 4, August 7 , and November 29. (b) What is the balance in Paid-in Capital from Sale of Treasury Stock on December 31 of the current year? (c) Why might Barefoot Bay Inc. have purchased the treasury stock?

The ability of a corporation to obtain capital is

Before a stock dividend can be declared or paid, there must be sufficient cash.

Treasury stock should be reported in the financial statements of a corporation as a(n)

Which of the following is not true of a corporation?

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: $\begin{array}{lr}\text { Year 1: } & \$ 10,000 \\\text { Year 2: } & 45,000 \\\text { Year 3: } & 90,000\end{array}$ Determine the dividends per share for preferred and common stock for the first year.

Match each of the following stockholders' equity concepts to the most appropriate term.

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

On February 1, Marine Company reacquired 7,500 shares of its common stock at $30 per share. On March 15, Marine sold 4,500 of the reacquired shares at $34 per share. On June 2, Marine sold the remaining shares at $28 per share. ​ Journalize the transaction of February 1, March 15, and June 2.

The entry to record the issuance of common stock at a price above par includes a debit to

When a corporation issues stock at a premium, it reports the premium as an other income item on the income statement.

Stockholders' equity

The initial stockholders of a newly formed corporation are called directors.

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to

When the board of directors declares a cash or stock dividend, this action decreases retained earnings.

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