Chapter 13 T/F – Flashcards
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Twenty percent of all businesses in the United States are corporations and they account for 80% of the total business dollars generated.
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A corporation is a separate entity for accounting purposes but not for legal purposes.
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The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder.
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Under the Internal Revenue Code, corporations are required to pay federal income taxes.
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Double taxation is a disadvantage of a corporation because the same party has to pay taxes twice on the income.
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The initial owners of stock of a newly formed corporation are called directors.
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The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.
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Retained earnings represents past net incomes less past dividends, therefore any balance in this account would be listed on the income statement.
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The balance in retained earnings at the end of the period is created by closing entries.
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The balance in retained earnings should be interpreted as representing surplus cash left over for dividends.
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A deficit in Retained Earnings is reported in the stockholders' equity section of the balance sheet.
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A corporation can be organized for the purpose of making a profit or it may be nonprofit.
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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.
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The par value of common stock must always be equal to its market value on the date the stock is issued.
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For accounting purposes, stated value is treated the same way as par value.
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The issuance of common stock affects both paid-in capital and retained earnings.
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The main source of paid-in-capital is from issuing stock.
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Some corporations have stopped issuing stock certificates to stockholders.
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The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares issued.
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Although preferred stockholders have a greater chance of receiving a regular dividend, common stockholders have a greater chance of receiving large dividends.
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If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 39,000.
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If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders.
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When a corporation issues stock at a premium, it reports the premium as an other income item on the income statement.
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When no-par stock is issued, the Common Stock account is credited for the selling price of the stock issued.
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A large retained earnings account means that there is cash available to pay dividends.
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When the board of director's declares a cash or stock dividend, this action decreases retained earnings.
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If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $14,000.
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Cash dividends are normally paid on shares of treasury stock.
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One of the prerequisites to paying a cash dividend is sufficient retained earnings.
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Cash dividends become a liability to a corporation on the date of record.
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Before a stock dividend can be declared or paid, there must be sufficient cash.
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Treasury Stock is listed in the stockholders' equity section on the balance sheet.
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The retained earnings statement may be combined with the income statement.
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The corporation was defined as a separate legal entity by Chief Justice Marshall during the twentieth century.
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The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder.
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While some businesses have been granted charters under state laws, most businesses receive their charters under federal laws.
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By-laws are part of the business's charter or articles of incorporation.
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Organizational expenses are classified as intangible assets on the balance sheet.
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Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership.
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The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.
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Treasury stock should not be classified as a current asset.
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Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.
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Treasury stock is a contra stockholders' equity account.
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The journal entry to record the purchase of treasury stock will cause total stockholders' equity to decrease by the amount of the cost of the treasury stock.
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The number of common shares outstanding can never be greater than the number of shares issued.
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Preferred stock has contractual preference over common stock in certain areas.
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Preferred stockholders generally do not have the right to vote for the board of directors.
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