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| 1.
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Which feature is NOT an advantage to the corporate form of ownership? |
| | A) | Separate legal entity. |
| | B) | Limited liability of the owners. |
| | C) | Mutual agency exists. |
| | D) | Continuity of life of the entity. |
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| 2.
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A shareholder who holds over 80% of the common shares cannot: |
| | A) | sell the shares to other parties. |
| | B) | be chairman of the board and company president at the same time. |
| | C) | elect all of the members of the board of directors. |
| | D) | bind the corporation to a contract with a third party. |
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| 3.
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Which is not a feature of the corporate form of ownership? |
| | A) | Double taxation |
| | B) | Mutual agency. |
| | C) | Government regulation. |
| | D) | Adherence to generally accepted accounting principles. |
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| 4.
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The costs of establishing a corporation and getting it ready to provide the services, or sell or manufacture the product, for which it is being formed, are called: |
| | A) | accrued expenses. |
| | B) | organization costs. |
| | C) | investment capital. |
| | D) | minimum legal capital. |
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| 5.
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The authority to declare dividends is given to the: |
| | A) | operations officers. |
| | B) | shareholders. |
| | C) | board of directors. |
| | D) | employees of the corporation. |
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| 6.
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An arbitrary value placed on shares at the time of its original issue is: |
| | A) | par value. |
| | B) | redemption value. |
| | C) | market value. |
| | D) | book value. |
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| 7.
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Which of the following is not a right of common shareholders? |
| | A) | Vote at shareholder meetings. |
| | B) | Preemptive right. |
| | C) | Sell or otherwise dispose of their shares. |
| | D) | Share equally with all other shareholders in any dividends. |
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| 8.
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A corporation issued 10,000 shares of common stock for $40 per share. The journal entry to record the issue of the shares would include: |
| | A) | a credit to Gain On The Sale of Common Shares, $400,000. |
| | B) | a cr. to Contributed Cap. in Excess of Par, Common Shares, $400,000. |
| | C) | a credit to Common Shares, $400,000. |
| | D) | a credit to Common Shares, $40,000. |
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| 9.
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Which type of stock has the right to receive dividends forfeited in prior years, should earnings become adequate. |
| | A) | cumulative preferred shares |
| | B) | participating preferred shares |
| | C) | convertible preferred shares |
| | D) | callable preferred shares |
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| 10.
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Unpaid cash dividends on preferred shares that must be paid before any cash dividend can be declared and issued to the common shares are called: |
| | A) | money in the bank. |
| | B) | dividends payable. |
| | C) | forgotten dividends. |
| | D) | dividends in arrears. |
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| 11.
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Whenever the dividend rate on preferred shares is less than the rate the corporation earns on its operations, then: |
| | A) | the rate earned by the common shareholders decreases. |
| | B) | the rate earned by the common shareholders increases. |
| | C) | the market price of the common shares decreases. |
| | D) | the market price of the preferred shares increases. |
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| 12.
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Which of the following statements is correct regarding cash dividends? |
| | A) | No journal entry is needed at the date of declaration. |
| | B) | Journal entry is required on the date of record. The entry is to show persons who own shares and to receive dividends. |
| | C) | Journal entry id required on the date of payment. The entry should debit Cash Dividends, and credit Common Dividends Payable. |
| | D) | Journal entry id required on the date of payment. The entry should debit Common Dividends Payable and credit Cash. |
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| 13.
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Which of the following statements is correct regarding Cash Dividends account? |
| | A) | Cash Dividends is a permanent account and is reported in the Retained Earnings account. |
| | B) | Cash Dividends is a temporary account. It closes to the Retained Earnings account. |
| | C) | Cash Dividends is an expense account. It closes to the Income Summary account. |
| | D) | Cash Dividends is a temporary account. It closes to the Income Summary account. |
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| 14.
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Which of the following is NOT an advantage of Common Shares? |
| | A) | The right to vote at shareholders’ meetings. |
| | B) | The preemptive right to purchase additional shares of common shares issued by the corporation in the future. |
| | C) | The right to receive dividends before other class of shareholders. |
| | D) | The right to sell or otherwise dispose of their shares. |
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| 15.
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Which of the following statement is NOT correct? |
| | A) | Preferred shareholders have the right of dividend preference. |
| | B) | Common shareholders have the preemptive right. |
| | C) | Common shareholders and preferred shareholders have the right to vote at shareholders’ meeting. |
| | D) | Preferred shareholders do not have voting rights; common shareholders have the right to vote at the shareholders’ meetings. |
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