Horngren's Accounting: The Financial Chapters, 11e, Global Edition

(Miller-Nobles)
Chapter 13 Corporations

1) Which of the following is true of a corporation?

A) A corporation cannot be privately held.
B) The earnings of a corporation may be subject to double taxation.
C) A corporation has a limited life.
D) The stockholders of a corporation have unlimited liability for the
corporation's debt.

2) Lack of mutual agency is best described as which of the following?

A) The liabilities of the corporation cannot be extended to the personal assets of
the stockholder.
B) Shares of stock can be readily purchased and sold by investors on an
organized stock exchange.
C) Stockholders are not authorized to sign contracts or make business
commitments on behalf of the corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay
income tax on corporate dividends.

3) Which of the following statements is true of a corporation?

A) Shareholders can be required to pay debts of the corporation.
B) Shares of stock cannot be readily purchased and sold by investors on an
organized stock exchange.
C) Shareholders are authorized to sign contracts or make business
commitments on behalf of the corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay
income tax on corporate dividends.

4) Which of the following is an advantage of the corporate form of business?

A) less degree of government regulation
B) limited liability of stockholders
C) separation of ownership and management
D) low start-up costs

5) Outstanding stock represents shares of stock that ________.

A) are held by the stockholders
B) are sold for the highest price
C) have been authorized by state law
D) have been issued but may or may not be held by stockholders

6) Which of the following is a basic right of stockholders?

A) Stockholders may sell their stock back to the company if they wish.
B) Stockholders may authorize a business contract on behalf of the
corporation.
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C) Stockholders may receive dividends from corporate earnings.
D) Stockholders may determine the issue price of common stock.

7) Which of the following is a true statement?

A) Stockholders are guaranteed annual dividends.
B) Stockholders receive their proportionate share of any assets remaining after
the corporation pays its debts and liquidates.
C) Stockholders may authorize a business contract on behalf of the
corporation.
D) Stockholders may determine the issue price of common stock.

8) The par value of stock is ________.

A) the current selling price of stock
B) the highest price for which a share can sell
C) the price paid if the corporation purchases its own stock back
D) the amount assigned by a company to a share of its stock

9) The two basic sources of stockholders' equity are ________.

A) common stock and bonds
B) common stock and preferred stock
C) paid-in capital and retained earnings
D) no-par and stated value stock

10) Paid-in capital consists of ________.

A) amounts received from customers
B) amounts raised by issuing bonds or preferred stocks
C) earnings generated by the corporation
D) amounts received from stockholders in exchange for stock

11) The retained earnings of a corporation is ________.

A) internally generated equity that is earned by profitable operations that is not
distributed to stockholders
B) externally generated equity that is contributed by shareholders
C) externally generated equity that is acquired from banks and other creditors
D) internally generated equity that is received from employee stock purchases

12) Preferred stock is stock ________.

A) that sells for a high price
B) that is distributed to employees as annual bonuses
C) that is distributed by corporations to avoid liquidation
D) that gives its owners certain advantages over common stockholders

13) Which of the following types of stock has less investment risk?
A) common stock
B) par value stock
C) no-par stock
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D) preferred stock

14) Preferred stockholders ________.

A) are guaranteed that they will not have a loss on their investment
B) are guaranteed to receive an annual dividend payment
C) receive a set percentage of corporation net income
D) receive a dividend preference over common stockholders

15) Preferred stockholders ________.

A) receive a dividend preference over common stockholders
B) are guaranteed that they will not have a loss on their investment
C) generally have voting rights
D) have more investment risk compared to common stockholders

16) In the event of a corporate liquidation, preferred stockholders ________.

A) are guaranteed to receive a full refund of the stock purchase price
B) have first claim on remaining corporate assets after debts are paid
C) are guaranteed to receive the par value of the preferred stock
D) may retain their proportionate share of voting rights

17) Bradley Corporation received cash from issuing 10,000 shares of common
stock at par on January 1, 2017. The stock has a par value of $0.01 per share.
Which is the correct journal entry to record this transaction?
A) Cash is debited for $100, and Common Stock—$0.01 Par Value is credited
for $100.
B) Cash is credited for $10,000 and Common Stock—$0.01 Par Value is
debited for $10,000.
C) Paid-In Capital in Excess of Par—Common is debited for $9,900, and
Common Stock—$0.01 Par Value is credited for $9,900.
D) Cash is debited for $10,000, Common Stock—$0.01 Par Value is credited for
$100, and Paid-In Capital in Excess of Par-Common credited for $9,900.

18) Which of the following is included in the entry to record the issuance of
5,000 shares of $8 par value common stock at $22 per share cash?
A) Cash is debited for $110,000.
B) Common Stock is debited for $40,000.
C) Common Stock is credited for $110,000.
D) Paid-In Capital in Excess of Par—Common is debited for $70,000.

19) The following information is from the December 31, 2017 balance sheet of
Lawson Corporation.

Preferred Stock, $100 par $570,000

Paid-In Capital in Excess of Par—
Preferred 37,000
Common Stock, $1 par 240,000
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Paid-In Capital in Excess of Par—
Common 520,000
Retained Earnings 201,500
Total Stockholders' Equity $1,568,500

What was the average issue price of the common stock shares? (Round your
answer to the nearest cent.)
A) $1.85
B) $1.00
C) $2.17
D) $3.17

20) Moretown, Inc. had the following transactions in 2017, its first year of
operations:

• Issued 32,000 shares of common stock. Stock has par value of $1.00 per
share and was issued at $28.00 per share.
• Earned net income of $80,000.
• Paid no dividends.

At the end of 2017, what is total stockholders' equity?

A) $32,000
B) $976,000
C) $896,000
D) $80,000

21) Green Apron, Inc. had the following transactions in 2017, its first year of
operations:

• Issued 35,000 shares of common stock. Stock has par value of $1.00 per
share and was issued at $23.00 per share.
• Earned net income of $77,000.
• Paid no dividends.

At the end of 2017, what is the total amount of paid-in capital?

A) $35,000
B) $882,000
C) $805,000
D) $77,000

22) Overton, Inc. had the following transactions in 2017, its first year of
operations:

• Issued 15,000 shares of common stock. Stock has par value of $0.01 per
share and was issued at $39.00 per share.
• Earned net income of $300,000.
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• Paid dividends of $15.00 per share.

At the end of 2017, what is total stockholders' equity?

A) $585,000
B) $660,000
C) $75,000
D) $1,110,000

23) Dallkin Corporation issued 8,000 shares of common stock on January 1,

2017. The stock has no par value and was issued at $22 per share. The journal
entry for this transaction includes a ________.
A) debit to Cash for $176,000 and a credit to Common Stock—No-Par Value for
$176,000
B) debit to Cash for $176,000 and a credit to Paid-In Capital in Excess of Par—
Common for $176,000
C) credit to Cash for $176,000 and a debit to Common Stock—No-Par Value for
$176,000
D) credit to Cash for $176,000, a debit to Paid-In Capital in Excess of Par—
Common for $8,000, and a debit to Common Stock—No-Par Value for
$168,000

24) Jenkins Realty, Inc. issued 13,000 shares of $1 stated value common stock
for $13 per share. The journal entry to record this transaction includes a
credit to ________.
A) Common Stock for $169,000
B) Paid-In Capital in Excess of Stated — Common for $13,000
C) Common Stock — $1 Stated Value for $156,000
D) Paid-In Capital in Excess of Stated — Common for $156,000

25) When 9,000 shares of $8 stated value common stock is issued at $13 per
share, ________.
A) Common Stock — $8 Stated is credited for $117,000
B) the account titled Paid-In Capital in Excess of Stated is used to record the
issue price of the stock
C) the difference between the issue price and the stated value is credited to
Paid-In Capital in Excess of Stated
D) the accounting is exactly the same as the accounting for par value stock

26) When a stockholder contributes cash to a corporation in exchange for

stock, ________.
A) liabilities and stockholders' equity are increased
B) assets and stockholders' equity are increased
C) one asset is increased and another asset is decreased
D) assets and liabilities are increased

27) On December 2, 2017, Ewell, Inc. purchases land. In payment for the land,
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Ewell, Inc. issues 10,000 shares of common stock with $8 par value. The land
has been appraised at a market value of $490,000. Which of the following is
included in the journal entry to record this transaction?
A) debit Common Stock—$8 Par Value for $80,000 and debit Paid-In Capital in
Excess of Par
—Common $410,000
B) credit Common Stock—$8 Par Value for $80,000 and credit Paid-In Capital
in Excess of Par—Common $410,000
C) credit Common Stock—$8 Par Value for $490,000
D) debit Cash $490,000

28) Osbourne, Inc. issued 50,000 shares of common stock in exchange for
manufacturing equipment. The equipment has a fair value of $1,210,000. The
stock has a par value of $0.02 per share. The journal entry to record this
transaction includes a ________.
A) debit to Cash for $12,090,000
B) credit to Gain on Sale of Common Stock for $1,260,000
C) credit to Paid-In Capital in Excess of Par—Common for $1,209,000
D) credit to Common Stock—$0.02 Par Value for $1,210,000

29) The following information is from the December 31, 2017 balance sheet of
Jackson Corporation.

Preferred Stock, $100 par $300,000

Paid-In Capital in Excess of Par—
Preferred 17,000
Common Stock, $1 par 76,000
Paid-In Capital in Excess of Par—
Common 203,000
Retained Earnings 55,600
Total Stockholders' Equity $651,600

What is the average issue price of the preferred stock shares? (Round answers
to the nearest dollar.)
A) $106
B) $100
C) $159
D) $105

30) The following information is from the December 31, 2017 balance sheet of
Tudor Corporation.

Preferred Stock, $100 par $370,000

Paid-In Capital in Excess of Par—
Preferred 21,000
Common Stock, $1 par 202,000
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Paid-In Capital in Excess of Par—
Common 316,000
Retained Earnings 83,900
Total Stockholders' Equity $992,900

What was the total paid-in capital as of December 31, 2017?

A) $686,000
B) $992,900
C) $909,000
D) $888,000

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