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Exam 8: Proprietorships, Partnerships, and Corporations

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Question 1

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The term "double taxation" refers to which of the following?

A) Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation.
B) In a partnership, both partners are required to claim their share of net income on their tax returns.
C) A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals.
D) A sole proprietorship must pay income taxes to both the state government and the federal government.

E) B) and D)
F) B) and C)

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Question 2

True/False

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An appropriation of retained earnings places a limit on the amount of dividends a corporation can declare.

A) True
B) False

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Question 3

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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 30, Year 1, Gilligan's stockholders' equity accounts report the following balances: On December 31, Year 1, 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 dollar value of the stock dividend issued by Gilligan Corporation?

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

The Rubble-Flintstone Company was started on January 1, Year 1 as a partnership. The initial investments from the two partners were $50,000 from Rubble and $30,000 from Flintstone. During Year 1, Rubble-Flintstone Company earned $70,000 in cash revenue, paid $42,000 in cash expenses and the partners withdrew $5,000 each for their personal use. The partnership agreement calls for equal sharing of net income or loss.Required: Using only the above information, prepare an income statement, a capital statement, and a balance sheet for the Rubble-Flintstone Company.

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. Use only one letter for each element. You do not need to enter amounts. Increase = IDecrease = D No Affected = NA The stock of Atlantic Oil Company was trading at $14 per share on March 27 when the company announced that it had recently discovered a large oil reserve. The stock price immediately went up to $28 per share. The company had 10,000,000 shares outstanding. Indicate the effects of this discovery on Atlantic's financial statements.

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?

Ix Company issued 32,000 shares of $10 par value common stock at a market price of $29. As a result of this accounting event, the amount of stockholders' equity would:

Which of the following is a negative or contra equity account?

Where is treasury stock reported on a corporation's balance sheet?

Discuss some of the information items normally included in a corporation's articles of incorporation.

Ix Company issued 20,000 shares of $20 par value common stock at a market price of $32. As a result of this accounting event, the amount of stockholders' equity would:

Show the effect of a stock dividend on the accounting equation (by using "+" or "−" in the elements affected).

For Year 1, the Sacramento Corporation had beginning and ending Retained Earnings balances of $151,900 and $201,400 respectively. Also during Year 1, the corporation declared and paid cash dividends of $20,600 and issued stock dividends valued at $16,000. Total expenses were $37,416. Based on this information, what was the amount of total revenue for Year 1?

A corporation might buy some of its own stock to help keep the market price from falling.

Loudoun Corporation's balance sheet reflected the following information. $\begin{array}{llr} \text {Common stock, \$2 par } &\$140,000\\ \text { Paid-in capital in excess of par - Common } &210,000\\\end{array}$ Required: Assuming all the stock was issued in a single transaction, what was the issue price per share of the stock?

Rocco Corporation decides to issue a 7.5% stock dividend on 20,000 outstanding shares of $10 stated value common stock. The distribution is made at the time the market value of the stock is $50 a share. How will the entry to record this transaction affect the company's equity accounts?

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. Use only one letter for each element. You do not need to enter amounts. Increase = IDecrease = D No Affected = NAJack Grimes, who had held 12% of Preston Company's outstanding common stock, agreed to purchase another 8% of Preston Company's outstanding common stock from Todd Barbour, another major stockholder of Preston's. Indicate the effect of this event on Preston's financial statements.

Discuss a few common reasons for increases in the market price of a corporation's common stock.

The issuance of a stock dividend will: