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Exam 8: Proprietorships, Partnerships, and Corporations

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Question 51

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Which of the following is a reason why a corporation may choose not to pay cash dividends?

A) The board and management prefer to reinvest all net income for future growth.
B) The corporation does not have adequate Cash.
C) The corporation does not have adequate Retained Earnings.
D) All of these are valid reasons not to pay dividends.

E) A) and B)
F) A) and C)

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Question 52

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A reason often given for a stock split is:

A) to protect the interest of creditors.
B) to reduce the market price of the stock.
C) to increase the par value of the stock.
D) to absorb the treasury stock.

E) A) and C)
F) A) and D)

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Question 53

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Indicate how each of the following transactions affects the financial statements model, below: a) Issued 40,000 shares of common stock with a $20 par value for cash of $25 per share. b) Purchased 400 shares of treasury stock (common stock) at $30 per share. c) Resold 100 shares of the treasury stock at $35 per share.

Double taxation is a significant disadvantage of the partnership form of business organization.

Liu Corporation's balance sheet reflected the following information.

At the time that Stellar Company issued a 2-for-1 stock split, the company had 1,000 shares of $5 par value common stock outstanding. Stockholders' equity also included $14,000 of additional paid in capital in excess of par value and $20,000 of retained earnings. Immediately after the stock split,

When a company purchases treasury stock:

On February 2, 2014, Barker's Pool Supply Corporation issued 900 shares of no-par stock for $7 per share. Within two hours of the issue, the stock's price jumped on the UMSL stock exchange to $11 per share. Which of the following answers describes the effect of the February 2, 2014 transaction?

On June 10, 2014 Thetford Builders, Inc., a publicly traded company, announced that it had been awarded a contract to build a football stadium at a contract price of $500 million. This contract would increase its projected revenues by 25% over the next three years. Which of the following statements is correct in regards to this announcement?

A corporation should recognize losses but not gains related to treasury stock transactions.

Establishing a sole proprietorship generally requires the owner to get a charter from the state government.

During 2014, the Hartnett Corporation and the Chapel Corporation reported net incomes of $100,000 and $250,000 respectively. Both companies had 200,000 shares of common stock issued and outstanding. At December 31, 2014, the market price per share of Hartnett's stock was $31 and Chapel's' stock was $35. Required: a) Calculate the price-earnings ratio for each company. b) Based on the price-earnings ratios computed in part (a), which company do investors believe has more potential for future income growth? State your reason.

Hill Country Corporation has 90,000 shares of $10 par value common stock issued and outstanding. If Hill Country Corporation issued a 2-for-1 stock split, what dollar amount would be shown for common stock on the balance sheet after the stock split?

What is the meaning of "par value" of stock?

The Garza Company was started on January 1, 2012 as a sole proprietorship. The initial investment from J. Garza, the owner, was $40,000. During 2012, the business earned $30,000 in cash revenue and paid $20,000 in cash expenses. Ms. Garza withdrew from the business $2,000 for her personal use. Using the above information, prepare an income statement, a capital statement, and a balance sheet for the Garza Company.

The term "Retained Earnings" is best explained by which of the following statements?

Corporations are more heavily regulated by governments than are sole proprietorships and partnerships.

In which section of the balance sheet would Treasury Stock be reported?

Which of the following statements is a reason why a company would buy treasury stock?

Tyrone Gonzales started a sole proprietorship by depositing $30,000 cash in a business checking account. During the accounting period the business earned $16,000 of net income and Gonzales withdrew $10,000 cash from the business. Based on this information, at the end of the accounting period, Gonzales' capital account contained a balance of: