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ACC 102 Chapter 13 Review Questions

1. A corporation is a separate legal entity organized under state law. It has unique characteristics including stockholders not being personally liable for corporate debts and an indefinite life. 2. There are different types of stock such as common stock, which represents basic ownership, and preferred stock, which has advantages like priority in receiving dividends. 3. Sources of stockholders' equity include paid-in capital from stock issuances and retained earnings from profitable operations not distributed to stockholders.

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80 views2 pages

ACC 102 Chapter 13 Review Questions

1. A corporation is a separate legal entity organized under state law. It has unique characteristics including stockholders not being personally liable for corporate debts and an indefinite life. 2. There are different types of stock such as common stock, which represents basic ownership, and preferred stock, which has advantages like priority in receiving dividends. 3. Sources of stockholders' equity include paid-in capital from stock issuances and retained earnings from profitable operations not distributed to stockholders.

Uploaded by

Kaitlyn Maki
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Maki 1

Kaitlyn Maki

Professor Gina Heaney

Accounting 102

June 28, 2020

Chapter 13: Corporations

1. A corporation is a business organized under state law that is a separate legal entity.

2. Corporations have many unique characteristics. A corporation is a separate legal entity,

stockholders are not personally liable for the debts of the corporation, and corporations have

an indefinite life.

3. Authorized stock is the maximum number of shares of stock that a corporate charter allows

the corporation to issue. Outstanding stock is issued stock in the hands of stockholders.

4. The four basic rights of stockholders are voting, dividends, liquidation, and preemptive right.

5. Common stock represents the basic ownership of a corporation. Preferred stock gives its

owner certain advantages over common stockholders, such as the right to receive dividends

before the common stockholders and the right to receive assets before the common

stockholders if the corporation liquidates.

6. Par value is an amount assigned by a company to a share of its stock.

7. The two basic sources of stockholders’ equity are pain-in capital and retained earnings. Paid-

in capital represents amounts received from the stockholders of a corporation in exchange for

stock. Retained earnings is equity earned by profitable operations of a corporation that is not

distributed to stockholders.

8. Paid-in Capital in Excess of Par account is used to record the premium when issuing

common stock. Paid-in Capital in Excess of Par is an equity account.


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9. If stock is issued for assets other than cash, the transaction is recorded at the market value of

the stock issued or the market value of the assets received, whichever is more clearly

determined. The asset account would be debited in place of the cash account.

10. Treasury stock is a corporation’s own stock that it has previously issued and later acquired.

Treasury stock is a contra equity account with a debit normal balance.

11. Treasury stock is reported at the end of the balance sheet, where it will be deducted from the

amounts in stockholders' equity.

12. When cash dividends are declared, there is an increase in liabilities and a decrease in

stockholders’ equity. When cash dividends are paid, there is a decrease in both assets and

liabilities.

13. The three relevant dates involving cash dividends are the declaration date, the date of record,

and the payment date.

14. Cumulative preferred stock shareholders must receive all dividends in arrears plus the current

year dividends before the common stockholders receive a dividend. On the other hand,

owners of noncumulative preferred stock do not receive passed dividends.

15. A stock dividend is a distribution by a corporation of its own stock to its stockholders.

16. There is no effect on the accounting equation when a stock dividend is declared or when a

stock dividend is distributed.

17. Corporations issue stock dividends to continue dividends but conserve cash, to reduce the

market price per share of its stock, and the reward inventors.

18. A stock split is an increase in the number of issued and outstanding shares of stock coupled

with a proportionate reduction in the par value of the stock.

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