Multiple Choice Identify the choice that best completes the statement or answers the
question.
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1.
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The dominant form of business organization in Canada in terms of dollar sales
volume, earnings, and employees is
a. | the sole proprietorship. | b. | the partnership. | c. | the
corporation. | d. | not known. |
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2.
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Shareholders of a corporation directly elect
a. | the president of the corporation. | b. | the board of directors. | c. | the controller of
the corporation. | d. | all of the employees of the corporation. |
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3.
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Which one of the following would not be considered an advantage of the corporate
form of organization?
a. | Limited liability of owners | b. | Separate legal existence | c. | Continuous
life | d. | Government regulation |
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4.
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The ability of a corporation to obtain capital is
a. | enhanced because of limited liability and ease of share
transferability. | b. | less than a partnership. | c. | restricted because of the limited life of the
corporation. | d. | about the same as a partnership. |
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5.
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Which of the following statements concerning taxation is accurate?
a. | Partnerships pay provincial income taxes but not federal income
taxes. | b. | Corporations pay federal income taxes but not provincial income
taxes. | c. | Corporations pay federal and provincial income taxes. | d. | Only the owners must
pay taxes on corporate income. |
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6.
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Which of the following statements is not considered a disadvantage of the
corporate form of organization?
a. | Additional taxes | b. | Government regulations | c. | Limited liability of
shareholders | d. | Separation of ownership and management |
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7.
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Which one of the following is not an ownership right of a shareholder in a
corporation?
a. | To vote in the election of directors | b. | To declare dividends on the common
shares | c. | To share in assets upon liquidation | d. | To share in corporate
earnings |
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8.
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If no par shares are issued, then
a. | the par value is automatically $1 per share. | b. | the entire proceeds
are considered to be legal capital. | c. | there is no legal capital. | d. | the corporation is
automatically in violation of its state charter. |
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9.
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The term residual claim refers to a shareholder's right to
a. | receive dividends. | b. | share in assets upon
liquidation. | c. | acquire additional shares when offered. | d. | exercise a proxy
vote. |
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10.
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Which of the following factors does not affect the initial market price of a
share?
a. | The company's anticipated future earnings | b. | The legal capital of
the share | c. | The current state of the economy | d. | The expected dividend rate per
share |
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11.
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Retained earnings
a. | is unique to the corporate form of business. | b. | is an optional
account in the partnership form of business. | c. | reflects cash paid in by shareholders to
date. | d. | is closed at the end of the year. |
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12.
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Dividends are declared out of
a. | Share Capital. | b. | Contributed Capital in Excess of Stated
Value. | c. | Retained Earnings. | d. | Reacquired
Shares. |
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13.
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Retained earnings is
a. | always equal to the amount of cash that the corporation has generated from
operations. | b. | a part of the contributed capital of the corporation. | c. | a part of the
shareholders' claim on the total assets of the corporation. | d. | closed at the end of
each accounting period. |
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14.
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If common shares are issued for an amount greater than stated value, the excess
should be credited to
a. | Cash. | b. | Retained Earnings. | c. | Contributed Capital
in Excess of Stated Value. | d. | Legal Capital. |
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15.
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If shares are issued for a non-cash asset, the asset should be recorded on the
books of the corporation at
a. | fair market value. | b. | cost. | c. | zero. | d. | a nominal
value. |
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16.
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If shares with a stated value are issued for a non-cash asset that has a market
value in excess of the stated value, the account
a. | Contributed Capital in Excess of Stated Value is credited. | b. | Contributed Capital
in Excess of Stated Value is debited if a debit balance exists in the account. | c. | Contributed Capital
in Excess of Stated Value is debited if a credit balance exists in the account. | d. | Retained Earnings is
credited. |
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17.
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Which of the following is not a right or preference associated with preferred
shares?
a. | The right to vote | b. | First claim to dividends | c. | Preference to
corporate assets in case of liquidation | d. | To receive dividends in arrears before common
shareholders receive dividends |
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18.
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Contributed Capital in Excess of Stated Value
a. | is credited when no par shares do not have a stated value. | b. | is reported as part
of contributed capital on the balance sheet. | c. | represents the amount of legal
capital. |
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19.
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Dividends in arrears on cumulative preferred shares
a. | never have to be paid. | b. | must be paid before common shareholders can
receive a dividend. | c. | should be recorded as a current liability until
they are paid. | d. | enable the preferred shareholders to share equally in corporate earnings with the
common shareholders. |
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20.
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Dividends in arrears on cumulative preferred shares
a. | are considered to be a noncurrent liability. | b. | are considered to be
a current liability. | c. | only occur when preferred dividends have been
declared. | d. | should be disclosed in the notes to the financial
statements. |
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21.
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Two classifications appearing in the contributed capital section of the balance
sheet are
a. | preferred shares and common shares. | b. | contributed capital and retained
earnings. | c. | share capital and additional contributed capital. | d. | share capital and
retained earnings. |
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22.
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Which one of the following is not necessary in order for a corporation to pay a
cash dividend?
a. | Adequate cash | b. | Approval of shareholders | c. | Declaration of
dividends by the board of directors | d. | Retained
earnings |
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23.
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The date on which a cash dividend becomes a binding legal obligation is on
the
a. | declaration date. | b. | date of record. | c. | payment
date. | d. | last day of the fiscal year end. |
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24.
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The cumulative effect of the declaration and payment of a cash dividend on a
company's financial statements is to
a. | decrease total liabilities and shareholders' equity. | b. | increase total
expenses and total liabilities. | c. | increase total assets and shareholders'
equity. | d. | decrease total assets and shareholders' equity. |
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25.
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The effect of a stock dividend is to
a. | decrease total assets and shareholders' equity. | b. | change the
composition of shareholders' equity. | c. | decrease total assets and total
liabilities. | d. | increase the book value per common share. |
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26.
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Which one of the following events would not require a formal journal entry on a
corporation's books?
a. | 2-for-1 stock split | b. | 100% stock dividend | c. | 2% stock
dividend | d. | $1 per share cash dividend |
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27.
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Regular dividends are declared out of
a. | Contributed Capital in Excess of Par Value. | b. | Preferred
Shares. | c. | Common Shares. | d. | Retained
Earnings. |
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28.
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Dividends Payable is classified as a
a. | long-term liability. | b. | contra shareholders' equity account to
Retained Earnings. | c. | current liability. | d. | shareholders'
equity account. |
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29.
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Common Stock Dividends Distributable is
a. | a revenue account. | b. | an asset account. | c. | a liability
account. | d. | a type of shareholders’ equity account. |
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30.
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The declaration of a stock dividend will
a. | increase contributed capital. | b. | change the total of shareholders'
equity. | c. | increase total liabilities. | d. | increase total
assets. |
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31.
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A stock split
a. | will change the value per share.. | b. | will increase total contributed
capital. | c. | will increase the total value of the shares. | d. | will have no effect
on the value per share. |
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32.
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A prior period adjustment that corrects income of a prior period requires that
an entry be made to
a. | an income statement account. | b. | a current year revenue or expense
account. | c. | the retained earnings account. | d. | an asset
account. |
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33.
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If the board of directors authorizes a $100,000 restriction of retained earnings
for a future plant expansion, the effect of this action is to
a. | decrease total assets and total shareholders' equity. | b. | increase
shareholders' equity and decrease total liabilities. | c. | decrease total
retained earnings and increase total liabilities. | d. | reduce the amount of retained earnings
available for dividend declarations. |
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34.
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Prior period adjustments are reported
a. | on the current year's statement of retained earnings. | b. | on the current
year's cash flow statement | c. | on the current year's income
statement. |
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35.
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A prior period adjustment for understatement of net income
a. | will be credited to the Retained Earnings account. | b. | will be debited to
the Retained Earnings account. | c. | will show as a gain on the current year's
Income Statement. | d. | will show as an asset on the current
year's Balance Sheet. |
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36.
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When a change in accounting principle occurs,
a. | nothing should be done. | b. | the new principle should be used in reporting
the results of operations of the current year, and the cumulative income effect of prior years should
be reflected on the statement of retained earnings as an adjustment to the opening
balance. | c. | the cumulative effect of the change in principle should be reflected on the income
statement as of the beginning of the next year. | d. | the cumulative effect of the change in
accounting principle should be classified as an extraordinary item on the income
statement. |
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37.
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The issuing of additional common shares (all else being equal) would have the
following effect on earnings per share:
a. | increase. | b. | decrease. | c. | not be
affected. | d. | be impossible to calculate. |
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