Chapter Twelve Questions

Chapter Twelve Questions - Chapter Twelve Questions 1....

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Chapter Twelve Questions 1. Define the term contributed capital. Contributed capital is the source of resources invested by owners . It represents the dollar amount of resources invested in the corporation by its owners. 2. Identify three basic forms of business. Proprietorships, partnerships, and corporations. 3. Define the term corporation. A corporation is a company whose legal existence is separate from its owners' existence . It has its own rights, which are separate from those of its owners and operators . For example, corporations may buy, own, and sell resources and enter into contracts, such as borrowing resources and hiring employees. 4. Why is limited liability important to owners of corporations? With limited liability, owners are at risk for only the dollar amounts they invest in corporations. This means the maximum amounts owners can lose are the amounts they invest. Without limited liability, owners are at risk for all their resources, not just the amounts they invest. 5. List two responsibilities that increase when companies incorporate. Corporations must pay income taxes and face increased regulations, such as those of the Securities and Exchange Commission. 6. Identify three major rights of stockholders. Elect the board of directors . Receive dividends when declared . Receive assets when the corporation is liquidated. 7. Identify two important responsibilities of corporate boards of directors. Determining the corporation's long-term goals and objectives . Selecting top management, such as, the president, vice-president, and treasurer . Declaring dividends . Determining terms for bonds and stock issues.
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8. Identify the major responsibility of managers. Managers are responsible for the day-to-day operation of corporations. Their major responsibility is to use the corporations' resources to generate additional resources (net income). 9. Define the term authorized shares. Authorized shares are those shares a corporation's charter allows to be sold to owners. As such, the authorized shares represent the maximum number of shares that can be issued to obtain resources from owners. 10. Define the term issued shares. Issued shares are those shares sold to owners and not retired by the corporation. Most issued shares are in the hands of owners, but some issued shares may have been purchased by the corporation and are still being held by the corporation (treasury stock). 11. How is par value used to record the issuance of stock? The dollar amounts reported in preferred stock accounts and common stock accounts are determined by multiplying the par value of the stock shares by the number of shares issued to owners. Any amounts received in excess of par value are reported in additional paid-in capital accounts. 12. List two preferences preferred stockholders have over common stockholders.
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter Twelve Questions - Chapter Twelve Questions 1....

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