Chapter 11 Test

Chapter 11 Test - 15% (5 out of 33 correct) Responses to...

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15% (5 out of 33 correct) Responses to questions are indicated by the symbol. 1. The par value of corporate shares issued represents a corporation's legal capital. A. True B. False This value must be maintained to ensure creditor's claims against the corporation. 2. Which of the following represents the maximum number of shares a corporation can issue? A. Outstanding shares B. Issued shares C. Authorized shares D. Treasury shares The number of shares issued less treasury shares is the number of shares outstanding. 3. If a corporation issues 1,000 shares of $3 par common stock for $7 a share, how much is the legal capital? A. $7,000 B. $3,000 C. $4,000 D. $0 The legal capital is the par value per share times the number of shares issued. 4. Ernest, an individual, receives $100 from Vernon Corp. in dividends and is in the 28% tax bracket. Vernon Corp. already paid corporate taxes on the $100 at a 20% tax rate. How much in personal taxes will Ernest need to pay? A. $0 B. $28 C. $8
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D. $20 One of the disadvantages of a corporate structure is the corporation pays its own tax burden on net income and then the stockholders pay income tax on the dividends they receive. 5. Which of the following represents the amount per share of stock that must be retained in the business for the protection of corporate creditors? A. Legal capital B. Par value C. Market value D. Stated value Correct! Legal capital is the amount per share that must be retained in the business for protection of the corporate creditors. Par value is an arbitrary amount listed in the corporate charter, and market value is the selling price of a share of stock on a given day. Stated value is a value assigned to no-par stock by the board of directors. 6. Which of the following is not a characteristic of a corporation? A. Separate legal existence B. Unlimited liability for stockholders C. Easy transfer of ownership interests D. Ability to acquire capital easily One of the major advantages of a corporation is that it is a separate legal entity apart from its owners. 7. DT Inc. issued 3,000 shares of $5 par value common stock for $6 per share. Which of the following is one part of the journal entry to record the issuance? A. Debit to Paid-in Capital in Excess of Par Value for $3,000 B. Debit to Cash for $15,000 C. Credit to Common Stock for $15,000 D. Credit to Common Stock for $18,000
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The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. 8. Wynola, Inc. issued 1,000 shares of common stock at $10 per share. If the stock has a par value of $4 per share, which of the following will be part of the journal entry to record the issuance? A.
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Chapter 11 Test - 15% (5 out of 33 correct) Responses to...

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