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Exam 11: Proprietorships, Partnerships, and Corporations

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Question 41

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A benefit of corporations is that they are free from double taxation.

A) True
B) False

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Question 42

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On what date do dividends become a legal liability of a corporation?

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Dividends become a l...

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Question 43

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On January 1, 2013, the organizers of the Farsa Corporation obtained their charter authorizing 40,000 shares of $1 par common stock. Farsa issued 10,000 shares of $2 par common stock for $16 per share. During 2013, the corporation earned $120,000 in cash revenue and paid $80,000 in cash expenses, not including income tax. The company declared and paid cash dividends totaling $8,000. Farsa Corporation is in the 30% tax bracket. Using the above information, prepare an income statement and a balance sheet for the Farsa Corporation.

The stock of Big Oil Co. was trading at $12 per share on March 27 when the company announced that it had recently discovered a large oil reserve. The stock price immediately went up to $18 per share. The company had 10,000,000 shares outstanding. Indicate the effects of this discovery on Big's financial statements.

Chiang Corporation issued 10,000 shares of $4 par common stock for $22 per share. As a result of this transaction, Chiang's legal capital increased by $40,000.

Liability is a significant disadvantage of the partnership form of business organization.

The par value of a company's stock

Which of the following reflects the financial statement effects on the May 1, 2013 date of payment?

Which form of business organization is established as a legal entity separate from its owners?

The declaration and issuance of a stock dividend will

Xi Company issued 20,000 shares of $10 par value common stock at a market price of $16. As a result of this accounting event, the amount of stockholders' equity would

The balance sheet of a sole proprietorship will report two equity accounts: one for amounts contributed by the owner, and one for the business's earnings.

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

A purchase of treasury stock is an asset exchange transaction.

Discuss possible reasons why a corporation may establish an appropriation of retained earnings.

When the Common Stock account is disclosed on the balance sheet, it is reported at:

The issuance of a stock dividend will

Mary Brown, who had held 12% of Patterson Company's outstanding common stock, agreed to purchase another 8% of Patterson Company's outstanding common stock from Chad Reynolds, another major stockholder of Patterson's. Indicate the effect of this event on Patterson's financial statements.

The Ballard-Frye partnership was formed on January 1, 2013, when Ballard and Frye invested $80,000 and $60,000 cash in the partnership, respectively. During 2013, the partnership earned $150,000 in cash revenues and paid $104,000 in cash expenses. Ballard withdrew $10,000 cash from the business during the year, and Frye withdrew $8,000. The partnership agreement specified that net income should be allocated equally to the partners' capital accounts. Required: Indicate how each of the transactions and events for the Ballard-Frye partnership affects the financial statements model, below. Indicate dollar amounts of increases and decreases. For cash flows, indicate whether each is an operating activity (OA), investing activity (IA), or financing activity (FA). Indicate NA if an element is not affected by a transaction.

Santino Co. declared a cash dividend but has not yet paid the money to the shareholders.