Chapter 13 T/F

Twenty percent of all businesses in the United States are corporations and they account for 80% of the total business dollars generated.

A corporation is a separate entity for accounting purposes but not for legal purposes.

The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder.

Under the Internal Revenue Code, corporations are required to pay federal income taxes.

Double taxation is a disadvantage of a corporation because the same party has to pay taxes twice on the income.

The initial owners of stock of a newly formed corporation are called directors.

The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.

Retained earnings represents past net incomes less past dividends, therefore any balance in this account would be listed on the income statement.

The balance in retained earnings at the end of the period is created by closing entries.

The balance in retained earnings should be interpreted as representing surplus cash left over for dividends.

A deficit in Retained Earnings is reported in the stockholders' equity section of the balance sheet.

A corporation can be organized for the purpose of making a profit or it may be nonprofit.

When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds.

The par value of common stock must always be equal to its market value on the date the stock is issued.

For accounting purposes, stated value is treated the same way as par value.

The issuance of common stock affects both paid-in capital and retained earnings.

The main source of paid-in-capital is from issuing stock.

Some corporations have stopped issuing stock certificates to stockholders.

The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares issued.

Although preferred stockholders have a greater chance of receiving a regular dividend, common stockholders have a greater chance of receiving large dividends.

If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 39,000.

If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders.

When a corporation issues stock at a premium, it reports the premium as an other income item on the income statement.

When no-par stock is issued, the Common Stock account is credited for the selling price of the stock issued.

A large retained earnings account means that there is cash available to pay dividends.

When the board of director's declares a cash or stock dividend, this action decreases retained earnings.

If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $14,000.

Cash dividends are normally paid on shares of treasury stock.

One of the prerequisites to paying a cash dividend is sufficient retained earnings.

Cash dividends become a liability to a corporation on the date of record.

Before a stock dividend can be declared or paid, there must be sufficient cash.

Treasury Stock is listed in the stockholders' equity section on the balance sheet.

The retained earnings statement may be combined with the income statement.

The corporation was defined as a separate legal entity by Chief Justice Marshall during the twentieth century.

The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder.

While some businesses have been granted charters under state laws, most businesses receive their charters under federal laws.

By-laws are part of the business's charter or articles of incorporation.

Organizational expenses are classified as intangible assets on the balance sheet.

Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership.

The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.

Treasury stock should not be classified as a current asset.

Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.

Treasury stock is a contra stockholders' equity account.

The journal entry to record the purchase of treasury stock will cause total stockholders' equity to decrease by the amount of the cost of the treasury stock.

The number of common shares outstanding can never be greater than the number of shares issued.

Preferred stock has contractual preference over common stock in certain areas.

Preferred stockholders generally do not have the right to vote for the board of directors.