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Exam 8: Proprietorships, Partnerships, and Corporations

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Question 1

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Indicate whether each of the following statements is true or false. 1. Limited liability is an advantage of both corporations and partnerships but not sole proprietorships 2. Unlike a partnership, a corporation is not terminated when a major stockholder withdraws his or her investment 3. Corporations are subject to more governmental regulations than sole proprietorships 4. Double taxation refers to the fact that corporations have to pay both federal and state income taxes 5. A corporation is a legal entity separate from its owners

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1. False
2...

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Question 2

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All corporations are subject to extensive government regulation.

A) True
B) False

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Question 3

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On September 11, 2014, the Hafar Corporation has unrestricted Retained Earnings of $6,000,000, Appropriated Retained Earnings of $4,000,000, Cash of $7,500,000, and Accounts Payable of $500,000. What is the maximum amount that the corporation could use for cash dividends on that date?

A partner is responsible for (liable for) his/her own actions and also for actions taken by another partner on behalf of the partnership.

At the end of the accounting period, Isaac Company had a balance of $4,000 in its common stock account, additional paid in capital of $4,000, retained earnings of $3,000, and $1,000 of treasury stock. The total amount of stockholders' equity is:

Gruening Company declared and paid a cash dividend. Which of the following choices accurately reflects how this event would affect the company's financial statements?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Susan Englert began her sole proprietorship on January 7, 2014 by contributing $10,000 cash to the business. Indicate the effects of this transaction on the business's financial statements. $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues } & \text { Expenses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

What kind of transaction is the declaration of a stock dividend?

Ease of transferability of ownership is one of the important advantages of the corporate form of business organization.

On January 1, 2012, the organizers of the Parsons Corporation obtained their charter and issued 10,000 shares of $1 par common stock for $4 per share. During 2012, the corporation earned $30,000 in cash revenue and paid $20,000 in cash expenses, not including income tax. The income tax rate was 30%, and the company's income tax expense was $3,000. The company declared and paid cash dividends totaling $2,000. Using the above information, prepare an income statement and a balance sheet for the Parsons Corporation.

On March 1, 2014 Garrison, Incorporated declared the annual cash dividend on its 1,500 outstanding shares of $5 par value, 5% noncumulative preferred stock. The dividend will be paid on May 1, 2014, to the stockholders of record as of April 1, 2014. What effect will the declaration of the dividend have on Garrison's financial statements?

Explain how the equity section of a balance sheet differs among sole proprietorships, partnerships and corporations.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Sanders Co. issued 10,000 shares of common stock for $35 per share. The stock has a par value of $10. $\begin{array}{|l|l|l|l|l|l|}\text { Assets Liabilities } & \text { Equity } & \text { Revenues } & \text { Expenses } & \begin{array}{c}\text { Net } \\\text { Income }\end{array} & \begin{array}{c}\text { Cash } \\\text { Flow }\end{array}\\\hline&&&\end{array}$

The declaration of a cash dividend will

A 10% preferred stock dividend is declared. The declaration and subsequent issuance do/does

According to some studies, the Sarbanes-Oxley Act of 2002 has had a negative effect on some public companies. Describe the negative result.

On January 2, 2014, the Hoover Corporation issued 25,000 shares of $10 stated-value common stock for $24 per share. Which of the following statements is true?

When the Common Stock account is disclosed on the balance sheet, it is reported at the ________ of the common stock.

Describe sole proprietorships, partnerships and corporations, indicating advantages and disadvantages of each form of organization.

Purchase of treasury stock would be shown on the statement of cash flows as