1.

The residual interest in a corporation belongs to the

a. b. c. d. management. creditors. common stockholders. preferred stockholders.

2.

The pre-emptive right of a common stockholder is the right to

a. b. c. d. share proportionately in corporate assets upon liquidation. share proportionately in any new issues of stock of the same class. receive cash dividends before they are distributed to preferred stockholders. exclude preferred stockholders from voting rights.

3.

The pre-emptive right enables a stockholder to

a. b. c. d. share proportionately in any new issues of stock of the same class. receive cash dividends before other classes of stock without the pre-emptive right. sell capital stock back to the corporation at the option of the stockholder. receive the same amount of dividends on a percentage basis as the preferred stockholders.

4.

In a corporate form of business organization, legal capital is best defined as

a. the amount of capital the state of incorporation allows the company to accumulate over its existence. b. the par value of all capital stock issued. c. the amount of capital the federal government allows a corporation to generate. d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

5. Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders
a. are entitled to a dividend every year in which the business earns a profit. b. have the rights to specific assets of the business. c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. d. can negotiate individual contracts on behalf of the enterprise.

6.

Total stockholders' equity represents

a. b. c. d. a claim to specific assets contributed by the owners. the maximum amount that can be borrowed by the enterprise. a claim against a portion of the total assets of an enterprise. only the amount of earnings that have been retained in the business.

7.

A primary source of stockholders' equity is

a. b. c. d. income retained by the corporation. appropriated retained earnings. contributions by stockholders. both income retained by the corporation and contributions by stockholders.

8.

Stockholders' equity is generally classified into two major categories:

a. b. c. d. contributed capital and appropriated capital. appropriated capital and retained earnings. retained earnings and unappropriated capital. earned capital and contributed capital.

9.

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the
a. b. c. d. pro forma method. proportional method. incremental method. either the proportional method or the incremental method.

10.

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the
a. b. c. d. market value of the services received. par value of the shares issued. market value of the shares issued. Any of these provides an appropriate basis for recording the transaction.

11.

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?
a. b. c. d. authorized shares issued shares unissued shares outstanding shares

12.

Stock that has a fixed per-share amount printed on each stock certificate is called
a. b. c. d. stated value stock. fixed value stock. uniform value stock. par value stock.

13.

Which of the following is not a legal restriction related to profit distributions by a corporation?
a. The amount distributed to owners must be in compliance with the state laws governing corporations. b. The amount distributed in any one year can never exceed the net income reported for that year. c. Profit distributions must be formally approved by the board of directors. d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.

14.

In January 2007, Castro Corporation, a newly formed company, issued 10,000 shares of its P10 par common stock for P15 per share. On July 1, 2007, Castro Corporation reacquired 1,000 shares of its outstanding stock for P12 per share. The acquisition of these treasury shares
a. b. c. d. decreased total stockholders' equity. increased total stockholders' equity. did not change total stockholders' equity. decreased the number of issued shares.

15.

Treasury shares are

a. b. c. d. shares held as an investment by the treasurer of the corporation. shares held as an investment of the corporation. issued and outstanding shares. issued but not outstanding shares.

Use the following information for questions 1 and 2. Presented below is information related to Edis Corporation: Ordinary share, P1 par Paid-in Capital in Excess of ParCommon Stock Preferred 8 1/2% Stock, P50 par Paid-in Capital in Excess of ParPreferred Stock Retained Earnings Treasury Common Stock (at cost) 1. The total shareholders' equity of Edis Corporation is
a. b. c. d. P8,600,000. P8,750,000. P7,100,000. P7,250,000.

P4,300,000 550,000 2,000,000 400,000 1,500,000 150,000

2.

The total paid-in capital (cash collected) related to the common stock is
a. b. c. d. P4,300,000. P4,850,000. P5,250,000. P4,700,000.

3.

Bleeker Company issued 10,000 shares of its P5 par value ordinary share having a market value of P25 per share and 15,000 shares of its P15 par value preferred stock having a market value of P20 per share for a lump sum of P480,000. How much of the proceeds would be allocated to the ordinary share?
a. b. c. d. P50,000 P218,182 P250,000 P255,000

4.

Mouser Company issues 4,000 shares of its P5 par value common stock having a market value of P25 per share and 6,000 shares of its P15 par value preferred stock having a market value of P20 per share for a lump sum of P192,000. What amount of the proceeds should be allocated to the preferred stock?
a. 172,000 b. 120,000 c. 104,727 d. 90,000

5.

Adler Corporation has 50,000 shares of P10 par common stock authorized. The following transactions took place during 2008, the first year of the corporations existence: Sold 5,000 shares of ordinary share for P18 per share. Issued 5,000 shares of ordinary share in exchange for a patent valued at P100,000. At the end of the Adlers first year, total paid-in capital amounted to
a. b. c. d. 40,000. 90,000. 100,000. 190,000.