Question

32. The liability of shareholders is
a. similar to the liability of the owners of a partnership.
b. similar to the liability of the owner of a proprietorship.
c. equal to an amount sufficient to satisfy all creditors.
d. limited to their property or service invested in the corporation.

33. Callable preferred shares
a. may be redeemed at any time at the shareholder’s option.
b. may be called or redeemed at the option of the issuing corporation. c. usually have voting rights.
d. have rights to participate in any new share issuance.

34. Preferred shares are often issued instead of debt
a. to avoid paying dividends to the common shareholders.
b. because a corporation’s debt-to-equity ratio has become too high. c. to increase the market value of the shares.
d. to decrease the market value of the shares.

35. Subscriptions Receivable are reported as
a. a noncurrent asset.
b. a current asset.
c. a deduction from shareholders' equity.
d. either a current asset or a deduction from shareholders' equity.

36. Direct incremental costs incurred to sell shares such as underwriting costs should be accounted for as

a. a reduction of share capital.
b. an expense of the period in which the shares are issued. c. an intangible asset.
d. a reduction of retained earnings.

37. Which of the following transactions would NOT result in a decrease to retained earnings? a. declaration and issuance of a stock dividend
b. incurrence of a net loss for the period
c. reacquisition of shares for less than the original issue price

d. correction of an error in which depreciation expense was understated in a prior period

38. Which of the following statements is NOT generally true about the legality of dividend distributions?

a. b. c.

d.

39. An a. b. c. d.

No amounts may be distributed unless the corporate capital is left intact.
The corporation must still be able to pay its liabilities when they become due.
A corporation may not pay dividends that are higher than their legally available retained earnings.
Dividends do not need to be formally approved by the Board of Directors.

entry for dividends is NOT made on the date of declaration.
date of record.
date of payment (cash dividends).

date of distribution (stock dividends).

40. If a corporation wishes to "capitalize" part of their earnings, it may issue a

1. cash dividend.

2. stock dividend.

3. property dividend.

4. liquidating dividend.

Answer 1

32) Option D - limited to their property or service invested in the corporation

33) Option B - May be called or redeemed at the option of the issuing corporation

34) Option B - Because a corporation’s debt-to-equity ratio has become too high

35) Option D - Either a current asset or a deduction from shareholders' equity

36) Option A - A reduction of share capital

37) Option A - Declaration and issuance of a stock dividend

38) Option D - Dividends do not need to be formally approved by the Board of Directors.

39) Option B - Date of record.

40) Option B - stock dividend.