Accounting

1. Which form of business organization is established as a legal entity separate from its owners?
a. Sole proprietorship
b. Corporation
c. Partnership
d. None of these
2. The term "double taxation" refers to which of the following:
a. A sole proprietorship must pay income taxes on its net income and the owner is also required to pay
income taxes on withdrawals.
b. In a partnership, both partners are required to claim their share of net income on their tax returns.
c. Corporations must pay income taxes on their net income, and their stockholders must pay income taxes
on their dividends.
d. A sole proprietorship must pay income taxes to both the state government and the federal government.
3. The difference between the corporate form of business organization and other forms is most commonly
shown in which of the following sections of the financial statements?
a. Equity on the balance sheet.
b. Expenses on the income statement.
c. Assets on the balance sheet.
d. Revenue on the income statement.
4. The term "Retained Earnings" is best explained by which of the following statements?
a. Money set aside for the redemption of bonds.
b. A measure of capital generated through operating activities.
c. Cash retained in a separate bank account designated for emergency uses.
d. The difference between total revenue and total expenses in an accounting period.
5. Which of the following statements about types of business entities is true?
a. One advantage of a corporation is limited liability.
b. Ownership in a partnership is represented by having shares of capital stock.
c. For accounting purposes a sole-proprietorship is not a separate entity from its owner.
d. Sole-proprietorships are subject to double-taxation.
6. Which of the following terms designates the maximum number of shares of stock that a corporation
may issue?
a. number of shares outstanding
b. number of shares authorized
c. treasury stock
d. number of shares issued
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7. Which of the following is not normally a preference given to the holders of preferred stock?
a. the right to vote before the common stockholders at the corporation's annual meeting.
b. the right to receive a specified amount of dividends prior any being paid to common stockholders.
c. the right to receive preference over common stockholders as to the distribution of assets during a
liquidation process.
d. All of these are preferences given to preferred stock.
8. Flint Corp. issued 10,000 shares of stock for $150,000. Flint was authorized to issue 25,000 shares.
What effect will this event have on the company's accounting equation?
a. Increase assets by $375,000 increase, equity by $375,000.
b. Increase assets by $150,000, increase net income by $150,000.
c. Increase assets by $150,000, increase equity by $150,000.
d. Both B and C.
9. On February 2, 2008, the Polly Pool Supply Corporation issued 900 shares of stock for $7 per share.
Within two hours of the issue, the stock's price jumped on the UMSL stock exchange to $11 per share.
Which of the following answers describes the effect of the February 2, 2008 transaction?

a.
b.
c.
d.
10. Where is treasury stock reported on a corporation's balance sheet?
a. in the long-term asset section
b. as a deduction from total paid-in capital
c. as a deduction from total stockholders' equity, following Retained Earnings
d. as a deduction from Retained Earnings
11. When a company purchases treasury stock,
a. total equity decreases.
b. cash flow from investing activities decreases.
c. total assets are unaffected.
d. total liabilities increase
12. Which of the following statements is a reason why a company would buy treasury stock?
a. because management believes the market price of stock is undervalued.
b. to have stock available to issue to employees in stock option plans.
c. to avoid a hostile takeover.
d. all of these are reasons a company would buy treasury stock.
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13. Mitchell Company was authorized to issue 50,000 shares of common stock. The company had issued
22,000 shares of stock when it purchased 5,000 shares of treasury stock. The number of outstanding
shares of common stock was:
a. 45,000.
b. 28,000.
c. 22,000.
d. 17,000.
14. Madison Co. paid dividends of $3,000; $6,000; and $10,000 during 2007, 2008 and 2009,
respectively. The company had 500 shares of preferred stock outstanding that paid a $10 per share
cumulative dividend. The amount of dividends received by the common shareholders during 2009 would
be:
a. $5,000.
b. $4,000.
c. $3,000.
d. $2,000.
15. The declaration of a cash dividend will
a. decrease assets and equity.
b. increase liabilities and decrease equity.
c. decrease liabilities and increase equity.
d. increase assets and liabilities.
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1. Which form of business organization is established as a legal entity separate from its owners?

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