1-20 T or F 1. The financial loss that each stockholder in a corporation can inc

Question

1-20 T or F 1. The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder. 2. Double taxation is a disadvantage of a corporation because the same party has to pay taxes twice er ets on the income. 3. The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.xs 4. Retained earnings represents past net incomes less past dividends, therefore any balance in this account would be listed on the income statement. 5. The balance in Retained Earnings at the end of the period is created by closing entries. 6. The balance in Retained Earnings should be interpreted as representing surplus cash left over for dividends 7. If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the dividends per share would be $4 8. If 50,000 shares are authorized, 41,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 43,000 9. If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders. 10. If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $15,000. 11. When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture. 12. If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond. 13. When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

Explanation / Answer

1. True

2. False

3. True

4. False

5. True

6. False

7. True

8. False, No. of outstanding shares = 39,000 shares

9. False, Creditors are given priority over preferred stockholders

10. False, Cash dividend would be = (15,000 - 500) x $1 = $14,500

11. False

12. True

13. True

14. True

15. True

16. False, Interest for 6 months = ($20,000 x 12%) / 2 = $1,200

17. True

18. True

19. True

20. False. Correct times interest earned is = ($100,000 + $8,500) / $8,500 = 12.76

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