Accounting 2036-Chapter 11 Test
Questions with All Correct Answers
2025-2026 Updated.
Major advantage of the corporate form of business - Answer -the ease of raising capital as
both large and small investors can participate in corporate ownership
-simple to become an owner
-easy to transfer ownership
-provides limited liability
Because a corporation is a separate legal entity, it can... - Answer -own assets
-incur liabilities
-sue and be sued
-enter into contracts
Stockholder benefits - Answer -voting rights
-dividends
-residual claims
-preemptive rights
advantages of equity - Answer -equity does not have to be repaid
-dividends are optional
advantages of debt - Answer -interest on debt is tax deductible
-debt does not change stockholder control
stockholders equity - Answer -contributed capital
-retained earnings
-treasury stock
-accumulated other comprehensive income (loss)
, treasury shares - Answer issued shares that have been reacquired by the corporation
authorized shares - Answer set number of shares that should sell (or are authorized) in a
period
par value - Answer arbitrary amount assigned to each share of stock when it is authorized
(typically a very nominal amount such as $0.01 per share)
market price - Answer the amount that each share of stock will sell for in the market
***par value IS NOT equal to the market price
no-par stock - Answer some states do not require a par value to be stated in the charter
initial public offering (IPO) - Answer the first time a corporation issues stock to the public
seasoned new issue - Answer subsequent issues of new stock to the public
JOURNAL ENTRY:
National Beverage issued 100,000 shares of $ 0.01 par value common stock for $20 per share.
***most issues of stock to the public are cash transactions - Answer Debit: Cash 2,000,000
(100,000 x $20)
Credit: Common Stock 1,000 (100,000 x $0.01)
Credit: Additional Paid-in Capital 1,999,000 (2,000,000 -1,000)
Stock exchanged between investors - Answer transactions between two investors DO NOT
affect the corporation's accounting records
Stock used to compensate employees - Answer -employees pay packages can include stock
options
-gives the employees the option to acquire company stock at a later date at a predetermined
price
-if the employees work hard and meet the corporation's goals the stock price will increase
Questions with All Correct Answers
2025-2026 Updated.
Major advantage of the corporate form of business - Answer -the ease of raising capital as
both large and small investors can participate in corporate ownership
-simple to become an owner
-easy to transfer ownership
-provides limited liability
Because a corporation is a separate legal entity, it can... - Answer -own assets
-incur liabilities
-sue and be sued
-enter into contracts
Stockholder benefits - Answer -voting rights
-dividends
-residual claims
-preemptive rights
advantages of equity - Answer -equity does not have to be repaid
-dividends are optional
advantages of debt - Answer -interest on debt is tax deductible
-debt does not change stockholder control
stockholders equity - Answer -contributed capital
-retained earnings
-treasury stock
-accumulated other comprehensive income (loss)
, treasury shares - Answer issued shares that have been reacquired by the corporation
authorized shares - Answer set number of shares that should sell (or are authorized) in a
period
par value - Answer arbitrary amount assigned to each share of stock when it is authorized
(typically a very nominal amount such as $0.01 per share)
market price - Answer the amount that each share of stock will sell for in the market
***par value IS NOT equal to the market price
no-par stock - Answer some states do not require a par value to be stated in the charter
initial public offering (IPO) - Answer the first time a corporation issues stock to the public
seasoned new issue - Answer subsequent issues of new stock to the public
JOURNAL ENTRY:
National Beverage issued 100,000 shares of $ 0.01 par value common stock for $20 per share.
***most issues of stock to the public are cash transactions - Answer Debit: Cash 2,000,000
(100,000 x $20)
Credit: Common Stock 1,000 (100,000 x $0.01)
Credit: Additional Paid-in Capital 1,999,000 (2,000,000 -1,000)
Stock exchanged between investors - Answer transactions between two investors DO NOT
affect the corporation's accounting records
Stock used to compensate employees - Answer -employees pay packages can include stock
options
-gives the employees the option to acquire company stock at a later date at a predetermined
price
-if the employees work hard and meet the corporation's goals the stock price will increase
