Mid Term Study Guide
Chapter 13
Accounting for Corporations
Questions
1. Organization expenses (costs) are incurred in creating a corporation. Examples include: legal fees, promoter fees, accountant fees, costs of printing stock certificates, and fees paid to obtain a state charter.
2. Organization expenses (costs) are reported as expenses when incurred—as part of operating expenses—because the amount and timing of their future benefit is difficult to determine. (Instructor note: Prior to SOP 98-5, organization costs were classified as part of intangible assets and then allocated to amortization expense.)
3. The board of directors of a corporation is responsible for directing the corporation's affairs. The directors are elected by the corporation’s stockholders.
4. The preemptive right of common stockholders is the right to maintain their relative ownership interests in the corporation by having the first opportunity to purchase their proportionate share of any additional common shares issued by the corporation.
5. The general rights of common stockholders include: (1) the right to vote in stockholders’ meetings, (2) the right to sell or otherwise dispose of stock, (3) the preemptive right, (4) the right to share proportionately in dividends, and (5) the right to share proportionately in assets remaining after the creditors are paid when, and if, the corporation is liquidated. In addition, stockholders have the general right to receive timely and useful financial reports that describe the corporation’s financial position and the results of its activities.
6. Authorized shares represent the maximum number of shares that a corporation’s charter allows it to sell. Outstanding shares are the number of issued shares that are held by stockholders. The number of authorized shares usually exceeds the number of issued shares, often by a large amount.
7. Convertible preferred stock is potentially attractive because it offers the safety of a regular return
Accounting for Corporations
Questions
1. Organization expenses (costs) are incurred in creating a corporation. Examples include: legal fees, promoter fees, accountant fees, costs of printing stock certificates, and fees paid to obtain a state charter.
2. Organization expenses (costs) are reported as expenses when incurred—as part of operating expenses—because the amount and timing of their future benefit is difficult to determine. (Instructor note: Prior to SOP 98-5, organization costs were classified as part of intangible assets and then allocated to amortization expense.)
3. The board of directors of a corporation is responsible for directing the corporation's affairs. The directors are elected by the corporation’s stockholders.
4. The preemptive right of common stockholders is the right to maintain their relative ownership interests in the corporation by having the first opportunity to purchase their proportionate share of any additional common shares issued by the corporation.
5. The general rights of common stockholders include: (1) the right to vote in stockholders’ meetings, (2) the right to sell or otherwise dispose of stock, (3) the preemptive right, (4) the right to share proportionately in dividends, and (5) the right to share proportionately in assets remaining after the creditors are paid when, and if, the corporation is liquidated. In addition, stockholders have the general right to receive timely and useful financial reports that describe the corporation’s financial position and the results of its activities.
6. Authorized shares represent the maximum number of shares that a corporation’s charter allows it to sell. Outstanding shares are the number of issued shares that are held by stockholders. The number of authorized shares usually exceeds the number of issued shares, often by a large amount.
7. Convertible preferred stock is potentially attractive because it offers the safety of a regular return