Liabilities & Shareholder's Equity

The shareholders of a corporation have unlimited liability.

• True

• False

Which of the following is not a characteristic of the corporate form of organization?

• Separate legal existence

• Unlimited liability for shareholders

• Easy transferability of ownership interests

• Ability to obtain large amounts of capital easily

Which of the following best describes retained earnings?

• Cash available for dividends.

• The amount initially invested in the business by stockholders.

• Cash available for expansion and growth.

• Income that has been reinvested in the business rather than distributed as dividends to stockholders.

If a business ceases operations and liquidates, which of the following will be paid last?

• Owners.

• General creditors.

• Employees.

• Creditors who have collateral for their loans.

Assuming there is no preferred stock, book value per share of common stock is derived by which of the following:

• Stockholders' equity divided by the number of shares authorized.

• Stockholders' equity divided by the number of shares outstanding.

• Net income divided by the number of shares outstanding.

• Net income divided by the number of shares authorized.

Preferred shareholders typically have the right to share in the distribution of dividends before common shareholders.

• True

• False

Stock dividends increase total shareholders’ equity.

• True

• False

Which of the following is not a disadvantage of the corporate business form?

• Separate ownership and management.

• Government regulation.

• Continuous life.

• Additional taxes.

Which of the following is not a shareholder right?

• The preemptive right.

• The right to share in dividends.

• The right to vote on the board of directors.

• The right to participate in management decisions.