CHAPTER 13: INTRODUCTION TO CORPORATIONS - 20-MINUTE QUIZ #1

Income tax expense is calculated based on Profit from Operations from the income statement.

• True

• False

The legal capital and retained earnings can be used for the distribution of dividends.

• True

• False

Shareholders’ liability is generally limited; therefore, creditor recourse is limited to that of the corporate assets.

• True

• False

Retained earnings are the cumulative profit less losses and amounts distributed to shareholders since incorporation.

• True

• False

Dividends paid on common shares are shown as Dividends Expense in the Other Expenses section of the Income Statement.

• True

• False

When convertible preferred shares are converted into common shares, the company uses the current fair value to record the journal entry.

• True

• False

The redemption or call features apply to preferred shares.

• True

• False

Dividend payments become legally binding upon the date of declaration.

• True

• False

Return on equity is calculated by dividing average shareholders’ equity by profit.

• True

• False

When shares are issued for noncash assets, the cost of the assets acquired is always equal to the fair value of the shares issued.

• True

• False