Identify the statement which is true about a corporation form of business.
Answer to Problem 1STQ
b. Fluctuations in the market value of outstanding shares of capital stock do not directly affect the amount of
Explanation of Solution
Corporation: A business concern where there is a separate legal entity, and are owned by shareholders, are known as corporation. Transfer of ownership and raising funds are easy in this form of organization. The liabilities of the stockholders to its creditors are limited up to their invested capital amount in the corporation.
Justification for incorrect options:
a.
Shareholders’ are not personally liable for the business debt. The liability of a corporation is limited, which means that the liability of stockholders is limited only to the extent of their investment amount. This is because a corporation is a separate legal entity. Thus, the corporation is liable to settle all its debts and obligations from the assets available in the corporation.
c.
A corporation is entitled to double
Thus, shareholders have to pay tax personally on the dividend income received from their investment.
d.
Shareholders are the owners of a corporation, but they elect board of directors to administer the business. Board of directors appoints professional managers to run the business.
As the ownership and management is separate in a corporation, corporation form of business prevents the stockholders to play an active role in management functions of a business corporation.
Thus, the shareholders’ do not have any right to make managerial decisions and bind the corporation to contracts.
Justification for correct option:
b.
The stockholders’ equity section of the balance sheet will not be affected, due to fluctuations in trading price of outstanding shares of capital stock. Because, the capital stocks are recorded based on the market share price on the date in which the shares were originally issued. Hence, fluctuations in trading price of outstanding shares of capital stock will not affect the stockholders’ equity section.
Want to see more full solutions like this?
Chapter 11 Solutions
FINANCIAL ACCOUNTING (LOOSELEAF)
- Amish Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $276,660 for the year, and machine usage is estimated at 125,300 hours. For the year, $296,534 of overhead costs are incurred and 132,300 hours are used. Compute the manufacturing overhead rate for the year.Need Answerarrow_forwardA company has current assets with a book value of $50 million, which could be sold for $52 million. The company's fixed assets have a book value of $120 million, but they could be sold for $150 million today. The company has total debt with a book value of $80 million, but due to declining interest rates, the market value of the debt has increased to $90 million. What is the ratio of the market value of equity to its book value? (Round to 2 decimal places)arrow_forwardWhat amount should be reported as interest payable?arrow_forward
- need this question answer General accounting questionarrow_forwardGeneral Accounting Questionarrow_forwardWhich of the following statements concerning standards is correct? A. Standards cannot be used for product costing and cash budgeting. B. Standards should not be attainable by the average worker. C. Variances are likely when compared to actual results. D. All of the above. E. None of these.arrow_forward
- What is material quantity variancearrow_forwardAmish Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $276,660 for the year, and machine usage is estimated at 125,300 hours. For the year, $296,534 of overhead costs are incurred and 132,300 hours are used. Compute the manufacturing overhead rate for the year.arrow_forwardAccounting answer?arrow_forward
- Determine the expected profit or lossarrow_forwardThe following data were taken from the accounts of Burnside Bedknobs, a retail business. Determine the gross profit. Sales Sales returns and allowances $ 1,16,900 1,100 Sales discounts 400 Merchandise inventory, January 1 30,000 Purchases during the period 1,00,000 Purchases returns and allowances during the period 2,000 Purchases discounts taken during the period 2,800 Freight-in on merchandise purchased during the period 1,500 Merchandise inventory, December 31 50,000arrow_forwardWhat is Everest Industrial solutions net income for the year on these general accounting question?arrow_forward
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education