Part 2 — REVIEW QUESTIONS ON THE SUBJECT OF CORPORATION ACCOUNTS
Reading edition
1. Into what two general classes are corporations divided? Name and give examples of two classes of private corporations.
2. How are joint stock companies distinguished from corporations? In what ways are they like corporations?
3. How are corporations created? Name 5 common requirements of the certificate of incorporation or application for a corporate charter.
4. What is meant by a stockholder, and how may a person become a stockholder in a corporation? What is a stock certificate?
5. What is meant by the capitalization of a corporation? What is the difference in meaning of the terms capital and capital stock, as these terms are usually understood?
6. Define the two principal classes of stock issued by corporations. Name and define two kinds of preferred stock. What is meant by the term treasury stock? Watered stock?
7. By whom are the affairs of a corporation managed? From whom do they receive their authority? Has a director, as such, the power individually to bind the corporation?
8. What special powers have the directors? In what way do the powers of officers and directors differ?
9. Name five of the necessary powers of a corporation, as such. Name three of the rights of an individual stockholder.
10. What is meant by a dividend? By whose authority are dividends declared? What is your understanding of the term stock dividend?
11. What class of records is implied by the term corporation bookkeeping? Name, and describe briefly, the books used in corporation bookkeeping.
12. Give examples of the proper entries on the books, under the following conditions:
(a) The entire capital stock ($100,000.00) is subscribed and paid for in cash.
(b) Only $60,000.00 of the stock is subscribed, but this is paid in cash. It is not desired to show on the books more capital than is paid in.
(c) Cash subscriptions are received for $49,000.00 of an authorized issue of $100,000.00, but it is desired to show the total capitalization on the books.
(d) The entire capital stock ($150,000.00) is subscribed but not paid in. It is desired to show the capital stock, without opening accounts in the general books with individual subscribers.
(e) A payment of 20% is called for on the above stock.
13. A corporation is organized with a capitalization of $50,000.00 to take over the business of Henry Thompson. He is to pay his liabilities out of his assets, and transfer the balance of the property belonging to the business to the corporation, receiving $25,000.00 full paid stock. The following discloses the condition of his affairs:
ASSETS
Cash in Bank $1164.50
Accounts Receivable 3760.00
Real Estate 10000.00
Merchandise Inventory 7642.50
Furniture and Fixtures 600.00 $23167.00
————
LIABILITIES
Bills Payable 1000.00 1000.00
———— ————
Balance $22167.00
What is the proper entry on the books of the corporation, the balance of the stock being unsubscribed?
14. A corporation agrees to purchase a mine, issuing $1,000,000.00 full paid stock in payment. The owner of the mine, to whom the stock is issued, agrees to donate to the company $500,000.00 of his stock to provide working capital. Subsequently, $100,000.00 of this stock is sold at 50% of its face value; $200,000.00 at 60%; $100,000.00 at 70%; and $100,000.00 at par. Working capital is maintained at the amount realized from the sale of the donated stock. Make all entries to show these transactions, it being understood that all subscriptions are paid in cash.
15. If the stock of a corporation sells at a premium, how would you enter the amount received above par? To what account would you transfer the premium when closing the books?
16. What would be the entries in the stock books to record the transactions shown in questions 12 and 14?
17. A promoter organizes a corporation to develope a mine, receiving as his fee $50,000.00 in stock. What are the entries on the books of the corporation?
18. The profits of a corporation with a paid up capital of $200,000.00, are $18,750.00. The directors declare a cash dividend of 6%, and create a special surplus fund of $5,000.00. Make all necessary entries.
19. The losses of the above corporation during the following year were $2,750.00. Make proper entries, with full explanations.
20. The accumulated surplus of a corporation capitalized at $1,000,000.00, with a paid up capital of $600,000.00, is $110,000.00; the current profits are $100,000.00. The directors declare a cash dividend of 7%, and a stock dividend of 25%. Make all entries to record these transactions on the general books of the corporation.
21. The following statistics are taken from the books of a corporation:
Capital Stock $300,000.00
Merchandise Inventory 97,600.00
Machinery 110,800.00
Undivided Profits 600.00
Profit and Loss (Credit) 31,210.00
It is desired to set aside a special surplus fund as a machinery depreciation reserve, the depreciation being figured at 10% a year, and to pay a dividend of 6%. What entries are necessary?
22. Parsons, Young, and Searles are partners and decide to form a corporation with capital stock of $40,000.00, which is to be issued as full paid stock in exchange for their present business. Each partner is to receive stock in proportion to his interest in the present business. The balance sheet of the partnership is as follows:
ASSETS
Cash $3,500.00
Bills Receivable 6,000.00
Accounts Receivable 6,500.00
Merchandise 14,000.00
—————
Total $30,000.00
LIABILITIES
Bills Payable 4,000.00
Accounts Payable 2,000.00
Parsons 10,000.00
Young 8,000.00
Searles 6,000.00
—————
Total 30,000.00
Make entries on books of the partnership.
Make entries on books of the corporation.
23. Hoadley and Stockton are partners and desire to incorporate a company. The stock is to be divided equally between Hoadley and Stockton after giving Hopper $1,000.00. The balance sheet of the partnership is as follows:
ASSETS
Cash $960.00
Accounts Receivable 1,570.00
Merchandise 720.00
—————
Total $3,250.00
LIABILITIES
Accounts Payable 460.00
Bills Payable 500.00
Hoadley 1,145.00
Stockton 1,145.00
—————
Total 3,250.00
Make all necessary entries on the books of the partnership.
Make open entries on the books of the new company.
24. The National Manufacturing Co. has an authorized capital of $100,000.00 of which $60,000.00 is paid up and $40,000.00, unsubscribed. It is decided to permit employes to subscribe for $10,000.00 of the stock by paying 10 per cent in cash, all dividends declared to be applied to the payment of subscriptions.
What entries are made when this stock is subscribed for?
A 10 per cent dividend being declared at the end of the first year, what entry is required?
25. The Atlas Novelty Co. has a capital stock of $50,000.00. All of the stock has been subscribed for, but only 40 per cent has been paid. A surplus of $10,000.00 has been accumulated. It is desired to reduce the stock to $25,000.00 full paid. What is the necessary proceeding, and what entries are required?
26. A company has a capital stock of $50,000.00 full paid, and a surplus of $11,172.00. A stockholder who owns $7,000.00 stock in the company wishes to dispose of his stock and, to secure cash, offers to sell it to the company at par. His offer is accepted and the stock purchased, but the company does not wish to reduce its capitalization. What is the entry?
27. What is a reserve? Give three examples showing purposes for which reserves are created.
28. What is a reserve fund? Why is a reserve fund treated as a liability?
29. What is a sinking fund, and what is its purpose?
30. What is a bond? Describe three classes of bonds.
31. When bonds are issued, by what account are they represented in the ledger? Does this account represent an asset, or a liability?
32. If bonds are sold at a premium, to what account is the premium credited? Would it be correct to credit this premium to profit and loss? Why?
33. To what account is the interest paid on bonds charged? When bonds are sold with accrued interest, which is paid by the purchaser, what disposition is made of the interest received? What disposition should be made of expense incurred in the sale of bonds?
34. What is the most important point to be kept in mind when devising a system of accounts for a manufacturing business?
35. From what items is the manufacturing account made up? What does the balance of manufacturing account represent?
36. Describe, briefly, a method of obtaining the necessary statistics to make up the manufacturing account for a business in which but one line of goods are manufactured? What is the object of sectionalizing the pay-roll by departments?
37. What is an expense inventory account; when is it used; and how is it made up? When is an expense liability considered; by what account is it represented; and how is the account made up?
38. What is meant by a balance ledger? Illustrate a form of balance ledger.
39. For what purpose is an invoice register used? Explain the general plan of such a book.
40. Make up a manufacturing account from the data given on Page 76. Show the journal entries used in making up this account.