Question

2.Disadvantages of a corporation compared to a proprietorship or partnership do not include:

ownership separated from management.

separate legal existence.

potential for additional tax.

increased cost and complexity.

3.A company’s authorized shares are:

the number of shares owned by shareholders.

the total number of shares the company is allowed to sell.

the number of shares with the authority to vote on the board of directors.

the number of shares authorized to receive regular dividends.

4.

A company issues 5,000 common shares to its lawyers in settlement of their bill for $25,000. The shares are currently trading at $6 per share. The entry to record this transaction will credit common shares for:

$30,000

$5,000

$25,000

$125,000

5.

In order to pay a dividend the company must:

have enough cash on hand to pay for its ongoing operations as they become due.

ensure their legal capital is maintained.

have a declaration of dividends by the board of directors.

have all of these.

6.

What is the correct journal entry to adjust for income tax expense?

Income tax expense
     Retained Earnings

Income tax expense
     Income tax payable

Operating expense
     Income tax payable

Retained Earnings
     Income tax payable

Answer 1

2. Option (b) is correct

Separate legal existence is not a disadvantage of a corporation as compared to sole proprietorship and partnership. Separate legal existence means that a corporation is a distinct entity separate from its owners. So its owners cannot be sued for the acts of the corporation. This feature is not applicable for partnership and sole proprietorship. It is an advantage of the corporation form of business.

Options a, c and d are incorrect as these are disadvantages of the corporation.

3. Option (b) is correct

A company's authorized shares are the total number of shares the company is allowed to sell.

4. Option (c) is correct

Commons shares will be credited by $25000

5. Option (d) is correct

All the given options are correct

6. Option (b) is correct

Correct journal entry is:

Debit Income tax expense

Credit Income tax payable