Question

True or False?-Corporations 1 Shareholders' equity for a corporation consists of contributedcapital and retained earnings. 1 2 - The owner of a corporation is called a director. 3 - The payment of business profits to the owners of a corporate business'is known as drawings. I 4 A dividend is a distribution of retained earnings. I 5 6 7 8 The shareholders provide all of the financing for a corporation +One of the advantages of investing in preferred shares is that you will always be paidyour dividend. I _ -The members of the Board of Directors are elected by the owners of the corporation that is, by the common and preferred shareholders. 1 -Both-interest to the creditors and dividends to the preferred shareholders must be paid-eachyear. 1 A corporation is discontinued if the only shareholder dies. 1 The market price of common shares is shown on the balance sheet. _.If a corporation goes bankrupt, the common shareholders are requiredto pay the creditors from their own resources. 1 9 10 11 12 13 In a year of huge profits, the preferred shareholders can expect higher than normal dividends. 1 The balance in retained earnings represents the cumulative earnings of a company since its inception, less the total dividends paid out. I The main goal of a responsible financial manager is high profits. 14 1

Answer 1

1. True
Shareholders equity consists of capital both common stock and preference share capital and retained earnings.

2. False
Owner of a corporation are its shareholders or stockholders and not the director. Stockholders have share in profits and have the right to elect directors and vote on major coporate decisions.

4. False
Dividend is a distribution of profits earned and not . Retained earnings is the accumulated profits which is left over after payment of dividends.

5. False
Shareholders doesn’t provide all the finances.

6. True
Preference shareholders are paid dividend even if the company is incurring losses and this is one of the advantag of investing in preference shares. It is possible that they don’t get paid in the year in which loss incurred but the dividend gets due to be paid.

7. False
Members of the board are elected by owners of the corporation i.e common stockholders and not preference shareholders. Preference shareholders do not have right to vote on election of members of the board.

8. True
It is mandatory to pay interest to creditors and dividend to preference shareholders each year even in case of losses.

9. False
The company and its owners are different in the eyes of law, therefore if all the shareholders dies still the company survives in the eyes of law.

10. False
The book value of shares is shown on the Balance sheet.

11. False
The corporations have limited liability. It means if the corporation goes into liquidation then the owners have limited liability upto the amount they subscribed to the shares. Owners are not liable to pay creditors to from their own resources.

12. False
The preference shareholders get fixed percentage as the dividend and not higher than that.

13. True
Retained earnings represents accumulated earnings less total dividends paid out.

14.False
The main goal of a financial manager is wealth maximization of shareholders and not higher profits.