Audit of Stockholders' Equity

TRUE-FALSE—Conceptual 1. A corporation is incorporated in only one state regardless of the number of states in which it operates. 2. The preemptive right allows stockholders the right to vote for directors of the company. 3. Common stock is the residual corporate interest that bears the ultimate risks of loss. 4. Earned capital consists of additional paid-in capital and retained earnings. 5. True no-par stock should be carried in the accounts at issue price without any additional paid-in capital reported. 6. Companies allocate the proceeds received from a lump-sum sale of securities based on the securities’ par values. 7. Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received. 8. Treasury stock is a company’s own stock that has been reacquired and retired. 9. The cost method records all transactions in treasury shares at their cost and reports the treasury stock as a deduction from capital stock. 10. When a corporation sells treasury stock below its cost, it usually debits the difference between cost and selling price to Paid-in Capital from Treasury Stock. 11. Participating preferred stock requires that if a company fails to pay a dividend in any year, it must make it up in a later year before paying any common dividends. 12. Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at stipulated prices. 13. The laws of some states require that corporations restrict their legal capital from distribution to stockholders. 14. The SEC requires companies to disclose their dividend policy in their annual report. 15. All dividends, except for liquidating dividends, reduce the total stockholders’ equity of a corporation. 16. Dividends payable in assets of the corporation other than cash are called property dividends or dividends in kind.