the Costs of Bringing a Corporation Into Existence, Including Legal Fees, Promoter Fees

. The costs of bringing a corporation into existence, including legal fees, promoter fees, and amounts paid to obtain a charter are called: A. Minimum legal capital. B. Stock subscriptions. C. Organization costs. D. Cumulative costs. E. Prepaid fees.

2. The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a: A. Preemptive right. B. Proxy right. C. Right to call. D. Financial leverage. E. Voting right.

3. Buying stock in a corporation is attractive to investors because: A. Stockholders are not liable for the corporation's actions and debts. B. Stock is easily transferred. C. A corporation has unlimited life. D. Shareholders are not agents of the corporation. E. All of these.

4. The total amount of cash and other assets received by a corporation from its stockholders in exchange for common stock is: A. Always equal to its par value. B. Always equal to its stated value. C. Referred to as paid-in capital. D. Referred to as retained earnings. E. Always below its stated value.

5. Stockholders' equity consists of: A. Long-term assets. B. Paid-in capital and retained earnings. C. Paid-in capital and par value. D. Retained earnings and cash. E. Premiums and discounts.

6. Retained earnings: A. Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception. B. Can only be appropriated by setting aside a cash fund. C. Represent an amount of cash available to pay shareholders. D. Are never adjusted for anything other than net income or dividends. E. All of these.

7. A company had a beginning balance in retained earnings of $43,000. It had net income of $6,000 and paid out cash dividends of $5,625 in the current period. The ending balance in retained earnings equals: A. $108,625. B. $(12,625). C. $11,375. D. $43,375. E. $(11,375).

8. Shamrock Company had net income of $30,000. On January 1, the number of shares of common stock outstanding were 8,000. There were no other stock transactions. The company's earnings per share is: A. $3.75. B. $3.00. C. $3.33. D. $15.00. E. $3.16.

9. A bond traded at 102½ means that: A. The bond pays 2.5% interest. B. The bond traded at $1,025 per $1,000 bond. C. The market rate of interest is 2.5%. D. The bonds were retired at $1,025 each. E. The market rate of interest is 2 ½ % above the contract rate.

10. The payment pattern for an installment note with equal total payments includes: A. Increasing principal payments. B. Decreasing accrued interest. C. Constant cash payments. D. Both A and B. E. All of these.

11. A company must repay the bank $10,000 cash in 3 years for a loan it entered into. The loan is at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is: A. $10,000. B. $12,400. C. $ 7,938. D. $ 9,200. E. $ 7,600.

12. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: A. $ 75,137. B. $ 94,013. C. $ 300,000. D. $ 375,685. E. $1,197,810.

13. A pension plan A. Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire. B. Can be underfunded if the accumulated benefit obligation is more than the plan assets. C. Can include a plan administrator who receives payments from the employer, invests them in pension assets, and makes benefit payments to pension recipients. D. Can be a defined benefit plan in which future benefits are set, but the employer's contributions vary depending on assumptions about future pension assets and liabilities. E. All of these.

14. Operating leases differ from capital leases in that A. For a capital lease the lessee records the lease payments as rent expense, but for an operating lease the lessee reports the lease payments as depreciation expense. B. For an operating lease the lessee depreciates the asset acquired under lease, but for the capital lease the lessee does not. C. Operating leases create a long-term liability on the balance sheet, but capital leases do not. D. Operating leases do not transfer ownership of the asset under the lease, but capital leases often do. E. Operating lease payments are generally greater than capital lease payments. 15. An advantage of bond financing is: A. Bonds do not affect owners' control. B. Interest on bonds is tax deductible. C. Bonds can increase return on equity. D. It allows firms to trade on the equity. E. All of these. 16. A disadvantage of bonds is: A. Bonds require payment of periodic interest. B. Bonds require payment of principal. C. Bonds can decrease return on equity. D. Bond paym

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