Par value:

a. is greater than market value.

b. is less than market value.

c. changes in proportion to market

d. is not related to market value.

2. Which of the following is a disadvantage of a sole proprietorship?

a. Double taxation.

b. Excessive regulation.

c. Entrenched management.

d. Unlimited liability.

3. Dave Ganz started a sole proprietorship by depositing $30,000 cash in a business checking account. During the accounting period the business earned $6,000 of net income and Ganz withdrew $2,000 cash from the business. Based on this information, at the end of the accounting period Ganz's capital account contained a balance of:

a. $36,000.

b. $34,000.

c. $30,000.

d. $28,000.

4. Ulmer Co. paid dividends of $3,000; $6,000; and $10,000 during 2003, 2004 and 2005 respectively. The company had 500 shares of preferred stock outstanding that paid a $10 per share cumulative dividend. The amount of dividends received by the common shareholder's during 2005 would be:

a. $2,000.

b. $3,000.

c. $4,000.

d. $4,000.

5. The recognition of the declaration of a cash dividend will act to:

a. decrease assets and equity.

b. increase liabilities and decrease equity.

c. decrease liabilities and increase equity.

d. increase assets and liabilities.

6. When a company purchases treasury stock:

a. total assets are unaffected.

b. total assets increase.

c. total equity decreases.

d. cash flow from investing activities decreases.

7. At the end of the accounting period, Newton Company had $4,000 of par value stock outstanding, additional paid in capital of $4,000, retained earnings of $6,000, and $1,000 of treasury stock. The total amount of stockholders' equity is:

a. $17,000.

b. $16,000.

c. $10,000.

d. $13,000.

8.
The issue of a stock dividend will act to:

a. decrease contributed capital.

b. increase retained earnings.

c. not affect total equity.

d. All of the above.

9. Which of the following statements about Treasury Stock is correct?

a. Treasury Stock is an asset.

b. The balance in Treasury Stock reduces Retained Earnings.

c. Treasury Stock is a liability.

d. The balance in the Treasury Stock account reduces total Stockholders' Equity.

10. Palank Company purchased 1,000 shares of its own $5 par value common stock. The market price of the stock was $14 per share. Select the journal entry that correctly records Palank's purchase of treasury stock.

a. Column 1 Column 2 Column 3
Treasury Stock 14,000
Common Stock 5,000
Additional Paid-in Capital 9,000

b. Column 1 Column 2 Column 3
Cash 14,000
Treasury Stock 5,000
Additional Paid-in Capital 9,000

c. Column 1 Column 2 Column 3
Treasury Stock 5,000
Additional Paid-in Capital 9,000
Cash 14,000

d. Column 1 Column 2 Column 3
Treasury Stock 14,000
Cash 14,000