TRUE/FALSE

1. The P/E (price/earnings) ratio is a measure of investors' confidence in a company's future. True

2. Stockholders elect the board of directors which appoints the officers of a corporation.

3. The board of directors carries out the day-to-day operations of the corporation.

4. The liability of a stockholder is usually limited to the stockholders' investment in the corporation.

5. The declaration of a cash dividend causes an increase in a corporation's liabilities at the date of record.

6. No entry is required on the date of record for a cash dividend.

7. Stock options are often granted by a corporation to management personnel as a means of additional compensation to and motivation of employees.

8. The stockholders' equity in a corporation consists of capital contributed by stockholders and retained earnings.

9. Retained earnings consist of a pool of funds to be distributed to stockholders.

10. The cost of treasury stock is deducted from total Contributed Capital and Retained Earnings in determining total stockholders' equity.

MULTIPLE CHOICE

1. A disadvantage of the corporate form of business is

(A) centralized authority and responsibility

(B) its status as a separate legal entity

(C) government regulation

(D) continuous existence.

2. Par value

(A) is established for a share of stock after it is issued

(B) is the legal capital established for a share of stock

(C) represents what a share of stock is worth

(D) represents the original selling price for a share of stock.

3. The Board of Directors of B Corporation declared a cash dividend on January 18, 2017, to be paid on February 18, 2017, to shareholders holding the stock on February 2, 2017. Given these facts, the date February 2, 2017, is referred to as the

(A) date of declaration

(B) date of payment

(C) ex-dividend date

(D) date of record.

4. All of the following are stockholders' equity accounts except

(A) Treasury Stock

(B) Preferred Stock

(C) Retained Earnings

(D) Dividends Payable.

SHORT ANSWER

Identify by code letter each of the following characteristics as being an advantage (A) of, a disadvantage (D) of, or not applicable (N) to the corporate form of business:

1. Separate legal entity 5. Government regulation

2. Double taxation 6. Easy transfer of ownership

3. Continuous existence 7. Ease of capital generation

4. Unlimited liability 8. Professional management