1. Three individuals are planning to form a new business. What are the five major types of...

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1. Three individuals are planning to form a new business. What are the five major types of entities that they can use to operate their business?
2. Assume that you are the controller of a corporation. Some members of the board of directors have asked you how the firm can have a large balance in the Retained Earnings account but no cash with which to pay dividends. Explain.
3. A corporation’s balance sheet shows Retained Earnings Appropriated for Plant Expansion with a balance of $4,000,000. Does this mean that the corporation has set aside $4,000,000 in cash to expand its plant? Why would management want to establish such an account?
4. Trump Corporation’s $50 par-value stock has a market price of $250 per share. As a result of the high price per share, finding buyers for stock that existing shareholders wish to sell has become difficult. Suggest a way for management to resolve this problem.
5. Why would the management of a corporation consider using corporate funds to purchase the firms’ own outstanding stock?
6. The president of a corporation suggests to the controller that one way to convert retained earnings into permanent capital is to have a stock split. What explanation should the controller give the president?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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College Accounting Chapters 1-30

ISBN: 978-1259631115

15th edition

Authors: John Price, M. David Haddock, Michael Farina

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