MUHASEBE II - Deneme Sınavı - 8

Pre-emption: Shareholders have the right to maintain their proportionate ownership in corporations.

The number of authorized shares includes all issued and unissued shares. Thus, the share that has been issued by the corporation is called “issued share”.

Par value for a share refers to the nominal value stated in the corporate charter.

The first important advantage of a preferred share is dividend preference.  preferred shareholders have the right to share in the distribution of corporation’s income before common shareholders. The second important advantage of a preferred share is liquidation preference. Most preferred shares have a preference on corporations’ assets if the corporation fails.

Treasury share is a corporation’s own share that has been repurchased and is being held for future use.  In other words, treasury shares are previously issued shares which have been reacquired by the corporation later. The corporation repurchases its own shares from the shareholders. In the future, treasury shares may be resold or held for an indefinite time by the corporation.

Treasury shares are previously issued shares which have been reacquired by the corporation later. The corporation repurchases its own shares from the shareholders. In the future, treasury shares may be resold, future investment or held for an indefinite time by the corporation.

As a second possibility in a sale, treasury share may be resold above cost. In this case, there will be a difference between the cost and the sale price of the treasury share. If the sale price is higher than the cost of treasury share, this positive difference should be recorded in a new shareholders’ equity account named “Paid-in Capital from Treasury Share”. Paid-in Capital from Treasury Share is reported in the Paid-in Capital section of a corporation’s balance sheet.

The first one is proprietorship which is owned by a single owner. This type of entity is the smallest and simplest one among the different types of entities. The owner of proprietorship is called as proprietor and his or her equity can be seen as only one item in owner’s equity section of the balance sheet. The expiration of a proprietorship is caused either by the proprietor’s death or his/her choice of ending it. Also, the proprietor is personally liable for the proprietorship’s liabilities. However, the accounting process of the proprietorship is separate from the personal records of the proprietor. Another important characteristic is about taxation. A proprietorship is not a separate taxable entity. The proprietor pays tax on the income of proprietorship.

The correct answer is C.

The second type of entity is a partnership which has at least two or more owners. In a partnership, the owners are called as partners. Partnerships are organized as small or medium size entities.

Similar to proprietorship, the cancellation of the partnership may be caused either by one of the partners’ death or choice of cancelling it and the partners are personally liable for the partnership’s liabilities. Surely, based on the entity concept the accounting process of a partnership is separate from the personal records of the partners. Partnerships are not separate taxable entities.3 Being responsible for the partnership’s liability is an important disadvantage for the partners. Especially if the number of the partners are high, it may be riskier. If a partner commits fraud or if there is a black hole because of a failure of one partner in the partnership, the result of these all negative possibilities may affect all of the partners. The correct answer is D.

As an important characteristic, shareholders are not personally responsible for the corporation’s liabilities. This means that shareholders’ possible loss is limited with their capital investment. Hence, the creditors cannot make any claim on shareholders’ personal assets. This characteristic of corporation is essential for the shareholders because their personal assets are protected and the corporation may raise may raise more capital from shareholders. Also, the government and related regulators design more regulations and try to monitor corporations to protect shareholders’ and creditors’ claims. Another characteristic is the transferability of the shares. This characteristic is essential for shareholders since it is flexible. They can transfer corporation’s shares to another one. The cancellation of the corporation does not depend on the death of any shareholder or their choices to cancel it. In other words, the corporation is a permanent organization. The transfer of the shares, anyone’s death or withdrawal do not put an end to the corporation. Another distinguishing difference of a corporation is about taxation. Corporations are taxable entities. The correct answer is B.

Liquidation: When a corporation goes out, shareholders may receive their proportionate share of any asset that still remains. The correct answer is D.

Dividends: When declared, shareholders receive a proportionate of some dividend. Generally, each share receives an equal amount of dividend. The correct answer is E.

As it is known, owners’ equity means shareholders’ equity in a corporation. The structure of the shareholders’ equity is very important for a corporation. There may be two different sources for a shareholders’ equity: First one is “Paid-in Capital (or contributed capital)” which represents the total amount of contribution to the corporation by shareholders. In other words, it represents the total amount of assets received from shareholders. Thus, it is generated from external parties. The correct answer is A.

After selling their issues to the shareholders, corporations receive an amount for shares. The amount that is received from issuing shares is called issue price. The correct answer is E.

But a “preferred share” is a special share that provides its owner some advantages more than a common share does. For example, preferred shareholders can receive dividends before the others or in a liquidation, preferred shareholders can receive remaining assets before the others. Corporations issue common share and according to their preference, they may also issue some preferred shares. In this case, share capital consists of common and preferred shares. The correct answer is A.

There may be several reasons for a corporation to repurchase its own shares, but the main possible reasons may be summarized as follows:

The management of the corporation may want;

• to avoid a takeover and be cautious about outsiders.

• to reissue the shares to employees and reward them.

• to promote the price of the shares by increasing the trading of the shares.

• to resell its own shares with a higher price.

• to reduce the number of outstanding shares for some ratio analysis.

The correct answer is E.

A “premium” is the total amount above par value at which a share is issued (sold). A premium on the issue of stock is not a gain, income, or profit for the corporation because the company is dealing with its own stock.  The correct answer is C.

The first one is proprietorship which is owned by a single owner. This type of entity is the smallest and simplest one among the different types of entities.