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Learning Objective 13-1

1) A corporation is a separate legal entity and is organized independently of its owners.

2) Stockholders of a corporation are not personally liable for the corporation's debt.

3) All classes and types of a corporation's stock carry the same degrees of risk for the shareholder.

4) Preferred stockholders receive a dividend preference over common stockholders.

5) Paid-in capital is externally generated capital and results from transactions with outsiders.

6) Stated value stock is no-par stock that has been assigned an amount similar to par value.

7) Retained earnings represents amounts received from stockholders of a corporation in exchange for stock.

8) Which of the following is true of a corporation?

A) Stock of a corporation can be publicly or privately held.

B) A corporation has to pay income taxes on its business earnings.

C) A corporation has a limited life.

D) The owners of a corporation have unlimited liabilities for the corporation's debts.

9) Which of the following explains the term "lack of mutual agency" of a corporation?

A) The liabilities of the corporation cannot be extended to the personal assets of the shareholder.

B) Shares of stock can be readily bought and sold by investors on the open market.

C) Shareholders are not authorized to sign contracts or make business commitments on behalf of the corporation.

D) Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock.

10) Which of the following statements is true of a corporation?

A) The liabilities of the corporation can be paid by the personal assets of the shareholders.

B) Shares of stock cannot be readily bought and sold by investors on the open market.

C) Shareholders are authorized to sign contracts or make business commitments on behalf of the corporation.

D) Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on co


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