CH131 Do In Class Handout Circle the correct answer TrueFals

CH13.1 Do In Class Handout Circle the correct answer True/False (If False, Explain Why) The cost method derives its name from the fact that the Treasury Stock account is maintained at the cost of shares purchased 1. TrueFalse When treasury stock is sold for an amount greater than its cost, the difference should be credited to Gain on Sale of Treasury Stock and reported as other income on the income statement 2. True False 3. Stockholders\' liability is generally unlimited; therefore, creditors have recourse to stockholders\' personal assets as well as corporate assets. True False Retained earnings is net income retained in a corporation and is often referred to as earned capital. True False 4. A corporation is bound to a contract entered into by one of its stockholders. True 5. False 6. Issued shares of stock less outstanding shares equals treasury stock. True False 7. The cumulative feature of stock applies to preferred stock. True False Dividends in arrears are not considered a liability because no obligation exists until the dividend is declared by the board of directors True 8. False Preferred stockholders have a priority as to dividends but not to assets in the event of liquidation 9. True False Treasury stock should be listed as an asset in the balance sheet. True False O.

Solution

As per policy only first four questions will be answered

1. True (treasury stock is always maintained at cost price)

2. False (It is credited to stockholders\' equity accounts as a Paid-in Capital from Treasury Stock)

3. False (creditors have recourse to company’s assets only)

4. True (because it is not returned to investors in form of dividend)