Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Characteristics of a Corporation

Financial Accounting

12. Stockholders' Equity

Characteristics of a Corporation

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Multiple Choice

Which best describes what happens to a corporation after its owners retire?

The corporation continues to exist as a separate legal entity.

The corporation's assets are distributed to the retired owners.

The corporation must immediately issue new shares to replace the retired owners.

The corporation is automatically dissolved.

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Verified step by step guidance

Understand the concept of a corporation: A corporation is a separate legal entity distinct from its owners (shareholders). This means it has its own rights and obligations, independent of the individuals who own shares in it.

Analyze the options provided: The question asks what happens to a corporation after its owners retire. Evaluate each option based on the legal and operational characteristics of a corporation.

Option 1: 'The corporation continues to exist as a separate legal entity.' This aligns with the definition of a corporation, as its existence is not tied to the retirement or departure of its owners.

Option 2: 'The corporation's assets are distributed to the retired owners.' This is incorrect because the assets of a corporation belong to the entity itself, not directly to the shareholders. Shareholders may receive dividends or proceeds from selling their shares, but the corporation retains its assets.

Option 3: 'The corporation must immediately issue new shares to replace the retired owners.' This is not a requirement. Shares can be sold or transferred, but the corporation does not need to issue new shares unless it decides to do so for other reasons, such as raising capital. Option 4: 'The corporation is automatically dissolved.' This is incorrect because a corporation's existence is not dependent on the status of its owners. It continues to operate unless formally dissolved through legal procedures.