101. Indicate whether each of the following items is true or false.
_____ a) Many successful corporations do not pay dividends to their stockholders.
_____ b) Careful study of the financial statements will give investors the ability to predict future movements in the market price of a corporation's stock.
_____ c) The price-earnings (P/E) ratio is computed by dividing the earnings per share by the market price per share.
_____ d) As a general rule, the higher the P/E ratio, the greater is the optimism for future growth of the corporation.
_____ e) The number of shares to purchase in order to attain "significant influence" of a corporation can readily be determined from the financial statements.
a) This is true. Many corporations retain earnings for future growth rather than pay dividends to stockholders.
b) This is false. While it is useful to study a company’s financial statements, they do not necessarily predict future movements in a stock’s market price.
c) This is false. The price-earnings ratio is equal to the market price per share divided by earnings per share.
d) This is true. A high price-earnings ratio generally indicates optimism about a company’s future growth.
e) This is false. The financial statements indicate the number of issued shares, but they do not indicate how widely held the shares are.
102. Establishing a sole proprietorship generally requires the owner to get a charter from the state government.
103. A corporation is a legal entity created by the authority of a state government, separate and distinct from its owners.
104. Articles of incorporation, prepared by a business that wishes to incorporate, normally include the corporation's name and purpose, its location, and provisions for capital stock.
105. A benefit of corporations is that they are free from double taxation.
106. In a closely held corporation, exchanges of stock are limited to transactions between individuals.
107. All corporations are subject to extensive government regulation.
108. The stock market crash in 1929 led to the beginning of extensive regulation of corporations.
109. The PCAOB was established in response to the accounting scandals that occurred in 2001 and 2002.
110. Liability is a significant disadvantage of the partnership form of business organization.