Question 1

When a company acquires treasury stock, what effect does this transaction have on earnings per share and legal capital, respectively?

Accepted Answer

A) increase, decrease 
B) increase, increase 
C) decrease, decrease 
D) increase, none 
A) increase, decrease 
B) increase, increase 
C) decrease, decrease 
D) increase, none

Question 2

Match between columns
                        Premises: Companies that do not issue stock or operate for profit.
As viewed by a state, companies operating within that state that are incorporated in another state.
Companies that do not allow the sale of their stock to the general public.
Companies owned or operated by governmental units.
Companies that issue stock and operate for profit.
As viewed by that state, companies that are incorporated in the state.
Companies whose stock is available for purchase by the public.

Accepted Answer

The Answer of public corporations and open corporations and domestic is...

Question 3

Exhibit 16-2 Lowball, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2, 000 shares of $5 par common stock for $15 a share.The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full.
-
Refer to Exhibit 16-2.The initial entry to record this subscription and the down payment would include a

Accepted Answer

A) credit to Common Stock Subscribed for $10, 000 
B) credit to Additional Paid-in Capital from Subscribed Stock for $10, 000 
C) debit to Subscriptions Receivable: Common Stock for $30, 000 
D) debit to Cash for $2, 000 
A) credit to Common Stock Subscribed for $10, 000 
B) credit to Additional Paid-in Capital from Subscribed Stock for $10, 000 
C) debit to Subscriptions Receivable: Common Stock for $30, 000 
D) debit to Cash for $2, 000

Question 4

When accounting for a fixed compensatory stock option plan, a company must make which of the following on the date of grant?

Accepted Answer

A) journal entry recognizing the common stock issued 
B) journal entry recognizing the compensation expense 
C) memorandum entry explaining the terms of the compensatory stock option plan 
D) memorandum entry of the expected annual compensation expense amount 
A) journal entry recognizing the common stock issued 
B) journal entry recognizing the compensation expense 
C) memorandum entry explaining the terms of the compensatory stock option plan 
D) memorandum entry of the expected annual compensation expense amount

Question 5

Which one of the following statements is not true with regard to employee compensatory stock option plans?

Accepted Answer

A) When a stock option is exercised under a compensatory stock option plan, the newly issued common stock is recorded at the exercise price and the value of the options at the grant date. 
B) When stock warrants are issued under a noncompensatory stock option plan, no formal journal entry is required to record the stock warrants. 
C) When a stock option is exercised under a compensatory stock option plan, the newly issued common stock is recorded at the exercise price and the previously recorded value of the warrants. 
D) For federal income tax purposes, any gains resulting from stock options earned by employees are taxed at ordinary income tax rates. 
A) When a stock option is exercised under a compensatory stock option plan, the newly issued common stock is recorded at the exercise price and the value of the options at the grant date. 
B) When stock warrants are issued under a noncompensatory stock option plan, no formal journal entry is required to record the stock warrants. 
C) When a stock option is exercised under a compensatory stock option plan, the newly issued common stock is recorded at the exercise price and the previously recorded value of the warrants. 
D) For federal income tax purposes, any gains resulting from stock options earned by employees are taxed at ordinary income tax rates.

Question 6

The measurement date of an employee compensatory stock option plan under the intrinsic value method is

Accepted Answer

A) the date the number of shares and option price are known 
B) the date of the grant 
C) the date of the plan 
D) the date any shares are issued 
A) the date the number of shares and option price are known 
B) the date of the grant 
C) the date of the plan 
D) the date any shares are issued

Question 7

Exhibit 16-4 On January 1, 2010, Marvel, Inc., grants a compensatory stock option plan to 10 of its executives.The plan allows each executive to buy 1, 000 shares of its $1 par common stock at $30 a share after a three-year service period.The value of each option is estimated to be $8.The company estimates it will have an annual 2% employee turnover rate during the service period.
-
Refer to Exhibit 16-4.By how much has contributed capital increased as of the beginning of 2013?

Accepted Answer

A) $ 0 
B) $25, 098 
C) $50, 197 
D) $75, 295 
A) $ 0 
B) $25, 098 
C) $50, 197 
D) $75, 295

Question 8

McKay Co.has three separate issues of preferred stock outstanding.One issue is callable.One issue is convertible.One issue is cumulative.When declaring dividends, which issue of preferred stock is taken into consideration?

Accepted Answer

A) none of the preferred stock issues 
B) callable 
C) convertible 
D) cumulative 
A) none of the preferred stock issues 
B) callable 
C) convertible 
D) cumulative

Question 9

Exhibit 16-2 Lowball, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2, 000 shares of $5 par common stock for $15 a share.The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full.
-
Refer to Exhibit 16-2.Lowball received final payment (80%)on 1, 800 shares and issued those shares.Subscribers defaulted on 200 shares.The entry to record the default on 200 shares would include a

Accepted Answer

A) debit to Common Stock Subscribed for $3, 000 
B) credit to Subscriptions Receivable: Common Stock for $3, 000 
C) debit to Additional Paid-in Capital on Common Stock for $2, 000 
D) credit to Additional Paid-in Capital from Subscribed Stock for $600 
A) debit to Common Stock Subscribed for $3, 000 
B) credit to Subscriptions Receivable: Common Stock for $3, 000 
C) debit to Additional Paid-in Capital on Common Stock for $2, 000 
D) credit to Additional Paid-in Capital from Subscribed Stock for $600

Question 10

For a compensatory stock option plan, any compensation cost related to the plan must be recognized over the service period.The underlying financial accounting concept that supports this approach is

Accepted Answer

A) revenue recognition 
B) matching 
C) conservatism 
D) historical cost 
A) revenue recognition 
B) matching 
C) conservatism 
D) historical cost

Question 11

Under IFRS, owners' equity is subdivided into which of the following classifications in addition to capital stock and additional paid-in capital?

Accepted Answer

A) reserves and accumulated profits and losses 
B) retained earnings and reserves 
C) retained earnings and accumulated profits and losses 
D) accumulated profits and losses only 
A) reserves and accumulated profits and losses 
B) retained earnings and reserves 
C) retained earnings and accumulated profits and losses 
D) accumulated profits and losses only

Question 12

Many states limit the amount that may be paid to acquire treasury stock to the balance in Retained Earnings.States also restrict the amount of retained earnings available for dividends by the cost of the treasury stock.
Required:
Explain why these restrictions are necessary and how they can be removed.

Accepted Answer

The restrictions are necessary to safegu

Question 13

When retiring treasury stock, retained earnings could be affected under which of the following methods? $\begin{array}{lll}
&\text { Cost Method }&\text { Par Value Method }\ 
\text { I. } & \text { No } & \text { No } \
\text { II. } & \text { No } & \text { Yes } \
\text { III. } & \text { Yes } & \text { No } \
\text { IV } & \text { Yes } & \text { Yes }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV 
A) I 
B) II 
C) III 
D) IV

Question 14

A corporation's legal capital

Accepted Answer

A) is established to protect the investment of its stockholders 
B) is a requirement established by the SEC to aid in enforcement of regulations 
C) is the amount of cash received by the corporation from its shareholders when it originally issues stock 
D) allows a corporation to declare dividends of any amount 
A) is established to protect the investment of its stockholders 
B) is a requirement established by the SEC to aid in enforcement of regulations 
C) is the amount of cash received by the corporation from its shareholders when it originally issues stock 
D) allows a corporation to declare dividends of any amount

Question 15

Exhibit 16-3 On January 1, 2010, Hilltop, Inc.granted to a key executive a fixed compensatory option plan for 1, 000 shares of $4 par common stock for $30 a share.The fair value per option on that date was $12 per option.The service period extended through December 31, 2011.
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Refer to Exhibit 16-3.What entry, if any, was required on December 31, 2010?

Accepted Answer

A) no entry was necessary 
B) 
Compensation Expense $\quad 12,000$
Common Stock Option Warrants $\quad 12,000$ 
C) 
Compensation Expense $\quad 6,000$
Common Stock Option Warrants $\quad 6,000$ 
D) 
Compensation Expense $ \quad 9,000 $
Deferred Compensation $\quad $ $\quad $ $\quad $ 9,000 
A) no entry was necessary 
B) 
Compensation Expense $\quad 12,000$
Common Stock Option Warrants $\quad 12,000$ 
C) 
Compensation Expense $\quad 6,000$
Common Stock Option Warrants $\quad 6,000$ 
D) 
Compensation Expense $ \quad 9,000 $
Deferred Compensation $\quad $ $\quad $ $\quad $ 9,000

Question 16

In most states, it is illegal to sell stock

Accepted Answer

A) at a discount 
B) with no par value 
C) at a premium 
D) in excess of par value 
A) at a discount 
B) with no par value 
C) at a premium 
D) in excess of par value

Question 17

Corporate stockholders can only lose the amount of their investment, in accordance with the concept of limited liability.State laws have established protection for a corporation's creditors with the concept of legal capital.
Required:
Explain how legal capital protects a corporation's creditors and discuss two different ways that legal capital can be established by a corporation.

Accepted Answer

Legal capital is the amount of stockhold

Question 18

Which of the following is not part of the stockholders' equity section of the balance sheet?

Accepted Answer

A) working capital 
B) contributed capital 
C) treasury stock 
D) retained earnings 
A) working capital 
B) contributed capital 
C) treasury stock 
D) retained earnings

Question 19

Exhibit 16-5 On January 1, 2010, Roberto Company adopts a compensatory stock option plan and grants 40 executives 1, 000 shares each at $30 a share.The fair value per option is $7 on the grant date.The company estimates that its annual employee turnover rate during the service period of three years will be 4%.
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Refer to Exhibit 16-5.At the end of 2011, the company estimates that the employee turnover will be 5% a year for the entire service period.The compensation expense for 2011 will be (Round off turnover calculations to three decimal places and answer to the nearest dollar.)

Accepted Answer

A) $ 77, 468 
B) $ 80, 022 
C) $ 82, 575 
D) $160, 043 
A) $ 77, 468 
B) $ 80, 022 
C) $ 82, 575 
D) $160, 043

Question 20

The following information is provided for Spring Company: $\begin{array}{ll}
\text { Retained earnings } & \$ 35,000 \
\text { Preferred stock, } 5 \%, \$ 50 \text { par } & 100,000 \
\text { Organization expense } & 2,500 \
\text { Premium on common stock } & ? \
\text { Additional paid-in capital from recall of preferred stock } & 1,000 \
\text { Premium on bonds payable } & 3,000 \
\text { Common stock, } \$ 10 \text { par } & 300,000
\end{array}$
 If total contributed capital is $406, 000, what is the amount of premium on common stock for Spring Company?

Accepted Answer

A) $2, 500 
B) $3, 500 
C) $5, 000 
D) $6, 000 
E) none of these 
A) $2, 500 
B) $3, 500 
C) $5, 000 
D) $6, 000 
E) none of these

When a company acquires treasury stock, what effect does this transaction have on earnings per share and legal capital, respectively?

When accounting for a fixed compensatory stock option plan, a company must make which of the following on the date of grant?

Which one of the following statements is not true with regard to employee compensatory stock option plans?

The measurement date of an employee compensatory stock option plan under the intrinsic value method is

McKay Co.has three separate issues of preferred stock outstanding.One issue is callable.One issue is convertible.One issue is cumulative.When declaring dividends, which issue of preferred stock is taken into consideration?

For a compensatory stock option plan, any compensation cost related to the plan must be recognized over the service period.The underlying financial accounting concept that supports this approach is

Under IFRS, owners' equity is subdivided into which of the following classifications in addition to capital stock and additional paid-in capital?

When retiring treasury stock, retained earnings could be affected under which of the following methods? Cost Method Par Value Method I. No No II. No Yes III. Yes No IV Yes Yes

A corporation's legal capital

In most states, it is illegal to sell stock

Which of the following is not part of the stockholders' equity section of the balance sheet?

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

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Exam 16: Contributed Capital

When a company acquires treasury stock, what effect does this transaction have on earnings per share and legal capital, respectively?

When accounting for a fixed compensatory stock option plan, a company must make which of the following on the date of grant?

Which one of the following statements is not true with regard to employee compensatory stock option plans?

The measurement date of an employee compensatory stock option plan under the intrinsic value method is

McKay Co.has three separate issues of preferred stock outstanding.One issue is callable.One issue is convertible.One issue is cumulative.When declaring dividends, which issue of preferred stock is taken into consideration?

For a compensatory stock option plan, any compensation cost related to the plan must be recognized over the service period.The underlying financial accounting concept that supports this approach is

Under IFRS, owners' equity is subdivided into which of the following classifications in addition to capital stock and additional paid-in capital?

When retiring treasury stock, retained earnings could be affected under which of the following methods? Cost Method Par Value Method I. No No II. No Yes III. Yes No IV Yes Yes

A corporation's legal capital

In most states, it is illegal to sell stock

Which of the following is not part of the stockholders' equity section of the balance sheet?

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

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