Exam 15: Financial Reporting for Owners Equity

The book value of owners' equity gives an accurate picture of potentially legal asset distributions in states that have adopted the 1984 Revised Model Business Corporation Act.

Which of the following statements is correct when a company has a complex capital structure?

SFAS No.123 required companies to use the fair value approach when determining compensation expense pertaining to stock options.

Earnings per share (EPS)data are prominent in corporate annual reports,but EPS suffers as a financial performance measure because EPS ignores the amount of

Cash dividends paid by a corporation

The par value of common stock is set by the state government.

Current GAAP specifies that the compensation costs for stock options are measured

On January 1, 2015, Waddle Company adopted a compensatory stock option plan and granted its managers 10,000 options to buy shares of common stock; each option can be used to acquire a share of common stock at a price of $25 a share. The fair value of each option was $7.50 on January 1, 2015. The options can be converted into common stock after July 1, 2015. The required service period is three years. -What is the balance in paid-in capital-stock options as of December 31,2016 assuming that the fair value approach is used?

Which of the following correctly describes U.S.GAAP accounting for convertible bonds and the implication of that requirement?

Corporations that issue preferred stock do so because preferred stock is less risky than debt.

The Heath Corporation reported net income for 2015 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December. -The basic earnings per share for 2015 is

The 1984 Revised Model Business Corporation Act would potentially allow a corporation to have negative book value of net assets after an asset distribution occurred.

Under IFRS a company may report either a statement of financial position or a statement of changes in shareholders' equity but it need not provide both statements.

Which one of the following is the correct entry to record the sale of treasury stock?

If a firm has a complex capital structure,GAAP requires that both basic and fully diluted earnings per share must be reported.

Mandatorily redeemable preferred stock is considered equity because the issuing firm has the option,but not the obligation,to redeem the shares.

A company's retained earnings on December 31, 2014 was $2,190,000 and its shareholders equity was $8,760,000. During 2015 the company reported the following: net income $225,000; a sale of treasury stock costing $75,000 for $79,750; a treasury stock purchase costing $125,700; a cash dividend declaration of $73,200; a 10,000 share "small" common stock ($10 par value) dividend was declared and distributed when the market value was $12.75 per share. -What is the retained earnings balance on December 31,2015?

The Sports Corporation previously issued convertible bonds with a maturity value of $5,000,000;the book value of the bonds as of October 1,2015 was $5,250,000.Each $1,000 bond is convertible into 100 shares of $5 par value common stock.On October 1,2015,bonds with a maturity value of $2,000,000 were converted into common stock;the common stock's market value on the conversion date was $12.75 per share.Prepare the journal entry to record the bond conversion given the above facts only.

The Heath Corporation reported net income for 2015 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December. -If each share of preferred stock is convertible into 8 shares of common stock,the diluted earnings per share for 2015 is (rounded)

A corporation reported the following during 2015: Net income $175,250;a sale of 10,000 shares of $5 par value common stock for $8.75 per share;a purchase of treasury stock costing $24,750;a sale of treasury stock costing $15,500 for $14,695;a declaration and distribution of a $39,000 cash dividend;a declaration and distribution of a "small" stock dividend of 5,000 shares of $5 par value common stock at a total market value of $50,000.What was the increase in owners' equity during 2015?