Question 1

Most publicly traded firms operate as corporations.Discuss three advantages of the corporate form.

Accepted Answer

Most publicly traded firms operate as co

Question 2

A firm with securities outstanding that holders can convert into, or exchange for, shares of common stock may report two earnings-per-share amounts:

Accepted Answer

A) primary and diluted earnings per share. 
B) basic and diluted earnings per share. 
C) primary and secondary earnings per share. 
D) basic and secondary earnings per share. 
E) primary and decreased earnings per share. 
A) primary and diluted earnings per share. 
B) basic and diluted earnings per share. 
C) primary and secondary earnings per share. 
D) basic and secondary earnings per share. 
E) primary and decreased earnings per share.

Question 3

Gains and losses on the purchase and resale of treasury stock may be reflected only in

Accepted Answer

A) paid-in capital accounts. 
B) paid-in capital and retained earnings accounts. 
C) income, paid-in capital, and retaining earnings accounts. 
D) income and paid-in capital accounts. 
E) None of these answer choices is correct. 
A) paid-in capital accounts. 
B) paid-in capital and retained earnings accounts. 
C) income, paid-in capital, and retaining earnings accounts. 
D) income and paid-in capital accounts. 
E) None of these answer choices is correct.

Question 4

Shareholders' equity is a residual interest.It represents the shareholders' claim on the assets of a firm after the firm satisfies all higher-priority claims.

Accepted Answer

A) True 
 B)False

Question 5

The stock dividend relabels a portion of the retained earnings that had been legally available for dividend declarations as a more permanent form of shareholders' equity, because

Accepted Answer

A) the firm has used some funds represented by past earnings to expand plant facilities or to replace assets at increased prices or to retire bonds. 
B) the firm does not have this cash available for cash dividends 
C) the stock dividend does not affect the availability of cash on hand or cash that the firm has already invested; rather, the stock dividend signals to readers of the balance sheet, perhaps more clearly than before, the commitment to investment. 
D) all of the above 
E) none of the above 
A) the firm has used some funds represented by past earnings to expand plant facilities or to replace assets at increased prices or to retire bonds. 
B) the firm does not have this cash available for cash dividends 
C) the stock dividend does not affect the availability of cash on hand or cash that the firm has already invested; rather, the stock dividend signals to readers of the balance sheet, perhaps more clearly than before, the commitment to investment. 
D) all of the above 
E) none of the above

Question 6

If a firm issues common stock in return for services other than from employees, the firm records the transaction at the fair value of the services received if it can more reliably measure this amount.Otherwise, the firm records the transaction at the fair value of the shares issued.

Accepted Answer

A) True 
 B)False

Question 7

Firms may periodically distribute net assets generated by earnings to shareholders as a dividend.Firms

Accepted Answer

A) increase net assets and decrease retained earnings. 
B) increase net assets and retained earnings. 
C) reduce net assets and retained earnings. 
D) reduce net assets and increase retained earnings. 
E) reduce net assets and increase shareholders' equity. 
A) increase net assets and decrease retained earnings. 
B) increase net assets and retained earnings. 
C) reduce net assets and retained earnings. 
D) reduce net assets and increase retained earnings. 
E) reduce net assets and increase shareholders' equity.

Question 8

Which of the following is/are true?

Accepted Answer

A) Stock rights give their holder the right to acquire shares of stock at a specified price. 
B) Firms grant stock rights to current shareholders. 
C) Shareholders may exercise the stock rights or sell them to others. 
D) The stock rights usually trade in public markets. 
E) all of the above 
A) Stock rights give their holder the right to acquire shares of stock at a specified price. 
B) Firms grant stock rights to current shareholders. 
C) Shareholders may exercise the stock rights or sell them to others. 
D) The stock rights usually trade in public markets. 
E) all of the above

Question 9

Which of the following is not true regarding the issuance of a stock dividend?

Accepted Answer

A) The stock dividend has little economic substance for shareholders. 
B) The stock dividend does not change each shareholder's ownership interest or proportionate voting power. 
C) The stock dividend results in decreases to book value per common share, but the total book value of each shareholder's interest remains unchanged. 
D) The total market value of an individual's shares should not change. 
E) The stock dividend does not change the number of shares each shareholder owns. 
A) The stock dividend has little economic substance for shareholders. 
B) The stock dividend does not change each shareholder's ownership interest or proportionate voting power. 
C) The stock dividend results in decreases to book value per common share, but the total book value of each shareholder's interest remains unchanged. 
D) The total market value of an individual's shares should not change. 
E) The stock dividend does not change the number of shares each shareholder owns.

Question 10

What is shareholders' equity?

Accepted Answer

1.Shareholders' equity is a residual int

Question 11

Preferred shares may provide for redemption by the issuing firm in the future.Redeemable preferred shares carry which of the following redemption rights or obligations?

Accepted Answer

A) The issuing firm has the right to redeem the preferred stock under certain conditions. 
B) Mandatorily redeemable preferred stock has attributes of both long-term debt and shareholders' equity with the specified redemption time analogous to the maturity date of long-term debt. 
C) Some preferred stock is redeemable at the option of the holder with the owner of the preferred stock having the right to require the issuing firm to repurchase the shares. 
D) all of the above 
E) none of the above 
A) The issuing firm has the right to redeem the preferred stock under certain conditions. 
B) Mandatorily redeemable preferred stock has attributes of both long-term debt and shareholders' equity with the specified redemption time analogous to the maturity date of long-term debt. 
C) Some preferred stock is redeemable at the option of the holder with the owner of the preferred stock having the right to require the issuing firm to repurchase the shares. 
D) all of the above 
E) none of the above

Question 12

Which of the following is/are true concerning an employee stock options' time value element?

Accepted Answer

A) The time value element results from the possibility of increases in the market price of the stock during the exercise period. 
B) Time value is larger the longer the exercise period and the more volatile the market price of the stock. 
C) A stock option whose exercise price exceeds the current market price has economic value because of the possibility that the market price will exceed the exercise price on the exercise date. 
D) A stock option whose exercise price has zero intrinsic value has economic value because of the possibility that on the exercise date there would be positive intrinsic value. 
E) all of the above 
A) The time value element results from the possibility of increases in the market price of the stock during the exercise period. 
B) Time value is larger the longer the exercise period and the more volatile the market price of the stock. 
C) A stock option whose exercise price exceeds the current market price has economic value because of the possibility that the market price will exceed the exercise price on the exercise date. 
D) A stock option whose exercise price has zero intrinsic value has economic value because of the possibility that on the exercise date there would be positive intrinsic value. 
E) all of the above

Question 13

Excerpts from the Statement of Financial Position for Baldwin Corporation as of September 30, Year 5, are presented below.
$\begin{array}{lc}
\text { Cash } & \$ 950,000 \
\text { Accounts receivable (net) } & 1,675,000 \
\text { Inventories } & 2,806,000\
\text { Total current assets }&\$5,431,000\\
\text { Accounts payable } & \$ 1,004,000 \
\text { Accrued liabilities } & 785.000 \
\text { Total current liabilities } & \$ 1.789 .000
\end{array}$  The Board of directors of Baldwin Corporation met on October 4, Year 5, and declared regular quarterly cash dividends amounting to $750,000 ($0.60 per share).The dividend is payable on October 25, Year 5, to all shareholders of record as of October 12, Year 5.
Assume that the only transactions to affect Baldwin Corporation during October Year 5 are the dividend transactions and that the closing entries have been made.
(CMA adapted, Dec 89 #16) Refer to the Baldwin Corporation example.If the dividend declared by Baldwin Corporation had been a 10 percent stock dividend instead of a cash dividend, Baldwin's current liabilities would have been

Accepted Answer

A) decreased by the dividend declaration and increased by the dividend distribution. 
B) unchanged by the dividend declaration and increased by the dividend distribution. 
C) unchanged by the dividend declaration and decreased by the dividend distribution. 
D) unchanged by either the dividend declaration or the dividend distribution. 
E) none of the above. 
A) decreased by the dividend declaration and increased by the dividend distribution. 
B) unchanged by the dividend declaration and increased by the dividend distribution. 
C) unchanged by the dividend declaration and decreased by the dividend distribution. 
D) unchanged by either the dividend declaration or the dividend distribution. 
E) none of the above.

Question 14

The accounting for stock options is complex because firms often include

Accepted Answer

A) service, only. 
B) combinations of service and performance, only. 
C) combinations of service, performance, and market conditions, only. 
D) combinations of service, performance, and market conditions and firms can restructure their plans. 
E) none of the above. 
A) service, only. 
B) combinations of service and performance, only. 
C) combinations of service, performance, and market conditions, only. 
D) combinations of service, performance, and market conditions and firms can restructure their plans. 
E) none of the above.

Question 15

Book value per common share equals

Accepted Answer

A) total common shareholders' equity divided by the number of shares outstanding on the date of the balance sheet. 
B) total common shareholders' equity divided by the weighted-average number of shares outstanding during the accounting period. 
C) total common shareholders' equity divided by the number of shares outstanding on the beginning date of the income statement. 
D) total shareholders' equity divided by the number of shares outstanding on the date of the balance sheet. 
E) total shareholders' equity divided by the weighted-average number of shares outstanding during the accounting period. 
A) total common shareholders' equity divided by the number of shares outstanding on the date of the balance sheet. 
B) total common shareholders' equity divided by the weighted-average number of shares outstanding during the accounting period. 
C) total common shareholders' equity divided by the number of shares outstanding on the beginning date of the income statement. 
D) total shareholders' equity divided by the number of shares outstanding on the date of the balance sheet. 
E) total shareholders' equity divided by the weighted-average number of shares outstanding during the accounting period.

Question 16

The accounting for employee stock options involves amortizing the fair value of the stock options on the date of the grant over the requisite service period, which is

Accepted Answer

A) expected period of benefit. 
B) one year. 
C) two years. 
D) three years. 
E) five years. 
A) expected period of benefit. 
B) one year. 
C) two years. 
D) three years. 
E) five years.

Question 17

Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to increase as a matter of corporate financial policy for what reason(s)?

Accepted Answer

A) Available cash did not increase by as much as the amount of earnings, so paying the maximum legally permitted dividends would require raising more cash. 
B) Restricting dividends in prosperous years may permit continued level or steadily growing dividend payments in poor years. 
C) The firm may need funds for expansion of working capital or for plant and equipment. 
D) The firm can distribute the funds to shareholders with lower tax burdens for them by using the cash to repurchase shares. 
E) all of the above 
A) Available cash did not increase by as much as the amount of earnings, so paying the maximum legally permitted dividends would require raising more cash. 
B) Restricting dividends in prosperous years may permit continued level or steadily growing dividend payments in poor years. 
C) The firm may need funds for expansion of working capital or for plant and equipment. 
D) The firm can distribute the funds to shareholders with lower tax burdens for them by using the cash to repurchase shares. 
E) all of the above

Question 18

Backup Corp. received a charter authorizing 120,000 shares of common stock at $15 par value per share. During the first year of operations, 40,000 shares were sold at $28 per share. 600 shares were issued in payment of a current operating debt of $18,600. In the first year, the net income was $142,000.

During the year, dividends of $36,000 were paid to stockholders. At the end of the year, total liabilities were $82,000. Use the given data to compute the following items at the end of the first year (show all computations):
(1)	Total liabilities and stockholders' equity
(2)	Stockholders' equity
(3)	Contributed capital
(4)	Issued capital stock (par)
(5)	Outstanding capital stock (par)
(6)	Unissued capital stock (number of shares)
(7)	Paid-In capital in excess of par value

Accepted Answer

(1)
 @#IMG-DLM& (2)
$1,326,600 - $82,000 = $1,244,

Question 19

The par value of common stock represents the

Accepted Answer

A) liquidation value of the stock. 
B) book value of the stock. 
C) legal nominal value assigned to the stock. 
D) amount received by the corporation when the stock was originally issued. 
E) None of these choices is correct. 
A) liquidation value of the stock. 
B) book value of the stock. 
C) legal nominal value assigned to the stock. 
D) amount received by the corporation when the stock was originally issued. 
E) None of these choices is correct.

Most publicly traded firms operate as corporations.Discuss three advantages of the corporate form.

A firm with securities outstanding that holders can convert into, or exchange for, shares of common stock may report two earnings-per-share amounts:

Gains and losses on the purchase and resale of treasury stock may be reflected only in

Shareholders' equity is a residual interest.It represents the shareholders' claim on the assets of a firm after the firm satisfies all higher-priority claims.

The stock dividend relabels a portion of the retained earnings that had been legally available for dividend declarations as a more permanent form of shareholders' equity, because

If a firm issues common stock in return for services other than from employees, the firm records the transaction at the fair value of the services received if it can more reliably measure this amount.Otherwise, the firm records the transaction at the fair value of the shares issued.

Firms may periodically distribute net assets generated by earnings to shareholders as a dividend.Firms

Which of the following is/are true?

Which of the following is not true regarding the issuance of a stock dividend?

What is shareholders' equity?

Preferred shares may provide for redemption by the issuing firm in the future.Redeemable preferred shares carry which of the following redemption rights or obligations?

Which of the following is/are true concerning an employee stock options' time value element?

The accounting for stock options is complex because firms often include

Book value per common share equals

The accounting for employee stock options involves amortizing the fair value of the stock options on the date of the grant over the requisite service period, which is

Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to increase as a matter of corporate financial policy for what reason(s)?

The par value of common stock represents the

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 15: Shareholders Equity: Capital Contributions and Distributions

Most publicly traded firms operate as corporations.Discuss three advantages of the corporate form.

A firm with securities outstanding that holders can convert into, or exchange for, shares of common stock may report two earnings-per-share amounts:

Gains and losses on the purchase and resale of treasury stock may be reflected only in

Shareholders' equity is a residual interest.It represents the shareholders' claim on the assets of a firm after the firm satisfies all higher-priority claims.

The stock dividend relabels a portion of the retained earnings that had been legally available for dividend declarations as a more permanent form of shareholders' equity, because

If a firm issues common stock in return for services other than from employees, the firm records the transaction at the fair value of the services received if it can more reliably measure this amount.Otherwise, the firm records the transaction at the fair value of the shares issued.

Firms may periodically distribute net assets generated by earnings to shareholders as a dividend.Firms

Which of the following is/are true?

Which of the following is not true regarding the issuance of a stock dividend?

What is shareholders' equity?

Preferred shares may provide for redemption by the issuing firm in the future.Redeemable preferred shares carry which of the following redemption rights or obligations?

Which of the following is/are true concerning an employee stock options' time value element?

The accounting for stock options is complex because firms often include

Book value per common share equals

The accounting for employee stock options involves amortizing the fair value of the stock options on the date of the grant over the requisite service period, which is

Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to increase as a matter of corporate financial policy for what reason(s)?

The par value of common stock represents the

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters