Question 1

(CMA adapted, Jun 87 #4) The major segments of the statement of retained earnings for a period are

Accepted Answer

A) dividends declared, prior period adjustments, and changes due to treasury stock transactions. 
B) prior period adjustments, before tax income or loss, income tax, and dividends paid. 
C) net income or loss from operations, dividends paid, and extraordinary gains and losses. 
D) net income or loss, prior period adjustments, and dividends paid and/or declared. 
E) net income or loss, prior period adjustments, and dividends paid and/or declared, and changes due to treasury stock transactions. 
A) dividends declared, prior period adjustments, and changes due to treasury stock transactions. 
B) prior period adjustments, before tax income or loss, income tax, and dividends paid. 
C) net income or loss from operations, dividends paid, and extraordinary gains and losses. 
D) net income or loss, prior period adjustments, and dividends paid and/or declared. 
E) net income or loss, prior period adjustments, and dividends paid and/or declared, and changes due to treasury stock transactions.

Question 2

In IFRS, preferred stock subject to mandatory redemption is disclosed

Accepted Answer

A) between liabilities and shareholders' equity. 
B) as a liability. 
C) as a shareholders' equity. 
D) as a revenue. 
E) as an expense. 
A) between liabilities and shareholders' equity. 
B) as a liability. 
C) as a shareholders' equity. 
D) as a revenue. 
E) as an expense.

Question 3

If the accountant cannot objectively measure the value of the stock warrants separately from the value of the bond or preferred stock at date of issuance, the accountant credits

Accepted Answer

A) the full purchase price to the bond or preferred stock and none of the price to the common stock warrant. 
B) 95 percent of the purchase price to the bond or preferred stock and 5 percent of the price to the common stock warrant. 
C) 90 percent of the purchase price to the bond or preferred stock and 10 percent of the price to the common stock warrant. 
D) 85 percent of the purchase price to the bond or preferred stock and 15 percent of the price to the common stock warrant. 
E) 80 percent of the purchase price to the bond or preferred stock and 20 percent of the price to the common stock warrant. 
A) the full purchase price to the bond or preferred stock and none of the price to the common stock warrant. 
B) 95 percent of the purchase price to the bond or preferred stock and 5 percent of the price to the common stock warrant. 
C) 90 percent of the purchase price to the bond or preferred stock and 10 percent of the price to the common stock warrant. 
D) 85 percent of the purchase price to the bond or preferred stock and 15 percent of the price to the common stock warrant. 
E) 80 percent of the purchase price to the bond or preferred stock and 20 percent of the price to the common stock warrant.

Question 4

Earnings per share equals

Accepted Answer

A) net income attributable to bonds and common and preferred stock divided by the weighted average number of common shares outstanding during the period. 
B) net income attributable to common and preferred stock divided by the weighted average number of common shares outstanding during the period. 
C) net income attributable to common and preferred stock divided by the end of period number of common shares outstanding. 
D) net income attributable to common stock divided by the weighted average number of common shares outstanding during the period. 
E) net income attributable to common stock divided by the end of period number of common shares outstanding. 
A) net income attributable to bonds and common and preferred stock divided by the weighted average number of common shares outstanding during the period. 
B) net income attributable to common and preferred stock divided by the weighted average number of common shares outstanding during the period. 
C) net income attributable to common and preferred stock divided by the end of period number of common shares outstanding. 
D) net income attributable to common stock divided by the weighted average number of common shares outstanding during the period. 
E) net income attributable to common stock divided by the end of period number of common shares outstanding.

Question 5

Which of the following is/aretrue concerning convertible bonds or convertible preferred stock?

Accepted Answer

A) Convertible bonds and convertible preferred stock permit the owner either to hold the security as a bond or preferred stock or to convert the security into shares of common stock. 
B) The owner cannot detach and transfer, or separately exercise, the conversion option. 
C) The issue price of a convertible bond or convertible preferred stock is payment for both debt or preferred stock and for the conversion option, but no one can observe the fair value of these separate components. 
D) U.S.GAAP requires firms to allocate the full issue price to the bonds or preferred stock and none of the price to the conversion feature. 
E) all of the above 
A) Convertible bonds and convertible preferred stock permit the owner either to hold the security as a bond or preferred stock or to convert the security into shares of common stock. 
B) The owner cannot detach and transfer, or separately exercise, the conversion option. 
C) The issue price of a convertible bond or convertible preferred stock is payment for both debt or preferred stock and for the conversion option, but no one can observe the fair value of these separate components. 
D) U.S.GAAP requires firms to allocate the full issue price to the bonds or preferred stock and none of the price to the conversion feature. 
E) all of the above

Question 6

Which of the following is/are not true concerning an employee stock options' benefit element?

Accepted Answer

A) One cannot measure the amount of the benefit element before the exercise date. 
B) Stock options with exercise prices less than the current market price of the stock have a higher value, other things equal, than stock options with exercise prices exceeding the current market price of the stock. 
C) Stock options that are "in the money" have a higher value, other things equal, than stock options that are "out of the money". 
D) 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 . 
E) none of the above 
A) One cannot measure the amount of the benefit element before the exercise date. 
B) Stock options with exercise prices less than the current market price of the stock have a higher value, other things equal, than stock options with exercise prices exceeding the current market price of the stock. 
C) Stock options that are "in the money" have a higher value, other things equal, than stock options that are "out of the money". 
D) 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 . 
E) none of the above

Question 7

Firms use this method when management and the governing board do not intend to reissue shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares.

Accepted Answer

A) cost method, only. 
B) par value method, only. 
C) constructive retirement method, only. 
D) cost, par value, and constructive retirement methods. 
E) none of the above 
A) cost method, only. 
B) par value method, only. 
C) constructive retirement method, only. 
D) cost, par value, and constructive retirement methods. 
E) none of the above

Question 8

Which of the following is/are not true?

Accepted Answer

A) Callable preferred shares provide the issuer with the right to repurchase preferred shares at a specified price, 
B) If financing becomes available at a cost lower than the rate fixed for the preferred shares, the issuing firm can reduce its financing costs by issuing new securities and then exercising its option to reacquire the outstanding callable preferred shares at a fixed price. 
C) The call option is valuable to the issuing firm but makes the shares less attractive to potential owners of the shares. 
D) Other things equal, a firm will receive a smaller amount from issuing callable preferred shares than from issuing noncallable preferred shares. 
E) none of the above 
A) Callable preferred shares provide the issuer with the right to repurchase preferred shares at a specified price, 
B) If financing becomes available at a cost lower than the rate fixed for the preferred shares, the issuing firm can reduce its financing costs by issuing new securities and then exercising its option to reacquire the outstanding callable preferred shares at a fixed price. 
C) The call option is valuable to the issuing firm but makes the shares less attractive to potential owners of the shares. 
D) Other things equal, a firm will receive a smaller amount from issuing callable preferred shares than from issuing noncallable preferred shares. 
E) none of the above

Question 9

If 10,000 stock warrants are issued to the general public for $10,000, and later those warrants and $150,000 are exchanged for 10,000 shares of no-par stock, the entry to record the exercise of the warrants would be:

Accepted Answer

A) Cash 150,000 Common Stock Warrants 10,000
Common Stock 160,000 
B) Cash 150,000 Common Stock 140,000
Common Stock Warrants 10,000 
C) Cash 150,000 Common Stock Warrants 10,000
Common Stock 150,000
Add'l Paid-in Capital-Stock Warrants 10,000 
D) Cash 150,000 Warrant Stock 150,000 
E) Cash 150,000 Common Stock Warrants 10,000
Warrant Stock 150,000
Add'l Paid-in Capital-Stock Warrants 10,000 
A) Cash 150,000 Common Stock Warrants 10,000
Common Stock 160,000 
B) Cash 150,000 Common Stock 140,000
Common Stock Warrants 10,000 
C) Cash 150,000 Common Stock Warrants 10,000
Common Stock 150,000
Add'l Paid-in Capital-Stock Warrants 10,000 
D) Cash 150,000 Warrant Stock 150,000 
E) Cash 150,000 Common Stock Warrants 10,000
Warrant Stock 150,000
Add'l Paid-in Capital-Stock Warrants 10,000

Question 10

Which of the following is/are an appropriate presentation of treasury stock?

Accepted Answer

A) As a marketable security 
B) As a deduction at cost from total stockholders' equity 
C) As a deduction at cost from total contingent liabilities 
D) As a deduction at par from total stockholders' equity 
E) None of these choices is appropriate. 
A) As a marketable security 
B) As a deduction at cost from total stockholders' equity 
C) As a deduction at cost from total contingent liabilities 
D) As a deduction at par from total stockholders' equity 
E) None of these choices is appropriate.

Question 11

Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following is not true?

Accepted Answer

A) Such a dividend is known as a dividend in kind. 
B) Such a dividend is never known as a property dividend. 
C) The amount debited to Retained Earnings equals the fair value of the assets distributed. 
D) When this fair value differs from the carrying value of the assets distributed, the firm recognizes a gain or loss in net income. 
E) The accounting for property dividends resembles that for cash dividends, except that when the firm pays the dividend, it credits the asset given up, rather than Cash. 
A) Such a dividend is known as a dividend in kind. 
B) Such a dividend is never known as a property dividend. 
C) The amount debited to Retained Earnings equals the fair value of the assets distributed. 
D) When this fair value differs from the carrying value of the assets distributed, the firm recognizes a gain or loss in net income. 
E) The accounting for property dividends resembles that for cash dividends, except that when the firm pays the dividend, it credits the asset given up, rather than Cash.

Question 12

When a dividend is declared and paid in stock,

Accepted Answer

A) total stockholders' equity does not change. 
B) total stockholders' equity decreases. 
C) the current ratio increases. 
D) the amount of working capital decreases. 
E) None of these choices is correct. 
A) total stockholders' equity does not change. 
B) total stockholders' equity decreases. 
C) the current ratio increases. 
D) the amount of working capital decreases. 
E) None of these choices is correct.

Question 13

In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price.If the firm uses the cost method, it debits the balance to

Accepted Answer

A) Additional Paid-In Capital account so long as that account has a sufficiently large credit balance.To the extent the required debit exceeds the credit balance in the Additional Paid-In Capital account, the firm reduces that account to zero and debits the excess to Retained Earnings. 
B) Additional Paid-In Capital. 
C) Retained Earnings. 
D) Net Income. 
E) Accumulated Other Comprehensive Income. 
A) Additional Paid-In Capital account so long as that account has a sufficiently large credit balance.To the extent the required debit exceeds the credit balance in the Additional Paid-In Capital account, the firm reduces that account to zero and debits the excess to Retained Earnings. 
B) Additional Paid-In Capital. 
C) Retained Earnings. 
D) Net Income. 
E) Accumulated Other Comprehensive Income.

Question 14

Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to increase as a matter of corporate financial policy. Which of the following is not a valid reason for this practice?

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) The firm can distribute steadily growing dividend payments to shareholders thereby increasing the market value of the firm's common stock and increasing the earnings multiple that investors apply. 
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) The firm can distribute steadily growing dividend payments to shareholders thereby increasing the market value of the firm's common stock and increasing the earnings multiple that investors apply.

Question 15

A stock dividend indicates

Accepted Answer

A) a permanent commitment of assets generated by reinvested earnings. 
B) an increase to total owners' equity. 
C) an attempt to shift the control of the company by diluting ownership. 
D) a transfer of corporate assets to shareholders without using cash. 
E) a temporary commitment of assets generated by reinvested earnings. 
A) a permanent commitment of assets generated by reinvested earnings. 
B) an increase to total owners' equity. 
C) an attempt to shift the control of the company by diluting ownership. 
D) a transfer of corporate assets to shareholders without using cash. 
E) a temporary commitment of assets generated by reinvested earnings.

Question 16

How would a stock split affect each of the following?$\begin{array}{ccc} 
& \text { Total } & \
& \text { Stockholders' } & \text { Additional } \
\text { Assets } & \text { Equity } & \text { Paid-In Capital }
\end{array}$

Accepted Answer

A)  $\text { Increase } \quad \text { Increase } \quad \text { No effect }$ 
B)  $\text { No effect } \quad \text { No effect } \quad \text { No effect }$ 
C)  $\text { No effect } \quad \text { No effect } \quad \text { Increase }$ 
D)  $\text { Decrease } \quad \text { Decrease } \quad \text { Decrease }$ 
E) None of these choices is correct. 
A)  $\text { Increase } \quad \text { Increase } \quad \text { No effect }$ 
B)  $\text { No effect } \quad \text { No effect } \quad \text { No effect }$ 
C)  $\text { No effect } \quad \text { No effect } \quad \text { Increase }$ 
D)  $\text { Decrease } \quad \text { Decrease } \quad \text { Decrease }$ 
E) None of these choices is correct.

Question 17

Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following is not true?

Accepted Answer

A) Such a dividend is sometimes known as a dividend in kind. 
B) Such a dividend is sometimes known as a property dividend. 
C) The amount debited to Retained Earnings equals the fair value of the assets distributed. 
D) When this fair value differs from the carrying value of the assets distributed, the firm does not recognizes a gain or loss in net income. 
E) The accounting for property dividends resembles that for cash dividends, except that when the firm pays the dividend, it credits the asset given up, rather than Cash. 
A) Such a dividend is sometimes known as a dividend in kind. 
B) Such a dividend is sometimes known as a property dividend. 
C) The amount debited to Retained Earnings equals the fair value of the assets distributed. 
D) When this fair value differs from the carrying value of the assets distributed, the firm does not recognizes a gain or loss in net income. 
E) The accounting for property dividends resembles that for cash dividends, except that when the firm pays the dividend, it credits the asset given up, rather than Cash.

Question 18

Usually firms treat small-percentage distributions, say less than a 25% increase in the number of shares, as stock dividends and larger ones as stock splits.

Accepted Answer

A) True 
 B)False

Question 19

Regarding employee stock options (ESOs), which of the following is not true?

Accepted Answer

A) The exercise price is the price specified in the stock option contract for purchasing the common stock. 
B) The vesting date is the first date employees can exercise their stock options. 
C) The exercise date is the date employees exchange the option and cash for shares of common stock. 
D) The market price is the price of the stock as it trades in the market. 
E) A vesting period that depends on the firm's stock price reaching a specified target is a performance condition. 
A) The exercise price is the price specified in the stock option contract for purchasing the common stock. 
B) The vesting date is the first date employees can exercise their stock options. 
C) The exercise date is the date employees exchange the option and cash for shares of common stock. 
D) The market price is the price of the stock as it trades in the market. 
E) A vesting period that depends on the firm's stock price reaching a specified target is a performance condition.

Question 20

Various laws and contracts govern the rights and obligations of a shareholder. Which of the following istrue?

Accepted Answer

A) Each type of capital stock has its own provisions on voting matters, only. 
B) Each type of capital stock has its own provisions on sharing in earnings matters, only. 
C) Each type of capital stock has its own provisions on distributing assets generated by earnings matters, only. 
D) Each type of capital stock has its own provisions on sharing in assets in case of dissolution of the firm.matters, only. 
E) Each type of capital stock has its own provisions on such matters as voting, sharing in earnings, distributing assets generated by earnings, and sharing in assets in case of dissolution of the firm.. 
A) Each type of capital stock has its own provisions on voting matters, only. 
B) Each type of capital stock has its own provisions on sharing in earnings matters, only. 
C) Each type of capital stock has its own provisions on distributing assets generated by earnings matters, only. 
D) Each type of capital stock has its own provisions on sharing in assets in case of dissolution of the firm.matters, only. 
E) Each type of capital stock has its own provisions on such matters as voting, sharing in earnings, distributing assets generated by earnings, and sharing in assets in case of dissolution of the firm..

(CMA adapted, Jun 87 #4) The major segments of the statement of retained earnings for a period are

In IFRS, preferred stock subject to mandatory redemption is disclosed

If the accountant cannot objectively measure the value of the stock warrants separately from the value of the bond or preferred stock at date of issuance, the accountant credits

Earnings per share equals

Which of the following is/aretrue concerning convertible bonds or convertible preferred stock?

Which of the following is/are not true concerning an employee stock options' benefit element?

Firms use this method when management and the governing board do not intend to reissue shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares.

Which of the following is/are not true?

If 10,000 stock warrants are issued to the general public for $10,000, and later those warrants and $150,000 are exchanged for 10,000 shares of no-par stock, the entry to record the exercise of the warrants would be:

Which of the following is/are an appropriate presentation of treasury stock?

Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following is not true?

When a dividend is declared and paid in stock,

In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price.If the firm uses the cost method, it debits the balance to

Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to increase as a matter of corporate financial policy. Which of the following is not a valid reason for this practice?

A stock dividend indicates

How would a stock split affect each of the following? Total Stockholders' Additional Assets Equity Paid-In Capital

Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following is not true?

Usually firms treat small-percentage distributions, say less than a 25% increase in the number of shares, as stock dividends and larger ones as stock splits.

Regarding employee stock options (ESOs), which of the following is not true?

Various laws and contracts govern the rights and obligations of a shareholder. Which of the following istrue?

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

(CMA adapted, Jun 87 #4) The major segments of the statement of retained earnings for a period are

In IFRS, preferred stock subject to mandatory redemption is disclosed

If the accountant cannot objectively measure the value of the stock warrants separately from the value of the bond or preferred stock at date of issuance, the accountant credits

Earnings per share equals

Which of the following is/aretrue concerning convertible bonds or convertible preferred stock?

Which of the following is/are not true concerning an employee stock options' benefit element?

Firms use this method when management and the governing board do not intend to reissue shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares.

Which of the following is/are not true?

If 10,000 stock warrants are issued to the general public for $10,000, and later those warrants and $150,000 are exchanged for 10,000 shares of no-par stock, the entry to record the exercise of the warrants would be:

Which of the following is/are an appropriate presentation of treasury stock?

Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following is not true?

When a dividend is declared and paid in stock,

In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price.If the firm uses the cost method, it debits the balance to

Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to increase as a matter of corporate financial policy. Which of the following is not a valid reason for this practice?

A stock dividend indicates

How would a stock split affect each of the following? Total Stockholders' Additional Assets Equity Paid-In Capital

Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following is not true?

Usually firms treat small-percentage distributions, say less than a 25% increase in the number of shares, as stock dividends and larger ones as stock splits.

Regarding employee stock options (ESOs), which of the following is not true?

Various laws and contracts govern the rights and obligations of a shareholder. Which of the following istrue?

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