Question 1

Stock dividends

Accepted Answer

A) have little economic substance for shareholders. 
B) result in a proportionate increase in the number of shares held by each shareholder, but does not change that shareholder's ownership interest or proportionate voting power. 
C) result in decreases to book value per common share, but each shareholder has a proportionately larger number of shares, so the total book value of each shareholder's interest remains unchanged. 
D) result in the decline of market value per share should be commensurate with the proportional increase in shares, but all else equal, the total market value of an individual's shares should not change. 
E) all of the above 
A) have little economic substance for shareholders. 
B) result in a proportionate increase in the number of shares held by each shareholder, but does not change that shareholder's ownership interest or proportionate voting power. 
C) result in decreases to book value per common share, but each shareholder has a proportionately larger number of shares, so the total book value of each shareholder's interest remains unchanged. 
D) result in the decline of market value per share should be commensurate with the proportional increase in shares, but all else equal, the total market value of an individual's shares should not change. 
E) all of the above

Question 2

Which of the following is 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) Callable preferred shares provide the issuer with the obligation to repurchase preferred shares at a specified price, 
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) Callable preferred shares provide the issuer with the obligation to repurchase preferred shares at a specified price,

Question 3

Most publicly traded firms operate as corporations.Which of the following is/are not true?

Accepted Answer

A)  The corporate form provides the owner unlimited liability. 
B) The corporate form allows the firm to raise funds by issuing shares to investors in varying amounts. 
C) The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm. 
D) The corporation has legal status separate from its owners. 
E) all of the above 
A)  The corporate form provides the owner unlimited liability. 
B) The corporate form allows the firm to raise funds by issuing shares to investors in varying amounts. 
C) The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm. 
D) The corporation has legal status separate from its owners. 
E) all of the above

Question 4

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

Accepted Answer

A) declaration of a stock split. 
B) declaration of a stock dividend. 
C) purchase of treasury stock. 
D) payment in full of subscribed stock. 
E) None of these choices is correct. 
A) declaration of a stock split. 
B) declaration of a stock dividend. 
C) purchase of treasury stock. 
D) payment in full of subscribed stock. 
E) None of these choices is correct.

Question 5

Most publicly traded firms operate as corporations.Which of the following is/are not true?

Accepted Answer

A) The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm. 
B) The transfer of ownership interests is a transaction between the shareholder and the firm whose shares change hands. 
C) Investors make capital contributions under a contract between themselves and the corporation. 
D) The corporation has legal status separate from its owners. 
E) none of the above 
A) The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm. 
B) The transfer of ownership interests is a transaction between the shareholder and the firm whose shares change hands. 
C) Investors make capital contributions under a contract between themselves and the corporation. 
D) The corporation has legal status separate from its owners. 
E) none of the above

Question 6

The accounting for employee stock options involves the firm debiting _____ and crediting _____ for the amortized amount of the fair value of the stock options on the date of the grant over the requisite service period.

Accepted Answer

A) Compensation Expense; Additional Paid-In Capital (Stock Options) 
B) Stock Option Expense; Additional Paid-In Capital (Stock Options) 
C) Stock Option Expense; Retained Earnings 
D) Compensation Expense; Retained Earnings 
E) Compensation Expense; Common Stock 
A) Compensation Expense; Additional Paid-In Capital (Stock Options) 
B) Stock Option Expense; Additional Paid-In Capital (Stock Options) 
C) Stock Option Expense; Retained Earnings 
D) Compensation Expense; Retained Earnings 
E) Compensation Expense; Common Stock

Question 7

Which of the following is not true regarding stock rights?

Accepted Answer

A) U.S.GAAP does not require recognition of the rights on the date of the grant. 
B) The granting of stock rights to current shareholders requires several accounting entries. 
C) Shareholders may exercise the stock rights or sell them to others. 
D) IFRS does not require recognition of the rights on the date of the grant. 
E) When holders exercise the stock rights, the firm records the issue of shares at the price paid just as it records the issue of new shares for cash. 
A) U.S.GAAP does not require recognition of the rights on the date of the grant. 
B) The granting of stock rights to current shareholders requires several accounting entries. 
C) Shareholders may exercise the stock rights or sell them to others. 
D) IFRS does not require recognition of the rights on the date of the grant. 
E) When holders exercise the stock rights, the firm records the issue of shares at the price paid just as it records the issue of new shares for cash.

Question 8

Which of the following is/are not true?

Accepted Answer

A) Firms accumulate information about revenues and expenses during a reporting period to enable the preparation of the income statement. 
B) Net income for a period increases net assets (assets minus liabilities) and retained earnings. 
C) Net loss for a period reduces net assets (assets minus liabilities) and retained earnings. 
D) Net income for a period increases the amounts in Common Stock and Additional Paid-In Capital, a common practice among publicly traded firms. 
E) none of the above 
A) Firms accumulate information about revenues and expenses during a reporting period to enable the preparation of the income statement. 
B) Net income for a period increases net assets (assets minus liabilities) and retained earnings. 
C) Net loss for a period reduces net assets (assets minus liabilities) and retained earnings. 
D) Net income for a period increases the amounts in Common Stock and Additional Paid-In Capital, a common practice among publicly traded firms. 
E) none of the above

Question 9

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 #15) Refer to the Baldwin Corporation example.Baldwin's total shareholders' equity would be

Accepted Answer

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

Question 10

All corporations issue

Accepted Answer

A) common stock. 
B) preferred stock. 
C) treasury stock. 
D) convertible stock. 
E) putable stock. 
A) common stock. 
B) preferred stock. 
C) treasury stock. 
D) convertible stock. 
E) putable stock.

Question 11

Which of the following is not true regarding firms use of net assets (assets minus liabilities)?

Accepted Answer

A) Firms may choose to use the net assets generated by earnings to repurchase common shares. 
B) Firms may choose to use the net assets generated by earnings to repurchase common shares which result in cash outflows for a firm, similar to paying a cash dividend. 
C) In the case of share repurchases, only those shareholders that choose to sell their shares to the firm receive cash. 
D) Some firms pay periodic dividends to the common shareholders out of net assets. 
E) Firms typically retain some or all of the net assets generated by earnings, causing net assets to decrease, along with retained earnings, which is the component of shareholders' equity showing the cause of that decrease in net assets. 
A) Firms may choose to use the net assets generated by earnings to repurchase common shares. 
B) Firms may choose to use the net assets generated by earnings to repurchase common shares which result in cash outflows for a firm, similar to paying a cash dividend. 
C) In the case of share repurchases, only those shareholders that choose to sell their shares to the firm receive cash. 
D) Some firms pay periodic dividends to the common shareholders out of net assets. 
E) Firms typically retain some or all of the net assets generated by earnings, causing net assets to decrease, along with retained earnings, which is the component of shareholders' equity showing the cause of that decrease in net assets.

Question 12

Prepare journal entries to record each of the following transactions for Gordon's Biking Supplies (GBS) on January 1, Year 1.
a. GBS issues $100,000 of convertible bonds at 98% of par.Without the conversion feature, the bonds would have traded at 88% of par.The bonds each have a $1,000 face value and an 8% stated rate.Each bond can be converted into 50 shares of stock with a $5 par value.The bonds have a 10-year maturity and the straight line method of discount amortization is used.Interest is paid annually on January 1.
b. Prepare any entry necessary on December 31, Year 1.
c. Prepare any entry necessary on December 31, Year 2.
d. On January 1, Year 3, $25,000 par value of bonds are converted when the market price per share $25.(Hint: do not record a gain or loss on conversion.)

Accepted Answer

The answer of Prepare journal entries to record each of...

Question 13

Which of the following is/are not true?

Accepted Answer

A) Firms may periodically distribute net assets generated by earnings to shareholders as a dividend. 
B) Firms reduce net assets and retained earnings for the dividend distribution. 
C) Retained earnings on the balance sheet provides a measure of the cumulative net assets generated by earnings in excess of dividends declared. 
D) The sale of property, plant, and equipment represents the primary source of funds for most successful businesses. 
E) none of the above. 
A) Firms may periodically distribute net assets generated by earnings to shareholders as a dividend. 
B) Firms reduce net assets and retained earnings for the dividend distribution. 
C) Retained earnings on the balance sheet provides a measure of the cumulative net assets generated by earnings in excess of dividends declared. 
D) The sale of property, plant, and equipment represents the primary source of funds for most successful businesses. 
E) none of the above.

Question 14

When a firm reacquires common shares under the Par Value Method for Repurchased Shares:

Accepted Answer

A) the Treasury Stock-Common account has a credit balance that reduces the amount of Marketable Securities reported on the balance sheet. 
B) the accountant debits the Treasury Stock-Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price. 
C) the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price. 
D) the Treasury Stock-Common account has a credit balance and therefore reduces total shareholders' equity. 
E) the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price. 
A) the Treasury Stock-Common account has a credit balance that reduces the amount of Marketable Securities reported on the balance sheet. 
B) the accountant debits the Treasury Stock-Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price. 
C) the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price. 
D) the Treasury Stock-Common account has a credit balance and therefore reduces total shareholders' equity. 
E) the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price.

Question 15

The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower dividend rate than purchasers otherwise would have required to buy the shares for a given price.

Accepted Answer

A) True 
 B)False

Question 16

Discuss callable preferred shares from the issuer's point-of-view.

Accepted Answer

Call Provisions
Callable preferred share

Question 17

Alfonsio Corp.has an extensive stock option program for its employees.Prepare journal entries to record the following transactions:

a.	On July 1, Year 1, Alfonsio issues 10,000 stock options to employees when the market price per share is $5. The option allows the holder the right to acquire shares at $6 per share. Par value of the common shares is $1.
b.	On July 31, Year 1, 1,000 stock options previously granted when the market value per share was $4 expire.
c.	On August 31, Year 1, 4,000 stock options were exercised when the market value per share was $5. The options allowed the holder to acquire the shares at $4 per share and the options were granted when the market price per share was $3.

Accepted Answer

The answer of Alfonsio Corp.has an extensive stock option program...

Question 18

The data below are from the December 31, 2013, balance sheet of the Harrison Corporation:

Common stock, $50 par, 3,000 shares issued and
outstanding ...................................$150,000
Paid-in capital in excess of par ..............45,000
Retained earnings .............................75,000

During 2014, the following transactions affecting corporate capital were recorded:

Aug. 16	Purchased 400 shares of treasury stock at $78 per share.

Oct. 23	Purchased 225 shares of stock at $71 per share and immediately retired the stock.

Nov. 3	Sold 150 shares of the treasury stock purchased on Aug. 16 at $81 per share.

Assuming the cost method is used for treasury stock and that retained earnings are to be reduced minimally in stock reacquisition transactions, provide the entries required to record the above transactions.

Accepted Answer

The answer of The data below are from the December...

Question 19

The shareholders' equity section of the balance sheet reports the sources of financing provided by preferred and common shareholders and their claims on the net assets of the firm.Which of the following is/are true?

Accepted Answer

A) The equity of the preferred shareholders usually approximates the liquidation value of the preferred shares. 
B) The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock, Additional Paid-In Capital, Retained Earnings, Accumulated Other Comprehensive Income, Treasury Stock, and other preferred shares equity accounts. 
C) The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock, Additional Paid-In Capital, and Retained Earnings accounts, only. 
D) The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock and Additional Paid-In Capital accounts, only. 
E) The equity of the preferred shareholders equals the amounts appearing in the Preferred Stock account, only. 
A) The equity of the preferred shareholders usually approximates the liquidation value of the preferred shares. 
B) The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock, Additional Paid-In Capital, Retained Earnings, Accumulated Other Comprehensive Income, Treasury Stock, and other preferred shares equity accounts. 
C) The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock, Additional Paid-In Capital, and Retained Earnings accounts, only. 
D) The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock and Additional Paid-In Capital accounts, only. 
E) The equity of the preferred shareholders equals the amounts appearing in the Preferred Stock account, only.

Question 20

Both U.S.GAAP and IFRS require the disclosure of information about the rights of each type of capital stock outstanding.

Accepted Answer

A) True 
 B)False

Stock dividends

Which of the following is not true?

Most publicly traded firms operate as corporations.Which of the following is/are not true?

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

Most publicly traded firms operate as corporations.Which of the following is/are not true?

The accounting for employee stock options involves the firm debiting _ and crediting _ for the amortized amount of the fair value of the stock options on the date of the grant over the requisite service period.

Which of the following is not true regarding stock rights?

Which of the following is/are not true?

All corporations issue

Which of the following is not true regarding firms use of net assets (assets minus liabilities)?

Which of the following is/are not true?

When a firm reacquires common shares under the Par Value Method for Repurchased Shares:

The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower dividend rate than purchasers otherwise would have required to buy the shares for a given price.

Discuss callable preferred shares from the issuer's point-of-view.

The shareholders' equity section of the balance sheet reports the sources of financing provided by preferred and common shareholders and their claims on the net assets of the firm.Which of the following is/are true?

Both U.S.GAAP and IFRS require the disclosure of information about the rights of each type of capital stock outstanding.

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

Stock dividends

Which of the following is not true?

Most publicly traded firms operate as corporations.Which of the following is/are not true?

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

Most publicly traded firms operate as corporations.Which of the following is/are not true?

The accounting for employee stock options involves the firm debiting _____ and crediting _____ for the amortized amount of the fair value of the stock options on the date of the grant over the requisite service period.

Which of the following is not true regarding stock rights?

Which of the following is/are not true?

All corporations issue

Which of the following is not true regarding firms use of net assets (assets minus liabilities)?

Which of the following is/are not true?

When a firm reacquires common shares under the Par Value Method for Repurchased Shares:

The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower dividend rate than purchasers otherwise would have required to buy the shares for a given price.

Discuss callable preferred shares from the issuer's point-of-view.

The shareholders' equity section of the balance sheet reports the sources of financing provided by preferred and common shareholders and their claims on the net assets of the firm.Which of the following is/are true?

Both U.S.GAAP and IFRS require the disclosure of information about the rights of each type of capital stock outstanding.

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

The accounting for employee stock options involves the firm debiting _ and crediting _ for the amortized amount of the fair value of the stock options on the date of the grant over the requisite service period.