Question 1

Firms use the par value 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) True 
 B)False

Question 2

Which of the following is/are not true?

Accepted Answer

A) Common and preferred stock usually have a par or stated value. 
B) Firms report amounts received from issuing common stock in excess of the par or stated value as Additional Paid-In Capital or a similar account title. 
C) Firms report amounts received from issuing common stock in excess of the par or stated value as Additional Paid-In Capital, or Capital in Excess of Par Value or a similar account title. 
D) The amounts in Additional Paid-In Capital for a firm usually exceeds the amounts in Common Stock, indicating that the firm issued common stock for substantially more than par value, a common practice among publicly traded firms. 
E) none of the above

Question 3

Discuss why firms may issue capital stock (preferred or common) for cash or for noncash assets. Discuss the issuance of capital stock for services received.

Accepted Answer

The answer of Discuss why firms may issue capital stock...

Question 4

All corporations must issue preferred stock.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not true?

Accepted Answer

A) Owners of preferred stock have a claim on the assets of a firm that is senior to the claim of common shareholders. 
B) Preferred shares carry special rights. 
C) The senior status and special rights may induce certain investors to purchase preferred shares of a firm, even though they would be unwilling to purchase common shares of the same firm. 
D) The senior status and special rights increase the risks of preferred shareholders relative to common shareholders. 
E) Preferred shares vary with respect to the rights and obligations of the issuing firm and of the investor in the preferred shares.

Question 6

Selected data from the comparative balance sheets of Mock Company as of December 31, Year 1, and Year 2 appear below:
  The following transactions occurred during Year 2:
 a.	March 1, Year 2: The company resold the Treasury shares on the market for $57 per share.
b.	June 30, Year 2: The company declared and issued a 10-percent stock dividend at a time when the market price was $63 per share.
c.	September 15, Year 2: The company issued additional shares of common stock on the open market for cash.
d.	November 16, Year 2: The company issued new preferred shares on the open market for cash.
e.	December 31, Year 2: Net income for Year 2 was $195,000. The company declared and paid cash dividends of $72,000 on the last day of the year.

Required:
Prepare journal entries for each of the transactions and events affecting these shareholders' equity accounts during Year 2.

Accepted Answer

The answer of Selected data from the comparative balance sheets...

Question 7

Evenrude Corporation is a new company about to issue stock.The corporation sells 2,000 shares of common stock (par value $2) at $10 per share.The journal entry to record this transaction is:

Accepted Answer

A) Cash 2,000 Common Stock 2,000 
B) Cash 20,000 Common Stock 4,000
Additional Paid-in Capital 16,000 
C) Cash 20,000 Owners' Liability 16,000
Common Stock 4,000 
D) Cash 20,000 Accounts Payable 20,000 
E) Cash 20,000 Notes Payable 20,000

Question 8

Which of the following is/are true regarding stock warrants?

Accepted Answer

A) Firms issue stock warrants to the general investing public for cash or attached to bonds. 
B) Holders of a bond or preferred stock with common stock warrants attached can detach and redeem the warrants separately from the bond or preferred stock. 
C) Holders of a bond or preferred stock with common stock warrants attached receives periodic interest or preferred dividends and holds a call option to purchase common shares. 
D) U.S.GAAP and IFRS require the firm to measure the fair value of the stock warrants separately from the value of the associated bond or preferred stock and allocate the issue price between the two securities. 
E) all of the above.

Question 9

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) Firms often issue stock rights to raise new capital from current employees. 
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 10

A firm must pay all current and previously postponed preferred dividends before it can pay any dividends on common shares, thus the preferred shares have the feature called

Accepted Answer

A) convertible dividend rights. 
B) noncumulative dividend rights. 
C) cumulative dividend rights. 
D) callable dividend rights. 
E) participating dividend rights.

Question 11

Describe convertible preferred share features from the perspective of the preferred shareholders and the issuing firms. Preferred shares may provide for redemption by the issuing firm in the future. What types of redemption rights or obligations do redeemable preferred shares carry?

Accepted Answer

The answer of Describe convertible preferred share features from the...

Question 12

(CMA adapted, Dec 89 #8) On January 1, Year 1, Toga Corporation granted stock options to top management.The options were exercisable within 4 years from the date of grant only if the employee was still in Toga's employ.When computing year-end earnings per share at December 31, Year 1, Toga should

Accepted Answer

A) exclude the options until the year they are exercisable. 
B) include the options in diluted earnings per share if they are dilutive. 
C) include the options in diluted earnings per share if they are antidilutive. 
D) ignore the options because they are not considered common stock equivalents. 
E) recognize the value of the options each year in the income statement until they are exercised.

Question 13

Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock?

Accepted Answer

A) Stock options 
B) Stock rights 
C) Stock dividends 
D) Stock subscriptions 
E) None of these choices is correct.

Question 14

Most publicly traded firms operate as corporations.The corporate form has which of the following advantage(s)?

Accepted Answer

A)  The corporate form provides the owner (shareholder) with limited 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 15

Excerpts from the Statement of Financial Position for Baldwin Corporation as of September 30, Year 5, are presented below.
$\begin{array}{ll}
\text { Cash } & \$ 950,000 \
\text { Accounts receivable (net) } & 1,675,000 \
\text { Inventories } & 2.806 .000 \
\text { Total current assets } & \$ 5.431 .000\\
\text { Accounts payable } & \$ 1,004,000 \
\text { Accrued liabilities } & 785,000\
\text { Total current liabilities }&\$1,789,000
\end{array}$ 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 #17) Refer to the Baldwin Corporation example.If the dividend declared by Baldwin Corporation had been a ten percent stock dividend instead of a cash dividend, Baldwin's total shareholders' equity 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) increased by the dividend declaration and unchanged by the dividend distribution. 
D) unchanged by either the dividend declaration or the dividend distribution. 
E) none of the above

Question 16

Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of the following is/are not true?

Accepted Answer

A) Some firms believe that their own shares provide a good investment. 
B) Evidence supports the notion that share prices often increase after a firm announces a share repurchase program. 
C) Rather than pay dividends to all shareholders, many of whom will owe personal income taxes on the entire dividend amount, the firm can buy back shares from those who wish to receive cash. 
D) Some shareholders will have lower tax rates on receipts from sales of shares than on dividend receipts. 
E) Share repurchases use up available cash and thereby increase the attractiveness of the company to outsiders who believe that the stock buy back makes the company an attractive target.

Question 17

IFRS does not require firms to allocate a portion of the issue price of convertible bonds and convertible preferred stock to the conversion feature.

Accepted Answer

A) True 
 B)False

Question 18

How would total stockholders' equity be affected by the declaration of each of the following? Stock Stock
Dividend Split

Accepted Answer

A) No effect Increase 
B) Increase Decrease 
C) Decrease Decrease 
D) No effect No effect 
E) Decrease Increase

Question 19

Describe common stockholder rights.

Accepted Answer

The answer of Describe common stockholder rights....

Question 20

Both U.S.GAAP and IFRS do not require firms to recognize the fair value of employee stock options in the accounting records.

Accepted Answer

A) True 
 B)False

Exam 15: Shareholders Equity: Capital Contributions and Distributions

Firms use the par value 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?

Discuss why firms may issue capital stock (preferred or common) for cash or for noncash assets. Discuss the issuance of capital stock for services received.

All corporations must issue preferred stock.

Which of the following is not true?

Evenrude Corporation is a new company about to issue stock.The corporation sells 2,000 shares of common stock (par value $2) at $10 per share.The journal entry to record this transaction is:

Which of the following is/are true regarding stock warrants?

Which of the following is not true regarding stock rights?

A firm must pay all current and previously postponed preferred dividends before it can pay any dividends on common shares, thus the preferred shares have the feature called

Describe convertible preferred share features from the perspective of the preferred shareholders and the issuing firms. Preferred shares may provide for redemption by the issuing firm in the future. What types of redemption rights or obligations do redeemable preferred shares carry?

(CMA adapted, Dec 89 #8) On January 1, Year 1, Toga Corporation granted stock options to top management.The options were exercisable within 4 years from the date of grant only if the employee was still in Toga's employ.When computing year-end earnings per share at December 31, Year 1, Toga should

Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock?

Most publicly traded firms operate as corporations.The corporate form has which of the following advantage(s) ?

Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of the following is/are not true?

IFRS does not require firms to allocate a portion of the issue price of convertible bonds and convertible preferred stock to the conversion feature.

How would total stockholders' equity be affected by the declaration of each of the following? Stock Stock Dividend Split

Describe common stockholder rights.

Both U.S.GAAP and IFRS do not require firms to recognize the fair value of employee stock options in the accounting records.