Intermediate Accounting II-Exam 2

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1

A primary source of stockholders' equity is

a. income retained by the corporations

b. appropriated retained earnings

c. contributions by stockholders

d. both income retained by the corporation and contributions by stockholders

d. both income retained by the corporation and contributions by stockholders

2

Authorized common stock refers to the total number of shares:

a. outstanding

b. issued

c. issued and outstanding

d. that can be issued

d. that can be issued

3

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

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

b. as a deduction at cost from total stockholders' equity

4

Which of the following is least likely to affect the retained earnings balance?

a. conversion of preferred stock into common stock

b. stock splits

c. treasury stock transactions

d. stock dividends

b. stock splits

5

A small stock dividend is defined as one that is:

a. less than or equal to 40%

b. less than 40%

c. less than or equal to 10%

d. less than 25%

d. less than 25%

6

The declaration and issuance of a stock dividend larger than 40% of the shares previously outstanding

a. increases common stock outstanding and increases total stockholders' equity

b. decreases retained earnings but does not change total stockholders' equity

c. may increase or decrease paid-in-capital in excess of par but does not change total stockholders' equity

d. increases retained earnings and increases total stockholders' equity

b. decreases retained earnings but does not change total stockholders' equity

7

The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in-capital an amount equal to the

a. fair value of the shares issued

b. book value of the shares issued

c. minimum legal requirements

d. par or stated value of the shares issued

a. fair value of the shares issued

8

What effect does the issuance of a 2-for-1 stock split have on each of the following?

a.par value per share/no effect|||retained earnings/no effect

b. par value per share/increase|||retained earnings/no effect

c. par value per share/decrease|||retained earnings/no effect

d. par value per share/decrease|||retained earnings/decrease

c. par value per share/decreases|||retained earnings/no effect

9

How would retained earnings be affected by the declaration of each of the following?

a. stock dividend/decrease|||stock split/decrease

b. stock dividend/no effect|||stock split/decrease

c. stock dividend/decrease|||stock split/no effect

d. stock dividend/no effect|||stock split/no effect

c. stock dividend/decrease|||stock split/no effect

10

Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

a. there should be no capitalization of retained earnings

b. par value

c. fair value on the declaration date

d. fair value on the payment date

b. par value

11

Houser Corporation owns $4,000,000 shares of stock in Baha Corporation. On December 31, 2014, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

a. property dividend

b. stock dividend

c. liquidating dividend

d. cash dividend

a. property dividend

12

Which dividends do not reduce stockholders' equity?

a. cash dividends

b. stock dividends

c. property dividends

d. liquidating dividends

b. stock dividends

13

A feature common to both stock splits and stock dividends is

a. a transfer to earned capital of a corporation

b. that there is no effect on total stockholders' equity

c. an increase in total liabilities of a corporation

d. a reduction in the contributed capital of a corporation

b. that there is no effect on total stockholders' equity

14

Corporations issue convertible debt for two main reasons.

One is the desire to raise equity capital that, assuming conversion, will arise when original debt is converted. The other is

a. the ease with which convertible debt is sold even if the company has a poor credit rating

b. the fact that equity capital has issue costs that convertible debt does not

c. that many corporations can obtain debt financing at lower rates

d. that convertible bonds will always sell at a premium

c. that many corporations can obtain debt financing at lower rates

15

If a company offers additional considerations to convertible bondholders in order to encourage conversion, it is called a(an)

a. forced conversion

b. sweetener

c. additional conversion

d. end conversion

b. sweetener

16

The main purpose of reporting diluted earnings per share is to

a. provide a comparison figure for debt holders

b. indicate earnings shareholders will receive in future periods

c. distinguish between companies with a complex capital structure and companies with a simple capital structure

d. show the maximum possible dilution of earnings

d. show the maximum possible dilution of earnings

17

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee

a. is granted the option

b. has performed all conditions precedent to exercising the option

c. may first exercise the option

d. exercises the option

a. is granted the option

18

Compensation expense resulting from a compensatory stock option plan is generally

a. recognized in the period of exercise

b. recognized in the period of the grant

c. allocated to the periods benefited by the employee's required service

d. allocated over the periods of the employee's service life to retirement

c. allocated to the periods benefited by the employee's required service

19

Which of the following statements is not true?

a. if an employee fails to exercise a stock option before its expiration date, the company should decrease compensation expense

b. unearned compensation is reported as a component of stockholders' equity in the balance sheet

c. if an employee forfeits a restricted stock because of failure to satisfy a service requirement, the company should reverse all of prior compensation expense

d. the accounting for restricted stock follows the same general principles as accounting for stock options at the date of grant

a. if an employee fails to exercise a stock option before its expiration date, the company should decrease compensation expense

20

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are

a. weighted by the number of days outstanding

b. weighted by the number of months outstanding

c. considered outstanding at the beginning of the year

d. considered outstanding at the beginning of the earliest year reported

d. considered outstanding at the beginning of the earliest year reported

21

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?

a. decrease and no effect

b. increase and no effect

c. decrease and increase

d. increase and decrease

c. decrease and increase

22

When computing dilutive EPS, the treasury stock method can be used for all of the following except?

a. stock warrants

b. convertible preferred stock

c. stock options

d. stock rights

b. convertible preferred stock

23

Of the following, select the incorrect statement concerning earnings per share.

a. During periods when all income is paid out as dividends, earnings per share and dividends per share under a simple capital structure would be identical.

b. Under a simple capital structure, no adjustment to shares outstanding is necessary for a stock split on the last day of the fiscal period.

c. During a period, changes in stock issued or reacquired by a company may affect earnings per share.

d. During a loss period, the amount of loss attributed to each share of common stock should be computed.

b. Under a simple capital structure, no adjustment to shares outstanding is necessary for a stock split on the last day of the fiscal period.