Question 1

For a compensatory stock option plan for which the date of grant and measurement date are the same, compensation cost should be recognized in the income statement

Accepted Answer

A)   At the date of retirement
B)   Of each period in which services are rendered
C)   At the exercise date
D)   At the adoption date of the planE) All of the above
F) A) and D)

Question 2

A restriction of retained earnings is most likely to be required by the

Accepted Answer

A)   Exhaustion of potential benefits of the investment credit
B)   Purchase of treasury stock
C)   Payment of last maturing series of a serial bond issue
D)   Amortization of past service costs related to a pension planE) A) and C)
F) A) and B)

Question 3

A feature common to both stock splits and stock dividends is

Accepted Answer

A)   A reduction in total capital of a corporation
B)   A transfer from earned capital to paid-in capital
C)   A reduction in book value per share
D)   Inclusion in conventional statement of source and application of fundsE) All of the above
F) C) and D)

Question 4

Discuss the following theories of equity:
a.	Proprietary
b.	Entity
c.	Fund
d.	Commander
e.	Enterprise
f.	Residual equity

Accepted Answer

a. Proprietary
According to the propriet...

Question 5

Discuss the components of a corporation's balance sheet capital section.

Accepted Answer

The components of a corporation's capita...

Question 6

Which of the following securities must be reported as a liability because they have the characteristics of both liabilities and equity, but the liability characteristic is dominant?

Accepted Answer

A)   Redeemable preferred stock.
B)   Stock options issued with a debt security.
C)   Detachable stock options.
D)   Mandatorily redeemable preferred stock.E) B) and D)
F) A) and D) D

Question 7

How would the declaration and subsequent issuance of a 10 percent stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock? Common Stock Additional Paid-in Capital

Accepted Answer

A)   No effect No effect
B)   No effect Increase
C)   Increase No effect
D)   Increase IncreaseE) B) and C)
F) A) and B) D

Question 8

Treasury shares are

Accepted Answer

A)   Shares held as an investment by the treasurer of the corporation.
B)   Shares held as an investment of the corporation.
C)   Issued and outstanding shares.
D)   Issued but not outstanding shares.E) A) and B)
F) A) and C)

Question 9

Payment of a dividend in stock

Accepted Answer

A)   Increases the current ratio
B)   Decreases the amount of working capital
C)   Increases total stockholders' equity
D)   Decreases book value per share of stock outstandingE) A) and C)
F) All of the above

Question 10

Discuss the following special features of preferred stock:
a. Convertible
b. Call
c. Cumulative
d. Participating
e. Redemption

Accepted Answer

a. Convertible
A conversion feature allo...

Question 11

When preferred stock is converted to common stock

Accepted Answer

A)   The debt-to-equity ratio decreases.
B)   The debt-to-equity ratio increases.
C)   The debt-to-equity ratio is unchanged.
D)   A gain or loss is reported in earnings for the difference between the fair value of the common stock and the book value of the preferred stock that was converted.E) B) and C)
F) A) and C)

Question 12

Which of the theories of equity is consistent with the definition of equity that is found in Statement of Financial Accounting Concepts No. 6?

Accepted Answer

A)   Proprietary theory.
B)   Commander theory.
C)   Entity theory.
D)   Enterprise theory.E) B) and C)
F) A) and D)

Question 13

What is the most likely effect of a stock split on the par value per share and the number of shares outstanding? Par Value Number of shares
Per share outstanding

Accepted Answer

A)   Decrease Increase
B)   Decrease No effect
C)   Increase Increase
D)   No effect No effectE) All of the above
F) B) and C) A

Question 14

When a dividend paid to stockholders who own mandatorily redeemable preferred stock, the company must report the dividend

Accepted Answer

A)   As an adjustment to retained earnings in its statement of owners' equity.
B)   As interest expense in the income statement.
C)   As a reduction to other comprehensive income.
D)   In the financing activities section of the statement of cash flows.E) C) and D)
F) A) and C)

Question 15

The pre-emptive right of a common stockholder is the right to

Accepted Answer

A)   Share proportionately in corporate assets upon liquidation.
B)   Share proportionately in any new issues of stock of the same class.
C)   Receive cash dividends before they are distributed to preferred stockholders.
D)   Exclude preferred stockholders from voting rights.E) A) and C)
F) B) and C)

Question 16

The cumulative feature of preferred stock

Accepted Answer

A)   Limits the amount of cumulative dividends to the par value of the preferred stock.
B)   Requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
C)   Means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
D)   Enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.E) A) and B)
F) C) and D)

Question 17

Under the residual equity theory

Accepted Answer

A)   A business is viewed as a social institution.
B)   Management is responsible for maximizing the wealth of common stockholders.
C)   A manager's goals are considered as important as those of the common stockholders.
D)   Equities are viewed as restrictions on assets.E) B) and D)
F) A) and D)

Question 18

Define and discuss accounting for stock warrants.

Accepted Answer

Stock warrants are certificates that all...

Question 19

The dollar amount of total stockholders' equity remains the same when there is a (an)

Accepted Answer

A)   Issuance of preferred stock in exchange for convertible debentures
B)   Issuance of nonconvertible bonds with detachable stock purchase warrants
C)   Declaration of a stock dividend
D)   Declaration of a cash dividendE) A) and B)
F) B) and C)

Question 20

Stock that has a fixed per-share amount printed on each stock certificate is called

Accepted Answer

A)   Stated value stock.
B)   Fixed value stock.
C)   Uniform value stock.
D)   Par value stock.E) A) and B)
F) A) and C)

Exam 15: Equity

For a compensatory stock option plan for which the date of grant and measurement date are the same, compensation cost should be recognized in the income statement

Correct AnswerverifiedShow Answer

A restriction of retained earnings is most likely to be required by the

Correct AnswerverifiedShow Answer

A feature common to both stock splits and stock dividends is

Correct AnswerverifiedShow Answer

Discuss the following theories of equity: a. Proprietary b. Entity c. Fund d. Commander e. Enterprise f. Residual equity

Correct Answerverifieda. ProprietaryAccording to the propriet...View AnswerShow Answer

Discuss the components of a corporation's balance sheet capital section.

Correct AnswerverifiedThe components of a corporation's capita...View AnswerShow Answer

Which of the following securities must be reported as a liability because they have the characteristics of both liabilities and equity, but the liability characteristic is dominant?

Correct AnswerverifiedD

How would the declaration and subsequent issuance of a 10 percent stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock? Common Stock Additional Paid-in Capital

Correct AnswerverifiedD

Treasury shares are

Correct AnswerverifiedShow Answer

Payment of a dividend in stock

Correct AnswerverifiedShow Answer

Discuss the following special features of preferred stock: a. Convertible b. Call c. Cumulative d. Participating e. Redemption

Correct Answerverifieda. ConvertibleA conversion feature allo...View AnswerShow Answer

When preferred stock is converted to common stock

Correct AnswerverifiedShow Answer

Which of the theories of equity is consistent with the definition of equity that is found in Statement of Financial Accounting Concepts No. 6?

Correct AnswerverifiedShow Answer

What is the most likely effect of a stock split on the par value per share and the number of shares outstanding? Par Value Number of shares Per share outstanding

Correct AnswerverifiedA

When a dividend paid to stockholders who own mandatorily redeemable preferred stock, the company must report the dividend

Correct AnswerverifiedShow Answer

The pre-emptive right of a common stockholder is the right to

Correct AnswerverifiedShow Answer

The cumulative feature of preferred stock

Correct AnswerverifiedShow Answer

Under the residual equity theory

Correct AnswerverifiedShow Answer

Define and discuss accounting for stock warrants.

Correct AnswerverifiedStock warrants are certificates that all...View AnswerShow Answer

The dollar amount of total stockholders' equity remains the same when there is a (an)

Correct AnswerverifiedShow Answer

Stock that has a fixed per-share amount printed on each stock certificate is called

Correct AnswerverifiedShow Answer

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a. Proprietary
According to the propriet...
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The components of a corporation's capita...
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D

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D

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a. Convertible
A conversion feature allo...
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A

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Stock warrants are certificates that all...
View Answer

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