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60 Cards in this Set
- Front
- Back
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Which of the following does not accurately describe the proprietary view of the firm?
A. Its focus is on the firm's net assets. B. It is the prevailing view of GAAP. C. Its focus is on owners' equity. D. Whether creditors or shareholders provided the firm's assets is irrelevant |
D. Whether creditors or shareholders provided the firm's assets is irrelevant
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Cash dividends paid by a corporation
A. are an expense of the corporation that declared the dividend. B. reduces the net income of the corporation that declared the dividend. C. reduces the retained earnings of the corporation that declared the dividend D. reduces the retained earnings of the corporation that declared the dividend because net income is reduced by the amount of the dividend |
C
reduces the retained earnings of the coprporation that declared the dividend |
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Which of the following statements is correct if treasury stock costing $25,000 was sold for $27,500?
A. Total owners' equity increases $2,500. B. Total owners' equity increases $27,500 . C. Net income increases $2,500. D. Total owners' equity increases $25,000. |
B
total owners equity increases 27500 |
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Treasury stock is reported within the balance sheet as
A. a long-term investment . B. a short-term investment. C. an account contra to retained earnings. D. an account contra to owners' equity. |
D
an account contra to owners equity |
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Refer to Table 15-1. Which one of the following is the entry to record the original sale of the stock?
A. B. C. D. |
A
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Refer to Table 15-1. Which one of the following is the correct entry to record the purchase of treasury stock?
A. B. C. D. |
A
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Refer to Table 15-1. Which one of the following is the correct entry to record the sale of treasury stock?
A. B. C. D. |
B
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A corporation reported the following during 2009: Net income $175,250; a sale of 10,000 shares of $5 par value common stock for $8.75 per share; a purchase of treasury stock costing $24,750; a sale of treasury stock costing $15,500 for $14,695; a declaration and distribution of a $39,000 cash dividend; a declaration and distribution of a stock dividend of 5,000 shares of $5 par value common stock. What was the increase in owners' equity during 2009?
A. $213,695 B. $188,695 C. 198,195 D. $173,195 |
A
213695 |
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Shareholders who sell back shares of the company stock as treasury stock are
A. not taxed. B. taxed at ordinary rates. C. taxed at capital gains rates. D. subject to tax penalties. |
C taxed at capital gains rate
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Financial analysts should always review stock repurchase plans carefully because
A. the plans always produce above-market returns. B. the plans usually produce above-market returns. C. it is important to determine the reasons for the buyback. D. the plans are always beneficial to the shareholders. |
C
it is important to determine the reasosn for the buy back |
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A company's retained earnings on December 31, 2008 was $2,190,000 and its stockholders equity was $8,760,000. During 2009 the company reported the following: net income $225,000; a sale of treasury stock costing $75,000 for $79,750; a treasury stock purchase costing $125,700; a cash dividend declaration of $73,200; a 10,000 share common stock ($10 par value) dividend was declared and distributed when the market value was $12.75 per share. What is the retained earnings balance on December 31, 2009?
A. $1,994,050 B. $2,219,050 C. $2,214,300 D. $2,246,550 |
C
2214300 $2,190,000 + $225,000 - $73,200 - $127,500 = $2,214,300 |
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A company's retained earnings on December 31, 2008 was $2,190,000 and its owners' equity was $8,760,000. During 2009 the company reported the following: net income $225,000; a sale of treasury stock costing $75,000 for $79,750; a treasury stock purchase costing $125,700; a cash dividend declaration of $73,200; a 10,000 share common stock ($10 par value) dividend was declared and distributed when the market value was $12.75 per share. What is the owners' equity balance on December 31, 2009?
A. $8,663,350 B. $8,738,350 C. $8,865,850 D. $8,934,300 |
C
8865850 |
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Which of the following is not a reason why a company would purchase its own stock?
A. The company needs shares in order to meet employee stock option plans. B. The company's management may have concluded that the company's stock is undervalued at the prevailing market price. C. The company wants to increase its earnings per share. D. The company wants to manipulate its net income. |
D
the company wants to manipulate its net income |
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When a dividend is not declared on preferred stock, and the common shareholders cannot receive a dividend until all past and current dividends are paid to the preferred shareholders, the preferred stock is
A. cumulative. B. noncumulative C. participating. D. nonparticipating. |
A
cumulative |
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Companies with a history of net operating losses are prone to issue which one of the following to raise money?
A. Debenture bonds B. Serial bonds C. Preferred stock D. Notes payable |
C
preferrered stock |
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Mandatorily redeemable preferred stock is not considered to be equity by the FASB. The FASB requires that this type of stock be reported on the balance sheet
A. as a liability. B. as an equity item. C. as a temporary investment. D. on a separate line between liabilities and shareholders' equity. |
A
as a liability |
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Which of the following statements pertaining to preferred stock is not correct?
A. The dollar value of preferred stock issued by US companies increased from 1990 to 2001. B. Preferred stock dividends are contractual obligations that must be paid in profitable years. C. Most preferred stock issues are nonparticipating, meaning that the shareholders are entitled to receive dividends based on the stated dividend rate. D. Preferred stockholders are given preference with respect to both dividend distributions and in liquidation of the company. |
B
preferred stock dividedns are contractual obligations that must be paid in profitable years |
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When a publicly traded company issues both common stock and preferred stock, the SEC requires that
A. preferred and common stock be combined in the equity section. B. preferred and common stock be clearly differentiated on the balance sheet. C. all preferred stock be shown as a liability. D. mandatorily redeemable preferred stock be shown as a liability |
B
preferred and common stock be clearly differienated on the balance sheet |
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The 1984 Revised Model Business Corporation Act redefined solvency as a situation where the fair value of
A. assets exceed the book value of liabilities after a distribution to stockholders. B. assets exceed the fair value of liabilities after a distribution to shareholders. C. liabilities exceed the fair value of assets. D. liabilities exceed the fair value of assets after a distribution to shareholders. |
B
assets exceed the fair value of liabilities after distribution to shareholders |
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As a result of the passage of the 1984 Revised Model Business Corporation Act, it may be fair to state that
A. the book value of owners' equity may not give an accurate picture of potentially legal distributions. B. the book value of owners' equity gives an accurate picture of potentially legal distributions. C. the book value of owners' equity never gives an accurate picture of potentially legal distributions. D. the book value of assets gives an accurate picture of potentially legal distributions. |
A
the book vlaue of owners equity may not give an accurate picture of potientailly legal distributions |
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A 3 for 1 stock split will reduce the per share par value and will
A. decrease the number of shares proportionately. B. decrease earnings per share C. increase owners' equity. D. increase the total par value of the common stock. |
B
decrease earnings per share |
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When a company does not have any convertible securities or options or warrants outstanding, the company has
A. a complex capital structure. B. a simple capital structure. C. to report only diluted earnings per share. D. to report both basic and diluted EPS |
B
a simple capital structure |
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The denominator used in the calculation of basic earnings per share is the
A. number of common shares outstanding at the end of the year. B. number of preferred shares outstanding at the end of the year. C. weighted average number of common shares outstanding during the year. D. weighted average number of common shares and preferred shares outstanding during the year. |
C
weighed average number of common shares outstanding during the year |
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Which of the following is not indicative of a complex capital structure?
A. Outstanding convertible bonds. B. Outstanding convertible preferred stock. C. Outstanding cumulative preferred stock. D. Outstanding stock options. |
C
outstanding cumulative |
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Which of the following statements is correct when a company has a complex capital structure?
A. Diluted earnings per share must be shown on the income statement. B. Diluted earnings per share and basic earnings per share must both be shown on the income statement. C. The company might have convertible bonds outstanding. D. The company must have participating preferred stock outstanding. |
C the company might have convertible bonds outstanding
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Earnings per share (EPS) data are prominent in corporate annual reports, but suffers as a financial performance measure because EPS ignores the amount of
A. revenue required to generate reported earnings. B. capital required to generate reported earnings. C. liabilities required to generate reported earnings. D. expenses required to generate reported earnings |
B
capital required to generate reported earnigns |
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A company that has earnings in Year 2 equal to the earnings of Year 1 can improve its Year 2 reported earnings per share by
A. selling additional common stock. B. selling additional preferred stock. C. selling shares of treasury stock at a price exceeding what was paid for the treasury stock. D. purchasing shares of treasury stock. |
D
purchasing shares of treasury stock |
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Refer to Table 15-2. The weighted average number of common shares used to compute earnings per share for 2008 is
A. 100,000. B. 102,500. C. 105,000. D. 110,000. |
B
102500 |
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Refer to Table 15-2. The basic earnings per share for 2008 is
A. $1.43 per share. B. $1.50 per share. C. $1.54 per share. D. $1.73 per share. |
C
154 per share |
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Refer to Table 15-2. If each share of preferred stock is convertible into 8 shares of common stock, the diluted earnings per share for 2008 is
A. $1.29 per share. B. $1.45 per share. C. $1.54 per share. D. $1.73 per share. |
B
1.45 per share |
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Table 15-3
Vent, Inc. reported net income of $770,000 for 2008. Vent sold 15,000 shares of treasury stock acquired in a previous year on July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of $100 par value 7% preferred stock outstanding all year. Vent paid dividends to the preferred shareholders.
71. Refer to Table 15-3. The weighted average number of common shares used to compute earnings per share for 2008 is A. 150,000. B. 160,000. C. 165,000. D. 180,000 |
B
160000 |
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Table 15-3
Vent, Inc. reported net income of $770,000 for 2008. Vent sold 15,000 shares of treasury stock acquired in a previous year on July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of $100 par value 7% preferred stock outstanding all year. Vent paid dividends to the preferred shareholders.
Refer to Table 15-3. The basic earnings per share for 2008 is A. $3.50 per share. B. $3.94 per share. C. $4.81 per share. D. $6.10 per share. |
B
3.94 |
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Table 15-3
Vent, Inc. reported net income of $770,000 for 2008. Vent sold 15,000 shares of treasury stock acquired in a previous year on July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of $100 par value 7% preferred stock outstanding all year. Vent paid dividends to the preferred shareholders.
Refer to Table 15-3. If each share of preferred stock is convertible into 2 shares of common stock, the diluted earnings per share for 2008 is A. $3.85 per share. B. $3.94 per share. C. $4.81 per share. D. $6.10 per share. |
A
3.85 per share |
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. The following information has been obtained from the Massena Corporation:
100,000 shares of common stock were outstanding on January 1, 2008.
30,000 shares of common stock were issued on March 1, 2008.
A 2 for 1 stock split was declared on April 1,2008.
The 2 for 1 stock split was distributed on May 1, 2008.
10,000 shares of common stock were purchased on October 1, 2008.
What is the weighted average number of shares to be used in the calculation of basic earnings per share for 2008?
A. 247,500 B. 216,250 C. 230,833 D. 209,167 |
A
247500 |
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The following information has been obtained from the Brewster Corporation:
250,000 shares of common stock were outstanding on January 1, 2008.
30,000 shares of preferred stock were issued on March 1, 2008.
12,000 shares of common stock were purchased on April 1,2008.
10,000 shares of common stock were issued on October 1, 2008.
What is the weighted average number of shares to be used in the calculation of basic earnings per share for 2008?
A. 268,500 B. 243,500 C. 248,000 D. 278,000 |
B 243500
250,000 - 9,000 (-12,000 x 9/12) + 2,500 (10,000 x 9/12) = 243,500 |
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The following information has been obtained from the Mastic Corporation:
550,000 shares of common stock were outstanding on January 1, 2008.
Bonds convertible into 50,000 shares of common stock were issued on July 1, 2008; the bonds have been determined to be dilutive.
36,000 shares of common stock were issued on November 1, 2008.
24,000 shares of common stock were purchased on December 1, 2008.
What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2008?
A. 612,000 B. 587,000 C. 604,000 D. 579,000 |
D 579000
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The following information has been obtained from the Myers Corporation:
300,000 shares of common stock were outstanding on January 1, 2008.
50,000 stock options were outstanding on January 1, 2008; each option allows the holder to acquire one share of common stock for $20 per share. The average market price of the common stock during 2008 was $25 per share.
48,000 shares of common stock were issued on February 1,2008.
18,000 shares of common stock were purchased on August 1, 2008.
What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2008?
A. 380,000 B. 326,500 C. 346,500 D. 386,500 |
C 346500
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The following information has been provided to you by the
Smith Corporation for the year ending December 31, 2008:
The numerator used in the calculation of basic earnings per share was $797,000.
Cash dividends were paid to the common shareholders.
8% convertible bonds with a par value of $1,000,000 were issued on July 1, 2008.
The corporation's marginal income tax rate is 40%.
6% convertible preferred stock with a par value of $800,000 were outstanding during the entire year.
Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of diluted earnings per share?
A. $893,000 B. $869,000 C. $873,000 D. $821,000 |
B 869000
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The following information has been provided to you by the
Rae Corporation for the year ending December 31, 2008:
Net income was $979,000.
Cash dividends totaling $120,000 were paid to the common shareholders.
6% convertible bonds with a par value of $2,000,000 were issued on February 1, 2008.
The corporation's marginal income tax rate is 40%.
6% convertible preferred stock with a par value of $800,000 was outstanding during the entire year.
Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of basic earnings per share and diluted earnings per share?
A. choice a B. choice b C. choice c D. choice d |
B choice b
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The exercise price for stock option plans on the grant date is
A. always higher than the market price of the underlying shares . B. always lower than the market price of the underlying shares. C. usually lower than the market price of the underlying shares. D. usually equal to or higher than the market price of the underlying shares |
D
usually equal to or hugher than the marke price of the underlying shares |
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. On January 1, 2008, Waddle Company adopted a compensatory stock option plan and granted its managers 10,000 options to buy shares of common stock; each option can be used to acquire a share of common stock at a price of $25 a share. The fair value of each option was $7.50 on January 1, 2008. The options can be converted into common stock after July 1, 2011. The required service period is three years. How much compensation expense will be recorded for the year ending December 31, 2010 assuming that the fair value approach is used?
A. $ 75,000 B. $175,000 C. $50,000 D. $25,000 |
D
25000 $7.50 x 10,000 x 1/3 = $25,000 |
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On January 1, 2008, Waddle Company adopted a compensatory stock option plan and granted its managers 10,000 options to buy shares of common stock; each option can be used to acquire a share of common stock at a price of $25 a share. The fair value of each option was $7.50 on January 1, 2008. The options can be converted into common stock after July 1, 2011. The required service period is three years. What is the balance in paid-in capital-stock options as of December 31, 2009 assuming that the fair value approach is used?
A. $0 B. $25,000 C. $50,000 D. $100,000 |
C
50000 $7.50 x 10,000 x 2/3 = $50,000 |
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Which of the following arguments wasn't used to support the continuation of the accounting for stock-based compensation plans as allowed under APB Opinion No. 25?
A. Stock options do not involve a cash flow, therefore the recording of an expense would violate appropriate income measurement. B. The Black-Scholes method of valuing stock options has not been widely accepted and is arbitrary. C. The fair value approach could jeopardize compliance with contract terms and conditions. D. The fair value approach would increase expenses and lower net income which would result in lower stock prices. |
B
the black scholes method of calculing stock options has not been widely accepted and is arbitrary |
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An argument raised by opponents to the FASB's proposal that employee stock options should be recognized as an expense was that it could
A. violate the historical cost principle B. violate the cost benefit rule. C. violate materiality concepts. D. jeopardize compliance with contract terms and conditions. |
D jeopardize compliance with contract terms and condtions
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SFAS No. 123 was issued as a compromise to the FASB's original position regarding stock options as it
A. required companies to continue following the approach used in APB No.25. B. required companies to measure the fair value of stock options and charge this to expense. C. allowed companies to choose either the APB No. 25 approach or expense the fair value of the options. D. abandoned any reference to recognition of expense for options. |
C. allowed companies to choose either the APB No. 25 approach or expense the fair value of the options
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Over the vesting period for employee stock options, SFAS No. 123 requires that the entire compensation expense be recognized
A. in the first year of the vesting period. B. in the last year of the vesting period. C. equally in each year of the vesting period. D. only if the options are exercised. |
C equally in each vesting period
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While not required to recognize compensation expense for stock options except under certain circumstances, firms must still report the information in
A. the auditor's report. B. a footnote to the financial statements. C. a separate report to the SEC. D. a separate report to stockholders. |
B
a foot note to the financial statements |
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Stock options are granted to the employees of Young Company on March 10, 2005. The employees must wait until March 10, 2009 to exercise the options. The four-year waiting period is the
A. expected life of the options. B. grant period. C. vesting period. D. holding period |
C vesting period
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According to SFAS No. 123, the date when the terms for stock options are mutually agreed-upon and the stock options are awarded to employees is the
A. vesting date. B. grant date. C. exercise date . D. payment date. |
B
grant date |
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SFAS No. 123 specifies that the compensation costs for stock options are measured
A. at the grant date only. B. at the grant date and again at the vesting date. C. at the vesting date only . D. at the grant date and again at the exercise date. |
A
at the grant date only |
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Which of the following statements does not accurately reflect the financial accounting for compensatory stock option plans that are accounted for using the fair value approach?
A. Compensation expensed is allocated equally over the service (vesting) period. B. The compensation expense is not adjusted for changes in the market value of the stock options during the service (vesting) period. C. The paid-in capital stock options account is credited when compensation expense is recorded each year. D. Total owners' equity is increased by the par value of the common stock issued when the options are converted |
D
total owners equity is increaed by the par valie of the common stock issued when the options are converted |
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A bond with a carrying value of $790,000 was converted into 100,000 shares of $5 per share par value common stock at a time when the market value per share was $9.00 per share. Which of the following statements does not accurately describe the financial accounting for the conversion?
A. A loss of $110,000 will be recognized if the market value method of recording the conversion is used. B. Total owners' equity increases $790,000 if the market value method of recording the conversion is used. C. Total owners' equity increases $790,000 if the book value method of recording the conversion is used. D. Total owners' equity increases $900,000 if the market value method of recording the conversion is used. |
D
total owners equity increases 900000 if the market value method of recording the conversion is used |
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Convertible bonds are usually
A. mortgage bonds. B. senior bonds. C. subordinated debentures. D. real estate bonds. |
C
subordinated debentures |
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. Call provisions on convertible bonds protect the
A. investor against extreme stock price increases. B. company against extreme stock price increases. C. bank against extreme stock price decreases. D. company against extreme stock price decreases |
B company against extreme stock price increases
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. With the development of modern option pricing methods, the Accounting Principles Board would probably have reached the conclusion today that the conversion feature of convertible bonds
A. has no value. B. has value. C. has value, but should be ignored. D. does not lend itself to these option pricing models. |
B
has value |
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Managers most often choose the method for recording the newly issued shares upon conversion of debt known as the
A. market value method. B. book value method. C. Black-Scholes method. D. par value method. |
B book value method
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Financial statement users must recognize that interest expense may seriously
A. overstate the true cost of debt financing when convertible debt is used. B. understate the true cost of debt financing when convertible debt is used . C. impact the dividend rate. D. impact the amount of dividend declared. |
B understate the true cost of debt financing when covertible debt is used
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. Financial analysts are able to find much information about ESOP debt
A. hidden in the financial statement footnotes. B. on the income statement. C. on the balance sheet. D. on the cash flow statement. |
C on the balance sheet
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Which of the following is not an advantage of ESOPs to employer corporations?
A. ESOPs have considerable tax advantages. B. ESOPs can provide a low-cost source of debt financing. C. ESOPs can be used as a defense for a takeover . D. ESOPs debt is an off-balance sheet liability. |
D
ESOPS debt is an off balance sheet liability |
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Some financial analysts argue that ESOP accounting
A . overstates the company's true cost of employee compensation. B. overstates the company's true owners' equity. C. overstates the company's true cost of employee overhead. D. understates the company's true cost of employee compensation. |
D
understates the company's true cost of employee compensation |
