Chapter 15 136B

The major difference between convertible debt and stock warrants is that upon exercise of the warrants

Upon exercise of the warrants, the holder has to pay a certain amount of money to obtain the shares

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

authorized shares

. Total stockholders' equity divided by the number of common stock shares outstanding is called

book value per share

The entries for declaration and payment of a cash dividend is not made on the

date of record

Treasury shares are shares

issued but not outstanding.

Which dividends do not reduce stockholders' equity?

stock dividends

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

As paid-in capital from treasury stock transactions.

the conversion of bonds is recorded by the

Book value method

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably

based on relative market values of the two securities involved

The cumulative feature of preferred stock

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

Dividends are not paid on

treasury common stock

Reasons to issue convertible debt:

1) desire to raise equity capital that will arise when the original debt is converted 2) many corporations can obtain debt financing at lower rates

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

A paid-in capital account.

Noncumulative preferred dividends in arrears

ARE NOT PAID OR DISCLOSED

Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

Liquidation preferences

Which of the following is an advantage of a restricted-stock plan?

Restricted stock never becomes completely worthless, results in less dilution to existing stockholders (fewer shares are involved), better aligns the employee incentives with companies' incentives

Which of the following is legal restriction related to profit distributions by a corporation?

The amount distributed to owners must be in compliance with the state laws governing corporations, Dividends must be in full agreement with the capital stock contracts as to preferences and participation, Profit distributions must be formally approved by the board of directors.

The distribution of stock rights to existing common stockholders will increase paid-in capital at the

When holders exercise the stock rights, a cash payment of some type occurs. (CR. C/S or PIC or dr PIC)

A "secret reserve" will be created if

a capital expenditure is charged to expense.

Total stockholders' equity represents

a claim against a portion of the total assets of a company.

Direct costs incurred to sell stock such as underwriting costs should be accounted for as

a reduction of additional paid-in capital

common stock dividend distributable reported as

addition to capital stock

Oriole Company purchased its own par value stock on January 1, 2020 for $19200 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $11700. The $7500 difference between the cost and sales price should be recorded as a deduction from

additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

Property Dividends

aka dividend in kind, may be merchandise or real estate, usually in the form of securities of other companies

Compensation expense resulting from a compensatory stock option plan is generally

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

Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders

bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

he conversion of preferred stock is recorded by the

book value method

Convertible bonds

can be changed into other corporate securities during some specified period of time after issuance

The payout ratio can be calculated by dividing

cash dividends by net income less preferred dividends.

The residual interest in a corporation belongs to the

common stockholders

stock split effect on par value and retained earnings

decrease par value; no effect on retained earnings

Which of the following best describes a possible result of treasury stock transactions by a corporation?

decrease retained earnings

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

decreases retained earnings, but does not change total stockholders equity

Stockholders' equity is generally classified into two major categories:

earned capital (retained earnings) and contributed capital (Paid-in capital or the amount of cash and other assets that shareholders have given to the corporation in exchange for stock)

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is

either the proportional method or the incremental method.

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

fair value of the shares issued.

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

footnote

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

is granted the option

According to the FASB, redeemable preferred stock should be

liability

A dividend which is a return to stockholders of a portion of their original investments is a

liquidating dividend

Intrinsic-value method

measures compensation cost by the excess of the market price of the stock over its exercise price at the grant date

The rate of return on common stock equity is calculated by dividing

net income less preferred dividends by average common stockholders' equity.

Employee stock purchase plans

no substantive option feature, open to almost all full-time employees, discount from market price is small

How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet?

note disclosure

Cash dividends are paid on the basis of the number of shares

outstanding

"Gains" on sales of treasury stock (using the cost method) should be credited to

paid-in capital from treasury stock.

Stock warrants outstanding should be classified as

paid-in capital-stock warrants.

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?

par value

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

par value stock

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

par values of the shares issued

When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair value of the warrants, the excess should be credited to

premium on bonds payable

Oriole Company owns 4100000 shares of stock in Sandhill Co.. On December 31, 2020, Oriole distributed these shares of stock as a dividend to its stockholders. This is an example of a

property dividend

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

purchase of treasury stock

Which of the following features of preferred stock makes it more like a debt than an equity instrument?

redeemable (issuer can buy back the stock at a certain price and retire it, thereby converting the stock to treasury stock)

When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be

reflected currently in income

The preemptive right enables a stockholder to

retain their ownership interest if additional stock is issued

The preemptive right of a common stockholder is the right to

share proportionately in any new issues of stock of the same class.

If management wishes to "capitalize" part of the earnings, it may issue a

stock dividend

A feature common to both stock splits and stock dividends is

that there is no effect on total stockholders' equity.

In a corporate form of business organization, legal capital is best defined as

the par value of all capital stock issued

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when

the warrants issued with the debt securities are non-detachable

The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be

treated as direct reduction in retained earnings