Exam Practice MC Qs- Ch. 14 & 15

"Gains" on sales of treasury stock (using the cost method) should be credited to a. paid-in capital from treasury stock. b. capital stock. c. retained earnings. d. other income.

a. paid-in capital from treasury stock.

Oh, and January 2025 Finley corporation a newly formed company issued 10,000 shares of it $.10 per common stock for $15 per share. On July 1, 2025 Finley corporation required 1000 shares of its outstanding stock for $12 per share the acquisition of these treasury shares a.) decreased total stockholder's equity b.) increased total stockholder's equity c.) did not change total stockholder's equity d.) decreased the number of issued shares

a.) decreased total stockholder's equity

How should a "gain" from the sale of treasury stock be reported when using the cost method of accounting for treasury stock transactions? a.) Ordinary earnings on the income statement. b.) Paid in capital from treasury stock transactions on the balance sheet. c.) An increase in the amount for common stock on the balance sheet. d.) An other revenue and gain on the income statement.

b.) Paid in capital from treasury stock transactions on the balance sheet.

The cumulative feature of preferred stock a.) Limits the cumulative dividends to the par value of the preferred stock. b.) Requires that dividends not paid in any year must be paid in a later year before dividends are distributed to common shareholders. c.) Means that the shareholder can accumulate preferred stock until 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 the equal the par value of the stock, and receive the stock in place of cash dividends

b.) Requires that dividends not paid in any year must be paid in a later year before dividends are distributed to common shareholders.

The conversion of preferred stock is most commonly recorded by the a.) incremental method b.) book value method c.) market value method d.) par value method

b.) book value method

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding a.) increases the common stock outstanding and increases stockholder's 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

When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as an a.) extraordinary item b.) expense c.) loss d.) none of these answer choices are correct

b.) expense

Jackson Corporation issued a 100% stock dividend of its common stock which had a par value of $.01, and a market value of $123 before the dividend and $62 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.) market value on the declaration date d.) market value on the payment date

b.) par value

Quick corporation issues a 100% stock dividend of its $10 par value common stock. What amount of retained earnings will be capitalized for the additional shares issued? a.) there should be no capitalization of retained earnings b.) par vale c.) fair value on the declaration date d.) fair value on the payment date

b.) par value

The rights of common stockholders generally include the right to a.) share proportionately in corporate assets upon liquidation b.) share proportionately in any new issues of common stock c.) receive cash dividends before they are distributed to preferred stockholders d.) exclude preferred stockholders from voting rights

b.) share proportionately in any new issues of common stock.

When additional consideration is offered to convertible bondholders to encourage conversion, the payment is called a(n) a.) forced conversion b.) sweetener c.) additional conversion d.) end conversion

b.) sweetener

The major difference between convertible debt and stock warrants is that upon exercise of the warrants a.) the stock is held by the company for a defined period of time before they are issued to the warrant holder b.) the holder has to pay a certain amount of cash to obtain the shares c.) the stock involved is restricted and can only be sold by the recipient after a set period of time d.) no paid in capital in excess of par can be part of the transaction

b.) the holder has to pay a certain amount of cash to obtain the shares

Cash dividends are paid on the basis of the number of shares a.) authorized b.) issued c.) outstanding d.) outstanding less the number of treasury shares.

c. outstanding

When treasury stock is purchased for more than a par value of the stock, and the cost method is used to account for treasury stock, what account should be debited? a.) Treasury stock for the par value and paid-in-capital in excess of par for the excess of the purchase price over the par value b.) Paid in capital in excess of par for the purchase price. c.) Treasury stock for the purchase price. d.) Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

c.) Treasury stock for the purchase price.

At the date of declaration of a large common stock dividend, the entry should include a.) a credit to common stock dividend payable b.) a credit to Paid-in-Capital Excess of Par c.) a debit to retained earnings d.) a credit to cash

c.) a debit to retained earnings

Cumulative preferred dividends in arrears should be shown in a corporation's statements as a.) an increase in current liabilities b.) an increase in stockholder's equity c.) a footnote d.) an increase in current liabilities for the current portion and long-term liabilities for the long-term portion

c.) a footnote

The proceeds from the sale of debt with detachable stock warrants should be allocated between the two securities based on the: a.) face value of the bonds b.) fair market value of the bonds c.) aggregate fair market value of the bonds and the warrants d.) face value of the bonds and market value of the warrants

c.) aggregate fair market value of the bonds and the warrants

Compensation expense resulting from a contemporary 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

The type of preferred stock that would generate a dividend in arrears is: a.) callable preferred stock b.) convertible preferred stock c.) cumulative preferred stock d.) participating preferred stock

c.) cumulative preferred stock

Which of the following best describes a possible result of treasury stock transactions by a corporation a.) may increase but not decrease retained earnings b.) may increase net income if the cost method is used c.) may decrease but not increase retained earnings d.) may decrease but not increase net income

c.) may decrease but not increase retained earnings

Common stock shares issued will exceed common stock shares outstanding as a result of the a.) declaration of a stock split b.) declaration of a stock dividend c.) purchase of treasury stock d.) payment in full of subscribed stock

c.) purchase of treasury stock

The residual interest interest in a corporation belongs to a.) management b.) creditors c.) stockholders d.) none of the options are correct

c.) stockholders

Detachable stock warrants outstanding should be classified as a.) contingent liabilities b.) reductions of capital contributed in excess of par value c.) prepaid expenses d.) paid-in capital

d. paid-in-capital

All of the following are true about preferred stock except: a.) companies usually issue preferred stock with a par value b.) the dividend preference for preferred stock is expressed as a percentage of the par value c.) the company issues preferred stock instead of debt, because of a high debt to equity ratio d.) a preference as to dividends assures the payment of dividends

d.) a preference as to dividends assures the payment of dividends

A corporation issues bonds with detachable warrants. The amount of recorded as paid-in capital is preferably a.) zero b.) calculated by the excess of the proceeds over the face amount of the bonds c.) equal to the market value of the warrants d.) based on the relative market values of the two securities

d.) based on the relative market values of the two securities

Stockholder's equity is generally classified into two major categories: a.) contributed capital and appropriated capital b.) appropriated capital and retained earnings c.) retained earnings and unappropriated capital d.) earned capital and contributed capital

d.) earned capital and contributed capital

Convertible bonds a.) have priority over other types of indebtedness b.) are usually secured by a first or second mortgage c.) pay interest only in the event earnings are sufficient to cover the interest d.) may be exchanged for equity securities

d.) may be exchanged for equity securities

Stock warrants outstanding should be classified as a.) liabilities b.) reductions of capital contributed in excess of par value c.) assets d.) paid-in capital

d.) paid in capital

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 a.) additional paid-in capital from stock warrants b.) retained earnings c.) a liability account d.) premium on bonds payable

d.) premium on bonds payable

Proceeds from the issuance of debt securities with stock warrants should not be allocated between debt and equity features when a.) the market value of the warrants is not readily available b.) exercise of the warrants within the next few fiscal periods seems remote d.) the warrants issued with the debt securities are nondetachable

d.) the warrants issued with the debt securities are nondetachable