Test #3
T/F: A 3-for-1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock.
False
T/F: An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.
False
T/F: Book value per share of common stock is the same amount as the market value per share.
False
T/F: In accordance with the historical cost principle, the cost of debt investments includes brokerage fees and accrued interest.
False
T/F: In accounting for stock investments of less than 20%, the equity method is used.
False
T/F: The carrying value of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.
False
T/F: The contractual interest rate is always equal to the market interest rate on the date that bonds are issued.
False
T/F: The market value of a corporation's stock is determined by the number of shares that the corporation has been authorized to issue.
False
T/F: The par value of common stock must always be equal to its market value on the date the stock is issued.
False
T/F: A stockholder has the right to vote in the election of the board of directors.
True
T/F: Cash dividends are not a liability of the corporation until they are declared by the board of directors.
True
T/F: Consolidated financial statements are appropriate when an investor controls an investee by ownership of more than 50% of the investee's common stock.
True
T/F: Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.
True
T/F: Dividends may be declared and paid in cash or stock.
True
T/F: FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.
True
T/F: For available-for-sale securities, the unrealized gain or loss account is carried forward to future periods.
True
T/F: Gains and losses are not recognized when convertible bonds are converted into common stock.
True
T/F: If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.
True
T/F: If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.
True
T/F: If the market interest rate is greater than the contractual interest rate, bonds will sell at a discount.
True
T/F: In the stockholders' equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified.
True
T/F: Interest expense is reported under Other Expenses and Losses in the income statement.
True
T/F: Preferred stock has contractual preference over common stock in certain areas.
True
T/F: Preferred stockholders generally do not have the right to vote for the board of directors.
True
T/F: The Stock Investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock.
True
T/F: The carrying value of bonds at maturity should be equal to the face value of the bonds.
True
T/F: The cash proceeds from issuing par value stock may be equal to or greater than, but not less than par value.
True
T/F: The loss on bond redemption is the difference between the cash paid and the carrying value of the bonds.
True
T/F: The number of common shares outstanding can never be greater than the number of shares issued.
True
T/F: The process of excluding intercompany transactions in preparing consolidated statements is referred to as intercompany eliminations.
True
T/F: The stockholders' equity statement shows the changes in each stockholders' equity account and in total stockholders' equity during the year.
True
T/F: The valuation of available-for-sale securities is similar to the procedures followed for trading securities, except that changes in fair value are not recognized in current income.
True
T/F: To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.
True
T/F: Treasury stock is a contra stockholders' equity account.
True
T/F: Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.
True
T/F: Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments account is adjusted annually.
True
T/F: When bonds are converted into common stock, the carrying value of the bonds is transferred to paid-in capital accounts.
True