ACC 232 Exam 1 MC

At December 31, 2024, Emley Company had 1,200,000 shares of common stockoutstanding. On October 1, 2025, an additional 400,000 shares of common stock wereissued. In addition, Emley had $14,000,000 of 6% convertible bonds outstanding atDecember 31, 2024 that are convertible into 800,000 shares of common stock. No bondswere converted into common stock in 2025. The net income for the year ended December31, 2025, was $5,250,000. Assuming an income tax rate of 30%, what is diluted earningsper share for the year ended December 31, 2025, rounded to the nearest penny? a. $2.22 b. $2.89 c. $2.78 d. $4.02

$5,250,000 + ($14,000,000 × .06 × .7) / 1.2m + (400k*3/12) + 800k Solution = $2.78

Fultz Company had 300,000 shares of common stock issued and outstanding atDecember 31, 2024. In 2025, no additional common stock was issued. On January 1,2025, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2025, Fultzdeclared and paid $180,000 cash dividends on the common stock and $150,000 on thenonconvertible preferred stock. Net income for the year ended December 31, 2025, was$960,000. What is Fultz's 2025 earnings per share (rounded to the nearest cent)? a. $1.15 b. $2.10 c. $2.70 d. $3.20

(960k -150k) / 300000 = 2.70

Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset.

1

At December 31, 2024, Tatum Company had 2,000,000 shares of common stockoutstanding. On January 1, 2025, Tatum issued 500,000 shares of preferred stock whichwere convertible into 1,000,000 shares of its common stock. In 2025, Tatum declared andpaid $1,200,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2025, was $5,000,000.Assuming an income tax rate of 30%, what was diluted earnings per share for the yearended December 31, 2025? (Round to the nearest penny.) a. $1.50 b. $1.67 c. $2.50 d. $2.07

5million / (2mil + 1ml) = 1.67

A dividend which is a return to stockholders of a portion of their original investments is a a. liquidating dividend. b. property dividend. c. liability dividend. d. participating dividend

A

In computing earnings per share, the equivalent number of shares of convertible preferredstock are added as an adjustment to the denominator (number of shares outstanding). Ifthe preferred stock is cumulative, which amount should be added as an adjustment to thenumerator (net earnings)? a. annual preferred dividend b. annual preferred dividend times (one minus the income tax rate) c. annual preferred dividend times the income tax rate d. annual preferred dividend divided by the income tax rate

A

The date on which to measure the compensation element in a stock option granted to acorporate employee is ordinarily the date on which the employee a. is granted the option. b. has performed all conditions precedent to exercising the option. c. can first exercise the option. d. exercises the option.

A

The if-converted method of computing earnings per share data assumes the conversionof convertible securities as of the a. beginning of the earliest period reported (or at the time of issuance, if later). b. beginning of the earliest period reported (regardless of the time of issuance). c. middle of the earliest period reported (regardless of the time of issuance). d. ending of the earliest period reported (regardless of the time of issuance)

A

The issuer of a 5% common stock dividend to common stockholders should transfer fromretained earnings to paid-in capital an amount equal to the a. fair value of the shares issued. b. book value of the shares issued. c. minimum legal requirements. d. par or stated value of the shares issued

A

The journal entry at the date of declaration of a small common stock dividend does not include a. a credit to Common Stock. b. a credit to Paid-in Capital in Excess of Par. c. a debit to Retained Earnings. d. a credit to Common Stock Dividend Distributable

A

In which of the following transactions is retained earnings capitalized? a. cash dividend b. stock dividend c. property dividend d. liquidating dividend

B

Information concerning the capital structure of Pepper Corporation is as follows:December 31,2025 2024Common stock 150,000 shares 150,000 sharesConvertible preferred stock 15,000 shares 15,000 shares6% convertible bonds $2,400,000 $2,400,000 In 2025, Pepper paid dividends of $0.80 per share on its common stock and $2.00 pershare on its preferred stock. The preferred stock is convertible into 30,000 shares ofcommon stock. The 6% convertible bonds are convertible into 75,000 shares of commonstock. The net income for the year ended December 31, 2025, was $400,000. Assumethat Pepper's income tax rate was 30%.What should Pepper report for diluted earnings per share for the year ended December31, 2025, rounded to the nearest penny? a. $2.09 b. $1.96 c. $1.78 d. $2.23

B

On July 1, 2025, an interest payment date, $150,000 of Parks Co. bonds were convertedinto 3,000 shares of Parks Co. common stock, each having a par value of $45 and amarket value of $54. There is $6,000 of unamortized discount on the bonds. If the bookvalue method is used, Parks would record a. no change in paid-in capital in excess of par. b. a $9,000 increase in paid-in capital in excess of par .c. an $18,000 increase in paid-in capital in excess of par. d. a $12,000 increase in paid-in capital in excess of par.

B

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 beforedividends are distributed to common shareholders. c. means that the shareholder can accumulate preferred stock until it is equal to the parvalue 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 valueof the stock and receive the stock in place of the cash dividends

B

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding a. increases common stock outstanding and increases total stockholders' 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 totalstockholders' equity. d. increases retained earnings and increases total stockholders' equity

B

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

Compensation expense resulting from a compensatory 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

When treasury stock is purchased for more than the par value of the stock and the costmethod is used to account for treasury stock, what account(s) should be debited? a. Treasury stock for the par value and paid-in capital in excess of par for the excess ofthe 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 purchaseprice over the par value

C

In computing earnings per share for a simple capital structure, if the preferred stock iscumulative, the amount that should be deducted as an adjustment to the numerator(earnings) is the a. preferred dividends in arrears. b. preferred dividends in arrears times (one minus the income tax rate). c. annual preferred dividend times (one minus the income tax rate). d. annual preferred dividend.

D

Stockholders' equity is generally classified into two major categories which are 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

The conversion of bonds is most commonly recorded by the a. incremental method. b. proportional method. c. market value method. d. book value method

D

When computing diluted earnings per share, convertible bonds are a. ignored .b. assumed converted whether they are dilutive or antidilutive. c. assumed converted only if they are antidilutive. d. assumed converted only if they are dilutive

D

What effect does the issuance of a 3-for-1 stock split have on each of the following? Par Value per Share Retained Earnings

Decrease and no effect

In 2024, Eklund, Inc. issued 90,000 shares of $100 par value convertible preferred stockfor $103 per share. Each share of preferred stock can be converted into three shares ofEklund's $25 par value common stock at the option of the preferred stockholder. In August2025, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What amount will becredited to additional paid-in capital from common stock as a result of the conversion? a. $1,530,000 b. $1,170,000 c. $2,250,000 d. $2,520,000

S olution: $9,270,000 - (90,000 × 3 × $25) = $2,520,000.

On December 31, 2024, Houser Company granted executives options to purchase 150,000shares of the company's $50 par common stock at an option price of $60 per share. TheBlack-Scholes option-pricing model determined total compensation expense to be$3,000,000. The options become exercisable on January 1, 2025 and representcompensation for executives' past and future services over a three-year period beginningJanuary 1, 2025. What is the impact on Houser's total stockholders' equity for the yearended December 31, 2024, as a result of this transaction under the fair value method? a. $3,000,000 decrease b. $1,000,000 decrease c. $0 d. $1,000,000 increase

Solution: $3,000,000 -(3M * (2/3)) = $1,000,000 increase (from the credit to Paid-in Capital—Stock Options); offset by $1,000,000 decrease(debit to Compensation Expense).

Presented below is information related to Hale Corporation:Common Stock, $1 par $3,500,000Paid-in Capital in Excess of Par—Common Stock 550,0008 1/2% preferred Stock, $50 par 2,000,000Paid-in Capital in Excess of Par—Preferred Stock 400,000Retained Earnings 1,500,000Treasury Common Stock (at cost) 150,000The total stockholders' equity of Hale Corporation is a. $7,800,000 .b. $7,950,000. c. $6,300,000. d. $6,450,000

Solution: $3,500,000 + $400,000 + $550,000 + $2,000,000 + $1,500,000 - $150,000 = $7,800,000

On January 1, 2025, Ellison Company granted Sam Wine, an employee, an option to buy1,000 shares of Ellison Co. stock for $30 per share, with the option exercisable for 5 yearsfrom the date of grant. Using a fair value option pricing model, total compensation expenseis determined to be $6,000. Wine exercised his option on October 1, 2025 and sold his1,000 shares on December 1, 2025.Quoted market prices of Ellison Co. stock in 2025 were:July 1 $30 per shareOctober 1 $36 per shareDecember 1 $40 per shareThe service period is three years, beginning January 1, 2025. As a result of the optiongranted to Wine, using the fair value method, Ellison should recognize compensationexpense for 2025 in the amount of a. $6,000. b. $2,000. c. $1,500 .d. $0.

Solution: $6,000 / 3 = $2,000

Milo Co. had 800,000 shares of common stock outstanding on January 1, issued 126,000shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued54,000 shares on November 1. The weighted average shares outstanding for the year is a. 851,000. b. 872,000. c. 893,000. d. 914,000

Solution: $800,000 + (126,000 × 8/12) - (63,000 × 4/12) + (54,000 × 2/12) = 872,000.

Manning Company issued 10,000 shares of its $5 par value common stock having a fairvalue of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds wouldbe allocated to the common stock? a. $250,000 b. $236,364 c. $283,636 d. $276,250

Solution: (10,000 $25) + (15,000 $20) = $550,000; ($250,000 ÷ $550,000) $520,000 = $236,364

On June 30, 2026, when Ermler Co.'s stock was selling at $65 per share, its capitalaccounts were as follows:Capital stock (par value $50; 60,000 shares issued) $3,000,000Premium on capital stock 600,000Retained earnings 4,200,000If a 100% stock dividend were declared and distributed, capital stock would be a. $3,000,000. b. $3,600,000. c. $6,000,000. d. $7,800,000

Solution: (60,000 * $50) + $3,000,000 = $6,000,000

Nolte Co. has 4,800,000 shares of common stock outstanding on December 31, 2024. Anadditional 200,000 shares are issued on April 1, 2025, and 480,000 more on September1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond isconvertible into 40 shares of its common stock. No bonds have been converted. Thenumbers of shares to be used in computing basic earnings per share and diluted earningsper share, respectively, on December 31, 2025 are a. 5,110,000 and 5,110,000. b. 5,110,000 and 5,170,000. c. 5,110,000 and 3,050,000. d. 5,880,000 and 5,320,000

Solution: 4,800,000 + (200,000 × 9/12) + (480,000 × 4/12) = 5,110,000 (BEPS); 5,110,000 + [($6,000,000 ÷ $1,000) × 40 × 3/12] = 5,170,000 (DEPS)

Kasravi Co. had net income for 2025 of $600,000. The average number of sharesoutstanding for the period was 200,000 shares. The average number of shares underoutstanding options, at an option price of $30 per share, is 12,000. The average marketprice of the common stock during the year was $36. What should Kasravi report for dilutedearnings per share for the year ended 2025? a. $3.00 b. $2.97 c. $2.86 d. $2.83

Solution: [($36 - $30) $36] 12,000 = 2,000; $600,000 (200,000 + 2,000) = $2.97.

On January 1, 2025, Gridley Corporation had 375,000 shares of its $2 par value commonstock outstanding. On March 1, Gridley sold an additional 750,000 shares on the openmarket at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1,Gridley purchased 420,000 shares and immediately retired the stock. On November 1,600,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2025? a. 1,530,000 b. 1,125,000 c. 716,665 d. 516,666

Solution: [(375,000 × 2 × 1.20) + (1,125,000 × 2 × 1.20) + (1,350,000 × 3) + (930,000 × 3) + (1,530,000 × 2)] ÷ 12 = 1,125,000

The stockholders' equity section of Gunkel Corporation as of December 31, 2025, was asfollows: Common stock, par value $2; authorized 20,000 shares;issued and outstanding 10,000 shares $ 20,000Paid-in capital in excess of par 30,000Retained earnings 85,000$135,000 On March 1, 2026, the board of directors declared a 15% stock dividend, and accordingly1,500 additional shares were issued. On March 1, 2026, the fair value of the stock was $6per share. For the two months ended February 28, 2026, Gunkel sustained a net loss of$15,000.What amount should Gunkel report as retained earnings as of March 1, 2026? a. $61,000. b. $67,000. c. $71,000. d. $77,000.

Solution:$85,000 - $15,000 - (1,500 * $6) = $61,000.

Gannon Company acquired 20,000 shares of its common stock at $20 per share onFebruary 5, 2025, and sold 10,000 of these shares at $27 per share on August 9, 2026.The fair value of Gannon's common stock was $24 per share at December 31, 2025, and$25 per share at December 31, 2026. The cost method is used to record treasury stocktransactions. What account(s) should Gannon credit in 2026 to record the sale of 10,000shares? a. Treasury Stock for $270,000 b. Treasury Stock for $200,000 and Paid-in Capital from Treasury Stock for $70,000 c. Treasury Stock for $200,000 and Retained Earnings for $70,000 d. Treasury Stock for $240,000 and Retained Earnings for $30,000

Solution:10,000 * $20 = $200,000; 10,000 * $7 = $70,000

Colson Inc. declared a $230,000 cash dividend. It currently has 12,000 shares of 5%,$100 par value cumulative preferred stock outstanding. It is one year in arrears on itspreferred stock. How much cash will Colson distribute to the common stockholders? a. $110,000 b. $120,000 c. $170,000 d. $0

Solution:12,000 $100 .05 = $60,000; $230,000 - ($60,000 2) = $110,000

Hernandez Company has 560,000 shares of $10 par value common stock outstanding.During the year, Hernandez declared a 15% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $2,842,000. b. $1,260,000. c. $462,000. d. $ 420,000

Solution:560,000 .15 × $30 = $2,520,000; $2,520,000 + (560,000 1.15 $.50) = $2,842,000