Accounting exam 2

On December 31, 2014, the stockholders' equity section of Clark Inc. was as follows: Common Stock, par value $10; authorized 30,000 shares; issued and outstanding 9,000 shares $90,000 Additional Paid-in Capital 116,000 Retained Earnings 174,000 Total Stockholders' Equity $380,000 On March 31, 2015, Clark declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair market value of the stock was $18 per share. For the three months ended March 31, 2015, Clark sustained a net loss of $32,000. The balance of Clark's retained earnings as of March 31, 2015, should be

$125,800

Use the following information to answer the next two questions Tomlin, Inc. has outstanding 300,000 shares of $2 par common stock and 60,000 shares of $5 par, 8% preferred stock. The preferred stock is cumulative. Dividends have been paid in every year except the past two years. Assuming that $150,000 will be distributed as a dividend in the current year and that the preferred stock is non-participating, how much will the common shareholders receive?

$78,000

Presented below is information related to Edisto Corporation: Common Stock, $1 par $4,300,000 Paid-in Capital in Excess of Par- Common Stock 550,000 Preferred 8 ½% Stock, $50 par 2,000,000 Paid-in Capital in Excess of Par- Preferred Stock 400,000 Retained Earnings 1,500,000 Treasury Common Stock (at cost) 150,000 The total stockholders' equity of Edisto Corporation is

$8,600,000

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants

Are used to calculate the number of common shares that could be repurchased at the average market price, when computing diluted earnings per share

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2017. No common stock was issued during 2018. On January 1, 2018, Didde issued 200,000 shares of nonconvertible preferred stock. During 2018, Didde declared and paid $100,000 cash dividends on the common stock and $80,000 on the preferred stock. Net income for the year ended December 31, 2018 was $620,000. What should Didde's 2018 earnings per common share be?

B) $1.80

Grant Company issued 10,000 shares of its $5 par value common stock having a market value of $25 per share and 15,000 shares of its $15 par value preferred stock having a market value of $20 per share for a lump sum of $480,000. How much of the proceeds would be allocated to the common stock?

B) $218,182

On December 1, 2018, Lester Company issued at 103, eight hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2018, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be

B) $782,800

Use the following information to answer the next two questions Tomlin, Inc. has outstanding 300,000 shares of $2 par common stock and 60,000 shares of $5 par, 8% preferred stock. The preferred stock is cumulative. Dividends have been paid in every year except the past two years. Assuming that $183,000 will be distributed, and the preferred stock is participating, how much will the common shareholders receive?

B) $90,000

Foyle Inc., had 830,000 shares of common stock issued and outstanding at December 31, 2017. On July 31, 2018 an additional 40,000 shares of common stock were issued for cash. Foyle also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2018. The average market price of Foyle's common stock was $20 during 2018. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2018?

B) 858,000

The balance in common stock dividend distributable should be reported as a(n)

B) addition to contributed capital

The conversion of preferred stock is recorded by the

B) book value method

When computing diluted earnings per share, convertible securities are

B) recognized only if they are dilutive

If a company offers additional considerations to convertible bondholders in order to encourage conversion, it is called a(n)

B) sweetener

On January 1, 2018, Ellison Company granted Sam wine, an employee, an option to buy 1,000 shares of Ellison Company stock for $30 per share, the option exercisable for 5 years from the date of grant. Using a fair value option pricing model, total compensation expense is determined to be $6,800. Wine exercised the option on October 1, 2018 and sold his 1,000 shares on December 31, 2018. Quoted market prices for Ellison Company stock in 2018 were: July 1 $30 per share October 1 $36 per share December 1 $40 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation for 2018 on its books in the amount of

B). $2,000

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the

Beginning of the earliest period reported (or at the time of issuance, if later)

Shipley Corporation had net income for the year of $720,000 and a weighted average number of common shares outstanding during the period of 250,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($300,000), carry at 7% interest rate, and are convertible into 50,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are

C) $2.82

The incremental method is used to allocate cost in a lump sum issuance of securities when

C) the fair value of only one security is known

Compensation expense resulting from a restricted stock agreement is generally

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

Which of the following is not a characteristic of the noncompensatory stock option plan?

C). unlimited time period permitted for exercise of an option as long as the holder is still employed by the company

What effect does the issuance of common stock with a stated value at a price greater than the stated value have on

Common Stock: Increase Additional Paid-in Capital: Increase

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bond pays interest on January 31 and July 31. On July 31, 2018, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a

Credit of $217,600 to Paid-in Capital in Excess of Par

Hampton Company issues 10,000 shares at $1 par value common stock in exchange for machinery with a selling price of $160,000. The stock is actively traded and the market price on the date of the issuance was $15 per share. The journal entry to record this transaction will include

Credit to Common Stock for $10,000

In 2017, Eklund Inc., issued for $103 per share, 90,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2018, all of the preferred stock was converted into common stock. The market value of the common stock at the date of conversion was $30 per share. What total amount should be credited to the additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?

D) $2,520,000

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

D) based on the relative market value of the two securities involved

The declaration and issuance of stock dividend smaller than 20% of the shares previously outstanding

Decreases retained earnings but does not change the total stockholders' equity