Ch 18 smart book part A & B

A share buyback can be viewed as a distribution of company profits, and distributions to investors may be eligible for Multiple choice question. lower capital gains tax rates on their individual tax returns. dual distributions with no tax effects. exemption from income tax on their individual tax return. expense treatment on the income statement.

lower capital gains tax rates on their individual tax returns.

Corporations raise capital by Multiple select question. issuing stock. operating at a profit. repurchasing treasury stock. issuing debt.

issuing stock. operating at a profit. issuing debt.

Clam Corp. issues 1,000 shares of $10 par value preferred stock and 3,000 shares of $1 par value common stock for $48,000. The fair value of the preferred stock is $20 per share, and the fair value of the common shares is $10 per share. What is the amount allocated to the paid in capital—excess of par, common stock? Multiple choice question. $25,800 $32,000 $36,000 $27,000

$25,800

Brian Corp. issues 5,000 shares of $10 par value preferred stock and 20,000 shares of $1 par value common stock for $150,000. The fair value of the preferred stock is $20 per share, and the fair value of the common shares is unknown. What is the amount allocated to the paid in capital—excess of par, common stock? Multiple choice question. $0 $20,000 $50,000 $30,000

$30,000

Which of the following accounts are classified as shareholders' equity? Multiple select question. Preferred stock Additional paid-in capital Investments in securities Net unrealized holding gains on investments

-Preferred stock -Additional paid-in capital -Net unrealized holding gains on investments

Which of the following may be a source of paid-in capital? (Select all that apply.) Multiple select question. Share-based compensation activities Company repurchases some of its outstanding common stock Company sells stock to investors Company generates profit from its operations

-Share-based compensation activities -Company repurchases some of its outstanding common stock -Company sells stock to investors

When a corporation issues shares of common stock for an amount above par, which of the following entries occur? (Select all that apply.) Multiple select question. credit to retained earnings credit to additional paid-in capital credit to common stock credit to revenue

credit to additional paid-in capital credit to common stock

In year 1, Boise purchased 10,000 shares of treasury stock for $5 per share. In year 3, Boise reissued 1,000 shares of treasury stock for $8 per share. The journal entry to record the transaction in year 3 will include (Select all that apply.) Multiple select question. credit treasury stock for $8,000. debit to common stock for $2,000. credit treasury stock for $5,000. credit to retained earnings for $3,000. credit to paid-in capital from treasury stock for $3,000.

credit treasury stock for $5,000. credit to paid-in capital from treasury stock for $3,000.

When a corporation repurchases its stock as treasury stock, the number of shares outstanding Multiple choice question. increases. decreases. remains the same.

decreases.

If more than one class of shares is authorized, what type of information must be specified? (Select all that apply) Multiple select question. annual dividends per share issued to each class designation to distinguish each class specific rights for each class

designation to distinguish each class specific rights for each class

When a company issues different classes of shares, it must Multiple choice question. distinguish the rights for each class of stock. charge more for higher classes of stock. reduce the additional paid-in capital account for the new class of stock. designate which classes have preference over debt in liquidation.

distinguish the rights for each class of stock.

Preferred stockholders usually have preference over common stockholders with respect to which items? (Select all that apply.) Multiple select question. distribution of assets in liquidation issuance of additional debt dividends issuance of additional shares

distribution of assets in liquidation dividends

Newly issued stock may be exchanged for (Select all that apply.) Multiple select question. non-cash assets promise of future dividends cash services

non-cash assets cash services

Corporations raise equity capital by Multiple select question. operating at a profit. issuing stock. borrowing money.

operating at a profit. issuing stock.

Which of the following are sources of shareholders' equity? (Select all that apply.) Multiple select question. paid-in capital assets liabilities retained earnings

paid-in capital retained earnings

When investors purchase shares of stock, it is classified as Multiple choice question. other comprehensive income. net income. paid-in capital. retained earnings.

paid-in capital.

The right to purchase additional shares of stock to maintain one's percentage of ownership when new shares are issued is called a Blank______ right. Multiple choice question. reception conversion convertible preemptive

preemptive

A preemptive right is the right to Multiple choice question. restrict preferred stockholders from receiving dividends before common stockholders. purchase bonds before they are issued to other investors. restrict the corporation from being purchased by another corporation. purchase additional shares of stock in proportion to the current percentage of ownership.

purchase additional shares of stock in proportion to the current percentage of ownership.

The effect of share issue costs is to Multiple choice question. reduce retained earnings when the stock is issued. increase the common stock account. reduce net income for the period. reduce paid-in capital in excess of par.

reduce paid-in capital in excess of par.

When a share repurchase is viewed as treasury stock, the cost of the treasury stock Blank______ shareholders' equity. Multiple choice question. has no effect on increases reduces

reduces

When a corporation repurchases its stock as treasury stock, the number of shares issued Multiple choice question. increases. decreases. remains the same.

remains the same.

Items that under U.S. GAAP are reported under the heading of "accumulated other comprehensive income" would be reported by a IFRS-based entity under the heading of Blank______. Multiple choice question. share capital retained earnings reserves

reserves

Shareholders' equity is classified under IFRS into two categories: share capital and _______________

reserves

Under IFRS, shareholders' equity typically is classified under two categories referred to as: Multiple select question. allowances reserves share capital additional contributed capital

reserves share capital

A company originally issues par value common stock at an amount above par. Subsequently, the company reacquires the shares for more than the issue price and immediately retires the shares. The company has no previous transactions for stock repurchases. Which of the following accounts would be reduced for the repurchase and retirement of the shares? (Select all that apply.) Multiple select question. retained earnings paid-in capital in excess of par common stock other comprehensive income investment in securities

retained earnings paid-in capital in excess of par common stock

A company that repurchases its own securities accounts for the shares of stock as Multiple choice question. an expense on the income statement. a reduction of retained earnings. retired shares or treasury shares. a contra-asset on the balance sheet.

retired shares or treasury shares.

Amounts earned by the corporation on behalf of its shareholders are referred to as Multiple choice question. paid-in capital. shareholders' equity. retained earnings. common stock.

shareholders' equity.

The ownership interests of the investors in a corporation are referred to as Multiple choice question. shareholders' equity. net income. assets. retained earnings.

shareholders' equity.

The term treasury stock refers to Multiple choice question. a security that is held as a long-term investment. stock that is repurchased and not retired. government securities that are held for sale. a class of stock that is subordinate to common stock.

stock that is repurchased and not retired.

Which of the following is reported on the balance sheet? Multiple choice question. Accumulated other comprehensive income Other comprehensive income Both OCI and AOCI are reported on the balance sheet

Accumulated other comprehensive income

Other comprehensive income - Comprehensive income statement

Accumulated other comprehensive income - Balance sheet

Equity-Represents an ownership interest in the company

Debt-Represents a creditor's interest that must be repaid

______ represents the creditors' interest in the company, whereas Blank______ represents the investors' interest in the company. Multiple choice question. Debt; equity Debt; assets Assets; equity Equity; debt

Debt; equity

Cumulative - Dividends, if not declared, accumulate and must be paid in the future when a dividend is declared.

Noncumulative - Dividends are paid in the current year only if declared.

Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from what type of sources? Multiple choice question. Owner Nonowner Investor

Nonowner

Participating - Preferred shareholders may receive additional dividends above that amount stated in the preferred stock certificate.

Nonparticipating - Preferred shareholders receive a dividend equal to the amount stated in the preferred stock certificate.

Which of the following may be a source of paid-in capital? (Select all that apply.) Multiple select question. Share-based compensation activities Company sells stock to investors Company repurchases some of its outstanding common stock Company generates profit from its operations

Share-based compensation activities Company sells stock to investors Company repurchases some of its outstanding common stock

When a company repurchases its own securities without formally retiring them, the stock is recorded in which account? Multiple choice question. Investments Trading securities Common stock Treasury stock

Treasury stock

When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction? (Select all that apply.) Multiple select question. the net book value of the asset an independent appraisal of the value of the asset the book value of the existing shares the quoted market price for the shares the amount of cash that would be paid to purchase the asset

an independent appraisal of the value of the asset the quoted market price for the shares the amount of cash that would be paid to purchase the asset

Retained earnings is typically reported on the balance sheet Multiple choice question. as a multi-line item. showing its various components. as a single amount.

as a single amount.

Retained earnings is typically reported on the balance sheet Multiple choice question. showing its various components. as a multi-line item. as a single amount.

as a single amount.

A corporation may repurchase its shares of stock because management Multiple choice question. believes the market price of the stock is undervalued. needs additional current assets on the balance sheet. wants to increase its investments in trading securities. wants to manipulate the price of the stock and record gains on the income statement.

believes the market price of the stock is undervalued.

A corporation may repurchase its shares of stock because management Multiple choice question. wants to manipulate the price of the stock and record gains on the income statement. needs additional current assets on the balance sheet. wants to increase its investments in trading securities. believes the market price of the stock is undervalued.

believes the market price of the stock is undervalued.

If preferred shares must be redeemed by a certain date, they should be classified as Multiple choice question. equity. debt.

debt

Formally retiring shares has what effect on total shareholders' equity? Multiple choice question. Decrease None Increase

decrease

Which of the following items are included in other comprehensive income? (Select all that apply.) Multiple select question. net holding gains and losses on certain types of investments restructuring charges nonoperating loss from hurricane damage adjustments from foreign currency translations

net holding gains and losses on certain types of investments adjustments from foreign currency translations

The costs for legal, promotional, and accounting services to issue stock should be Multiple choice question. subtracted from the proceeds of issuing stock. treated as an expense on the income statement. added to the additional paid-in capital account. treated as an asset and expensed over the life of the stock.

subtracted from the proceeds of issuing stock.

For IFRS reporting, the critical feature that distinguishes a liability from equity is if Multiple choice question. the issuer is required to deliver cash or another financial instrument to the holder. it is reported for tax purposes as a liability with a deduction for interest expense. there are no voting rights associated with the security. the contract terms on the face of the certificate identify the security as debt.

the issuer is required to deliver cash or another financial instrument to the holder.

Shareholders' equity consists of which of the following items? (Select all that apply.) Multiple select question. amounts of assets purchased by the corporation amounts earned by the corporation amounts borrowed by the corporation amounts invested by shareholders

-amounts earned by the corporation -amounts invested by shareholders

Which of the following accounts are classified as shareholders' equity? Multiple select question. investments in securities common stock retained earnings additional paid-in capital

-common stock -retained earnings -additional paid-in capital

Which of the following items are included in other comprehensive income? (Select all that apply.) Multiple select question. nonoperating loss from flood damages net holding gains and losses on certain types of investments deferred gains and losses on derivatives gains and losses from amendments to postretirement programs

-net holding gains and losses on certain types of investments -deferred gains and losses on derivatives -gains and losses from amendments to postretirement programs

The four classifications within shareholders' equity are Multiple select question. paid-in capital. retained earnings. investments in securities. treasury stock. accumulated other comprehensive income.

-paid-in capital. -retained earnings. -treasury stock. -accumulated other comprehensive income.

Which account is a stockholders' equity account? Multiple choice question. Investments in common stock Bonds payable Additional paid-in capital Lease obligations

Additional paid-in capital

How should cash dividends be reported on the statement of shareholders' equity? Multiple choice question. As a reduction of common stock. As a reduction of treasury stock. As a reduction of comprehensive income. As a reduction of retained earnings.

As a reduction of retained earnings.

A company has available-for-sale debt securities in its portfolio that have increased in value at year-end. How should the unrealized gain on the available-for-sale securities be reported on the statement of shareholders' equity? (Assume the fair value option is not elected.) Multiple choice question. As an increase in comprehensive income. As an increase in retained earnings. As an increase in common stock. As an increase in treasury stock.

As an increase in comprehensive income.

The right of a shareholder to exchange his preferred stock for another class of stock is referred to as a right of ___________ whereas the right of the preferred shareholder to have her stock repurchased by the corporation for cash is referred to as a _________________privilege.

Blank 1: conversion or convertible Blank 2: redemption or redeemable

A corporation is owned by its _______

Blank 1: stockholders, shareholders, or investors

______ include(s) all changes in equity during a period except those resulting from investments by owners and distributions to owners. Multiple choice question. Comprehensive income Distributions to owners Net income Investments from owners

Comprehensive income

Which of the following is subject to double taxation? Multiple choice question. Sole Proprietorships Corporations and partnerships Partnerships Corporations

Corporations

In year 1, Tallon Corp. issued 10,000 shares of $1 par value common stock for $10 per share. In year 2, Tallon repurchased and immediately retired 1,000 shares of the stock at $15 per share. Which of the following entries would be included in the journal entry to retire the shares? Multiple select question. Debit paid-in capital in excess of par $14,000. Credit cash $15,000. Credit common stock $1,000. Debit paid-in capital in excess of par $9,000. Debit retained earnings $5,000. Credit retained earnings $5,000. Debit common stock $1,000.0

Credit cash $15,000. Debit paid-in capital in excess of par $9,000. Debit retained earnings $5,000. Debit common stock $1,000.

When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded? Multiple choice question. Credit common stock for the par amount. Credit common stock for the proceeds. Credit common stock for the amount in excess of par.

Credit common stock for the par amount.

Which feature of preferred stock requires that, when a dividend is declared, all previous undeclared dividends must be paid on preferred stock? Multiple choice question. Noncumulative Nonparticipating Cumulative Participating

Cumulative

In year 1, Sofia Corp. issued 1,000 shares of $1 par value common stock for $10 per share. In year 4, Sofia repurchased and immediately retired 100 shares of the stock at $6 per share. Which of the following entries would be included in the journal entry to retire the shares? (Select all that apply.) Multiple select question. Debit common stock $600. Debit common stock $100. Credit paid-in capital—share repurchase $400. Debit paid-in capital in excess of par $900. Credit retained earnings $400.

Debit common stock $100. Credit paid-in capital—share repurchase $400. Debit paid-in capital in excess of par $900.

In year 1, Pride Corp. issued 10,000 shares of $1 par value common stock for $8 per share. In year 3, Pride repurchased and immediately retired 1,000 shares of the stock at $6 per share. Which of the following entries would be required to retire the shares? Multiple choice question. Debit common stock $6,000. Debit paid-in capital in excess of par $7,000. Debit retained earnings $6,000. Credit common stock $6,000. Credit paid-in capital $7,000.

Debit paid-in capital in excess of par $7,000.

In year 1, Frill Corp. issued 1,000 shares of $1 par value common stock for $10 per share. In year 3, Frill repurchased and immediately retired 100 shares of the stock at $12 per share. Which of the following entries would be included in the journal entry to retire the shares? (Select all that apply.) Multiple select question. Debit paid-in capital in excess of par $900. Debit retained earnings $200. Credit paid-in capital—share repurchase $1,200. Debit retained earnings $1,200.

Debit paid-in capital in excess of par $900. Debit retained earnings $200. Debit common stock $100.

True or false: Newly issued stock may be exchanged only for cash. True false question. True False

False

True or false: The balance sheet should disclose the sources of changes in the stockholders' equity accounts. True false question. True False

False

True or false: Treasury stock represents investments in treasury securities of the U.S. government. True false question. True False

False

True or false: A corporation is owned by debt and equity holders.

False; a corporation is owned by its shareholders, who are equity holders.

True or false: When investors purchase shares of stock from a corporation, it is recorded by the corporation as investments in securities.

False; when investors purchase shares of stock in a corporation, the corporation records the transaction as paid-in capital

U.S.GAAP - Equity

IFRS - Liability

U.S. GAAP - Accumulated other comprehensive income items

IFRS - Reserves

Which of the following accurately describes shareholders' equity? Multiple choice question. Amounts repaid to investors Proceeds from the issuance of bonds Amounts owed to shareholders Ownership interests of the shareholders

Ownership interests of the shareholders

the ____________ value method of accounting for treasury stock is essentially identical to formally retiring shares and is rarely used in practice.

Par

Which preferred stock feature allows preferred shareholders to receive additional dividend distributions above the amount stated on the preferred stock certificate? Multiple choice question. Participating Cumulative Redeemable Preemptive

Participating

Which type of stock usually has a high par value and a percentage of par value dividend rate? Multiple choice question. Both preferred and common stock Preferred stock Common stock

Preferred stock

Conversion - Right to exchange preferred stock for common stock

Redemption - Right to return preferred stock

Which item is included in shareholders' equity? Multiple choice question. Investments in securities Retained earnings Other comprehensive income Bonds payable

Retained earnings

The rights of common stockholders typically include which of the following? (Select all that apply.) Multiple select question. Right to receive a percentage of net income each year. Right to vote for corporate directors. Right to distribution of assets in liquidation. Right to dividends when declared.

Right to vote for corporate directors. Right to distribution of assets in liquidation. Right to dividends when declared.

hich of the following are included in the rights of common stockholders? Multiple choice question. Right to purchase assets of the corporation. Right to restrict preferred stock. Right to dividend payment each year. Right to vote on certain matters.

Right to vote on certain matters.

Balance sheet - Reports amounts of shareholders' equity at end of reporting periods.

Statement of stockholders' Equity - Reports sources of the changes in stockholders' equity accounts.

Formally retiring shares reduces these accounts to their pre-issuance condition: Multiple select question. retained earnings common stock paid-in capital - share repurchase paid-in capital in excess of par

common stock paid-in capital in excess of par

When a corporation issues two securities for a single price, how is the issue price usually allocated? Multiple choice question. The cash received is allocated equally to each security. The cash received is allocated based on the par value of each security. The cash received is allocated based on the relative market value of each security. The cash received is allocated to the security with the highest classification.

The cash received is allocated based on the relative market value of each security.

When a corporation issues two securities for a single price, how is the issue price usually allocated? Multiple choice question. The cash received is allocated to the security with the highest classification. The cash received is allocated based on the par value of each security. The cash received is allocated equally to each security. The cash received is allocated based on the relative market value of each security.

The cash received is allocated based on the relative market value of each security.

When a corporation issues two securities for a single price and the market value of only one security is known, how is the cash received allocated? Multiple choice question. Each security is valued at par value with the remainder recorded in additional paid-in capital. The cash received is allocated first to common stock based on its prorated par value, and the remainder is allocated to the other security. The cash received is allocated to each security based on the number of shares issued. The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.

The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.

When a company repurchases its stock and immediately retires the stock, which of the following occurs? Multiple choice question. An asset is recorded for the amount of the stock repurchased. Stock expense is recorded for the amount of the repurchase. Retained earnings is reduced for the amount of the repurchase. The equity accounts are reduced for the amount in which the shares were originally sold.

The equity accounts are reduced for the amount in which the shares were originally sold.

If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded? Multiple choice question. The book value of the asset The par value of the stock The fair value of the stock

The fair value of the stock

When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction? Multiple select question. The shares are a contra-asset. The shares can be called treasury shares. The shares can be treated as an investment security. The shares can be formally retired.

The shares can be called treasury shares. The shares can be formally retired.

Mandatorily redeemable preferred stock is reported as Multiple choice question. a contra account to common stock. a contra account to retained earnings. other comprehensive income. a liability on the balance sheet.

a liability on the balance sheet.

When treasury stock is purchased, the cost of treasury stock is reported as Multiple choice question. a contra-asset account. a reduction in shareholders' equity. a reduction to retained earnings. a reduction of common stock.

a reduction in shareholders' equity.

A share buyback can be viewed as a distribution of company profits to shareholders, which are taxed at Blank______, which are Blank______ than the rates for dividends. Multiple choice question. ordinary income rates; lower capital gains rates; higher capital gains rates; lower ordinary income rates; higher

capital gains rates; lower

Under IFRS, the critical feature that distinguishes a liability is if the issuer can be required to deliver_________________or another financial instrument to the holder.

cash

When a corporation repurchases its stock as treasury stock, the number of shares authorized Multiple choice question. decreases. increases. does not change.

does not change.

Consistent with U.S. GAAP, companies that repurchase shares held as treasury stock may utilize Multiple choice question. the cost method either the cost or par value method the par value method

either the cost or par value method

Disadvantages of the corporate form of business are (Select all that apply.) Multiple select question. government regulation. double taxation. ease of raising capital. less paperwork.

government regulation. double taxation.

Corporations raise capital by Multiple select question. repurchasing treasury stock. issuing debt. operating at a profit. issuing stock.

issuing debt. operating at a profit. issuing stock.

Mandatorily redeemable preferred stock is classified as Blank______ under U.S. GAAP and related dividends are reported as Blank______. Multiple choice question. liability; dividends equity; reduction of net income liability; reduction of net income equity; dividends

liability; reduction of net income

Shares of stock previously sold by the corporation that are repurchased are called Multiple choice question. treasury stock. available for sale securities. additional paid-in capital. investments in securities

treasury stock.

When a company believes the market price of its stock is Blank______, it may attempt to support the price by Blank______ the supply of stock through stock repurchases. Multiple choice question. overvalued; decreasing overvalued; increasing undervalued; decreasing undervalued; increasing

undervalued; decreasing

When a company believes the market price of its stock is Blank______, it may attempt to support the price by Blank______ the supply of stock through stock repurchases. Multiple choice question. undervalued; increasing undervalued; decreasing overvalued; increasing overvalued; decreasing

undervalued; decreasing