Chapter 15 136B
The major difference between convertible debt and stock warrants is that upon exercise of the warrants
Upon exercise of the warrants, the holder has to pay a certain amount of money to obtain the shares
Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?
authorized shares
. Total stockholders' equity divided by the number of common stock shares outstanding is called
book value per share
The entries for declaration and payment of a cash dividend is not made on the
date of record
Treasury shares are shares
issued but not outstanding.
Which dividends do not reduce stockholders' equity?
stock dividends
How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?
As paid-in capital from treasury stock transactions.
the conversion of bonds is recorded by the
Book value method
A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably
based on relative market values of the two securities involved
The cumulative feature of preferred stock
requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
Dividends are not paid on
treasury common stock
Reasons to issue convertible debt:
1) desire to raise equity capital that will arise when the original debt is converted 2) many corporations can obtain debt financing at lower rates
A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to
A paid-in capital account.
Noncumulative preferred dividends in arrears
ARE NOT PAID OR DISCLOSED
Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?
Liquidation preferences
Which of the following is an advantage of a restricted-stock plan?
Restricted stock never becomes completely worthless, results in less dilution to existing stockholders (fewer shares are involved), better aligns the employee incentives with companies' incentives
Which of the following is legal restriction related to profit distributions by a corporation?
The amount distributed to owners must be in compliance with the state laws governing corporations, Dividends must be in full agreement with the capital stock contracts as to preferences and participation, Profit distributions must be formally approved by the board of directors.
The distribution of stock rights to existing common stockholders will increase paid-in capital at the
When holders exercise the stock rights, a cash payment of some type occurs. (CR. C/S or PIC or dr PIC)
A "secret reserve" will be created if
a capital expenditure is charged to expense.
Total stockholders' equity represents
a claim against a portion of the total assets of a company.
Direct costs incurred to sell stock such as underwriting costs should be accounted for as
a reduction of additional paid-in capital
common stock dividend distributable reported as
addition to capital stock
Oriole Company purchased its own par value stock on January 1, 2020 for $19200 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $11700. The $7500 difference between the cost and sales price should be recorded as a deduction from
additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.
Property Dividends
aka dividend in kind, may be merchandise or real estate, usually in the form of securities of other companies
Compensation expense resulting from a compensatory stock option plan is generally
allocated to the periods benefited by the employee's required service.
Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders
bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.
he conversion of preferred stock is recorded by the
book value method
Convertible bonds
can be changed into other corporate securities during some specified period of time after issuance
The payout ratio can be calculated by dividing
cash dividends by net income less preferred dividends.
The residual interest in a corporation belongs to the
common stockholders
stock split effect on par value and retained earnings
decrease par value; no effect on retained earnings
Which of the following best describes a possible result of treasury stock transactions by a corporation?
decrease retained earnings
The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding
decreases retained earnings, but does not change total stockholders equity
Stockholders' equity is generally classified into two major categories:
earned capital (retained earnings) and contributed capital (Paid-in capital or the amount of cash and other assets that shareholders have given to the corporation in exchange for stock)
The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is
either the proportional method or the incremental method.
The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the
fair value of the shares issued.
Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as
footnote
The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee
is granted the option
According to the FASB, redeemable preferred stock should be
liability
A dividend which is a return to stockholders of a portion of their original investments is a
liquidating dividend
Intrinsic-value method
measures compensation cost by the excess of the market price of the stock over its exercise price at the grant date
The rate of return on common stock equity is calculated by dividing
net income less preferred dividends by average common stockholders' equity.
Employee stock purchase plans
no substantive option feature, open to almost all full-time employees, discount from market price is small
How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet?
note disclosure
Cash dividends are paid on the basis of the number of shares
outstanding
"Gains" on sales of treasury stock (using the cost method) should be credited to
paid-in capital from treasury stock.
Stock warrants outstanding should be classified as
paid-in capital-stock warrants.
Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?
par value
Stock that has a fixed per-share amount printed on each stock certificate is called
par value stock
When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the
par values of the shares issued
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
premium on bonds payable
Oriole Company owns 4100000 shares of stock in Sandhill Co.. On December 31, 2020, Oriole distributed these shares of stock as a dividend to its stockholders. This is an example of a
property dividend
At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the
purchase of treasury stock
Which of the following features of preferred stock makes it more like a debt than an equity instrument?
redeemable (issuer can buy back the stock at a certain price and retire it, thereby converting the stock to treasury stock)
When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be
reflected currently in income
The preemptive right enables a stockholder to
retain their ownership interest if additional stock is issued
The preemptive right of a common stockholder is the right to
share proportionately in any new issues of stock of the same class.
If management wishes to "capitalize" part of the earnings, it may issue a
stock dividend
A feature common to both stock splits and stock dividends is
that there is no effect on total stockholders' equity.
In a corporate form of business organization, legal capital is best defined as
the par value of all capital stock issued
Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when
the warrants issued with the debt securities are non-detachable
The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be
treated as direct reduction in retained earnings
