Question 1

The value assigned to stock warrants for a noncompensatory stock option plan is calculated as

Accepted Answer

A) the excess of the quoted market price over the option price for the specified number of shares on the measurement date 
B) the excess of the fair value of the employee services over the cash compensation paid over the required service period 
C) zero 
D) the excess of the quoted market price over the option price for the specified number of shares on the date that the options are exercised 
A) the excess of the quoted market price over the option price for the specified number of shares on the measurement date 
B) the excess of the fair value of the employee services over the cash compensation paid over the required service period 
C) zero 
D) the excess of the quoted market price over the option price for the specified number of shares on the date that the options are exercised C

Question 2

The accounting method required for share-based compensation arrangements is $\begin{array}{lll}
& \text {Under IFRS}& \text {Under GAAP}\ 
\text { I. } & \text { intrinsic method } & \text { intrinsic method } \
\text { II. } & \text { intrinsic method } & \text { fair value method } \
\text { III. } & \text { fair value method } & \text { intrinsic method }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV 
A) I 
B) II 
C) III 
D) IV D

Question 3

Which of the following types of corporations is owned or operated by a government unit?

Accepted Answer

A) domestic 
B) private 
C) closed 
D) public 
A) domestic 
B) private 
C) closed 
D) public D

Question 4

All of the following are true statements about a corporation except that it

Accepted Answer

A) must pay state and federal income taxes 
B) may engage in any legal activity 
C) can enter into legal contracts 
D) can continue in perpetuity 
A) must pay state and federal income taxes 
B) may engage in any legal activity 
C) can enter into legal contracts 
D) can continue in perpetuity

Question 5

Current GAAP recommends that the fair value method be used to account for compensatory stock option plans.From a conceptual point of view, this method is an improvement over the intrinsic value method.
Required:
Explain how the fair value method is an improvement over the intrinsic value method.

Accepted Answer

The fair value method increases the rele

Question 6

A company is exchanging its common stock for land in a nonmonetary exchange.This transaction should be valued based upon the

Accepted Answer

A) fair value of the stock 
B) fair value of the land 
C) fair value of the stock issued and the land received 
D) fair value of the stock issued and the land received, whichever is more reliable 
A) fair value of the stock 
B) fair value of the land 
C) fair value of the stock issued and the land received 
D) fair value of the stock issued and the land received, whichever is more reliable

Question 7

In regard to cumulative preferred stock

Accepted Answer

A) shareholders are guaranteed an annual dividend 
B) shareholders will receive a dividend if common stockholders are paid 
C) dividends in arrears are a current liability 
D) dividends in arrears are either a current or long-term liability, depending upon when the corporation last declared a dividend 
A) shareholders are guaranteed an annual dividend 
B) shareholders will receive a dividend if common stockholders are paid 
C) dividends in arrears are a current liability 
D) dividends in arrears are either a current or long-term liability, depending upon when the corporation last declared a dividend

Question 8

Under the fair value method, the grant date is the date

Accepted Answer

A) of the compensation agreement 
B) the options are issued 
C) the options are exercised 
D) the options vest 
A) of the compensation agreement 
B) the options are issued 
C) the options are exercised 
D) the options vest

Question 9

According to APB Opinion No.14, when convertible preferred stock is issued, the conversion provision is

Accepted Answer

A) given no consideration 
B) assigned a value based on the difference between the par value and the fair market value of the stock on the date of issuance 
C) assigned a value based on the difference between the stated value of the stock and the market value on the date of issuance 
D) assigned a value based on the difference between the fair market value of the stock without the conversion provision and the fair market value of the stock with the conversion provision 
A) given no consideration 
B) assigned a value based on the difference between the par value and the fair market value of the stock on the date of issuance 
C) assigned a value based on the difference between the stated value of the stock and the market value on the date of issuance 
D) assigned a value based on the difference between the fair market value of the stock without the conversion provision and the fair market value of the stock with the conversion provision

Question 10

Which one of the following entries would not be likely to be made by a corporation?

Accepted Answer

A) 
Land$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\mathrm { XX }$
Common Stock, $\$ 10$ stated value$\quad $ $\mathrm { XX }$
Additional Paid-in Capital on Common Stock$\quad $$\quad $ XX 
B) 
Cash $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\mathrm { XX }$
Common Stock,no-par$\quad $ $\mathrm { XX }$
Additional Paid-in Capital on Common Stock$\quad $$\quad $ XX 
C) 
Cash $\quad $$\quad $$\quad $$\quad $$\quad \mathrm { XX }$
Subscriptions Receivable: Common Stock$\quad $ XX 
Common Stock Subscribed$\quad $$\quad $ $\mathrm { XX }$
 Additional Paid-in Capital on Common Stock $\quad $XX 
D) 
$\begin{array} { l r } 
\text { Building } & \mathrm { XX } \
\text { Discount on Common Stock } & \mathrm { XX } \
\text { Common Stock, \$10 par } & \mathrm { XX }
\end{array}$ 
A) 
Land$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\mathrm { XX }$
Common Stock, $\$ 10$ stated value$\quad $ $\mathrm { XX }$
Additional Paid-in Capital on Common Stock$\quad $$\quad $ XX 
B) 
Cash $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\mathrm { XX }$
Common Stock,no-par$\quad $ $\mathrm { XX }$
Additional Paid-in Capital on Common Stock$\quad $$\quad $ XX 
C) 
Cash $\quad $$\quad $$\quad $$\quad $$\quad \mathrm { XX }$
Subscriptions Receivable: Common Stock$\quad $ XX 
Common Stock Subscribed$\quad $$\quad $ $\mathrm { XX }$
 Additional Paid-in Capital on Common Stock $\quad $XX 
D) 
$\begin{array} { l r } 
\text { Building } & \mathrm { XX } \
\text { Discount on Common Stock } & \mathrm { XX } \
\text { Common Stock, \$10 par } & \mathrm { XX }
\end{array}$

Question 11

Which of the following items could appropriately be shown in the contributed capital section of stockholders' equity on the balance sheet?

Accepted Answer

A) unrealized capital 
B) donated capital 
C) common stock option warrants 
D) none of these 
A) unrealized capital 
B) donated capital 
C) common stock option warrants 
D) none of these

Question 12

The following information is provided for Murphy Corporation:   What is the amount of contributed capital for Murphy Corporation?

Accepted Answer

A) $430, 000 
B) $433, 000 
C) $463, 000 
D) $468, 600 
A) $430, 000 
B) $433, 000 
C) $463, 000 
D) $468, 600

Question 13

A corporation issues 50 "packages" of securities for $154 per package.Each package consists of three shares of $5 par common stock and one share of $50 par preferred stock.If the market values of $40 per share for the common stock and $100 per share for preferred stock are known, the journal entry to record the sale would assign a total value to the common stock (Common Stock and Additional Paid-in Capital on Common Stock)of

Accepted Answer

A) $2, 200 
B) $4, 200 
C) $5, 775 
D) $6, 000 
A) $2, 200 
B) $4, 200 
C) $5, 775 
D) $6, 000

Question 14

Exhibit 16-8 On January 1, 2010, Marietta Company granted stock appreciation rights (SARs)to the president, which permitted her to receive cash or stock for the difference between the quoted market price and $50 for 2, 000 shares of the company's stock on the exercise date.The service period ends on December 31, 2012, and the rights must be exercised by December 31, 2015.Assume that on December 31, 2013, the president exercises all of her rights and receives cash.Using an options pricing model, the estimated fair values of the SARs were as follows:
$\begin{array}{ll}
\text { January } 1,2010 & \$ 10 \
\text { December 31, } 2010 & 15 \
\text { December 31, } 2011 & 20 \
\text { December 31, } 2012 & 19 \
\text { December 31, } 2013 & 23
\end{array}$

- Refer to Exhibit 16-8.What is the compensation expense related to the SARs for the year ending December 31, 2011?

Accepted Answer

A) $13, 333 
B) $16, 667 
C) $26, 667 
D) $40, 000 
A) $13, 333 
B) $16, 667 
C) $26, 667 
D) $40, 000

Question 15

Which one of the following equations is accurate?

Accepted Answer

A) Treasury stock = Authorized stock - Issued stock 
B) Treasury stock = Outstanding stock - Subscribed stock 
C) Treasury stock = Authorized stock - Outstanding stock 
D) Treasury stock = Issued stock - Outstanding stock 
A) Treasury stock = Authorized stock - Issued stock 
B) Treasury stock = Outstanding stock - Subscribed stock 
C) Treasury stock = Authorized stock - Outstanding stock 
D) Treasury stock = Issued stock - Outstanding stock

Question 16

When existing corporations issue stock, costs such as legal fees and underwriter's fees are usually accounted for as

Accepted Answer

A) organization expenses 
B) reduction of Additional Paid-in Capital 
C) organizational costs 
D) reduction of Retained Earnings 
A) organization expenses 
B) reduction of Additional Paid-in Capital 
C) organizational costs 
D) reduction of Retained Earnings

Question 17

For a noncompensatory employee stock option plan, a formal journal entry or entries would be required for which of the following dates? $\begin{array}{lll}
&\text { Issuance of Stock } & \text { Issuance of StocK } \
&\text { Warrants } & \text { Under the Plan } \
\text { I. } & \text { Yes } & \text { Yes } \
\text { II. } & \text { Yes } & \text { No } \
\text { III. } & \text { No } & \text { No } \
\text { IV } & \text { No } & \text { Yee }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV 
A) I 
B) II 
C) III 
D) IV

Question 18

The accounting method that is used for stock appreciation rights (SARs)compensation plans is similar to the accounting procedures that can be used for

Accepted Answer

A) fixed compensatory stock option plans 
B) performance-based stock option plans 
C) noncompensatory stock option plans 
D) both fixed compensatory and performance-based stock option plans 
A) fixed compensatory stock option plans 
B) performance-based stock option plans 
C) noncompensatory stock option plans 
D) both fixed compensatory and performance-based stock option plans

Question 19

Exhibit 16-8 On January 1, 2010, Marietta Company granted stock appreciation rights (SARs)to the president, which permitted her to receive cash or stock for the difference between the quoted market price and $50 for 2, 000 shares of the company's stock on the exercise date.The service period ends on December 31, 2012, and the rights must be exercised by December 31, 2015.Assume that on December 31, 2013, the president exercises all of her rights and receives cash.Using an options pricing model, the estimated fair values of the SARs were as follows:
$\begin{array}{ll}
\text { January } 1,2010 & \$ 10 \
\text { December 31, } 2010 & 15 \
\text { December 31, } 2011 & 20 \
\text { December 31, } 2012 & 19 \
\text { December 31, } 2013 & 23
\end{array}$

- Refer to Exhibit 16-8.What is the compensation expense related to the SARs for the year ending December 31, 2010?

Accepted Answer

A) $ 3, 333 
B) $10, 000 
C) $30, 000 
D) $33, 333 
A) $ 3, 333 
B) $10, 000 
C) $30, 000 
D) $33, 333

Question 20

Which of the following methods should be used to account for the conversion of preferred stock to common stock? $\begin{array}{lll}
& \text {Book Value}& \text {Market Value}\
\text { I. } & \text { Yes } & \text { No } \
\text { II. } & \text { Yes } & \text { Yes } \
\text { III. } & \text { No } & \text { Yes } \
\text { IV } & \text { No } & \text { No }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV 
A) I 
B) II 
C) III 
D) IV

Exam 16: Contributed Capital

The value assigned to stock warrants for a noncompensatory stock option plan is calculated as

The accounting method required for share-based compensation arrangements is Under IFRS Under GAAP I. intrinsic method intrinsic method II. intrinsic method fair value method III. fair value method intrinsic method

Which of the following types of corporations is owned or operated by a government unit?

All of the following are true statements about a corporation except that it

Current GAAP recommends that the fair value method be used to account for compensatory stock option plans.From a conceptual point of view, this method is an improvement over the intrinsic value method. Required: Explain how the fair value method is an improvement over the intrinsic value method.

A company is exchanging its common stock for land in a nonmonetary exchange.This transaction should be valued based upon the

In regard to cumulative preferred stock

Under the fair value method, the grant date is the date

According to APB Opinion No.14, when convertible preferred stock is issued, the conversion provision is

Which one of the following entries would not be likely to be made by a corporation?

Which of the following items could appropriately be shown in the contributed capital section of stockholders' equity on the balance sheet?

The following information is provided for Murphy Corporation: What is the amount of contributed capital for Murphy Corporation?

Which one of the following equations is accurate?

When existing corporations issue stock, costs such as legal fees and underwriter's fees are usually accounted for as

For a noncompensatory employee stock option plan, a formal journal entry or entries would be required for which of the following dates? Issuance of Stock Issuance of StocK Warrants Under the Plan I. Yes Yes II. Yes No III. No No IV No Yee

The accounting method that is used for stock appreciation rights (SARs)compensation plans is similar to the accounting procedures that can be used for

Which of the following methods should be used to account for the conversion of preferred stock to common stock? Book Value Market Value I. Yes No II. Yes Yes III. No Yes IV No No

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

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