Question 1

Which one of the following statements concerning treasury stock is true?

Accepted Answer

A) It carries voting rights. 
B) It participates in stock splits. 
C) It receives dividend distributions. 
D) It retains the preemptive right. 
A) It carries voting rights. 
B) It participates in stock splits. 
C) It receives dividend distributions. 
D) It retains the preemptive right.

Question 2

How is Common Stock Option Warrants classified in the financial statements?

Accepted Answer

A) expense account 
B) liability account 
C) deferred expense account 
D) stockholders' equity account 
A) expense account 
B) liability account 
C) deferred expense account 
D) stockholders' equity account

Question 3

Which set of accounting principles directly uses the term "reserve"?

Accepted Answer

A) Both IFRS and GAAP 
B) GAAP but not IFRS 
C) IFRS but not GAAP 
D) neither IFRS nor GAAP 
A) Both IFRS and GAAP 
B) GAAP but not IFRS 
C) IFRS but not GAAP 
D) neither IFRS nor GAAP

Question 4

Exhibit 16-2 Lowball, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2, 000 shares of $5 par common stock for $15 a share.The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full.
-
Refer to Exhibit 16-2.Lowball received final payment (80%)on 1, 800 shares and issued those shares.Subscribers defaulted on 200 shares.The entries to record receipt of final payment and issuance of 1, 800 shares would include a

Accepted Answer

A) debit to Cash for $24, 000 
B) credit to Subscriptions Receivable: Common Stock for $21, 600 
C) debit to Common Stock Subscribed for $10, 000 
D) credit to Common Stock for $9, 000 
A) debit to Cash for $24, 000 
B) credit to Subscriptions Receivable: Common Stock for $21, 600 
C) debit to Common Stock Subscribed for $10, 000 
D) credit to Common Stock for $9, 000

Question 5

Lopez, Inc.issued 500 shares of $50 par value convertible preferred stock at $80 a share.Each preferred share may be converted to 6 shares of $10 par common stock.The entry to record the conversion of all shares would include a

Accepted Answer

A) debit to Preferred Stock for $30, 000 
B) debit to Additional Paid-in Capital on Preferred Stock for $40, 000 
C) credit to Common Stock for $25, 000 
D) credit to Additional Paid-in Capital from Preferred Stock Conversion for $10, 000 
A) debit to Preferred Stock for $30, 000 
B) debit to Additional Paid-in Capital on Preferred Stock for $40, 000 
C) credit to Common Stock for $25, 000 
D) credit to Additional Paid-in Capital from Preferred Stock Conversion for $10, 000

Question 6

Which of the following represents shares of stock that will be issued upon completion of an installment purchase contract?

Accepted Answer

A) subscribed capital stock 
B) outstanding capital stock 
C) treasury stock 
D) contracted capital stock 
A) subscribed capital stock 
B) outstanding capital stock 
C) treasury stock 
D) contracted capital stock

Question 7

Which of the following can be accounted for under the intrinsic value method?

Accepted Answer

A) stock option plan with stock appreciation rights 
B) fixed stock option plan 
C) performance-based stock option plan 
D) all of these 
A) stock option plan with stock appreciation rights 
B) fixed stock option plan 
C) performance-based stock option plan 
D) all of these

Question 8

How will stockholders' equity and net income be affected by the issuance of stock warrants to employees under a noncompensatory stock option plan? $\begin{array}{lll}
& \text {Stockholders Equity}& \text {Net Income}\
\text { I. } & \text { no effect } & \text { no effect } \
\text { II. } & \text { no effect } & \text { decreased } \
\text { III. } & \text { decreased } & \text { decreased }\
\text { IV. } & \text { decreased } & \text { no effect } 
\end{array}$

Accepted Answer

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

Question 9

Mercury Corp.has 10, 000 shares of $10 par, cumulative, 6% preferred stock and 10, 000 shares of common stock outstanding since being organized at the beginning of 2010.It declared its first dividend of $40, 000 at the end of 2012.This means that

Accepted Answer

A) all of the $40, 000 dividends available are paid to the preferred stockholders 
B) all of the $40, 000 dividends available are paid to the common stockholders 
C) an equal dollar amount is paid to each class of shareholder 
D) 3 years' worth of dividends will be paid to preferred stockholders prior to paying anything to common stockholders 
A) all of the $40, 000 dividends available are paid to the preferred stockholders 
B) all of the $40, 000 dividends available are paid to the common stockholders 
C) an equal dollar amount is paid to each class of shareholder 
D) 3 years' worth of dividends will be paid to preferred stockholders prior to paying anything to common stockholders

Question 10

Drapery Unlimited had outstanding 400 shares of $100 par common stock that had been issued at $120.On March 18, 2010, a four-for-one split was declared and new $20 par stock was issued.
Required:
Provide the required journal entry, if any, to record the stock split.

Accepted Answer

The answer of Drapery Unlimited had outstanding 400 shares of...

Question 11

The Securities and Exchange Commission requires that Subscriptions Receivable be disclosed on the financial statements filed with it as a(n)

Accepted Answer

A) current asset as long as collection is to be made within one year or the normal operating cycle, whichever is longer 
B) other asset if collection is to be made beyond one year from the date of the financial statements 
C) contra-accounts receivable account 
D) contra-stockholders' equity account 
A) current asset as long as collection is to be made within one year or the normal operating cycle, whichever is longer 
B) other asset if collection is to be made beyond one year from the date of the financial statements 
C) contra-accounts receivable account 
D) contra-stockholders' equity account

Question 12

Under the cost method of accounting for treasury stock transactions, when the proceeds from a sale are greater than the cost, the excess over cost is treated as a(n)

Accepted Answer

A) increase in Other Expenses from Treasury Stock Sales 
B) increase in Additional Paid-in Capital from Treasury Stock 
C) increase in a contra-stockholders' equity account 
D) increase in Additional Paid-in Capital on Common Stock 
E) none of these 
A) increase in Other Expenses from Treasury Stock Sales 
B) increase in Additional Paid-in Capital from Treasury Stock 
C) increase in a contra-stockholders' equity account 
D) increase in Additional Paid-in Capital on Common Stock 
E) none of these

Question 13

Given the following information for Fox Company:
 $\begin{array}{ll}
\text { Bonds payable } & \$ 50,000 \
\text { Common stock } & 20,000 \
\text { Premium on preferred stock } & 9,000 \
\text { Long-term investments in equity securities held for sale } & 10,000 \
 \text { Preferred stock subscribed } & 22,000\
\text { Retained earnings } & 53,500 \
\text { Premium on common stock } & 28,460 \
\text { Common stock subscribed } & 3,800 \
\text { Subscriptions receivable: preferred stock } & 7,000 \
\text { Premium on bonds payable } & 4,000 \
\text { Preferred stock } & 40,000 \
\text { Temporay investments in equity securitie sheld for sale } & 15,000 \
\text { Subscriptionsreceivable: common stock } & 5,600
\end{array}$ Required:
Compute the total amount of contributed capital for Fox Company.

Accepted Answer

$123, 260 ($20, 000

Question 14

Exhibit 16-5 On January 1, 2010, Roberto Company adopts a compensatory stock option plan and grants 40 executives 1, 000 shares each at $30 a share.The fair value per option is $7 on the grant date.The company estimates that its annual employee turnover rate during the service period of three years will be 4%.
-
Refer to Exhibit 16-5.At the end of 2011, the company estimates that the employee turnover will be 5% a year for the entire service period.At the end of 2012, only 30, 000 options vest as only 30 of the 40 executives actually remain.The compensation expense for 2012 will be (Round off turnover calculations to three decimal places and answer to the nearest dollar.)

Accepted Answer

A) $49, 957 
B) $70, 000 
C) $80, 022 
D) $82, 575 
A) $49, 957 
B) $70, 000 
C) $80, 022 
D) $82, 575

Question 15

When callable preferred stock is recalled, if the recall price exceeds the total of the par value in the preferred stock account and the additional paid-in capital associated with the recalled preferred stock, the difference is

Accepted Answer

A) credited to Retained Earnings 
B) credited to Additional Paid-in Capital on Preferred Stock 
C) debited to Retained Earnings 
D) credited to Loss from Recall of Preferred Stock 
A) credited to Retained Earnings 
B) credited to Additional Paid-in Capital on Preferred Stock 
C) debited to Retained Earnings 
D) credited to Loss from Recall of Preferred Stock

Question 16

A preemptive right is

Accepted Answer

A) the right to vote in the election of directors and to establish corporate policies 
B) the right to share in the profits when a dividend is declared 
C) the right to maintain a proportionate interest in the ownership of the corporation by purchasing a proportionate share of additional capital stock should such stock be issued 
D) the right to share in the distribution of the assets of the corporation should it be liquidated 
A) the right to vote in the election of directors and to establish corporate policies 
B) the right to share in the profits when a dividend is declared 
C) the right to maintain a proportionate interest in the ownership of the corporation by purchasing a proportionate share of additional capital stock should such stock be issued 
D) the right to share in the distribution of the assets of the corporation should it be liquidated

Question 17

Exhibit 16-1 Hanson Co.issued 10, 000 shares of its $5 par common stock for $15 a share.In addition, it incurred legal and accounting fees, stock certificate costs, and other related expenses totaling $8, 500.
-
Refer to Exhibit 16-1.Assume the sale was the initial issuance of stock at incorporation for Hanson Co.The entry to record the sale would include a

Accepted Answer

A) debit to Cash for $150, 000 
B) credit to Common Stock for $150, 000 
C) debit to Organization Expense for $8, 500 
D) credit to Additional Paid-in Capital on Common Stock for $91, 500 
A) debit to Cash for $150, 000 
B) credit to Common Stock for $150, 000 
C) debit to Organization Expense for $8, 500 
D) credit to Additional Paid-in Capital on Common Stock for $91, 500

Question 18

When stock options are exercised by an employee under a compensatory stock option plan, the issuance of the common stock is recorded at the

Accepted Answer

A) amount of cash received 
B) amount of cash received less the previously recorded value of the warrants received 
C) amount of cash received plus the previously recorded value of the warrants received 
D) market price minus the stock option price 
A) amount of cash received 
B) amount of cash received less the previously recorded value of the warrants received 
C) amount of cash received plus the previously recorded value of the warrants received 
D) market price minus the stock option price

Question 19

When a company reacquires its own stock, the entry to record the reacquisition could include an entry to Additional Paid-in Capital from Treasury Stock under which of the following methods? $\begin{array}{lll}
&\text { Cost Method }&\text { Par Value Method }\
\text { I. } & \text { Yes } & \text { Yes } \
\text { II. } & \text { Yes } & \text { No } \
\text { III. } & \text { No } & \text { No } \
\text { IV } & \text { No } & \text { Yes }
\end{array}$

Accepted Answer

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

Question 20

Exhibit 16-6 On January 1, 2010, 50 executives were given a performance-based stock option plan that would award them with a maximum of 200 shares of $10 par common stock for $20 a share.On the grant date, the fair value of an option was $16.50.The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table:
$\begin{array}{llr}
\text { Anmual Average Increase in Sales }&\text { No. of Shares }\
  \text {  Greater than $ 5 \% $} &50\
 \text {Greater than $ 10 \% $  } &100\
 \text {Greater than $ 150 \% $  } &200
\end{array}$

On the grant date, the company estimates the annual average sales increase will be 12%.
-
Refer to Exhibit 16-6.In 2012, the company determined that the actual annual average increase was 16%.The compensation expense for 2012 will be

Accepted Answer

A) $165, 000 
B) $110, 000 
C) $ 82, 500 
D) $ 55, 000 
A) $165, 000 
B) $110, 000 
C) $ 82, 500 
D) $ 55, 000

Which one of the following statements concerning treasury stock is true?

How is Common Stock Option Warrants classified in the financial statements?

Which set of accounting principles directly uses the term "reserve"?

Lopez, Inc.issued 500 shares of $50 par value convertible preferred stock at $80 a share.Each preferred share may be converted to 6 shares of $10 par common stock.The entry to record the conversion of all shares would include a

Which of the following represents shares of stock that will be issued upon completion of an installment purchase contract?

Which of the following can be accounted for under the intrinsic value method?

How will stockholders' equity and net income be affected by the issuance of stock warrants to employees under a noncompensatory stock option plan? Stockholders Equity Net Income I. no effect no effect II. no effect decreased III. decreased decreased IV. decreased no effect

Mercury Corp.has 10, 000 shares of $10 par, cumulative, 6% preferred stock and 10, 000 shares of common stock outstanding since being organized at the beginning of 2010.It declared its first dividend of $40, 000 at the end of 2012.This means that

Drapery Unlimited had outstanding 400 shares of $100 par common stock that had been issued at $120.On March 18, 2010, a four-for-one split was declared and new $20 par stock was issued. Required: Provide the required journal entry, if any, to record the stock split.

The Securities and Exchange Commission requires that Subscriptions Receivable be disclosed on the financial statements filed with it as a(n)

Under the cost method of accounting for treasury stock transactions, when the proceeds from a sale are greater than the cost, the excess over cost is treated as a(n)

When callable preferred stock is recalled, if the recall price exceeds the total of the par value in the preferred stock account and the additional paid-in capital associated with the recalled preferred stock, the difference is

A preemptive right is

When stock options are exercised by an employee under a compensatory stock option plan, the issuance of the common stock is recorded at the

When a company reacquires its own stock, the entry to record the reacquisition could include an entry to Additional Paid-in Capital from Treasury Stock under which of the following methods? Cost Method Par Value Method I. Yes Yes II. Yes No III. No No IV No Yes

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

Filters

Exam 16: Contributed Capital

Which one of the following statements concerning treasury stock is true?

How is Common Stock Option Warrants classified in the financial statements?

Which set of accounting principles directly uses the term "reserve"?

Lopez, Inc.issued 500 shares of $50 par value convertible preferred stock at $80 a share.Each preferred share may be converted to 6 shares of $10 par common stock.The entry to record the conversion of all shares would include a

Which of the following represents shares of stock that will be issued upon completion of an installment purchase contract?

Which of the following can be accounted for under the intrinsic value method?

How will stockholders' equity and net income be affected by the issuance of stock warrants to employees under a noncompensatory stock option plan? Stockholders Equity Net Income I. no effect no effect II. no effect decreased III. decreased decreased IV. decreased no effect

Mercury Corp.has 10, 000 shares of $10 par, cumulative, 6% preferred stock and 10, 000 shares of common stock outstanding since being organized at the beginning of 2010.It declared its first dividend of $40, 000 at the end of 2012.This means that

Drapery Unlimited had outstanding 400 shares of $100 par common stock that had been issued at $120.On March 18, 2010, a four-for-one split was declared and new $20 par stock was issued. Required: Provide the required journal entry, if any, to record the stock split.

The Securities and Exchange Commission requires that Subscriptions Receivable be disclosed on the financial statements filed with it as a(n)

Under the cost method of accounting for treasury stock transactions, when the proceeds from a sale are greater than the cost, the excess over cost is treated as a(n)

When callable preferred stock is recalled, if the recall price exceeds the total of the par value in the preferred stock account and the additional paid-in capital associated with the recalled preferred stock, the difference is

A preemptive right is

When stock options are exercised by an employee under a compensatory stock option plan, the issuance of the common stock is recorded at the

When a company reacquires its own stock, the entry to record the reacquisition could include an entry to Additional Paid-in Capital from Treasury Stock under which of the following methods? Cost Method Par Value Method I. Yes Yes II. Yes No III. No No IV No Yes

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

Filters