1) Proceeds from an issue of debt securities having stockwarrants should NOT be allocated between debt and equity featureswhen
A. the allocation would result in a discount on the debtsecurity
B. the warrants issued with the debt securities arenondetachable
C. exercise of the warrants within the next few fiscal periodsseems remote
D. the market value of the warrants is NOT readily available
2) The conversion of preferred stock may be recorded by the
A. market value method
B. par value method
C. book value method
D. incremental method
3) The conversion of preferred stock into common stock requiresthat any excess of the par value of the common shares issued overthe carrying amount of the preferred being converted should be
A. treated as a prior period adjustment
B. treated as a direct reduction of retained earnings
C. reflected currently in income as an extraordinary item
D. reflected currently in income, but NOT as an extraordinaryitem
4) A primary source of stockholders’ equity is
A. contributions by stockholders
B. both income retained by the corporation and contributions bystockholders
C. appropriated retained earnings
D. income retained by the corporation
5) Stockholders’ equity is generally classified into two majorcategories:
A. retained earnings and unappropriated capital
B. earned capital and contributed capital
C. appropriated capital and retained earnings
D. contributed capital and appropriated capital
6) When a corporation issues its capital stock in payment forservices, the least appropriate basis for recording the transactionis the
A. market value of the shares issued
B. Any of these provides an appropriate basis for recording thetransaction
C. par value of the shares issued
D. market value of the services received
7) Treasury shares are
A. shares held as an investment by the treasurer of thecorporation
B. issued but NOT outstanding shares
C. shares held as an investment of the corporation
D. issued and outstanding shares
8) “Gains” on sales of treasury stock (using the cost method)should be credited to
A. paid-in capital from treasury stock
B. other income
C. capital stock
D. retained earnings
9) How should a “gain” from the sale of treasury stock be reflectedwhen using the cost method of recording treasury stocktransactions?
A. As ordinary earnings shown on the income statement
B. As an extraordinary item shown on the income statement
C. As paid-in capital from treasury stock transactions
D. As an increase in the amount shown for common stock
10) In computing earnings per share, the equivalent number ofshares of convertible preferred stock are added as an adjustment tothe denominator (number of shares outstanding). If the preferredstock is cumulative, which amount should then be added as anadjustment to the numerator (net earnings)?
A. Annual preferred dividend
B. Annual preferred dividend divided by the income tax rate
C. Annual preferred dividend times (one minus the income taxrate)
D. Annual preferred dividend times the income tax rate
11) When computing diluted earnings per share, convertible bondsare
A. ignored
B. assumed converted only if they are dilutive
C. assumed converted whether they are dilutive or antidilutive
D. assumed converted only if they are antidilutive
12) What effect will the acquisition of treasury stock have onstockholders’ equity and earnings per share, respectively?
A. Decrease and no effect
B. Increase and decrease
C. Increase and no effect
D. Decrease and increase
13) On May 1, 2007, Kent Corp. declared and issued a 10% commonstock dividend. Prior to this dividend, Kent had 100,000 shares of$1 par value common stock issued and outstanding. The fair value ofKent ‘s common stock was $20 per share on May 1, 2007. As a resultof this stock dividend, Kent’s total stockholders’ equity
A. did NOT change
B. increased by $200,000
C. decreased by $10,000
D. decreased by $200,000
14) How would the declaration and subsequent issuance of a 10%stock dividend by the issuer affect each of the following when themarket value of the shares exceeds the par value of the stock?
Additional Common Stock | Paid-in Capital
A. Increase | Increase
B. No effect | No effect
C. Increase | No effect
D. No effect | Increase
15) At its date of incorporation, Wilson, Inc. issued 100,000shares of its $10 par common stock at $11 per share. During thecurrent year, Wilson acquired 20,000 shares of its common stock ata price of $16 per share and accounted for them by the cost method.Subsequently, these shares were reissued at a price of $12 pershare. There have been no other issuances or acquisitions of itsown common stock. What effect does the reissuance of the stock haveon the following accounts?Â
Retained Earnings | Additional Paid-in Capital
A. No effect | No effect
B. Decrease | Decrease
C. Decrease | No effect
D. No effect | Decrease
16) Which of the following is correct about the effective-interestmethod of amortization?
A. The effective-interest method produces a constant rate of returnon the book value of the investment from period to period.
B. The effective interest method applied to investments in debtsecurities is different from that applied to bonds payable.
C. Amortization of a premium decreases from period to period.
D. Amortization of a discount decreases from period to period
17) An unrealized holding loss on a company’s available-for-salesecurities should be reflected in the current financial statementsas
A. other comprehensive income and deducted in the equity section ofthe balance sheet.
B. an extraordinary item shown as a direct reduction from retainedearnings
C. a note or parenthetical disclosure only
D. a current loss resulting from holding securities
18) An unrealized holding gain on a company’s available-for-salesecurities should be reflected in the current financial statementsas
A. other comprehensive income and included in the equity section ofthe balance sheet.
B. an extraordinary item shown as a direct increase to retainedearnings
C. a note or parenthetical disclosure only
D. a current gain resulting from holding securities
19) Investments in debt securities should be recorded on the dateof acquisition at
A. face value plus brokerage fees and other costs incident to thepurchase
B. lower of cost or market
C. market value plus brokerage fees and other costs incident to thepurchase
D. market value
20) Securities which could be classified as held-to-maturityare
A. warrants
B. redeemable preferred stock
C. municipal bonds
D. treasury stock
21) Which of the following is NOT a debt security?
A. Commercial paper
B. Convertible bonds
C. Loans receivable
D. All of these are debt securities
22) An investor has a long-term investment in stocks. Regular cashdividends received by the investor are recorded as
Fair Value Method | Equity Method
A. A reduction of the investment | A reduction of theinvestment
B. Income | Income
C. Income | A reduction of the investment
D. A reduction of the investment | Income
23) When a company holds between 20% and 50% of the outstandingstock of an investee, which of the following statementsapplies?
A. The investor should use the equity method to account for itsinvestment unless circum-stances indicate that it is unable toexercise “significant influence” over the investee
B. The investor should always use the equity method to account forits investment
C. The investor must use the fair value method unless it canclearly demonstrate the ability to exercise “significant influence”over the investee
D. The investor should always use the fair value method to accountfor its investment
24) Bista Corporation declares and distributes a cash dividend thatis a result of current earnings. How will the receipt of thosedividends affect the investment account of the investor under eachof the following accounting methods?
Fair Value Method | Equity MethodÂ
A. Increase | Decrease
B. No Effect | Decrease
C. No Effect | No Effect
D. Decrease | No Effect
25) Debt securities that are accounted for at amortized cost, NOTfair value, are
A. trading debt securities
B. held-to-maturity debt securities
C. available-for-sale debt securities
D. never-sell debt securities
26) Equity securities acquired by a corporation which are accountedfor by recognizing unrealized holding gains or losses as othercomprehensive income and as a separate component of stockholders’equity are
A. trading securities where a company has holdings of less than20%
B. available-for-sale securities where a company has holdings ofless than 20%
C. securities where a company has holdings of between 20% and50%
D. securities where a company has holdings of more than 50%
27) Use of the effective-interest method in amortizing bondpremiums and discounts results in
A. a smaller amount of interest income over the life of the bondissue than would result from use of the straight-line method
B. a greater amount of interest income over the life of the bondissue than would result from use of the straight-line method
C. a varying amount being recorded as interest income from periodto period
D. a variable rate of return on the book value of theinvestment
28) All of the following are characteristics of a derivativefinancial instrument EXCEPT the instrument
A. All of these are characteristics
B. has one or more underlyings and an identified paymentprovision
C. requires a large investment at the inception of the contract
D. requires or permits net settlement
29) The accounting for fair value hedges records the derivative atits
A. historical cost
B. amortized cost
C. carrying value
D. fair value
30) All of the following statements regarding accounting forderivatives are correct EXCEPT that
A. gains and losses resulting from hedge transactions are reportedin different ways, depending upon the type of hedge
B. they should be recognized in the financial statements as assetsand liabilities
C. they should be reported at fair value
D. gains and losses resulting from speculation should bedeferred
ScholarMatic: Explanation & Answer
Your ready answer from a verified tutor is just a click away for as little as $14.99
Click Order Now to get 100% Original Answer Customized to your instructions!
