Shareholder Equity

Question 1

Info

Answer 1

Started on 20 August 2014 @ 5.00 PM
Total questions 112
To do at a time 18,
Practice session 84,

Question 2

A company wishes to raise funds by issuing either bonds or cumulative preferred stock. How will the annual interest or dividend affect annual net earnings available to common stockholders each year?

Answer 2

Annual net earnings available to common stockholders are reduced by annual interest and preferred dividends.

Question 3

Stock dividend is paid from

Answer 3

Retained earnings

Question 4

Which of the following models for assigning values to options takes into account the volatility of stock prices?

Answer 4

The Black-Scholes, binomial models, and lattice models are option-pricing models that take into account the volatility of stock prices when measuring the fair value of options. The calculated value method is only available to nonpublic companies that cannot estimate volatility.

Question 5

BV per share

Answer 5

Common stockholders’ equity/Outstanding shares

Question 6

Total contributed capital is

Answer 6

total legal capital plus other paid-in amounts.

Question 7

In property dividend how gain is recognized?

Answer 7

In a property dividend, a gain is recognized for the excess of FV over carrying value on date of declaration.

Question 8

Under IFRS, the method used when preferred shares are converted into ordinary shares is

Answer 8

Book value method.

The book value method is the method used to convert preferred shares into ordinary shares.

Question 9

Which method is unacceptable under IFRS, although it may be used for US GAAP to convert preferred share to ordinary share.

Answer 9

Market value method.

Question 10

Under IFRS, which method is unacceptable to preferred shares into ordinary shares.

Answer 10

Fair value method.

The fair value method is an unacceptable method for preferred stock conversion.

Question 11

Dilutive stock options would be used in the calculation of

Answer 11

Basic earnings
per share Diluted earnings
per share

No No

No Yes

Yes Yes

Yes No

Basic earnings per share is computed based on common stock outstanding, fully diluted earnings per share is based on common stock and all dilutive securities. Dilutive stock options are used in the calculation of diluted earnings per share.

Question 12

Under IFRS, all of the following are acceptable method of accounting for treasury stock except:

Answer 12

Fair value method.
The fair value method is not an acceptable method of accounting for treasury stock. The three acceptable methods are the par value method, the cost method, and the constructive retirement method.

Question 13

does stock option increases stockholder equity

Answer 13

yes

Question 14

The excess of the fair value of the consideration received over the stated value of no par common stock should be credited to

Answer 14

Additional paid-in capital.

Question 15

In what circumstances is compensation expense immediately recognized for an employee share-based payment?

Answer 15

In circumstances when options are granted for prior service, and the options are immediately exercisable.

Question 16

Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock?

Answer 16

Stock warrants.
Stock warrants are issued to existing shareholders so that they can purchase additional shares of stock in order to maintain their ownership percentage.

Question 17

stock options are usually granted to whom.

Answer 17

stock options are usually granted to officers and key employees as a form of compensation.

Question 18

Purchase and sale of treasury stock, journal entry

Answer 18

This answer is incorrect. When treasury stock is acquired using the cost method, a stockholders’ equity account is debited for the cost of the treasury stock.

Treasury stock xxx
Cash xxx

When the treasury stock is subsequently sold for cash at more than its acquisition price, additional paid-in capital is credited for the gain.

Cash xxx
Treasury stock xxx
APIC treasury stock xxx

Thus, the purchase would not affect additional paid-in capital but, the sale would increase it.

Question 19

How would the declaration of a 10% stock dividend by a corporation affect each of the following on its books?

Answer 19

Retained earnings (RE) Total stockholders’ equity (SE)

Decrease No effect

This answer is correct. Regardless of the size of a stock dividend, RE is decreased and other SE accounts are increased. Since the dividend described in this question is small (< 20-25% of the outstanding shares), the journal entry would be

Retained earnings (FV)
Common stock dividend distributable (par value)
Additional paid-in capital (plug)

Accordingly, RE will decrease and, since all affected accounts are elements of SE, total SE will not change. Note that the entry for a large stock dividend would be

Retained earnings 	(par) 	 
      Common stock dividend distributable 	  	(par)

Question 20

The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton’s income statement for the current fiscal year. While reviewing the income statement, Carlton’s finance director noticed that the earnings per share data has been omitted. What changes will have to be made to Carlton’s income statement as a result of the omission of the earnings per share data?

Answer 20

Carlton’s income statement will have to be revised to include the earnings per share data.

Question 21

In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be

Answer 21

Deducted from net income whether declared or not.

Question 22

Normally, dividends are not paid on shares which have not been issued. However, an entity can choose to pay dividend equivalents on options. How are these dividend equivalents accounted for on options which vest, and how are they accounted for on options which do not vest?

Answer 22

Vest Not vest

Compensation expense Compensation expense

Compensation expense Charge against retained earnings

Charge against retained earnings Compensation expense
Dividends or dividend equivalents on options which vest are to be accounted for as other dividends—that is, charged against retained earnings—but those paid on options which do not vest are deemed to be compensation expense.

Question 23

When bonds are issued, any interest that has not been paid will be

Answer 23

will be accrued and accounted for as a current liability.

Question 24

When treasury stock is purchased for cash at more than its par value, what is the effect on total stockholders’ equity under cost method and under par method?

Answer 24

Both will decrease

Question 25

Sale of treasury stock at gain will be recorded inocme statement.

Answer 25

No

Question 26

Journal entry for treasury stock sold for profit.

Answer 26

Cash (proceeds)
Treasury stock (cost)
APIC-treasury stock (excess)

Question 27

When a cash dividend becomes a liability of a corporation, both legally and for financial reporting purposes.

Answer 27

On the date of declaration.

Question 28

How should cumulative preferred dividends in arrears be shown in a corporation’s statement of financial position?

Answer 28

Footnote.

Question 29

What is non reciprocal transfer

Answer 29

NTU

Question 30

A company with a simple capital structure for purposes of computing earnings per share would include which of the following in the computation of basic earnings per share?

Answer 30

Dividends on nonconvertible cumulative preferred stock.

Question 31

In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be

Answer 31

Deducted from net income whether declared or not.

Question 32

How outstanding of stock dividend is treated

Answer 32

As if outstanding whole of the year.

Question 33

Do we consider dilutive stock for calculation of basic EPS

Answer 33

No

Question 34

Anti dilutive securities are not considered in calculation of

Answer 34

Basic earnings per share and diluted earnings per share.

Question 35

Earnings per share data must be reported on the face of the income statement for

Answer 35

Income from continuing operation Yes

Discontinued operation No

Question 36

On which of the following dates is a public entity required to measure the cost of employee services in exchange for an award of equity interests, based on the fair market value of the award?

Answer 36

Date of grant.

Question 37

IFRS, how many types of acceptable method of accounting for treasury stock.

Answer 37

Par value method.
Cost method.
Constructive retirement method.

Question 38

Which type of acceptable method of accounting for treasury stock IFRS does not have.

Answer 38

Fair value method

Question 39

What type of method is used when preferred shares are converted into ordinary shares.

Answer 39

Book Value Method