EQUITY_Accounting Theory

Dividends paid out in stock

• a.  Increases the current ratio

• b.  Decreases the amount of working capital

• c.  Increases total stockholders’ equity

• d. Decreases book value per share of stock outstanding

Shares of Corel Corporation common stock, which has a par value of $40 and is trading at $50, will be distributed as a dividend by the board of directors. The company wants to capitalize $400,000 of its retained earnings balance, has issued 110,000 shares (10,000 of which are treasury stock) and has an authorization for 200,000 common shares. In order to achieve this goal, the board of directors should declare a dividend percentage of

• a.  10

• b.  8

• c.  5

• d.  2

The income statement should reflect compensation cost for a compensatory stock option plan if the grant and measurement dates are same.

• a. At the date of retirement

• b. Of each period in which services are rendered

• c. At the exercise date

• d. At the adoption date of the plan

Whenever a compensating stock option plan grants options to workers,

• a. Total compensation is measured using a fair value method.

• b. Total compensation is measured using the intrinsic method.

• c. Total compensation is measured when the options are in the money.

• d. Total compensation is measured using the difference between the strike price and the fair value of the options on the grant date.

Upon the conversion of preferred shares to common stock

• a. The debt-to-equity ratio decreases.

• b. The debt-to-equity ratio increases.

• c. The debt-to-equity ratio is unchanged.

• d. A gain or loss is reported in earnings for the difference between the fair value of the common stock and the book value of the preferred stock that was converted.

On November 1, 2023, a quasi-reorganization is initiated by a corporation that has incurred a $2,000,000 deficit. There will be a $400,000 write-down of some assets to their current fair market value. There will be no change to liabilities. There was $3,000,000 in capital stock and $1,000,000 in additional paid-in capital prior to the quasi-reorganization. In what ways might the entries made on November 1, 2023, to implement these modifications influence the following?

• a.

• b.

• c.

• d.

If a stock split were to occur, how would it influence the following?

• a

• b

• c

• d

Legal capital is most accurately described in relation to corporations as

• a. The amount of capital the state of incorporation allows the company to accumulate

  over its existence.

• b. The amount of net assets that cannot be distributed to stockholder

• c. The amount of capital the federal government allows a corporation to generate.

• d. The total capital raised by a corporation within the limits set by the Securities and

  Exchange Commission.

Dividends paid out in stock

• a.  Increases the current ratio

• b.  Decreases the amount of working capital

• c.  Increases total stockholders’ equity

• d. Decreases book value per share of stock outstanding

In cases where the dividend is quite tiny, such as a 10% stock dividend

• a. Retained earnings is not reduced because the dividend is immaterial.

• b. Retained earnings is reduced by the fair value of the stock.

• c. Retained earnings is reduced to the par value of the stock.

• d. Paid-in capital in excess of par value is unaffected.