Legal capital is most accurately described in relation to corporations as

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

a. The amount of capital the state of incorporation allows the company to accumulate over its existence.

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.

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

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

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

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

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

Treasury stock transactions are reported using the par value approach.

d. Assumes constructive retirement of the treasury shares.

a. Will be reported in the balance sheet as a reduction of total stockholders’ equity.

b. Results in no change to total stockholders’ equity.

c. Results in a reduction in the number of shares that are available to be sold to prospective investors.

At a share price of $36 on December 31, 2023, the following were the capital accounts of the Conn Company: With a par value of $20 and 100,000 shares issued, the capital stocktwo million dollars Capital stock premium of 800,000 Savings for the Future4,550,000 Assuming $20 per share in par value, a 100% stock dividend would be declared.

c. Capital stock would increase to $4,000,000

a. No entry would need to be made to record the dividend

b. Capital stock would increase to $5,600,000

d. Total capital would decrease

Twenty years have passed with no dividend payments on the cumulative nonvoting preferred stock of this corporation. Year after year, the corporation has produced healthy profitability, and those gains have been kept to fuel its growth. Preferred stockholders were duly authorized by the board of directors to be offered a swap of bonds and common stock for all of the preferred shares by management. Everything is coming to a close with this transaction. Please choose the option that most accurately portrays how the transaction has impacted the company.

d. Regardless of the market value of the bonds and common stock, no gain or loss should be recognized by the company on the exchange, and no dividends need to be paid on the preferred stock exchanged.

a. The statute of limitations applies; hence, cumulative dividends of only seven years need to be paid on the preferred stock exchanged.

b. The company should record a gain for income determination purposes to the extent that dividends in arrears do not have to be paid in the exchange transaction.

c. Gain or loss should be recognized on the exchange by the company, and the exchange would have to be approved by the Securities and Exchange Commission.

Stockholders' equity primarily comes from

d. Both income retained by the corporation, and contributions by stockholders.

a. Income retained by the corporation.

b. Appropriated retained earnings.

c. Contributions by stockholders.

One thing that stock dividends and splits have in common is

b. No impact on total stockholders' equity.

a. A transfer to earned capital of a corporation.

c. An increase in total liabilities of a corporation

d. A reduction in the contributed capital of a corporation.

You can figure out the return on equity in common stock by dividing

a. Net income less preferred dividends by average common stockholders' equity.

b. Net income by average common stockholders' equity.

c. Net income less preferred dividends by ending common stockholders' equity.

d. Net income by ending common stockholders' equity.

Stock dividends and stock splits have the characteristic of

c. A reduction in book value per share

a. A reduction in total capital of a corporation

b. A transfer from earned capital to paid-in capital

d. Inclusion in conventional statement of source and application of funds

It is common practice for issuing companies with a single class of stock to distribute retained earnings to capital stock at a rate proportional to the market value of the issued shares.

d. A stock dividend but not a stock split

a. Either a stock dividend or a stock split

b. Neither a stock dividend nor a stock split

c. A stock split but not a stock dividend

The measuring date for estimating compensation cost in a compensatory stock option plan for employees is the

c. First date on which are known both the number of shares than an individual employee is entitled to receive and the option or purchase price, if any

a. Date the option plan is adopted, provided it precedes the date on which the options may first be exercised by less than one operating cycle

b. Date on which the options may first be exercised (if the first actual exercise is within the same operating period) or the date on which a recipient first exercises any of his options

How big of a percentage of the total number of shares in circulation must a stock payout be before it is more accurately described as a stock split and not a dividend?

c. No less than 20 to 25 percent

b. No less than 10 to 15 percent

d. No less than 45 to 50 percent

According to the notion of residual equity

b. Management is responsible for maximizing the wealth of common stockholders.

a. A business is viewed as a social institution.

c. A manager’s goals are considered as important as those of the common stockholders.

d. Equities are viewed as restrictions on assets.

Since they exhibit traits of both liabilities and equity, with the liability trait predominating, which of these securities should be declared as a liability?

d. Mandatorily redeemable preferred stock.

b. Stock options issued with a debt security.

Companies are required to disclose dividends paid to shareholders with redeemable preferred stock.

b. As interest expense in the income statement.

a. As an adjustment to retained earnings in its statement of owners’ equity.

c. As a reduction to other comprehensive income.

d. In the financing activities section of the statement of cash flows.

No change occurs to the total stockholders' equity in terms of dollar amount when a

c. Declaration of a stock dividend

a. Issuance of preferred stock in exchange for convertible debentures

b. Issuance of nonconvertible bonds with detachable stock purchase warrants

d. Declaration of a cash dividend

In most cases, there are two main ways to classify shareholders' equity:

d. Earned capital and contributed capital.

a. Contributed capital and appropriated capital.

b. Appropriated capital and retained earnings.

c. Retained earnings and unappropriated capital.

d. Issued but not outstanding shares.

a. Shares held as an investment by the treasurer of the corporation.

b. Shares held as an investment of the corporation.

c. Issued and outstanding shares.

The cumulative feature of preferred stock

b. Requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

a. Limits the amount of cumulative dividends to the par value of the preferred stock.

c. Means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.

d. Enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

There will almost certainly be a need to limit retained earnings by the

a. Exhaustion of potential benefits of the investment credit

c. Payment of last maturing series of a serial bond issue

d. Amortization of past service costs related to a pension plan

The FASB ASC states that redeemable preferred stock must be

a. Included in the common stock section.

c. Excluded from the stockholders' equity section.

d. Included as a contra item in the stockholders' equity section.

Due to the fact that there will be more common stock shares issued than outstanding as of the date of the financial statements,

a. Declaration of a stock split.

b. Declaration of a stock dividend.

d. Payment in full of subscribed stock.

Company reporting of dividends paid to holders of redeemable preferred stock is required by law.

b. As interest expense in the income statement.

a. As an adjustment to retained earnings in its statement of owners’ equity.

c. As a reduction to other comprehensive income.

. d. In the financing activities section of the statement of cash flows.

Which of these securities mostly exhibits liability characteristics but also exhibits some equity characteristics? As a result, they are required to be declared as liabilities.

d. Mandatorily redeemable preferred stock.

b. Stock options issued with a debt security.

The common stock of Gilbert Corporation, with a par value of $10 both before and after the distribution, was distributed as a 40% stock dividend. When is the appropriate time to capitalize retained earnings for the additional shares issued?

a.There should be no capitalization of retained earnings

c. Market value on the declaration date

d. Market value on the payment date

EQUITY_Accounting Theory

Quiz

•

English

•

University

•

Practice Problem

•

Medium

Anton Kacaribu

Used 1+ times

FREE Resource

38 questions

Show all answers

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

MULTIPLE CHOICE QUESTION

3 mins • 1 pt

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

MULTIPLE CHOICE QUESTION

1 min • 1 pt

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.

MULTIPLE CHOICE QUESTION

1 min • 1 pt

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.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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?

MULTIPLE CHOICE QUESTION

45 sec • 1 pt

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

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