Which of the following shareholder rights is most commonly enhanced in an issue of preferred stock?

1. The right to receive a full cash dividend before dividends are paid to other classes of stock 2. The right to maintain one's proportional interest in the corporation 3. The right to vote for the board of directors 4. The right to vote on major corporate issues Which of the following features of preferred stock would most likely be opposed by common shareholders?

1. Redeemable 2. Callable 3. Participating 4. Par or stated value Which of the following is not one of the basic shareholders rights?

1. The right to participate in earnings 2. The right to maintain one's proportional interest in the corporation 3. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation 4. The right to inspect the accounting records of the corporation The exercise price and market price of stock under a fixed compensatory stock option plan are equal on the grant date. The fair value of the options is greater than the option price. Under the fair value method,

1. no paid-in capital from stock options will be recognized. x2. deferred compensation will be recognized. 3. compensation expense will be recognized in connection with the option plan. 4. no compensation expense will be recognized in connection with the option plan. Current financial accounting standards require

1. disclosure in the notes to the financial statements of compensation expense under the fair value method if the intrinsic value method is used. 2. the use of the fair value method and the intrinsic value method to account for each plan. 3. disclosure in the notes to the financial statements of compensation expense under the intrinsic value method if the fair value method is used. 4. the use of the fair value method, but not the intrinsic value method. An adjustment to retained earnings as a result of a conversion of preferred stock to common stock most likely would occur when

1. par value of the common stock is less than the book value of the preferred stock. 2. par value of the preferred stock is low relative to fair value of the common. 3. par value of the preferred stock is high relative to fair value of the common stock. 4. par value of the common stock exceeds the book value of the preferred stock. Which of the following is least likely to affect the retained earnings balance?

1. Stock dividends 2. Conversion of preferred stock into common stock 3. Stock splits

4. Treasury stock transactions Which of the following is most likely to be found in state laws regarding payment of dividends?

1. Dividends may be paid from legal capital. 2. Retained earnings are available for dividends unless restricted by contract or by statute. 3. Capital from donated assets is available for dividends. 4. Unrealized capital is available for any type of dividend. Which of the following is not a component of comprehensive income?

1. Minimum pension liability adjustment 2. Asset revaluation reserve 3. Net income 4. Foreign currency translation adjustment The use of equity reserves under international accounting standards

1. is primarily for the benefit of shareholders rather than creditors. 2. results in the elimination of the retained earnings category from the total equity of a company. 3. is based on whether a reserve is part of distributable or nondistributable equity. 4. is strictly voluntary on the part of the management of a company. The par value of common stock represents the

1. amount received by the corporation when the stock was originally issued. 2. legal nominal value assigned to the stock. 3. book value of the stock. 4. liquidation value of the stock. The entry to record the issuance of common stock for fully paid stock subscriptions is

1. Common Stock Subscribed, Common Stock. 2. Common Stock Subscribed, Common Stock Additional Paid-In Capital. 3. a memorandum entry. 4. Common Stock Subscribed, Subscriptions Receivable. Farnon Company has not declared or paid dividends on its cumulative preferred stock in the last three years. These dividends should be reported

1. as a reduction in stockholders' equity. 2. as a noncurrent liability. 3. in a note to the financial statements. 4. as a current liability. Which of the following is an appropriate presentation of treasury stock?

1. As a marketable security 2. As a deduction at cost from total stockholders' equity 3. As a deduction at par from total stockholders' equity 4. As a deduction at cost from total contingent liabilities

Gains and losses on the purchase and resale of treasury stock may be reflected only in

1. income and paid-in capital accounts. 2. paid-in capital accounts. 3. income, paid-in capital, and retaining earnings accounts. 4. paid-in capital and retained earnings accounts. A company issued rights to its existing shareholders to acquire, at $15 per share, 5,000 unissued shares of common stock with a par value of $10 per share. Common Stock will be credited at

1. $15 per share when the rights are issued. 2. $10 per share when the rights are issued. x3. $10 per share when the rights are exercised. 4. $15 per share when the rights are exercised. A company issued rights to its existing shareholders to purchase for par unissued shares of common stock with a par value of $10 per share. When the market value of the common stock was $12 per share, the rights were exercised. Common Stock should be credited at $10 per share and

1. Paid-In Capital from Stock Rights credited at $2 per share. 2. Additional Paid-In Capital credited at $2 per share. 3. Retained Earnings credited at $2 per share. 4. no credit made to Additional Paid-In Capital or Retained Earnings.

The issuance of shares of preferred stock to shareholders

1. has no effect on preferred stock outstanding. 2. increases preferred stock authorized. 3. increases preferred stock outstanding. 4. decreases preferred stock authorized. How would a stock split affect each of the following? Total Stockholders' Equity Additional Paid-In Capital

Assets

1. Decrease 2. No effect 3. Increase 4. No effect

Decrease No effect Increase No effect

Decrease No effect No effect Increase

On February 1, authorized common stock was sold on a subscription basis at a price in excess of par value, and 20 percent of the subscription price was collected. On May 1, the remaining 80 percent of the subscription price was collected. Additional Paid-In Capital would increase on February 1 May 1

1. x 2. 3. 4.

No Yes No Yes

Yes No No Yes

Stock warrants outstanding should be classified as

1. additions to contributed capital. 2. liabilities. 3. capital stock. 4. reductions of capital contributed in excess of par value. At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

1. declaration of a stock split. 2. payment in full of subscribed stock. 3. declaration of a stock dividend. 4. purchase of treasury stock. When treasury stock is purchased for more than its par value, Treasury Stock is debited for the purchase price under which of the following methods? Cost Method Par Value Method

1. Yes 2. No 3. Yes 4. No

Yes Yes No No

When treasury stock is purchased for cash at more than its par value, what is the effect on total stockholders' equity under each of the following methods? Cost Method Par Value Method

1. Decrease

No effect

2. Decrease 3. No effect 4. Increase

Decrease Decrease Increase

Treasury stock was acquired for cash at a price in excess of its par value. The treasury stock was subsequently reissued for cash at a price in excess of its acquisition price. Assuming that the cost method of accounting for treasury stock transactions is used, what is the effect on retained earnings? Acquisition of Treasury Stock Reissuance of Treasury Stock

1. Increase 2. No effect 3. No effect 4. Increase

Decrease No effect Increase No effect