Exam 1 Wrong Answers

Question 0

What accounts are credited and debited when the board votes for a 2 for 1 stock split?

Answer 0

No entry needed

Memorandum in ledger that we have twice the number of shares at half the par value

Question 1

What account is debited for the following situation?
Issued 5000 shares to attorneys in payment of bill for $35,000 for services rendered in helping the company to incorporate.

Answer 1

Debit: Organization Exp.

Question 2

What accounts are credited and debited when the board votes for a 100% stock dividend?

Answer 2

R/E. XXX
C/S Dividend Distributable. XXX

C/S Dividend Distributable. XXX
C/S. XXX

Question 3

Briefly discuss the accounting and securities market differences between a 2 for 1 split and a 100% stock dividend, of increasing the number of shares outstanding.

Answer 3

Same effect either way

The split creates no direct tax, but there could be a gain of
The sale of stock down the road

Question 4

What accounts are credited and debited for the following journal entries?
Declared a 10% stock dividend on the outstanding common stock when the common stock is selling for $45 per share.

2) Issued the stock dividend

Answer 4

R/E. XXX
C/S Div. Distr. XXX
PiC C/S. XXX

2)
C/S Div. Dist. XXX
C/S (at par). XXX

Question 5

July 29: purchased 1800 shares of common stock at $17 per share
Aug. 10: sold 1800 treasury shares at $14 per share
What accounts are credited and debited for the Aug. 10th entry?

Answer 5

Cash. Xxx
R/E. Xxx
T/S. Xxx

Question 6

What accounts are credited and debited for the following entry?
Closed the income summary account. There was $175,000 net income.

Answer 6

Income summary. Xxx

R/E. Xxx

Question 7

What accounts are debited and credited for the following entry?
1000 shares were issued as a stock dividend when the stock was selling for 60.

Answer 7

R/E. 60,000
C/S at par. 50,000
PiC C/S. 10,000

Question 8

What accounts are debited and credited for the following entry?
20% stock dividend

Answer 8

R/E. 88,000,000
C/S Div. Dist. 8,000,000
PiC C/S. 80,000,000

C/S Div. Dist. 8,000,000
C/S at par. 8,000,000

Question 9

What accounts are debited and credited for the following entry?
100% stock dividend

Answer 9

R/E. 40,000,000
C/S. 40,000,000

C/S Div. Dist. 40,000,000
C/S at par

Question 10

What is the Layout of the stockholders equity section, when there is only common stock (no preferred) and additional paid in capital for Treasury shares?

Answer 10

Capital Stock (title)
Common Stock. Xxx
Total Capital Stock. Xxx
Additional Paid-In Capital- Beg. Xxx
Additional Paid-In Capital- C/S. Xxx
Additional Paid-In Capital- T/S. Xxx
Total Paid-In Capital. Xxx. Xxx
Retained Earnings. Xxx
Total Paid in Capital and R/E. Xxx
Less: Cost of Treasury Stock. Xxx
Total Stockholders’ Equity. Xxx

Question 11

What accounts are debited and credited in the following transaction?
Bonds payable in the amount of $400,000 with a premium balance of $6,000. Each $1,000 bond is convertible into 20 shares of preferred stock with a par value of $50 per share. All bonds are converted.

Answer 11

B/P. Xxx
Premium on B/P Xxx
P/S. Xxx
PiC P/S. Xxx

Question 12

Equation for values assigned to warrants

Answer 12

Value of warrants =
[(market value of warrants)/(market value of warrants + value of bonds without warrants)] X (bonds sold in market at issuance)

Question 13

Equation for values assigned to bonds

Answer 13

Value of bonds =
[(value of bonds without warrants)/(market value of warrants + value of bonds without warrants)] X (bonds sold in market at issuance)

Question 14

What accounts are debited and credited when bonds are issued with detachable warrants?

Answer 14

Cash. Xxx
Discount on B/P. Xxx
B/P. Xxx
PiC- Stock Warrants Xxx

Question 15

What accounts are debited and credited when bonds are issued with nondetachable warrants?

Answer 15

Cash. Xxx
Discount on B/P. Xxx
B/P. Xxx

Question 16

When recording the expensing of stock options during the vesting period, what are the debit and credit entries?

Answer 16

Comp exp. Xxx

PiC- stock options. Xxx

Question 17

What accounts are debited and credited when stock options are exercised?

Answer 17

Cash. Xxx
PiC- Stock Options. Xxx
C/S. Xxx
PiC- C/S

Question 18

What accounts are credited and debited when stock options expire?

Answer 18

PiC- Stock Options. Xxx

PiC- Options Expired. Xxx

Question 19

When calculating earnings per share when must the numerator be adjusted?

Answer 19

When calculating diluted EPS

Question 20

Basic EPS Equation

Answer 20

Basic EPS = (net income - preferred div.)/(weighted avg. shares C/S)

Question 21

What is the dilution of shares for stock options for fiscal year June 30, 2014?
Options were granted on. July 1, 2013, to purchase 200,000 shares at $15 per share. Although no price per common share was exercised during fiscal year 2014, the average price per common share during fiscal year 2014 was $20 per share.

Answer 21

(20 - 15)/(20) X 200,000 = 50,000 shares

[(Avg. mkt price - exercise price)/(avg. mkt price)] X (# of shares options can purchase)

Question 22

How do you test whether convertible bonds and convertible P/S is anti dilutive?

Answer 22

After tax interest savings/shares

If this ratio is higher than basic EPS than the security is anti dilutive
If the ratio is lower than basic EPS the security is dilutive

Question 23

Cumulative preferred dividends should be shown in a corporation’s
Balance sheet as…

Answer 23

A footnote

Question 24

Redeemable preferred stock should be classified as a liability
On the balance sheet.

True or false

Answer 24

True, required by FASB statement 150

Question 25

Durango Inc. had net income for 2014 of $2,120,000 and earnings per share on common stock of $5. Included in the net income was $300,000 of bond interest expense related to its long-term debt. The income tax rate for 2012 was 30%. Dividends on preferred stock were $400,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2014?

Answer 25

($2,120,000 net income - $400,000 P/S dividends) X 25% equals $430,000 in common stock dividends

Question 26

Characteristics of the corporate form of organization include all of the following except:
 A.	
capital stock or share system.
 B.	
formality of profit distribution.
 C.	
variety of ownership interests.
 D.	
unlimited liability of stockholders.

Answer 26

unlimited liability of stockholders.

Question 27

The accounting for treasury stock retirements under IFRS
A.
is to charge the entire amount to paid-in capital.
B.
may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock.
C.
is to charge the excess of the cost of treasury stock over par value to retained earnings.
D.
is to allocate the difference between paid-in capital and retained earnings.

Answer 27

may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock.

Under IFRS, the retirement of treasury stock depends on the original issuance of the stock.

Question 28

On October 31, 2014, Lexington Corp. declared and issued a 12% common stock dividend. Prior to this dividend, Lexington had 302,000 shares of $.001 par value common stock issued and outstanding. The fair value of Lexington’s common stock was $16.75 per share on October 31, 2014. As a result of this stock dividend, the company’s total stockholders’ equity

 A.	
increased by $302,000.
B.	
decreased by $5,058,198.
C.	
decreased by $5,058,500.
D.	
did not change.

Answer 28

did not change.

Question 29

McCaffrey Corporation owned 15,000 shares of Harper Corporation's $5 par value common stock. These shares were purchased in 2010 for $326,000. On May 4, 2014, McCaffrey declared a property dividend of one share of Harper for every twenty shares of McCaffrey stock held by a stockholder. On that date, when the market price of Harper was $34 per share, there were 280,000 shares of McCaffrey outstanding. What net reduction in retained earnings would result from this property dividend?
A.
$150,000
 B.	
$176,000
 C.	
$326,000
 D.	
$476,000

Answer 29

The fair value of the shares distributed is: 280,000 McCaffrey shares / 20 = 14,000 shares of Harper issued, times $34 current market price equals $476,000. Retained earnings is increased by the unrealized gain of $150,000 ($476,000-$326,000) and decreased by the fair value of the shares distributed for a

net reduction of $326,000

Question 30

All of the following statements are true regarding preferred stock except:
A.
companies usually issue preferred stock with a par value.
B.
the dividend preference for preferred stock is expressed as a percentage of the par value.
C.
a company often issues preferred stock instead of debt, because of a high debt-to-equity ratio.
D.
a preference as to dividends assures the payment of dividends.

Answer 30

a preference as to dividends assures the payment of dividends.

Question 31

Gulfport Corporation was organized in January 2014 with authorized capital of $.0001 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2014, the corporation’s attorney accepted 5,000 shares of common stock in settlement for legal services with a fair value of $25,250. Additional paid-in capital would increase on what date?

Answer 31

3/1/2014

Question 32

Duszynski Company issues 20,000 shares of its $.50 par value common stock having a market value of $25 per share and 6,000 shares of its $25 par value preferred stock having a market value of $50 per share for a lump sum of $750,000. The proceeds allocated to the common stock is
 A.	
$450,000
 B.	
$468,750
 C.	
$500,000
 D.	
$705,000

Answer 32

($500,000/ $800,000) X $750,000 = $468,750

Question 33

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the
A.
preferred dividends in arrears.
B.
preferred dividends in arrears times (one minus the income tax rate).
C.
annual preferred dividend times (one minus the income tax rate).
D.
none of these answer choices is correct.

Answer 33

none of these answer choices is correct.

In a simple capital structure an amount equal to the dividend that should have been declared for the current year only is subtracted from net income.

Question 34

Which of the following is not one of the commonly used stock compensation plans?
 A.	
Stock option plans.
 B.	
Stock appreciation rights plans.
 C.	
Restricted-stock plans.
 D.	
Stock conversion plans.

Answer 34

Stock conversion plans.

Question 35

Companies remeasure compensation expense each period for liability-based stock-appreciation rights.
A. True
B. False

Answer 35

True

Question 36

What will the numerator of the diluted EPS calculation consist of when convertible preferred stock is being included?
 A.	
Net income + Preferred dividends (Net of tax effect).
 B.	
Net income + Preferred dividends.
 C.	
Net income.
 D.	
Net income – Preferred dividends.

Answer 36

Net income.

Preferred dividends get added back and thus
aren’t subject to tax

Question 37

Complex capital structures require all of the following disclosures except:
A.
a description of pertinent rights of the various securities outstanding.
B.
a reconciliation of the numerators and denominators of the basic and diluted per share computations.
C.
the effect given preferred dividends in determining income available to common stockholders.
D.
the effect of conversions before year-end.

Answer 37

the effect of conversions before year-end.

Question 38

The issuance of warrants arises under all of the following situations except to:
A.
make different types of securities more attractive to new investors.
B.
give existing stockholders a preemptive right to purchase stock.
C.
provide compensation to executives.
D.
give bondholders the preemptive right to purchase additional stock.

Answer 38

give bondholders the preemptive right to purchase additional stock.