Exam 2 Multiple Choice Flashcards
What represents the total number of shares that a corporation may issue under the terms of its articles of incorporation?
Authorized shares.
In January 2025, Hall Corporation, a newly formed company, issued 10,000 shares of its $2 par common stock for $4 per share. On July 1, 2025, Hall Corporation reacquired 1,000 shares of its outstanding stock for $3 per share. The acquisition of these treasury shares…?
Decreased total stockholders’ equity.
What feature of preferred stock requires that dividends not paid in any year must be paid in a later year before dividends are distributed to common shareholders?
The cumulative feature.
The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding…?
Decreases retained earnings but does not change total stockholders’ equity.
What effect does the issuance of a 3-for-1 stock split have on the Par Value per Share and the Retained Earnings?
Par Value per Share - Decrease
Retained Earnings - No effect
On December 31, 2025, Allen Company issued a 2-for-1 stock split when the stockholders’ equity section was as follows:
- Common stock, $10 par value; 30,000 shares authorized; 9,000 shares issued and outstanding: 90,000
- Paid-in capital in excess of par: 116,000
- Retained earnings: 184,000
= 390,000 (total stockholders’ equity)
After the split, what would the number of shares issued and outstanding be? What would the par be per share?
Shares issued and outstanding: 18,000
Par: $5 per share
On July 1, 2025, an interest payment date, $150,000 of Parks Company bonds were converted into 3,000 shares of Parks Company common stock, each having a par value of $45 and a market value of $54. There is $6,000 of unamortized discount on the bonds. If the book value method is used, Parks would record…?
D - Bond Payable: 150,000
C - Discount on Bond Payable: 6,000
C - Common Stock (3,000 x 45): 135,000
C - Paid-in Capital: 9,000
A $9,000 increase in paid-in capital in excess of par.
In 2024, Tower, Inc. issued 90,000 shares of $100 par value convertible preferred stock for $103 per share. Each share of preferred stock can be converted into three shares of Tower’s $25 par value common stock at the option of the preferred stockholder. In August 2025, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What amount will be credited to paid-in capital in excess of par from common stock as a result of the conversion?
D - Preferred Stock (90,000 x 100): 9,000,000
D - Paid-in Capital - Preferred Stock (90,000 x 3): 270,000
C - Common Stock (270,000 x 25): 6,750,000
C - Paid-in Capital - Common Stock: 2,520,000
$2,520,000
In computing diluted earnings per share, the treasury stock method is used for options to reflect the assuming reacquisition of common stock at the average market price during the period. If the exercise price of the options exceeds the average market price, the computation would…?
Be anti-dilutive.
In computing the weighted average of shares outstanding, when a stock dividend or stock split occurs during the period, the additional shares are…?
Considered outstanding at the beginning of the earliest year reported.
What effect will the acquisition of treasury stock have on total stockholders’ equity and on earnings per share, respectively?
Decrease and increase.
In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should be added as an adjustment to the numerator (net earnings)?
Annual preferred dividend.
How should anti-dilutive securities be treated in earnings per share calculations?
They should be ignored.
Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $2,940,000 for the year ending December 31, 2025. Earnings per share of common stock for 2025 would be…?
600,000 x (6 / 12) = 300,000
1,500,000 x (6 / 12): 750,000
300,000 + 750,000 = 1,050,000
2,940,000 / 1,050,000 = 2.80
$2.80
The conversion of preferred stock is most commonly recorded by what method?
The book value method.
