Exam 3 Flashcards
preferred stock holders have preference over common stock holders when it comes to
Receipt of dividends and receiving assets upon liquidation
the following is NOT a legitimate transaction
Declaring a treasury dividend
Which statement is most true regarding the terms “treasury stock” and “par.”
They are archaic terms with little practical relevance today, but still used.
Major Mining owns 400,000 shares of Heathclift stock that it bought as an investment. Major decides to distribute 200,000 of the Heathclift shares to its own shareholders as a form of dividend. What type of dividend would this be?
Property dividend
The Board of Barney Enterprises votes to distribute a cash dividend. Most of the following individuals will receive a dividend. Whom among the following individuals will NOT receive the dividend?
Joyce, who bought 600 shares through a broker after the ex-dividend date
Which of the following most immediately and directly controls the formation of Corporations?
The laws of individual states
There are 4 major components of stockholders equity
Accumulated other comprehensive income, Retained earnings, Paid-in capital,
There are 4 major components of stockholders equity
Accumulated other comprehensive income, Retained earnings, Paid-in capital,
Share issue costs refer to the costs of legal, promotional, and accounting services related to the sale of shares. These costs reduce the net cash proceeds from selling the shares and are
not recorded separately (Accounting for share issue costs of Equity shares differs from accounting for share issue costs of debt. In accounting for debt. the issue costs are recorded separately.)
Share issue costs refer to the costs of legal, promotional, and accounting services related to the sale of shares. These costs reduce the net cash proceeds from selling the shares and are
not recorded separately (Accounting for share issue costs of Equity shares differs from accounting for share issue costs of debt. In accounting for debt. the issue costs are recorded separately.)
What is the BEST and most comprehensive definition of Paid-in capital?
It refers to all assets received by the company in exchange for stock
What causes a company to establish a valuation allowance for a deferred tax asset?
When it is more likely than not that its future income will be insufficient to take advantage of the deferred tax asset
During 2015, Stern Company had pretax accounting income of $45 million. The only temporary difference between accounting income and tax income was $15 million of rent received in advance (received in 2015 but applies to 2016). Stern’s taxable income for the 2015 would be:
$60 million (The $15 was unearned revenue, received in advance so it was not included in accounting income. However, it was included in taxable income for 2015. 45M + 15M = 60M.)
During 2015, Stern Company had pretax accounting income of $45 million. The only temporary difference between accounting income and tax income was $15 million of rent received in advance (received in 2015 but applies to 2016). Stern’s taxable income for the 2015 would be:
$60 million (The $15 was unearned revenue, received in advance so it was not included in accounting income. However, it was included in taxable income for 2015. 45M + 15M = 60M.)
Which of the following differences between financial accounting and tax accounting creates a deferred tax asset?
Revenue collected in advance.
Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000 while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody’s pretax accounting income was:
$10,000 (To solve, start with tax income. Add back the amount of depreciation that was deducted for tax accounting, then subtract the amount that should be recorded for depreciation under financial accounting rules. The result is financial accounting net income.)
What is the BEST and most comprehensive definition of Paid-in capital?
It refers to all assets received by the company in exchange for stock
One form of share-based compensation is restricted stock awards. What is used to determine the value of the compensation offered by a restricted stock award?
Market value of the stock on the date of grant
Sharon Wills is the senior accountant for Hypertek. As a form of share-based compensation, the company offered her restricted shares that she must earn by working for the company from 2012 through 2016. Which account will Hypertek credit each year as the shares vest?
Paid in capital - restricted shares
Most share-based compensation plans require employees to remain with a company for a certain number of years to derive the benefit. This period of time is often refererd to as the required “service period.” Another term for this required service period is the
vesting period.
f a stock dividend (not cash dividend) occurs in the middle of the fiscal year, when calculating the current year’s EPS, the shares are treated as if they were issued:
At the beginning of the year.
Derek Peters is the comptroller at Delcom Automotive Parts, Inc. The company granted him stock options as part of his employment package. Derek started work in July, 2014 and his options vest as follows: 20% in 2015, 20% in 2016; 25% in 2017; and 35% in 2018. What is the name for this vesting profile?
Graded vesting
Which of the following is the most likely ethical risk with share-based compensation plans?
It can motivate managers to artificially inflate earnings
Which of the following is the most likely ethical risk with share-based compensation plans?
It can motivate managers to artificially inflate earnings
Two types of share-based compensation are restricted stock awards and stock options. These types of compensation have both similarities and differences. In what ways are these awards similar?
They both require a debit to compensation expense during the required service period
Mark’s Market has an employee stock purchase plan. Under the plan, employees may purchase shares of Mark’s stock at $6.20 per share when the market price of the stock is $7.40 per share. For each share of stock purchased by employees, what is the compensation expense recognized by Mark’s?
$1.20
Glenda Enterprises reported Net income of $235,000 in 2015. Also in 2015, the Board declared common stock dividends of $45,000 and preferred stock dividends of $27,000. In computing basic earnings per share (EPS) for 2015, what will be the amount in the numerator for the calculation?
$208,000 ($235,000 - $27,000 = $208,000)
Glenda Enterprises reported Net income of $235,000 in 2015. Also in 2015, the Board declared common stock dividends of $45,000 and preferred stock dividends of $27,000. In computing basic earnings per share (EPS) for 2015, what will be the amount in the numerator for the calculation?
$208,000 ($235,000 - $27,000 = $208,000)
On March 4, 2012, Lustron resold 500,000 of the Treasury shares for $10 per share. What is the correct journal entry Lustron should record on the March 4, 2012? if treasury stock was purchased at $8 per share originally
Cash 5,000,000
Treasury stock - cost 4,000,000
Paid in capital - share repurchase 1,000,000
On March 4, 2012, Lustron resold 500,000 of the Treasury shares for $10 per share. What is the correct journal entry Lustron should record on the March 4, 2012? if treasury stock was purchased at $8 per share originally
Cash 5,000,000
Treasury stock - cost 4,000,000
Paid in capital - share repurchase 1,000,000
On March 4, 2012, Lustron resold 500,000 of the Treasury shares for $10 per share. What is the correct journal entry Lustron should record on the March 4, 2012? if treasury stock was purchased at $8 per share originally
Cash 5,000,000
Treasury stock - cost 4,000,000
Paid in capital - share repurchase 1,000,000
Cyrus Corp. had taxable income of $158,000 in the current year. The amount of MACRS depreciation was $23,000 while the amount of depreciation reported in the income statement was $18,000. There were no other differences between tax and accounting income, Cyrus’s pretax accounting income was:
$163,000 (Given taxable income, add back the MACRS (tax) depreciation, then subtract accounting depreciation, to derive accounting income. 158K + 23K - 18K = 163K.)
Cyrus Corp. had taxable income of $158,000 in the current year. The amount of MACRS depreciation was $23,000 while the amount of depreciation reported in the income statement was $18,000. There were no other differences between tax and accounting income, Cyrus’s pretax accounting income was:
$163,000 (Given taxable income, add back the MACRS (tax) depreciation, then subtract accounting depreciation, to derive accounting income. 158K + 23K - 18K = 163K.)
Under current U.S. GAAP, which of the following is a cash flow associated with OPERATING activities for Acme Inc.?
Payment of semiannual interest on Acme’s bonds payable
Under current U.S. GAAP, which of the following activities by Acme Inc. is a cash flow associated with INVESTING?
Acquisition of bonds of Hinkley Inc. (a separate company)
There are two prominent methods of preparing the statement of cash flows. Which method starts with Net income, then makes adjustments for transactions that did not involve cash?
Indirect method
Most of the following are investing activities for Acme Inc. Which is NOT an investing activity for Acme Inc. ?
Signing a short-term note payable with the local bank to obtain the cash needed to meet the June payroll for Acme employees
Under current U.S. GAAP, which of the following is a cash flow associated with OPERATING activities of Acme Inc.?
Payment of income taxes to the I.R.S.
Most of the following are investing activities for Acme Inc. Which is NOT an investing activity for Acme Inc. ?
Sale of Acme’s preferred stock to Acme shareholders
Which of the following is a non-cash FINANCING activity by Acme Inc?
Settling a loan from First Bank by issuing 4,000 shares of Acme stock to the bank
Under current U.S. GAAP, which of the following is a cash flow associated with FINANCING activities for Acme Inc.?
Retirement of Acme common stock by repurchasing it from Acme shareholders
On May 1, 2016, JayKay Inc. used idle cash to purchase notes issued by Hinkley, Inc. on the open market. The notes pay 3% interest and had an original duration of 12-months, though they mature on August 15, 2016. How should JayKay classify these notes?
As short-term investments
When calculating diluted earnings per share (EPS) for a firm with a complex capital structure, we assume that stock options were exercised and that the cash proceeds were used to:
Buy treasury stock.
If a stock dividend (not cash dividend) occurs in the middle of the fiscal year, when calculating the current year’s EPS, the shares are treated as if they were issued:
At the beginning of the year.
According to a 2011 study by the Economic Policy Institute, the top 1% of households receives what percentage of total US income and owns what percentage of total US wealth?
The top 1% of households receive 21.3% of total income and own 35.6% of total wealth.
