F7

Question 1

What date are retained earnings decreased by a dividend?

Answer 1

The date of declaration is the date the board of directors formally approves a dividend. A liability is created (Dividends Payable), and retained earnings is reduced (Debited).

Question 2

The cost method of accounting for treasury stock affects retained earnings only if the shares are ______ and the difference exceeds any additional paid-in capital from treasury stock.

Answer 2

Sold below cost

Question 3

When a company declares a cash dividend, retained earnings is decreased by the amount of the dividend on the date of:

Answer 3

retained earnings is decreased by the amount of the dividend on the date of declaration by the board of directors.

Question 4

Record date determines

Answer 4

who will receive the dividend

Question 5

Payment date determines

Answer 5

when the checks will be mailed.

Question 6

The primary purpose of a quasi-reorganization is to give a corporation the opportunity to

Answer 6

To eliminate a retained earnings deficit so that future earnings will be available for dividends rather than limited to offsetting the retained earnings deficit

A quasi-reorganization is not related to debt relief.

A quasi-reorganization is not related to revaluing understated assets to their fair values

A quasi-reorganization is not a treasury stock transaction.

Question 7

How should East account for the scrip dividend and related interest?

Answer 7

Interest expense is not recorded as a debit to retained earnings. The interest expense will be reported on the income statement in the periods incurred. Only the $100,000 declared dividend will be debited to retained earnings.

Question 8

How is a Liquidating dividend calculated?

Answer 8

liquidating dividend (amount in excess of retained earnings balance).

Question 9

When stock options are exercised, what accounts increase?

Answer 9

APIC

NOT: NI

Question 10

A property dividend should be recorded in retained earnings at ____

Answer 10

The property’s market value at date of declaration.

Note: ** The book value at date of declaration is used to measure gain or loss

Question 11

What accounts are affected during acquisition and retirement of a companies stock?

Answer 11

Additional paid-in capital is decreased upon the acquisition and retirement of shares at a cost ($20) less than initial selling price ($25)

Retained earnings would be decreased for any amount more than initial selling price of $25.

Question 12

In a compensatory stock option plan for which the grant and exercise dates are different, the stock options outstanding account should be reduced at the____ Date?

Answer 12

Stock options outstanding are reduced at the exercise date

Stock options outstanding are increased at the date of grant.

The beginning of the service period is the beginning of the period over which the compensation expense is amortized.

Question 13

Universe declared a 30% stock dividend. By what amount will Universe decrease stockholders’ equity for the dividend?

Answer 13

The net effect on Universe’s stockholders equity is zero, as the reduction to retained earnings is offset by an equal increase in common stock.

Question 14

Net income or retained earnings will _____ through treasury stock transactions.

Answer 14

Never be increased through

Question 15

How are gains and losses recorded from Treasury stock transactions?

Answer 15

Corporations are not permitted to report income statement gains and losses from treasury stock transactions. Instead, treasury stock “gains and losses” are reported as direct adjustments to stockholders’ equity.

Gains are recorded by crediting (Increasing ) APIC - Treasury Stock.

Losses are recorded by first reducing (Debiting) any existing APIC - Treasury Stock to $0, and then debiting any additional loss to Retained Earnings.

Question 16

How is Book Value per Common Share calculated?

Answer 16

BV per Common Share = (Common shareholders equity / Common shares outstanding)

Note**: Common Shareholders Equity = (Total shareholders equity - Preferred Stock Outstanding (at greater of call or par value) - Cumulative preferred dividends in arrears)

Question 17

Equity instruments issued for employee services are to be valued at the date of

Answer 17

The grant.

Question 18

Participating preferred stock splits dividend distributions with common shareholders only after the common shareholders have received percentage dividends equivalent to preferred shareholders. The remaining dividend is shared _____ (Market or Par Value?)

Answer 18

In relation to relative capitalization

Question 19

Using the par value method, the company effectively retires reacquired stock at the time of repurchase and accounts for any gain through _______ and any loss through __________.

Answer 19

Using the par value method, the company effectively retires reacquired stock at the time of repurchase and accounts for any gain through Additional Paid-in Capital–Treasury Stock and any loss through retained earnings

Question 20

How is compensation expense accounted for with stock options?

Answer 20

he company would calculate compensation expense on the grant date and recognize this expense over the service period (matching principle). Compensation expense relative to stock options is recognized regardless of whether the option is exercised.

Compensation expense is not impacted by the exercise of the options. The reversal of expense recognized in Year 1 would not occur as a result of failure to exercise the option

Compensation cost is computed as of the grant date. The market rate at the date of exercise is not relevant to the computation of compensation expense.

Question 21

What amount would Jones report as Common Stock in the equity section, under the cost method with Treasury Stock?

Answer 21

When the cost method is used to account for treasury stock, common stock is reported on the balance sheet as the total shares issued at par value:

Question 22

For a large stock dividends, retained earnings is ____ for the _____ of the additional shares issued. The stock dividend would be recorded as follows on the date of declaration by the board of directors:

Answer 22

For a large stock dividends, retained earnings is debited for the par value of the additional shares issued. The stock dividend would be recorded as follows on the date of declaration by the board of directors:

Question 23

Common stock that contains an unconditional redemption feature should be reported as ____

Answer 23

should be reported on the issuer’s books as a liability on the date of issuance because there is an obligation of a cash outflow in the future that the company has no ability to prevent.

Question 24

Contingent Shares

Answer 24

Contingent shares (that are dilutive) are included in the calculation of basic earnings per share (EPS) if (and as of the date) all conditions for issuance are met.

Rule: Contingent shares are included in the calculation of basic EPS as of the date all conditions have been satisfied. (In this question, the dates the new outlets were opened.)

Question 25

In computing the weighted-average number of shares outstanding during the year, which of the following midyear events must be treated as if it had occurred at the beginning of the year?

Answer 25

In computing the weighted-average number of shares outstanding for earnings per share (EPS) determination, a stock dividend (or a stock split) to the same class of shareholders must be retroactively recognized and treated as if it had occurred at the beginning of the year.

In addition, EPS for all prior periods presented must be adjusted as though the shares had been outstanding for the entire period presented.

Question 26

EPS disclosures are required for..?

Answer 26

All companies with publicly traded common stock or potential common stock including:

Stock options
Stock warrants
Convertible securities
“Contingent stock” agreement

Question 27

In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt that is dilutive should be?

Answer 27

. Interest expense (net of income tax) on debt considered would be added back to the numerator for diluted EPS if the effects are dilutive.

Question 28

When computing diluted earnings per share, convertible securities are:

Answer 28

Recognized only if they are dilutive

Question 29

Under U.S. GAAP, earnings per share data should be reported on the income statement for?

Answer 29

Both the “extraordinary items” and “income before extraordinary items” should be shown with an earnings per share number on the income statement under U.S. GAAP.

Question 30

All ________ must present earnings per share on ______________ . In a simple capital structure, basic EPS for income from continuing operations and net income are presented. In a complex capital structure, basic and diluted EPS must be presented for income from continuing operations and net income.

Answer 30

All public entities must present earnings per share on the face of the income statement. In a simple capital structure, basic EPS for income from continuing operations and net income are presented. In a complex capital structure, basic and diluted EPS must be presented for income from continuing operations and net income.

Question 31

Income available to common shareholders is determined by deducting dividends declared in the period on non-cumulative preferred stock (regardless of whether they have been paid) and dividends accumulated in the period on cumulative preferred stock (regardless of whether they have been declared).

Answer 31

Income available to common shareholders is determined by deducting dividends declared in the period on non-cumulative preferred stock (regardless of whether they have been paid) and dividends accumulated in the period on cumulative preferred stock (regardless of whether they have been declared).