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quiz_16.docxChapter 16 QUIZ—Contributed Capital
MULTIPLE CHOICE
QUESTION # 1
1. The corporate form of organization is important to the U.S. economy because
|
a. |
there are more corporations than sole proprietorships |
|
b. |
there are more corporations than partnerships |
|
c. |
there are more sales of goods and services by corporations than other business forms |
|
d. |
corporations provide more donations to the economy than other business forms due to the many tax incentives geared toward corporations |
QUESTION # 2
3. Which of the following is not a characteristic of the corporate form of business entity?
|
a. |
It is a separate legal entity. |
|
b. |
Owners have unlimited liability. |
|
c. |
It has an indefinite life span. |
|
d. |
Owners often are not an active part of management. |
QUESTION # 3
8. Smooth Corp. has both Class A and Class B shares of common stock. The difference between the two classes of stock is most likely related to
|
a. |
Class A stock being worth more than Class B stock |
|
b. |
Class A shareholders having greater voting rights than Class B shareholders |
|
c. |
Class A shareholders receiving dividends while Class B shareholders do not |
|
d. |
Class A shareholders having better preemptive rights than Class B shareholders |
QUESTION # 4
9. Shares of capital stock issued to and held by stockholders as of a specific date are
|
|
Authorized |
Issued |
Outstanding |
|
|
Capital Stock |
Capital Stock |
Capital Stock |
|
I. |
Yes |
Yes |
No |
|
II. |
Yes |
Yes |
Yes |
|
III. |
No |
No |
Yes |
|
IV. |
No |
No |
No |
|
a. |
I |
|
b. |
II |
|
c. |
III |
|
d. |
IV |
QUESTION # 5
10. Which one of the following equations is accurate?
|
a. |
Treasury stock = Authorized stock Issued stock |
|
b. |
Treasury stock = Outstanding stock Subscribed stock |
|
c. |
Treasury stock = Authorized stock Outstanding stock |
|
d. |
Treasury stock = Issued stock Outstanding stock |
QUESTION # 6
12. Which of the following is not part of the stockholders' equity section of the balance sheet?
|
a. |
working capital |
|
b. |
contributed capital |
|
c. |
treasury stock |
|
d. |
retained earnings |
QUESTION # 7
14. A preemptive right is
|
a. |
the right to vote in the election of directors and to establish corporate policies |
|
b. |
the right to share in the profits when a dividend is declared |
|
c. |
the right to maintain a proportionate interest in the ownership of the corporation by purchasing a proportionate share of additional capital stock should such stock be issued |
|
d. |
the right to share in the distribution of the assets of the corporation should it be liquidated |
QUESTION # 8
18. If a company has 30,000 shares of treasury stock, 120,000 shares outstanding, and 500,000 shares authorized, how many shares are issued?
|
a. |
500,000 |
|
b. |
150,000 |
|
c. |
120,000 |
|
d. |
90,000 |
QUESTION # 9
20. A corporation is a legal entity
|
a. |
in conjunction with its owners |
|
b. |
separate from its owners |
|
c. |
formed by the laws of the U.S. Department of Commerce |
|
d. |
under the laws established by the SEC |
Exhibit 16-1
Hanson Co. issued 10,000 shares of its $5 par common stock for $15 a share. In addition, it incurred legal and accounting fees, stock certificate costs, and other related expenses totaling $8,500.
QUESTION # 10
22. Refer to Exhibit 16-1. Assume the sale was the initial issuance of stock at incorporation for Hanson Co. The entry to record the sale would include a
|
a. |
debit to Cash for $150,000 |
|
b. |
credit to Common Stock for $150,000 |
|
c. |
debit to Organization Expense for $8,500 |
|
d. |
credit to Additional Paid-in Capital on Common Stock for $91,500 |
QUESTION # 11
23. Refer to Exhibit 16-1. Assume the sale occurred after the initial issuance at incorporation. The entry to record the sale and related expenses would include a
|
a. |
credit to Additional Paid-in Capital on Common Stock for $91,500 |
|
b. |
credit to Organization Expense for $8,500 |
|
c. |
credit to Common Stock for $150,000 |
|
d. |
debit to Cash for $150,000 |
QUESTION # 12
28. When common stock is issued at an amount greater than par value, the difference between the par value and the proceeds from the sale is recorded by
|
a. |
crediting the common stock account |
|
b. |
debiting an additional paid-in capital account |
|
c. |
crediting the retained earnings account |
|
d. |
crediting an additional paid-in capital account |
QUESTION # 13
29. A corporation acquired a copyright by issuing 1,000 shares of $10 par common stock. At the time of the exchange, the stock was selling for $40 per share. The copyright had a carrying value of $8,000 to the author. The purchasing corporation should assign to the copyright a value of
|
a. |
$ 8,000 |
|
b. |
$10,000 |
|
c. |
$32,000 |
|
d. |
$40,000 |
QUESTION # 14
32. What account should be debited when stock issuance costs are associated with the initial issuance of stock at incorporation?
|
a. |
Organization Expense |
|
b. |
Additional Paid-in Capital |
|
c. |
Organization Costs |
|
d. |
Unrealized Capital |
QUESTION # 15
33. When existing corporations issue stock, costs such as legal fees and underwriter's fees are usually accounted for as
|
a. |
organization expenses |
|
b. |
reduction of Additional Paid-in Capital |
|
c. |
organizational costs |
|
d. |
reduction of Retained Earnings |
QUESTION # 16
37. Werling Co. had 10,000 shares of $8 par common stock outstanding just prior to a stock split. The stock was split two-for-one and the par value was reduced to $3. Which entry correctly records this stock split?
|
a. |
Common Stock, $8 par 80,000 Common Stock, $3 par 80,000 |
|
b. |
Common Stock, $8 par 80,000 Common Stock, $3 par 60,000 Additional Paid-in Capital from Stock Split 20,000 |
|
c. |
Common Stock, $8 par 80,000 Common Stock, $3 par 60,000 Gain on Stock Split 20,000 |
|
d. |
Common Stock, $8 par 80,000 Common Stock, $3 par 60,000 Capital Surplus 20,000 |
QUESTION # 17
38. A noncompensatory stock option plan is designed to
|
a. |
provide additional compensation to key officers and employees within the corporation |
|
b. |
obtain more widespread employee ownership of the corporate stock |
|
c. |
raise additional capital for the firm |
|
d. |
obtain more widespread employee ownership or to raise additional capital for the firm |
QUESTION # 18
47. When stock options are exercised by an employee under a compensatory stock option plan, the issuance of the common stock is recorded at the
|
a. |
amount of cash received |
|
b. |
amount of cash received less the previously recorded value of the warrants received |
|
c. |
amount of cash received plus the previously recorded value of the warrants received |
|
d. |
market price minus the stock option price |
QUESTION # 19
49. The measurement date of an employee compensatory stock option plan under the intrinsic value method is
|
a. |
the date the number of shares and option price are known |
|
b. |
the date of the grant |
|
c. |
the date of the plan |
|
d. |
the date any shares are issued |
QUESTION # 20
52. When using the preferred approach to account for a compensatory stock option plan, the total compensation cost is the
|
a. |
fair value per option times the number of options issued |
|
b. |
fair value per option times the number of options that actually become vested |
|
c. |
fair value per option times an estimate, at the grant date, of the number of options expected to be deferred |
|
d. |
fair value per option times the number of options expired |
QUESTION # 21
54. On January 1, 2010, Wilson Corporation granted Emelia Walker, its president, a compensatory stock option plan to purchase 8,000 shares of Wilson's $10 par common stock. The option price is $25 per share and the option has a fair value of $7 per option, which is exercisable on January 1, 2014, after four years of service. How much compensation expense should Wilson recognize on December 31, 2010?
|
a. |
$ 0 |
|
b. |
$14,000 |
|
c. |
$56,000 |
|
d. |
$80,000 |
Exhibit 16-3
On January 1, 2010, Hilltop, Inc. granted to a key executive a fixed compensatory option plan for 1,000 shares of $4 par common stock for $30 a share. The fair value per option on that date was $12 per option. The service period extended through December 31, 2011.
QUESTION # 22
55. Refer to Exhibit 16-3. What entry, if any, was required on December 31, 2010?
|
a. |
no entry was necessary |
|
b. |
Compensation Expense 12,000 Common Stock Option Warrants 12,000 |
|
c. |
Compensation Expense 6,000 Common Stock Option Warrants 6,000 |
|
d. |
Compensation Expense 9,000 Deferred Compensation 9,000 |
QUESTION # 23
56. Refer to Exhibit 16-3. Which balance sheet disclosure would be correct at December 31, 2010?
|
a. |
Stockholders' equity: Common stock option warrants $ 6,000 |
|
b. |
Liabilities: Employee stock option plan $ 6,000 |
|
c. |
Stockholders' equity: Common stock option warrants $ 6,000 Less: Deferred compensation 6,000 $12,000 |
|
d. |
footnote disclosure only |
Exhibit 16-5
On January 1, 2010, Roberto Company adopts a compensatory stock option plan and grants 40 executives 1,000 shares each at $30 a share. The fair value per option is $7 on the grant date. The company estimates that its annual employee turnover rate during the service period of three years will be 4%.
QUESTION # 24
62. Refer to Exhibit 16-5. The journal entry to record compensation expense for 2010 will be (Round off any turnover calculations to three decimal places.)
|
a. |
Compensation Expense 247,726 Common Stock Option Warrants 247,726 |
|
b. |
Compensation Expense 82,575 Common Stock Option Warrants 82,575 |
|
c. |
Compensation Expense 91,467 Common Stock Option Warrants 91,467 |
|
d. |
Compensation Expense 93,333 Common Stock Option Plan 93,333 |
QUESTION # 25
63. Refer to Exhibit 16-5. At the end of 2011, the company estimates that the employee turnover will be 5% a year for the entire service period. The compensation expense for 2011 will be (Round off turnover calculations to three decimal places and answer to the nearest dollar.)
|
a. |
$ 77,468 |
|
b. |
$ 80,022 |
|
c. |
$ 82,575 |
|
d. |
$160,043 |
QUESTION # 26
69. For a stock appreciation rights (SAR) compensation plan, the measurement date is the date
|
a. |
on which the options (SARs) are granted to the employees |
|
b. |
when the employees may first exercise the options (SARs) |
|
c. |
on which the options (SARs) are exercised |
|
d. |
of the adoption of the plan |
QUESTION # 27
70. The accounting method that is used for stock appreciation rights (SARs) compensation plans is similar to the accounting procedures that can be used for
|
a. |
fixed compensatory stock option plans |
|
b. |
performance-based stock option plans |
|
c. |
noncompensatory stock option plans |
|
d. |
both fixed compensatory and performance-based stock option plans |
Exhibit 16-8
On January 1, 2010, Marietta Company granted stock appreciation rights (SARs) to the president, which permitted her to receive cash or stock for the difference between the quoted market price and $50 for 2,000 shares of the company's stock on the exercise date. The service period ends on December 31, 2012, and the rights must be exercised by December 31, 2015. Assume that on December 31, 2013, the president exercises all of her rights and receives cash. Using an options pricing model, the estimated fair values of the SARs were as follows:
|
January 1, 2010 |
$10 |
|
December 31, 2010 |
15 |
|
December 31, 2011 |
20 |
|
December 31, 2012 |
19 |
|
December 31, 2013 |
23 |
QUESTION # 28
72. Refer to Exhibit 16-8. What is the compensation expense related to the SARs for the year ending December 31, 2010?
|
a. |
$ 3,333 |
|
b. |
$10,000 |
|
c. |
$30,000 |
|
d. |
$33,333 |
QUESTION # 29
73. Refer to Exhibit 16-8. What is the compensation expense related to the SARs for the year ending December 31, 2011?
|
a. |
$13,333 |
|
b. |
$16,667 |
|
c. |
$26,667 |
|
d. |
$40,000 |
QUESTION # 30
77. Which of the following methods should be used to account for the conversion of preferred stock to common stock?
|
|
Book Value |
Market Value |
|
I. |
Yes |
No |
|
II. |
Yes |
Yes |
|
III. |
No |
Yes |
|
IV. |
No |
No |
|
a. |
I |
|
b. |
II |
|
c. |
III |
|
d. |
IV |
QUESTION # 31
79. Lopez, Inc. issued 500 shares of $50 par value convertible preferred stock at $80 a share. Each preferred share may be converted to 6 shares of $10 par common stock. The entry to record the conversion of all shares would include a
|
a. |
debit to Preferred Stock for $30,000 |
|
b. |
debit to Additional Paid-in Capital on Preferred Stock for $40,000 |
|
c. |
credit to Common Stock for $25,000 |
|
d. |
credit to Additional Paid-in Capital from Preferred Stock Conversion for $10,000 |
QUESTION # 32
82. Mercury Corp. has 10,000 shares of $10 par, cumulative, 6% preferred stock and 10,000 shares of common stock outstanding since being organized at the beginning of 2010. It declared its first dividend of $40,000 at the end of 2012. This means that
|
a. |
all of the $40,000 dividends available are paid to the preferred stockholders |
|
b. |
all of the $40,000 dividends available are paid to the common stockholders |
|
c. |
an equal dollar amount is paid to each class of shareholder |
|
d. |
3 years' worth of dividends will be paid to preferred stockholders prior to paying anything to common stockholders |
QUESTION # 33
84. The preference to dividends that preferred stockholders have is
|
a. |
the right to receive the appropriate dividend before common stockholders are paid any dividends when dividends are declared |
|
b. |
the right to accumulate dividends that have not been declared |
|
c. |
the right to share dividends equally with common stockholders when dividends are declared |
|
d. |
the right to be paid a minimum dividend each year |
QUESTION # 34
89. Wang Corporation issued 8,000 shares of $50 par preferred stock at $74 a share. A stock warrant attached to each preferred share allows the holder to buy one share of $10 par common stock for $20. Right after issuance, the preferred stock sells ex-rights for $63 per share. The warrants began selling at $7 per warrant. The amount credited to Common Stock Warrants at issuance of the preferred stock is
|
a. |
$ 0 |
|
b. |
$ 56,000 |
|
c. |
$ 59,200 |
|
d. |
$160,000 |
QUESTION # 35
91. All of the following would appear in the contributed capital section of stockholders' equity on the balance sheet except
|
a. |
additional paid-in capital from stock conversions |
|
b. |
retained earnings |
|
c. |
stock warrants and options |
|
d. |
stock dividends to be distributed |
QUESTION # 36
92. The following information is provided for Murphy Corporation:
|
Common stock, $10 par |
$340,000 |
|
Bonds payable |
28,000 |
|
Additional paid-in capital from conversion of preferred |
|
|
stock into common |
3,000 |
|
Retained earnings |
100,000 |
|
Additional paid-in capital on preferred stock |
10,000 |
|
Common stock subscribed |
30,000 |
|
Unrealized capital |
5,600 |
|
Premium on bonds payable |
2,000 |
|
Preferred stock, 6%, $100 par |
80,000 |
What is the amount of contributed capital for Murphy Corporation?
|
a. |
$430,000 |
|
b. |
$433,000 |
|
c. |
$463,000 |
|
d. |
$468,600 |
QUESTION # 37
93. The following information is provided for Spring Company:
|
Retained earnings |
$ 35,000 |
|
Preferred stock, 5%, $50 par |
100,000 |
|
Organization expense |
2,500 |
|
Premium on common stock |
? |
|
Additional paid-in capital from recall of preferred stock |
1,000 |
|
Premium on bonds payable |
3,000 |
|
Common stock, $10 par |
300,000 |
If total contributed capital is $406,000, what is the amount of premium on common stock for Spring Company?
|
a. |
$2,500 |
|
b. |
$3,500 |
|
c. |
$5,000 |
|
d. |
$6,000 |
|
e. |
none of these |
QUESTION # 38
98. Under the cost method of accounting for treasury stock transactions, when the proceeds from a sale are greater than the cost, the excess over cost is treated as a(n)
|
a. |
increase in Other Expenses from Treasury Stock Sales |
|
b. |
increase in Additional Paid-in Capital from Treasury Stock |
|
c. |
increase in a contra-stockholders' equity account |
|
d. |
increase in Additional Paid-in Capital on Common Stock |
|
e. |
none of these |
QUESTION # 39
107. The accounting method required for share-based compensation arrangements is
|
|
Under IFRS |
Under GAAP |
|
I. |
intrinsic method |
intrinsic method |
|
II. |
intrinsic method |
fair value method |
|
III. |
fair value method |
intrinsic method |
|
IV. |
fair value method |
fair value method |
|
a. |
I |
|
b. |
II |
|
c. |
III |
|
d. |
IV |
QUESTION # 40
108. Which set of accounting principles directly uses the term "reserve"?
|
a. |
Both IFRS and GAAP |
|
b. |
GAAP but not IFRS |
|
c. |
IFRS but not GAAP |
|
d. |
neither IFRS nor GAAP |
QUESTION # 41
109. Under IFRS, owners' equity is subdivided into which of the following classifications in addition to capital stock and additional paid-in capital?
|
a. |
reserves and accumulated profits and losses |
|
b. |
retained earnings and reserves |
|
c. |
retained earnings and accumulated profits and losses |
|
d. |
accumulated profits and losses only |
16-1
