Acc 423 final exam | Accounting homework help




1) When convertible debt is retired by the issuer, any material difference between the cash acquisition price and

the carrying amount of the debt should be



A.  reflected currently in income, but NOT as an extraordinary item.


B.  treated as an adjustment of additional paid-in capital.


C.  reflected currently in income as an extraordinary item.


D.  treated as a prior period adjustment.



2) The conversion of preferred stock may be recorded by the



A.  incremental method.


B.  par value method.


C.  book value method.


D.  market value method.



3) The conversion of preferred stock into common stock requires that any excess of the par value of the common shares

 issued over the carrying amount of the preferred being converted should be



A.  reflected currently in income, but NOT as an extraordinary item.


B.  treated as a direct reduction of retained earnings.


C.  reflected currently in income as an extraordinary item.


D.  treated as a prior period adjustment.



4) When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the


A.  market value of the services received.


B.  Any of these provides an appropriate basis for recording the transaction.


C.  par value of the shares issued.


D.  market value of the shares issued.



5) The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable

method of allocation is the



A.  pro forma method.


B.  either the proportional method or the incremental method.


C.  proportional method.


D.  incremental method.



6) Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?



A.  authorized shares


B.  outstanding shares


C.  issued shares


D.  unissued shares



7) Wilson Corp. purchased its own par value stock on January 1, 2007 for $20,000 and debited the treasury stock account for the purchase price.

The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from



A.  additional paid-in capital to the extent that previous net “gains” from sales of the same class of stock are included therein; otherwise,

 from retained earnings.


B.  net income.


C.  additional paid-in capital without regard as to whether or NOT there have been previous net “gains” from sales of the same class of

stock included therein.


D.  retained earnings.



8) How should a “gain” from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?



A.  As ordinary earnings shown on the income statement.


B.  As an extraordinary item shown on the income statement.


C.  As paid-in capital from treasury stock transactions.


D.  As an increase in the amount shown for common stock.



9) In January 2007, Castro Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2007,

Castro Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares



A.  decreased total stockholders’ equity.


B.  decreased the number of issued shares.


C.  increased total stockholders’ equity.


D.  did NOT change total stockholders’ equity.



10) 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 then be added as an adjustment

 the numerator (net earnings)?



A.  Annual preferred dividend


B.  Annual preferred dividend divided by the income tax rate


C.  Annual preferred dividend times (one minus the income tax rate)


D.  Annual preferred dividend times the income tax rate



11) In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition

of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the

computation would



A.  fairly present diluted earnings per share on a prospective basis.


B.  be antidilutive.


C.  fairly present the maximum potential dilution of diluted earnings per share on a prospective basis.


D.  reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of

earnings per share.



12) When computing diluted earnings per share, convertible bonds are


A.  ignored.


B.  assumed converted whether they are dilutive or antidilutive.


C.  assumed converted only if they are antidilutive.


D.  assumed converted only if they are dilutive.



13) Palmer Corp. owned 20,000 shares of Dixon Corp. purchased in 2003 for $240,000. On December 15, 2006, Palmer declared a property dividend

of all of its Dixon Corp. shares on the basis of one share of Dixon for every 10 shares of Palmer common stock held by its stockholders. The property

dividend was distributed on January 15, 2007. On the declaration date, the aggregate market price of the Dixon shares held by Palmer was $400,000.

The entry to record the declaration of the dividend would include a debit to Retained Earnings of



A.  $0.


B.  $160,000.


C.  $240,000.


D.  $400,000.



14) On December 31, 2006, the stockholders’ equity section of Clark, Inc., was as follows: Common stock, par value $10; authorized 30,000 shares. 



Issued and outstanding 9,000 shares

$ 90,000

Additional paid-in capital


Retained earnings


Total stockholders’ equity



On March 31, 2007, Clark declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair market value of

the stock was $18 per share. For the three months ended March 31, 2007, Clark sustained a net loss of $32,000. The balance of Clark’s retained

earnings as of March 31, 2007, should be



A.  $125,800.


B.  $133,000.


C.  $134,800.


D.  $142,000.



15) A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? 

Additional Paid-in Capital | Retained Earnings



A.  Decrease | No effect


B.  Decrease | Decrease


C.  No effect | Decrease


D.  No effect | No effec

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