Question1. For a compensatory stock option plan for which the date of grant and

1. For a compensatory stock option plan for which the date of grant and measurement date are the same, compensation cost should be recognized in the income statement

a. At the date of retirement

b. Of each period in which services are rendered

c. At the exercise date

d. At the adoption date of the plan

2. Payment of a dividend in stock

a. Increases the current ratio

b. Decreases the amount of working capital

c. Increases total stockholders’ equity

d. Decreases book value per share of stock outstanding

3. The directors of Corel Corporation, whose $40 par value common stock is currently selling at $50 per share, have decided to issue a stock dividend. The corporation has an authorization for 200,000 shares of common, has issued 110,000 shares of which 10,000 shares are now held as treasury stock, and desires to capitalize $400,000 of the retained earnings balance. To accomplish this, the percentage of stock dividend that the directors should declare is

a. 10

b. 8

c. 5

d. 2

4. When a stock dividend is small, for example a 10% stock dividend,

a. Retained earnings is not reduced because the dividend is immaterial .

b. Retained earnings is reduced by the fair value of the stock.

c. Retained earnings is reduced to the par value of the stock.

d. Paid-in capital in excess of par value is unaffected.

5. The par value method of reporting a treasury stock transaction

a. Will be reported in the balance sheet as a reduction of total stockholders’ equity.

b. Results in no change to total stockholders’ equity.

c. Results in a reduction in the number of shares that are available to be sold to prospective investors.

d. Assumes constructive retirement of the treasury shares.

6. On December 31, 2010, when the Conn Company’s stock was selling at $36 per share, its capital accounts were as follows

Capital stock (par value $20,

100,000 shares issued) $2,000,000

Premium on capital stock 800,000

Retained Earnings 4,550,000

If a 100 percent stock dividend were declared and the par value per share remained at

$20

a. No entry would need to be made to record the dividend

b. Capital stock would increase to $5,600,000

c. Capital stock would increase to $4,000,000

d. Total capital would decrease

7. A company has not paid dividends on its cumulative nonvoting preferred stock for 20 years.

Healthy earnings have been reported each year, but they have been retained to support the growth of the company. The board of directors appropriately authorized management to offer the preferred shareholders an exchange of bonds and common stock for all the preferred stock. The exchange is about to be consummated. Which of the following best describes the effect of the exchange on the company?

a. The statute of limitations applies; hence, cumulative dividends of only seven years need to be paid on the preferred stock exchanged.

b. The company should record an extraordinary gain for income determination purposes to the extent that dividends in arrears do not have to be paid in the exchange transaction.

c. Gain or loss should be recognized on the exchange by the company, and the exchange would have to be approved by the Securities and Exchange Commission.

d. Regardless of the market value of the bonds and common stock, no gain or loss should be recognized by the company on the exchange, and no dividends need to be paid on the preferred stock exchanged.

8. A restriction of retained earnings is most likely to be required by the

a. Exhaustion of potential benefits of the investment credit

b. Purchase of treasury stock

c. Payment of last maturing series of a serial bond issue

d. Amortization of past service costs related to a pension plan

9. A feature common to both stock splits and stock dividends is

a. A reduction in total capital of a corporation

b. A transfer from earned capital to paid-in capital

c. A reduction in book value per share

d. Inclusion in conventional statement of source and application of funds

10. Assuming the issuing company has only one class of stock, a transfer from retained earnings to capital stock equal to the market value of the shares issued is ordinarily a characteristic of

a. Either a stock dividend or a stock split

b. Neither a stock dividend nor a stock split

c. A stock split but not a stock dividend

d. A stock dividend but not a stock split

11. When a stock option plan for employees is compensatory, the measurement date for determining compensation cost is the

a. Date the option plan is adopted, provided it precedes the date on which the options may first be exercised by less than one operating cycle

b. Date on which the options may first be exercised (if the first actual exercise is within the same operating period) or the date on which a recipient first exercises any of his options

c. First date on which are known both the number of shares than an individual employee is entitled to receive and the option or purchase price, if any

d. Date each option is granted

12. As a minimum, how large in relation to total outstanding shares may a stock distribution be before it should be accounted for as a stock split instead of a stock dividend?

a. No less than 2 to 5 percent

b. No less than 10 to 15 percent

c. No less than 20 to 25 percent

d. No less than 45 to 50 percent

13. The dollar amount of total stockholders’ equity remains the same when there is a (an)

a. Issuance of preferred stock in exchange for convertible debentures

b. Issuance of nonconvertible bonds with detachable stock purchase warrants

c. Declaration of a stock dividend

d. Declaration of a cash dividend

14. A company with a substantial deficit undertakes a quasi-reorganization. Certain assets will be written down to their present fair market value. Liabilities will remain the same. How would the entries to record the quasi-reorganization affect each of the following?

Contributed Capital Retained Earnings

a. Increase Decrease

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