Exam 3

Question 1

Which of the following account(s) belongs to shareholders’ equity?

Answer 1

All of the above

Question 2

Sources of shareholders’ equity include each of the following except:

Answer 2

Amounts borrowed from financial institutions.

Question 3

If McDonald pays out Apple’s stock as dividends, it is called

Answer 3

Property dividends

Question 4

Firms do NOT make journal entry on the grant date if the stocks granted to employees are

Answer 4

Restricted stock

Question 5

The compensation associated with restricted stock units under a stock award plan is the number of shares represented by the restricted stock units multiplied by the:

Answer 5

market price of an unrestricted share of the same stock.

Question 6

What is the effect of the declaration and subsequent issuance of a 5% stock dividend on each of the following? Retained earnings / Total paid-in capital

Answer 6

decrease / increase

Question 7

When calculating basic earnings per share, net income is reduced by dividends on nonconvertible cumulative preferred stock:

Answer 7

Whether declared or not.

Question 8

When calculating diluted EPS, which of the following, if dilutive, would cause the weighted average number of shares to increase? Dividends on preferred stock / Stock options

Answer 8

No / Yes

Question 9

When calculating earnings per share, the effect of after-tax interest expense paid on convertible bonds that are dilutive is to:

Answer 9

Increase net income for diluted earnings per share and not for basic earnings per share.

Question 10

Chapman Chairs, a family-owned corporation, declared and distributed a property dividend from its overstocked inventory in place of its usual cash dividend. The inventory’s book value exceeded its fair value. The excess is:

Answer 10

Reported as a loss.

Question 11

What is the effect of the declaration and subsequent issuance of a stock split (not effected in the form of a stock dividend) on each of the following? Retained earnings / Total paid-in capital

Answer 11

no effect / no effect

Question 12

Treasury Stock is a(n) ___ account associated with Shareholders’ Equity account.

Answer 12

Contra

Question 13

A company does not make journal entries on which of the following dates?

Answer 13

Date of Record

Question 14

If Boeing company pays out Tesla’s stock as dividends, it is called

Answer 14

Property dividends

Question 15

Which of the following is an example of diluted securities?

Answer 15

All of the above

Question 16

What type of stock options do companies give their employees as part of their compensation?

Answer 16

Call option

Question 17

Earnings per share measures the income earned by each share of ____________.

Answer 17

Common stock

Question 18

Stock-based compensation includes

Answer 18

All of the above.

Question 19

Which of the following has the greatest number of shares for a company?

Answer 19

Authorized shares

Question 20

A company granted 30 million of its $1 par common shares to executives, with a vesting period of three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?

Answer 20

$80 million.

Question 21

Executive stock options are outstanding all year that permit executives to buy 12 million common shares at $50. The average market price of the common stock was $60. When calculating diluted earnings per share, the assumed exercise of these options will increase the weighted average number of shares outstanding by:

Answer 21

2 million shares.

Question 22

Executive stock options are outstanding all year that permit executives to buy 12 million common shares at $60. The average market price of the common stock was $50. When calculating diluted earnings per share, the assumed exercise of these options will increase the weighted average number of shares outstanding by:

Answer 22

zero shares.

Question 23

If Boeing company pays out its own stocks as dividends, it is called

Answer 23

Stock dividends

Question 24

The board of directors of Capstone Inc. declared a $0.40 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 14,000 shares issued, and 5,200 shares held as treasury stock. What is the entry for the dividend declaration?

Answer 24

Retained earnings 3,520 / Cash dividends payable 3,520

Question 25

At the beginning of 2019, Emily Corporation issued 27,000 shares of $100 par, 3%, cumulative, preferred stock for $110 per share. No dividends have been paid to preferred or common shareholders in 2019 or 2020. What amount of dividends will a preferred shareholder owning 100 shares receive in 2021 if Emily pays $1,000,000 in dividends?

Answer 25

$900.

Question 26

On December 31, 2021, the balance sheet of Darwin Corporation included 8 million common shares and 4 million noncumulative preferred shares. On July 1, 2022, Darwin issued a 5 for 2 stock split on its common shares and paid $10 million cash dividends on the preferred stock. Net income for the year ended December 31, 2022, was $40 million. Darwin’s 2022 basic EPS should be:

Answer 26

$1.50.

Question 27

On January 1, 2021, G Corp. granted stock options to key employees for the purchase of 80,000 shares of the company's common stock at $25 per share. The options have a vesting period of two years. The company expects 96% vesting. The fair value of each of the options is $10. What amount should G charge to compensation expense for the year ended on December 31, 2021?

Answer 27

$384,000.

Question 28

FX Services granted 15 million of its $1 par common shares to executives on January 1st 2020, with a vesting period of three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes, what is compensation expense in 2021 as a result of this stock grant?

Answer 28

$40 million.

Question 29

On December 31, 2021 and 2022, Frist Company had outstanding 50 million common shares and 4 million shares of 10%, $10 par cumulative preferred stock. Net income for 2022 was $20 million. No dividends were declared in 2022. EPS for 2022 was:

Answer 29

$0.40.