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Date Created: 11/11/15
l Proceeds from an issue of debt securities having stock warrants should NOT be allocated between debt and equity features when A the allocation would result in a discount on the debt security g the warrants issued with the debt securities are nondetachable C exercise of the warrants within the next few fiscal periods seems remote D the market value of the warrants is NOT readily available 2 The conversion of preferred stock may be recorded by the market value method par value method book value method incremental method COP 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 treated as a prior period adjustment B treated as a direct reduction of retained earnings C re ected currently in income as an extraordinary item D re ected currently in income but NOT as an extraordinary item 4 A primary source of stockholders39 equity is Acontributions by stockholders B both income retained by the corporation and contributions by stockholders C appropriated retained earnings Dincome retained by the corporation 5 Stockholders39 equity is generally classified into two major categories retained earnings and unappropriated capital earned capital and contributed capital appropriated capital and retained earnings contributed capital and appropriated capital COP 6 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 shares issued B Any of these provides an appropriate basis for recording the transaction C par value of the shares issued D market value of the services received 7 Treasury shares are shares held as an investment by the treasurer of the corporation issued but NOT outstanding shares shares held as an investment of the corporation issued and outstanding shares UOPUDgt 8 quotGainsquot on sales of treasury stock using the cost method should be credited to paidin capital from treasurv stoclg other income C capital stock D retained earnings w 9 How should a quotgainquot from the sale of treasury stock be re ected 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 paidin capital from treasury stock transactions D As an increase in the amount shown for common stock 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 to 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 When computing diluted earnings per share convertible bonds are ignored assumed converted only if they are dilutive assumed converted whether they are dilutive or antidilutive assumed converted only if they are antidilutive COP 12 What effect will the acquisition of treasury stock have on stockholders39 equity and earnings per share respectively A Decrease and no effect B Increase and decrease C Increase and no effect D Decrease and increase 13 On May 1 2007 Kent Corp declared and issued a 10 common stock dividend Prior to this dividend Kent had 100000 shares of 1 par value common stock issued and outstanding The fair value of Kent 39s common stock was 20 per share on May 1 2007 As a result of this stock dividend Kent39s total stockholders39 equity A did NOT change B increased by 200000 C decreased by 10000 D decreased by 200000 14 How would the declaration and subsequent issuance of a 10 stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock Additional Common Stock Paid in Capital Increase Increase No effect I No effect Increase No effect No effect Increase GDP 15 At its date of incorporation Wilson Inc issued 100000 shares of its 10 par common stock at 11 per share During the current year Wilson acquired 20000 shares of its common stock at a price of 16 per share and accounted for them by the cost method Subsequently these shares were reissued at a price of 12 per share There have been no other issuances or acquisitions of its own common stock What effect does the reissuance of the stock have on the following accounts Retained Earnings Additional Paid in Capital No effect I No effect Decrease Decrease Decrease No effect No effect I Decrease COP 16 Which of the following is correct about the effective interest method of amortization A The effectiveinterest method produces a constant rate of return on the bool value of the investment from period to period BThe effective interest method applied to investments in debt securities is different from that applied to bonds payable CAmortization of a premium decreases from period to period Amortization of a discount decreases from period to period 17 An unrealized holding loss on a company39s available for sale securities should be re ected in the current financial statements as A other comprehensive income and deducted in the equitv section of the balance M Ban extraordinary item shown as a direct reduction from retained earnings Ca note or parenthetical disclosure only a current loss resulting from holding securities 18 An unrealized holding gain on a company39s available for sale securities should be re ected in the current financial statements as A other comprehensive income and included in the equity section of the balance M Ban extraordinary item shown as a direct increase to retained earnings Ca note or parenthetical disclosure only a current gain resulting from holding securities 19 Investments in debt securities should be recorded on the date of acquisition at A face value plus brokerage fees and other costs incident to the purchase B lower of cost or market C Met value plus brokerage fees and other costs incident to the purchase D market value 20 Securities which could be classified as held to maturity are warrants redeemable preferred stock municipal bonds treasury stock COP 21 Which of the following is NOT a debt security A Commercial paper B Convertible bonds C Loans receivable D All of these are debt securities 22 An investor has a long term investment in stocks Regular cash dividends received by the investor are recorded as Fair Value Method Equity Method A A reduction of the investment I A reduction of the investment B Income Income Q Income A reduction of the investment D A reduction of the investment Income 23 When a company holds between 20 and 50 of the outstanding stock of an investee which of the following statements applies The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise quotsignificant influencequot over the investee BThe investor should always use the equity method to account for its investment The investor must use the fair value method unless it can clearly demonstrate the 39ability to exercise quotsignificant in uencequot over the investee The investor should always use the fair value method to account for its investment 24 Bista Corporation declares and distributes a cash dividend that is a result of current earnings How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods Fair Value Method Equity Method Increase Decrease N0 Effect Decrease No Effect No Effect Decrease No Effect COP 25 Debt securities that are accounted for at amortized cost NOT fair value are trading debt securities heldtomaturity debt securities C available for sale debt securities D never sell debt securities w 26 Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders39 equity are Atrading securities where a company has holdings of less than 20 availableforsale securities where a company has holdings of less than 20 C securities where a company has holdings of between 20 and 50 Dsecurities where a company has holdings of more than 50 27 Use of the effective interest method in amortizing bond premiums and discounts results in A a smaller amount of interest income over the life of the bond issue than would result from use of the straightline method B a greater amount of interest income over the life of the bond issue than would result from use of the straight line method C a varying amount being recorded as interest income from period to period D a variable rate of return on the book value of the investment 28 All of the following are Characteristics of a derivative financial instrument EXCEPT the instrument A All of these are Characteristics B has one or more underlyings and an identified payment provision Q requires a large investment at the inception of the contract D requires or permits net settlement 29 The accounting for fair value hedges records the derivative at its historical cost amortized cost carrying value fair value POP 30 All of the following statements regarding accounting for derivatives are correct EXCEPT that A gains and losses resulting from hedge transactions are reported in different ways depending upon the type of hedge Bthey should be recognized in the financial statements as assets and liabilities Cthey should be reported at fair value D gains and losses resulting from speculation should be deferred
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