Treasury Stock is considered to be a(n)

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Question 1 of 20 5.0 Points
Treasury Stock is considered to be a(n) __________ account.

A. asset
B. contra-equity
C. liability
D. revenue
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Mark for Review What’s This?Question 2 of 20 5.0 Points
QUESTIONS 2 THROUGH 4 ARE BASED ON EXHIBIT 4-1.
Exhibit 4-1
The Unicoi Company was formed on January 2, Year 1. The company sold 10,000 shares of $2 par value stock for $5 per share. On July 1, Year 1, Unicoi bought back 2,000 shares of stock for $6 per share. The Treasury Stock was resold on September 1, Year 1, for $8 per share.
Refer to Exhibit 4-1. Which one of the following is the entry to record the original sale of the stock?

A.
B.
C.
D.
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Mark for Review What’s This?Question 3 of 20 5.0 Points
Refer to Exhibit 4-1. Which one of the following is the correct entry to record the purchase of Treasury Stock?

A.
B.
C.
D.
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Mark for Review What’s This?Question 4 of 20 5.0 Points
Refer to Exhibit 4-1. Which one of the following is the correct entry to record the sale of Treasury Stock?

A.
B.
C.
D.
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Mark for Review What’s This?Question 5 of 20 5.0 Points
When a dividend is not declared on preferred stock, and the common shareholders cannot receive a dividend until all past and current dividends are paid to the preferred shareholders, the preferred stock is:

A. cumulative.
B. noncumulative.
C. nonparticipating.
D. participating.
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Mark for Review What’s This?Question 6 of 20 5.0 Points
QUESTIONS 6 AND 7 ARE BASED ON EXHIBIT 4-2.
Exhibit 4-2
Refer to Exhibit 4-2. What is the basic earnings per share for Year 6?
The Vogel Corporation reported net income for Year 6 of $355,000. Vogel began the year with 200,000 shares of $5 par value common shares outstanding and 5,000 shares of $100 par value 8% preferred shares outstanding. On July 1, Vogel sold (issued) 20,000 shares of common stock for $12 per share. Vogel paid dividends to both the common and preferred shareholders in December.

A. $1.43 per share

B. $1.50 per share

C. $1.58 per share

D. $1.61 per share
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Mark for Review What’s This?Question 7 of 20 5.0 Points
Refer to Exhibit 4-2. If each share of preferred stock is convertible into 8 shares of common stock, what is the diluted earnings per share for Year 6?

A. $1.26 per share

B. $1.42 per share

C. $1.58 per share

D. $1.61 per share
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Mark for Review What’s This?Question 8 of 20 5.0 Points
On May 5, 1980, the Marr Company issued a 5-year stock option to the Chief Financial Officer. The option entitled the employee to buy 1,000 shares of stock for $4 per share when the stock was selling for $4 per share. Under APB Opinion No. 25, what is the compensation expense to be recorded by Marr in total over the 5-year vesting period?

A. $0

B. $1,000

C. $2,000

D. $4,000
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Mark for Review What’s This?Question 9 of 20 5.0 Points
Over the vesting period for employee stock options, SFAS No. 123 requires that the entire compensation expense be recognized:

A. equally in each year of the vesting period.

B. in the first year of the vesting period.

C. in the last year of the vesting period.

D. only if the options are exercised.
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Mark for Review What’s This?Question 10 of 20 5.0 Points
By using the book value method to record the conversion of convertible bonds, managers are able to protect themselves from recording:

A. extraordinary gains.

B. extraordinary losses.

C. miscellaneous profits.

D. ordinary losses.
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Mark for Review What’s This?Question 11 of 20 5.0 Points
Which of the following does not accurately describe the proprietary view of the firm?

A. Its focus is on the firm’s net assets.

B. It is the prevailing view of GAAP.

C. Its focus is on owners’ equity.

D. Whether creditors or shareholders provided the firm’s assets is irrelevant.
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Mark for Review What’s This?Question 12 of 20 5.0 Points
Cash dividends paid by a corporation:

A. are an expense of the corporation that declared the dividend.

B. reduces the net income of the corporation that declared the dividend.

C. reduces the retained earnings of the corporation that declared the dividend.

D. reduces the retained earnings of the corporation.
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Mark for Review What’s This?Question 13 of 20 5.0 Points
Treasury stock is reported within the balance sheet as:

A. a long-term investment.

B. a short-term investment.

C. an account contra to retained earnings.

D. an account contra to owners’ equity.
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Mark for Review What’s This?Question 14 of 20 5.0 Points
Shareholders who sell back shares of the company stock as treasury stock are:

A. not taxed.

B. taxed at ordinary rates.

C. taxed at capital gains rates.

D. subject to tax penalties.
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Mark for Review What’s This?Question 15 of 20 5.0 Points
Financial analysts should always review stock repurchase plans carefully because:

A. the plans always produce above-market returns.

B. the plans usually produce above-market returns.

C. it is important to determine the reasons for the buyback.

D. the plans are always beneficial to the shareholders.
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Mark for Review What’s This?Question 16 of 20 5.0 Points
Companies with a history of net operating losses are prone to issue which one of the following to raise money?

A. Debenture bonds

B. Serial bonds

C. Preferred stock

D. Notes payable
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Mark for Review What’s This?Question 17 of 20 5.0 Points
When a publicly traded company issues both common stock and preferred stock, the SEC requires that:

A. preferred and common stock be combined in the equity section.

B. preferred and common stock be clearly differentiated on the balance sheet.

C. all preferred stock be shown as a liability.

D. mandatorily redeemable preferred stock be shown as a liability.
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Mark for Review What’s This?Question 18 of 20 5.0 Points
A 3 for 1 stock split will reduce the per share par value and will:

A. decrease the number of shares proportionately.

B. decrease earnings per share.

C. increase owners’ equity.

D. increase the total par value of the common stock.
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Mark for Review What’s This?Question 19 of 20 5.0 Points
The denominator used in the calculation of basic earnings per share is the:

A. number of common shares outstanding at the end of the year.

B. number of preferred shares outstanding at the end of the year.

C. weighted average number of common shares outstanding during the year.

D. weighted average number of common shares and preferred shares outstanding during the year.
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Mark for Review What’s This?Question 20 of 20 5.0 Points
A company that has earnings in Year 2 equal to the earnings of Year 1 can improve its Year 2 reported earnings per share by:

A. selling additional common stock.

B. selling additional preferred stock.

C. selling shares of treasury stock at a price exceeding what was paid for the treasury stock.

D. purchasing shares of treasury stock.

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