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Stockholders Equity

Stockholders Equity MCQs

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East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of legal services performed. Howe usually bills $160...

$135,000
$140,000
$155,000
$160,000

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On July 1, year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 pa...

$75,000
$65,000
$55,000
$45,000

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Beck Corp. issued 200,000 shares of common stock when it began operations in year 1 and issued an additional 100,000 shares in year 2. Beck also iss...

400,000
325,000
300,000
225,000

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A corporation was organized in January year 1 with authorized capital of $10 par value common stock. On February 1, year 1, shares were issued at pa...

Yes No
Yes Yes
No No
No Yes

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During year 1, Brad Co. issued 5,000 shares of $100 par convertible preferred stock for $110 per share. One share of preferred stock can be converte...

$375,000 $175,000
$375,000 $225,000
$500,000 $ 50,000
$600,000 $0

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Quoit, Inc. issued preferred stock with detachable common stock warrants. The issue price exceeded the sum of the warrants� fair value and the prefe...

Total proceeds.
Excess of proceeds over the par value of the preferred stock.
The proportion of the proceeds that the warrants� fair value bears to the preferred stock�s par value.
The fair value of the warrants.

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Blue Co. issued preferred stock with detachable common stock warrants at a price that exceeded both the par value and the market value of the prefer...

Yes No
Yes Yes
No No
No Yes

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When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should b...

No par common stock.
Additional paid-in capital when the subscription is recorded.
Additional paid-in capital when the subscription is collected.
Additional paid-in capital when the common stock is issued.

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On December 1, year 1, shares of authorized common stock were issued on a subscription basis at a price in excess of par value. A total of 20% of th...

Common stock issued for 20% of the par value of the shares of common stock subscribed.
Common stock issued for the par value of the shares of common stock subscribed.
Common stock subscribed for 80% of the par value of the shares of common stock subscribed.
Common stock subscribed for the par value of the shares of common stock subscribed.

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Cyan Corp. issued 20,000 shares of $5 par common stock at $10 per share. On December 31, year 1, Cyan�s retained earnings were $300,000. In March ye...

$360,000
$365,000
$375,000
$380,000

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At December 31, year 1, Rama Corp. had 20,000 shares of $1 par value treasury stock that had been acquired in year 1 at $12 per share. In May year 2...

$ 5,000
$10,000
$60,000
$90,000

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Victor Corporation was organized on January 2, year 1, with 100,000 authorized shares of $10 par value common stock. During year 1 Victor had the fo...

$0
$ 5,000
$15,000
$20,000

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Victor Corporation was organized on January 2, year 1, with 100,000 authorized shares of $10 par value common stock. During year 1 Victor had the fo...

$0
$ 5,000
$15,000
$20,000

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In year 1, Rona Corp. issued 5,000 shares of $10 par value common stock for $100 per share. In year 3, Rona reacquired 2,000 of its shares at $150 p...

$ 20,000 $280,000
$100,000 $180,000
$180,000 $100,000
$280,000 $0

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On December 31, year 1, Pack Corp.�s board of directors canceled 50,000 shares of $2.50 par value common stock held in treasury at an average cost o...

$0
$250,000
$415,000
$540,000

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In year 1, Fogg, Inc. issued $10 par value common stock for $25 per share. No other common stock transactions occurred until March 31, year 3, when ...

Year 3 net income is decreased.
Year 3 net income is increased.
Additional paid-in capital is decreased.
Retained earnings is increased.

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At December 31, year 1, Eagle Corp. reported $1,750,000 of appropriated retained earnings for the construction of a new office building, which was c...

$1,200,000
$1,450,000
$2,950,000
$3,200,000

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A retained earnings appropriation can be used to

Absorb a fire loss when a company is self-insured.
Provide for a contingent loss that is probable and reasonably estimable.
Smooth periodic income.
Restrict earnings available for dividends.

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In connection with a stock option plan for the benefit of key employees, Ward Corp. intends to distribute treasury shares when the options are exerc...

$90,000
$40,000
$30,000
$0

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On January 2, year 1, Kine Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine�s $10 par common stock. The opt...

$ 9,333
$10,000
$20,000
$28,000

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On January 2, year 1, Kine Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine�s $10 par common stock. The opt...

$20,000
$30,000
$50,000
$70,000

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On January 2, year 1, Morey Corp. granted Dean, its president, 20,000 stock appreciation rights for past services. Those rights are exercisable imme...

$0
$100,000
$300,000
$600,000

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In accounting for stock-based compensation, what interest rate is used to discount both the exercise price of the option and the future dividend str...

The firm�s known incremental borrowing rate.
The current market rate that firms in that particular industry use to discount cash flows.
The risk-free interest rate.
Any rate that firms can justify as being reasonable.

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In what circumstances is compensation expense immediately recognized?

In all circumstances.
In circumstances when the options are exercisable within two years for services rendered over the next two years.
In circumstances when options are granted for prior service, and the options are immediately exercisable.
In no circumstances is compensation expense immediately recognized.

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Compensation cost for a share-based payment to employees that is classified as a liability is measured as

The change in fair value of the instrument for each reporting period.
The total fair value at grant date.
The present value of cash payments due over the life of the grant.
The actual cash outlay for the period.

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What is the measurement date for a share-based payment to employees that is classified as a liability?

The service inception date.
The grant date.
The settlement date.
The end of the reporting period

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Shafer Corporation (a nonpublic company) established an employee stock option plan on January 1, year 1. The plan allows its employees to acquire 20...

$ 20,000
$ 25,000
$100,000
$128,000

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Galaxy has a tax benefit and cash retained of $20,000 as a result of share-based payments to employees. How is this tax benefit disclosed in the fin...

As a component of other comprehensive income.
As a prior period adjustment.
As a current liability on the balance sheet.
As a cash inflow from financing activities on the statement of cash flows.

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On July 1, year 1, Jordan Corp. granted employees sharebased payments in the form of compensatory stock options. How should Jordan account for the o...

Include the options in the denominator of basic and diluted earnings per share for the entire year.
Include the options in the denominator of diluted earnings per share for the entire year.
Include the options in the denominator of diluted earnings per share weighted by number of months outstanding.
Ignore the options in the calculation of diluted earnings per share.

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The following information pertains to Jet Corp.�s outstanding stock for year 1: Common stock, $5 par value Shares outstanding, 1/1/Y1 20,000 2-for...

40,000
45,000
50,000
54,000

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Earnings per share data must be reported on the income statement for Cumulative effect of a change in accounting principle Extraordinary items

Yes No
No No
No Yes
Yes Yes

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On January 31, year 2, Pack, Inc. split its common stock 2 for 1, and Young, Inc. issued a 5% stock dividend. Both companies issued their December 3...

Yes No
No No
Yes Yes
No Yes

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Mann, Inc. had 300,000 shares of common stock issued and outstanding at December 31, year 1. On July 1, year 2, an additional 50,000 shares of commo...

325,000
335,000
360,000
365,000

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West Co. had earnings per share of $15.00 for year 1 before considering the effects of any convertible securities. No conversion or exercise of conv...

$14.25
$14.35
$15.00
$15.10

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In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be

Disregarded.
Added back to net income whether declared or not.
Deducted from net income only if declared.
Deducted from net income whether declared or not.

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The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the

Beginning of the earliest period reported (or at time of issuance, if later).
Beginning of the earliest period reported (regardless of time of issuance).
Middle of the earliest period reported (regardless of time of issuance).
Ending of the earliest period reported (regardless of time of issuance).

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In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt that is dilutive should be

Added back to weighted-average common shares outstanding for diluted earnings per share.
Added back to net income for diluted earnings per share.
Deducted from net income for diluted earnings per share.
Deducted from weighted-average common shares outstanding for diluted earnings per share.

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Seco Corp. was forced into bankruptcy and is in the process of liquidating assets and paying claims. Unsecured claims will be paid at the rate of 40...

$ 5,000
$12,000
$15,000
$17,000

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Kamy Corp. is in liquidation under of the Federal Bankruptcy Code. The bankruptcy trustee has established a new set of books for the bankruptcy esta...

$0
$1,000
$8,000
$9,000

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On December 30, year 1, Hale Corp. paid $400,000 cash and issued 80,000 shares of its $1 par value common stock to its unsecured creditors on a pro ...

$1,200,000
$ 800,000
$ 100,000
$ 80,000

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The primary purpose of a quasi reorganization is to give a corporation the opportunity to

Obtain relief from its creditors.
Revalue understated assets to their fair values.
Eliminate a deficit in retained earnings.
Distribute the stock of a newly created subsidiary to its stockholders in exchange for part of their stock in the corporation.

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When a company goes through a quasi reorganization, its balance sheet carrying amounts are stated at

Original cost.
Original book value.
Replacement value.
Fair value.

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The stockholders� equity section of Brown Co.�s December 31, year 1 balance sheet consisted of the following: Common stock, $30 par, 10,000 shares ...

$ (60,000)
$150,000
$190,000
$400,000

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On July 1, year 1, Vail Corp. issued rights to stockholders to subscribe to additional shares of its common stock. One right was issued for each sha...

$0
$ 5,000
$ 8,000
$10,000

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In September year 1, West Corp. made a dividend distribution of one right for each of its 120,000 shares of outstanding common stock. Each right was...

$ 120
$ 2,400
$12,000
$36,000

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On November 2, year 1, Finsbury, Inc. issued warrants to its stockholders giving them the right to purchase additional $20 par value common shares a...

Increased in year 2 No effect
Increased in year 1 No effect
Increased in year 2 Decreased in year 1 and year 2
Increased in year 1 Decreased in year 1 and year 2

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A company issued rights to its existing shareholders to purchase, for $30 per share, unissued shares of $15 par value common stock. Additional paid-...

Yes No
No No
No Yes
Yes Yes

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On January 1, year 1, Fay Corporation established an employee stock ownership plan (ESOP). Selected transactions relating to the ESOP during year 1 ...

$184,000
$120,000
$ 84,000
$ 60,000

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Logan Corporation issues convertible bonds for $500,000. At the date of issuance, it is determined that the fair value of the bonds is $480,000. Log...

As a bond liability for $500,000.
As a bond liability for $480,000 and other comprehensive income of $20,000.
As a bond liability for $480,000 and an equity component of $20,000.
As a bond liability for $500,000 and a contra liability of $20,000.

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Vestre Corporation prepares its financial statements under IFRS. Recently the company issued convertible debt. How should the company record this de...

The instrument should be presented solely as debt.
The instrument should be presented between debt and equity.
The instrument should be presented solely as equity.
The instrument should be presented as part debt and part equity.

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Under IFRS, which of the following is not a method that may be used to account for treasury stock?

Cost method.
Par value method.
Retained earnings method.
Constructive retirement method.

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The market for outstanding, listed common stock is called the

Primary market.
New issue market.
Over-the-counter market.
Secondary market.

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In capital markets, the primary market is concerned with

New issues of bonds and stock securities.
Exchanges of existing bond and stock securities.
The sale of forward or future commodities contracts.
New issues of bond and stock securities and exchanges of existing bond and stock securities.

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Which of the following is usually not a feature of cumulative preferred stock?

Has priority over common stock with regard to earnings.
Has priority over common stock with regard to assets.
Has voting rights.
Has the right to receive dividends in arrears before common stock dividends can be paid.

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Which of the following is not an advantage of going public?

Access to capital.
Compliance.
Use of stock options.
Liquidity for owners� investments.

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Which of the following is not an advantage of going public?

Access to capital.
Compliance.
Use of stock options.
Liquidity for owners� investments.

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Which of the following does NOT describe an area of specialization in the venture capital industry?

Specialization by industry
Specialization by geography
Specialization by currency
Specialization by stage of financing

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What is the practice of buying non-financial companies by financial institutions called?

A crossover
Merchant banking
A leveraged buyout (an LBO)
Private investment in a public entity (a PIPE)

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What are the return patterns for leveraged buyouts (LBOs) shown to exhibit?

Significant negative skewness
Significant positive skewness
A near symmetrical distribution
Significant negative kurtosis

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A private equity transaction where an investor or group of investors bargain directly with a public company to acquire an equity position is known as...

A mezzanine debt transaction
A distressed debt transaction
A crossover transaction
A PIPE transaction

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Which of the following is TRUE of mezzanine financing?

It is senior to debt represented by bank loans.
Mezzanine financing typically has an equity kicker.
Return expectations to mezzanine funds is at about the same level as LBO funds.
Mezzanine financing tends to attract the most capital in a robust economy.

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Under the rules of priority with respect to security holders, whose claims (from the choices below) are first to be satisfied?

Subordinated debt
Equity
Bank debt

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Which of the following is most accurate regarding club deals in the LBO market?

They are rarely utilized in the LBO market.
They limit the auction process leading to companies being acquired at less attractive prices.
They might reflect a lack of opportunities in the LBO market.
They lead to a more concentration of risk particularly for large deals.

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Which of the following describes the J Curve effect in the life cycle of the venture capital firm?

Profits in the early years followed by losses in the later years.
Flat revenues in the early years followed by profits in the later years.
Losses in the early years followed by profits in the later years.
Moderate profits in the early years followed large profits in the later years.

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How can typical fees for venture capital funds be described?

As management fees of 2.0-2.5% with no incentive fees
As management fees of 3.0-5.0% with incentive fees
As management fees of 2.0-2.5% with incentive fees
As management fees of 3.0-3.5% with no incentive fees

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What characteristic allows the mezzanine investor to purchase the senior debt once it has been repaid to a certain level?

Priority of payment
The takeout provision
Acceleration
Subordination

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Which statement most accurately describes the committed capital to leveraged buyouts in the U.S. from 1990-2008?

Committed capital has varied substantially including a decline after 2000
Committed capital has risen somewhat steadily and markedly
Committed capital has fallen somewhat steadily but slightly
Committed capital has had very little variation

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The risk and return spectrum for private equity can best be described by which of the following statements?

Leveraged buyouts are most risky and distressed debt is least risky
Venture capital is most risky and mezzanine debt is least risky
Leveraged buyouts are most risky and mezzanine debt is least risky
Venture capital is most risky and distressed debt is least risky

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“Direct secondaries” in the private equity market can most accurately be described by which of the following statements?

Secondary market sales of private equity shares rather than partnership interests
Secondary market sales without the services of a broker or intermediary
Sales of secondary public offerings without investment bankers

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