QUESTION:Assuming that a company's stock has a fair value in excess of its par value, how would the declaration of a 15% stock dividend by a corporation affect each of the following?

Additonial Paid-in CapitalTotal Stockholders Equity

IncreaseNo effect

No effectNo effect

No effectDecrease

Decrease Decrease

QUESTION: Larkins, Inc. leases equipment from Bostic for $30,000 per year for three years. The contract is signed on January 1, Year One and the first payment is made immediately. The second payment will be made on January 1, Year Two. Larkins has an incremental borrowing rate of 10 percent and the present value of a three year annuity due of $30,000 each year is assumed to be $82,000 at that rate. This lease contract does not meet any of the four criteria for a capital lease. What liability should Larkins report on its December 31, Year One balance sheet?

A Zero

B $10,000

C $57,200

D $60,200

QUESTION: A company leases a machine on January 1, Year One for five years which call for annual payments of $10,000 per year beginning on January 1, Year One. The present value of these payments based on a reasonable interest rate of 10 percent is assumed to be $42,000. This lease is an operating lease. How much expense will the company recognize for Year One?

A $4,200

B $8,400

C $10,000

D $12,600

QUESTION: A company declares a cash dividend on its common stock on December 24, Year One, payable to owners of record on January 2, Year Two, with checks to be mailed on January 9, Year Two. Which of the following statements is true?

A The owners will record the revenue from this transaction in Year Two but the company will record the effect of the dividend in Year One.

B This dividend is recorded by the company as an operating expense on its income statement.

C The company will have a liability on its December 31, Year One balance sheet and the owners will record a receivable on their December 31, Year One balance sheet. D D Both the revenue and the dividend paid will be recorded by the two companies on January 9, Year Two when payment is made.

QUESTION: A corporation has 100,000 shares of common stock outstanding and 20,000 shares of nonconvertible preferred stock.A dividend of $1 per share is distributed on the common stock and one of $2 per share is distributed on the preferred stock.Net income is $400,000 and the tax rate is 20 percent.The corporation also has 10,000 bonds with a face value of $100 and an interest rate of 4 percent.Each bond is convertible into two shares of common stock although none have yet been converted.The bonds were issued several years ago at face value.What is reported as diluted earnings per share (rounded)?

A $2.80

B $3.27

C $3.33

D $3.60

QUESTION: The Monroe Corporation has 100,000 common shares issued and outstanding. This stock was issued several years ago at a price above the $10 per share par value. During the current year, the board of directors declared a 30 percent stock dividend so that 30,000 new shares were issued to the stockholders when the price of the stock was $30 per share. As a result of this dividend, what reduction was recorded in the reported amount of retained earnings?

A -0-

B $300,000

C $600,000

D $900,000

QUESTION: The Larson Company has 100,000 shares of $10 par value common stock outstanding that was originally issued for $18 per share. In the current year, when the price of this stock increased to $60 per share, the company's board of directors issued a two-for-one stock split. The price of the stock immediately fell to $30 per share. By what amount should the company reduce its Retained Earnings balance as a result of this split?

A -0-

B $1,000,000

C $3,000,000

D $6,000,000

QUESTION: A company reports net income of $300,000 and is currently computing its basic earnings per share for the year. The company has 10,000 shares of preferred shares outstanding. This preferred stock pays a cumulative dividend of $2 per year. How does this preferred stock dividend impact the computation of basic earnings per share?

A The dividend must be subtracted from net income in all cases.

B The dividend must be subtracted from net income but only if actually paid during the year.

C The dividend must be subtracted from net income but only if actually declared by the Board of Directors during the year.

D The dividend must be subtracted from net income but only if anti-dilutive.

QUESTION: The Lara Company has 100,000 shares of common stock outstanding with a $10 per share par value. In addition, the company has 30,000 shares of preferred stock outstanding with a $100 par value. On this preferred stock, there is a 5 percent annual dividend that is cumulative. No dividend is paid on the preferred stock during Year One. Which of the following statements is true?

A The company has to report a current liability of $150,000.

B The company has to report a noncurrent liability of $150,000.

C The company has to report an amount within stockholders equity for this $150,000.

D The company must disclose information about the nature of this missed dividend.

QUESTION: A company is reporting its statement of cash flows. To report the cash flows from operating activities, the company uses the indirect method. On its income statement, the company reports depreciation expense of $40,000 and a gain on sale of equipment of $13,000. Which of the following statements is true about reporting cash flows from operating activities?

A The depreciation is added to net income while the gain is subtracted from net income to arrive at cash flows from operating activities.

B The depreciation is subtracted from net income while the gain is added to net income to arrive at cash flows from operating activities.

C Both the depreciation expense and the gain are added to net income to arrive at cash flows from operating activities.

D Neither the depreciation expense nor the gain is shown in determining the cash flows from operating activities.

QUESTION: A company that sells computers buys inventory and pays cash of $23,000. It also buys a truck and pays $52,000. It pays $24,000 on a long-term liability and $11,000 in cash dividends. On a statement of cash flows, what should be listed as the cash outflow in connection with financing activities?

A $11,000

B $23,000

C $35,000

D $52,000