Deck 15: Shareholders Equity: Capital Contributions and Distributions

Question 1

IFRS does not require firms to allocate a portion of the issue price of convertible bonds and convertible preferred stock to the conversion feature.

Answer 1

False

Question 2

In most cases U.S.GAAP requires firms to allocate the full issue price of Convertible Bonds or Convertible Preferred Stock to the bonds or preferred stock and none of the price to the conversion feature.

Answer 2

True

Question 3

Shareholders' equity is a residual interest.It represents the shareholders' claim on the assets of a firm after the firm satisfies all higher-priority claims.

Answer 3

True

Question 4

To settle debts of general partnerships and sole proprietorships, creditors have a claim on the owners' business and personal assets.

Question 5

If a firm issues common stock in return for services other than from employees, the firm records the transaction at the fair value of the services received if it can more reliably measure this amount.Otherwise, the firm records the transaction at the fair value of the shares issued.

Question 6

When firms issue common stock for assets other than cash, the firm records the shares exchanged for noncash assets at the fair value of the shares given or, if the firm cannot make a reasonable estimate, at the fair value of the assets received.

Question 7

Firms may periodically distribute net assets generated by earnings to shareholders as a dividend.Firms reduce net assets and retained earnings for the distribution.

Question 8

U.S.GAAP and IFRS do not classify preferred stock subject to redemption only at the option of the issuing firm as shareholders' equity.

Question 9

The annual reports to shareholders must explain the changes in all shareholders' equity accounts.

Question 10

Preferred stock subject to redemption at the option of the preferred shareholders appears between liabilities and shareholders' equity in U.S.GAAP and as a liability in IFRS.

Question 11

In recent years, many partnerships and sole proprietorships have become limited liability companies (LLCs), or limited liability partnerships (LLPs), to limit their owners' personal liability for business debts and other obligations.

Question 12

Common and preferred stock usually do not have a par or stated value.

Question 13

Convertible preferred shares require the holder of preferred shares to convert the preferred shares into a specified number of common shares under certain specified conditions.

Question 14

Both U.S.GAAP and IFRS require the disclosure of information about the rights of each type of capital stock outstanding.

Question 15

Financial statement notes must disclose significant limitations on dividend declarations.

Question 16

All corporations must issue preferred stock.

Question 17

The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower dividend rate than purchasers otherwise would have required to buy the shares for a given price.

Question 18

Retained earnings on the balance sheet provides a measure of the cumulative net assets generated by earnings in excess of dividends declared.

Question 19

If a corporation becomes insolvent, creditors can claim the assets of the individual owners.

Question 20

Only the corporate form of business organization provides the owner with limited liability.

Question 21

Which of the following shareholder rights is most commonly enhanced in an issue of preferred stock?

A)The right to vote for the board of directors.
B)The right to maintain one's proportional interest in the corporation.
C)The right to receive a full cash dividend before dividends are paid to other classes of stock.
D)The right to vote on major corporate issues.
E)The right to transfer dividend revenue to common shareholders.

Question 22

Earnings per share equals

A)net income attributable to bonds and common and preferred stock divided by the weighted average number of common shares outstanding during the period.
B)net income attributable to common and preferred stock divided by the weighted average number of common shares outstanding during the period.
C)net income attributable to common and preferred stock divided by the end of period number of common shares outstanding.
D)net income attributable to common stock divided by the weighted average number of common shares outstanding during the period.
E)net income attributable to common stock divided by the end of period number of common shares outstanding.

Question 23

Both U.S.GAAP and IFRS do not require firms to recognize the fair value of employee stock options in the accounting records.

Question 24

Stock dividends have little economic substance for shareholders.

Question 25

The shareholders' equity section of the balance sheet reports the sources of financing provided by preferred and common shareholders and their claims on the net assets of the firm.Which of the following is/are true?

A)The equity of the preferred shareholders usually approximates the liquidation value of the preferred shares.
B)The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock, Additional Paid-In Capital, Retained Earnings, Accumulated Other Comprehensive Income, Treasury Stock, and other preferred shares equity accounts.
C)The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock, Additional Paid-In Capital, and Retained Earnings accounts, only.
D)The equity of the preferred shareholders equals the sum of the amounts appearing in the Preferred Stock and Additional Paid-In Capital accounts, only.
E)The equity of the preferred shareholders equals the amounts appearing in the Preferred Stock account, only.

Question 26

A firm with securities outstanding that holders can convert into, or exchange for, shares of common stock may report two earnings-per-share amounts:

A)primary and diluted earnings per share.
B)basic and diluted earnings per share.
C)primary and secondary earnings per share.
D)basic and secondary earnings per share.
E)primary and decreased earnings per share.

Question 27

U.S.GAAP and IFRS on accounting for repurchases and reissuances of treasury shares follow the principle that treasury stock purchases and sales are operating transactions and therefore debits Cash (for economic gains) or credits Cash (for economic losses).

Question 28

Firms with convertible preferred stock or other potentially dilutive securities outstanding

A)must present dual earnings-per-share amounts.
B)calculate basic earnings per share by taking net income attributable to common stock and dividing by the average number of common shares outstanding during the period.
C)calculate diluted earnings per share when a firm has securities outstanding that, if exchanged for common stock would decrease basic earnings per share by 3 percent or more.
D)all of the above
E)none of the above

Question 29

If the firm becomes insolvent, in order to settle debts creditors can claim

A)the assets of the corporate entity.
B)the owners' business and personal assets of partnerships.
C)the owner's business and personal assets of sole-proprietorships.
D)all of the above.
E)none of the above.

Question 30

The par value of common stock represents the

A)liquidation value of the stock.
B)book value of the stock.
C)legal nominal value assigned to the stock.
D)amount received by the corporation when the stock was originally issued.
E)None of these choices is correct.

Question 31

Book value per common share equals

A)total common shareholders' equity divided by the number of shares outstanding on the date of the balance sheet.
B)total common shareholders' equity divided by the weighted-average number of shares outstanding during the accounting period.
C)total common shareholders' equity divided by the number of shares outstanding on the beginning date of the income statement.
D)total shareholders' equity divided by the number of shares outstanding on the date of the balance sheet.
E)total shareholders' equity divided by the weighted-average number of shares outstanding during the accounting period.

Question 32

Earnings per share tells the shareholder the amount of

A)cash generated per share of common stock.
B)dividends earned by each common shareholder.
C)dividend per share of common stock.
D)income per share as if preferred stock dividends had been paid.
E)income per share as if common and preferred stock dividends had been paid.

Question 33

U.S.GAAP and IFRS do not require the firm to measure the fair value of the stock warrants separately from the value of the associated bond or preferred stock and allocate the issue price between the two securities.

Question 34

Holders of a bond or preferred stock with common stock warrants attached cannot detach and redeem the warrants separately from the bond or preferred stock.

Question 35

Usually firms treat small-percentage distributions, say less than a 25% increase in the number of shares, as stock dividends and larger ones as stock splits.

Question 36

Lakeside Company has not declared nor paid dividends on its cumulative preferred stock in the last three years.These dividends should be reported

A)in a note to the financial statements.
B)as a reduction in stockholders' equity.
C)as a current liability.
D)as a noncurrent liability.
E)None of these choices is correct.

Question 37

Corporations often sell, or exchange for goods and services, various call options on their shares.The excess of the exercise price over the market price is the option's intrinsic value.

Question 38

The value of a stock option results from the benefit element and the time value element.

Question 39

Firms use the par value method when management and the governing board do not intend to reissue shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares.

Question 40

U.S.GAAP provides several approaches to the accounting for treasury shares which include cost, par value, and constructive retirement methods.

Question 41

Which of the following is not true?

A)Owners of preferred stock have a claim on the assets of a firm that is senior to the claim of common shareholders.
B)Preferred shares carry special rights.
C)The senior status and special rights may induce certain investors to purchase preferred shares of a firm, even though they would be unwilling to purchase common shares of the same firm.
D)The senior status and special rights decrease the risks of preferred shareholders relative to common shareholders.
E)Jurisdictional laws dictate the rights and obligations of the issuing firm and of the investor in the preferred shares.

Question 42

Which of the following is not true regarding firms use of net assets (assets minus liabilities)?

A)Firms use net assets to generate more net assets through the earnings
B)Firms typically retain some or all of the net assets generated by earnings, causing net assets to increase, along with retained earnings, which is the component of shareholders' equity showing the cause of that increase in net assets.
C)The retention of net assets generated by earnings generally increases the market price of the firm's common shares.
D)Some firms pay periodic dividends to the common shareholders out of net assets.
E)Regardless of whether a firm has more than one class of common stock and their dividend rights differ, each common shareholder always receives the same dividend per share as all other common shareholders.

Question 43

Most publicly traded firms operate as corporations.Which of the following is/are not true?

A)The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm.
B)The transfer of ownership interests is a transaction between the shareholder and the firm whose shares change hands.
C)Investors make capital contributions under a contract between themselves and the corporation.
D)The corporation has legal status separate from its owners.
E)none of the above

Question 44

Which of the following is/are not true?

A)Common and preferred stock usually have a par or stated value.
B)Firms report amounts received from issuing common stock in excess of the par or stated value as Additional Paid-In Capital or a similar account title.
C)Firms report amounts received from issuing common stock in excess of the par or stated value as Additional Paid-In Capital, or Capital in Excess of Par Value or a similar account title.
D)The amounts in Additional Paid-In Capital for a firm usually exceeds the amounts in Common Stock, indicating that the firm issued common stock for substantially more than par value, a common practice among publicly traded firms.
E)none of the above

Question 45

Most publicly traded firms operate as corporations.Which of the following is/are not true?

A)If the corporation becomes insolvent, creditors can claim only the assets of the corporate entity and cannot claim the assets of the individual owners.
B)To settle debts of general partnerships, creditors have a claim on the owners' business and personal assets.
C)To settle debts of sole proprietorships, creditors have a claim on the owners' business and personal assets..
D)In recent years, many partnerships and sole proprietorships have become limited liability companies (LLCs), or limited liability partnerships (LLPs), to limit their owners' personal liability for business debts and other obligations.
E)none of the above

Question 46

Various laws and contracts govern the rights and obligations of a shareholder. Which of the following is/are not true?

A)The corporation laws of the jurisdiction in which incorporation takes place govern the rights and obligations of a shareholder.
B)The articles of incorporation or the corporate charter sets out the agreement between the firm and the jurisdiction in which the business incorporates.
C)The board of directors adopts bylaws, which are the rules and regulations governing the internal affairs of the corporation.
D)The U.S.Government grants to the firm the privileges of operating as a corporation for certain stated purposes and of obtaining its capital through the issue of shares of stock.
E)none of the above

Question 47

Various laws and contracts govern the rights and obligations of a shareholder. Which of the following is/are not true?

A)The corporation laws of the jurisdiction in which incorporation takes place govern the rights and obligations of a shareholder.
B)The articles of incorporation or the corporate charter sets out the agreement between the firm and the jurisdiction in which the business incorporates.
C)The board of directors adopts bylaws, which are the rules and regulations governing the internal affairs of the corporation.
D)The jurisdiction grants to the firm the privileges of operating as a corporation for certain stated purposes and of obtaining its capital through the issue of shares of stock.
E)none of the above

Question 48

Most publicly traded firms operate as corporations.The corporate form has which of the following advantage(s)?

A) The corporate form provides the owner (shareholder) with limited liability.
B)The corporate form allows the firm to raise funds by issuing shares to investors in varying amounts.
C)The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm.
D)The corporation has legal status separate from its owners.
E)all of the above

Question 49

Which of the following is not true?

A)Owners of preferred stock have a claim on the assets of a firm that is senior to the claim of common shareholders.
B)Preferred shares carry special rights.
C)The senior status and special rights may induce certain investors to purchase preferred shares of a firm, even though they would be unwilling to purchase common shares of the same firm.
D)The senior status and special rights increase the risks of preferred shareholders relative to common shareholders.
E)Preferred shares vary with respect to the rights and obligations of the issuing firm and of the investor in the preferred shares.

Question 50

Which of the following is/are true regarding firms use of net assets (assets minus liabilities)?

A)Firms use net assets to generate more net assets through the earnings
B)Firms typically retain some or all of the net assets generated by earnings, causing net assets to increase, along with retained earnings, which is the component of shareholders' equity showing the cause of that increase in net assets.
C)The retention of net assets generated by earnings generally increases the market price of the firm's common shares.
D)Some firms pay periodic dividends to the common shareholders out of net assets.
E)all of the above

Question 51

The term capital can mean

A)cash, only.
B)long-term assets, only.
C)all sources of funding, only.
D)shareholders' equity, only.
E)cash, long-term assets, all sources of funding, or shareholders' equity.

Question 52

All corporations issue

A)common stock.
B)preferred stock.
C)treasury stock.
D)convertible stock.
E)putable stock.

Question 53

Which of the following is/are not true?

A)Firms may periodically distribute net assets generated by earnings to shareholders as a dividend.
B)Firms reduce net assets and retained earnings for the dividend distribution.
C)Retained earnings on the balance sheet provides a measure of the cumulative net assets generated by earnings in excess of dividends declared.
D)The sale of property, plant, and equipment represents the primary source of funds for most successful businesses.
E)none of the above.

Question 54

Which of the following is/are not true?

A)Callable preferred shares provide the issuer with the right to repurchase preferred shares at a specified price,
B)If financing becomes available at a cost lower than the rate fixed for the preferred shares, the issuing firm can reduce its financing costs by issuing new securities and then exercising its option to reacquire the outstanding callable preferred shares at a fixed price.
C)The call option is valuable to the issuing firm but makes the shares less attractive to potential owners of the shares.
D)Other things equal, a firm will receive a smaller amount from issuing callable preferred shares than from issuing noncallable preferred shares.
E)none of the above

Question 55

The usual entry to record the conversion of convertible bonds or preferred stock into common shares ignores _____ and shows the swap of common shares for bonds or preferred stock at their _____.

A)current market prices; carrying value
B)carrying value; current market prices
C)current market prices; par value
D)carrying value; par value
E)present value of future cash flows; current market prices

Question 56

Which of the following is not true regarding firms use of net assets (assets minus liabilities)?

A)Firms may choose to use the net assets generated by earnings to repurchase common shares.
B)Firms may choose to use the net assets generated by earnings to repurchase common shares which result in cash outflows for a firm, similar to paying a cash dividend.
C)In the case of share repurchases, only those shareholders that choose to sell their shares to the firm receive cash.
D)Some firms pay periodic dividends to the common shareholders out of net assets.
E)Firms typically retain some or all of the net assets generated by earnings, causing net assets to decrease, along with retained earnings, which is the component of shareholders' equity showing the cause of that decrease in net assets.

Question 57

Most publicly traded firms operate as corporations.Which of the following is/are not true?

A) The corporate form provides the owner unlimited liability.
B)The corporate form allows the firm to raise funds by issuing shares to investors in varying amounts.
C)The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm.
D)The corporation has legal status separate from its owners.
E)all of the above

Question 58

Various laws and contracts govern the rights and obligations of a shareholder. Which of the following istrue?

A)Each type of capital stock has its own provisions on voting matters, only.
B)Each type of capital stock has its own provisions on sharing in earnings matters, only.
C)Each type of capital stock has its own provisions on distributing assets generated by earnings matters, only.
D)Each type of capital stock has its own provisions on sharing in assets in case of dissolution of the firm.matters, only.
E)Each type of capital stock has its own provisions on such matters as voting, sharing in earnings, distributing assets generated by earnings, and sharing in assets in case of dissolution of the firm..

Question 59

Which of the following is/are not true?

A)Firms accumulate information about revenues and expenses during a reporting period to enable the preparation of the income statement.
B)Net income for a period increases net assets (assets minus liabilities) and retained earnings.
C)Net loss for a period reduces net assets (assets minus liabilities) and retained earnings.
D)Net income for a period increases the amounts in Common Stock and Additional Paid-In Capital, a common practice among publicly traded firms.
E)none of the above

Question 60

Most publicly traded firms operate as corporations.Which of the following is/are not true?

A)The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm.
B)The transfer of ownership interests is a transaction between shareholders and does not involve the firm whose shares change hands.
C)Investors make capital contributions under a contract between themselves and the corporation.
D)The corporation has legal status separate from its owners.
E)none of the above

Question 61

In U.S.GAAP, preferred stock subject to mandatory redemption is disclosed

A)between liabilities and shareholders' equity.
B)as a liability.
C)as a shareholders' equity.
D)as a revenue.
E)as an expense.

Question 62

Which of the following is/are true concerning convertible bonds or convertible preferred stock?

A)Convertible bonds and convertible preferred stock permit the owner either to hold the security as a bond or preferred stock or to convert the security into shares of common stock.
B)The owner cannot detach and transfer, or separately exercise, the conversion option.
C)The issue price of a convertible bond or convertible preferred stock is payment for both debt or preferred stock and for the conversion option, but no one can observe the fair value of these separate components.
D)choices a and b, only.
E)choices a, b, and c.

Question 63

Which of the following is/are not true?

A)Firms may issue capital stock (preferred or common) for cash or for noncash assets.
B)Firms usually issue shares for cash at the time of their initial incorporation and at periodic intervals as they need additional shareholder funds.
C)Firms sometimes issue shares to employees as compensation.
D)The issue price for preferred stock usually approximates its par value.
E)none of the above

Question 64

Evenrude Corporation is a new company about to issue stock.The corporation sells 2,000 shares of common stock (par value $2) at $10 per share.The journal entry to record this transaction is:

A)Cash 2,000 Common Stock 2,000
B)Cash 20,000 Common Stock 4,000
Additional Paid-in Capital 16,000
C)Cash 20,000 Owners' Liability 16,000
Common Stock 4,000
D)Cash 20,000 Accounts Payable 20,000
E)Cash 20,000 Notes Payable 20,000

Question 65

Which of the following is not true?

A)Convertible preferred shares give the holder of preferred shares the right to convert the preferred shares into a specified number of common shares under certain specified conditions.
B)Convertible preferred shares require the holder of preferred shares to convert the preferred shares into a specified number of common shares under certain specified conditions.
C)Convertible preferred shares provide the security holders with the possibility of capital appreciation by converting the preferred shares into common shares if the market price of the common shares rises sufficiently.
D)Convertible preferred shares provide the security holders with a relatively assured dividend.
E)Convertible preferred shares provide the security holders with a claim that is senior to that of common shareholders.

Question 66

Preferred shares may provide for redemption by the issuing firm in the future.Redeemable preferred shares carry which of the following redemption rights or obligations?

A)The issuing firm has the right to redeem the preferred stock under certain conditions.
B)Mandatorily redeemable preferred stock has attributes of both long-term debt and shareholders' equity with the specified redemption time analogous to the maturity date of long-term debt.
C)Some preferred stock is redeemable at the option of the holder with the owner of the preferred stock having the right to require the issuing firm to repurchase the shares.
D)all of the above
E)none of the above

Question 67

A firm decides to issue stock, pursuant to a stock split, on a 2-for-1 basis.What entry is necessary for this issuance?

A)Retained Earnings Common Stock--Par Value
B)Additional Paid-in Capital Common Stock--Par Value
C)Retained Earnings Common Stock--Par Value
Common Stock--Additional Paid-in Capital
D)Common Stock--Par Value Common Stock--Additional Paid-in Capital
Retained Earnings
E)No journal entry is necessary but the par value of the stock must be restated on a per share basis.

Question 68

Which of the following is/are not true?

A)All corporations must issue common stock.
B)Common shareholders have a claim on the assets of a firm after creditors and preferred shareholders have received amounts promised to them.
C)Frequently, corporations grant voting rights only to common shares, giving their holders the right to elect members of the board of directors and to decide certain broad corporate policies (spelled out in the stock contract).
D)Some firms issue more than one class of common shares, with each class granted different voting rights.
E)none of the above

Question 69

In IFRS, preferred stock subject to mandatory redemption is disclosed

A)between liabilities and shareholders' equity.
B)as a liability.
C)as a shareholders' equity.
D)as a revenue.
E)as an expense.

Question 70

Which of the following is not true?

A)All corporations must issue common stock.
B)Common shareholders have a claim on the assets of a firm after creditors and preferred shareholders have received amounts promised to them.
C)Frequently, corporations grant voting rights only to common shares, giving their holders the right to elect members of the board of directors and to decide certain broad corporate policies (spelled out in the stock contract).
D)Some firms issue more than one class of common shares, with each class granted different voting rights.
E)Firms generally issue preferred shares, both at the time of initial incorporation and in subsequent years, for amounts greater than par (or stated) value.

Question 71

In IFRS, preferred stock subject to redemption at the option of the preferred shareholders appears

A)between liabilities and shareholders' equity.
B)as a liability.
C)as a shareholders' equity.
D)as a revenue.
E)as an expense.

Question 72

Which of the following is not true?

A)Callable preferred shares provide the issuer with the right to repurchase preferred shares at a specified price,
B)If financing becomes available at a cost lower than the rate fixed for the preferred shares, the issuing firm can reduce its financing costs by issuing new securities and then exercising its option to reacquire the outstanding callable preferred shares at a fixed price.
C)The call option is valuable to the issuing firm but makes the shares less attractive to potential owners of the shares.
D)Other things equal, a firm will receive a smaller amount from issuing callable preferred shares than from issuing noncallable preferred shares.
E)Callable preferred shares provide the issuer with the obligation to repurchase preferred shares at a specified price,

Question 73

Which of the following is/are not true?

A)Convertible preferred shares give the holder of preferred shares the right to convert the preferred shares into a specified number of common shares under certain specified conditions.
B)Changes in the market price of convertible preferred shares will often parallel changes in the market price of common shares because of the conversion option.
C)Convertible preferred shares provide the security holders with the possibility of capital appreciation by converting the preferred shares into common shares if the market price of the common shares rises sufficiently.
D)The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower dividend rate than purchasers otherwise would have required to buy the shares for a given price.
E)none of the above

Question 74

Which of the following is not true?

A)Firms issue common stock for assets other than cash, for example, to acquire another firm.
B)Firms generally issue common shares, both at the time of initial incorporation and in subsequent years, for amounts greater than par (or stated) value.
C)The firm records the shares exchanged for noncash assets at the fair value of the shares given or, if the firm cannot make a reasonable estimate, at the fair value of the assets received.
D)Firms may issue capital stock (preferred or common) for cash or for noncash assets.
E)Firms generally issue preferred shares, both at the time of initial incorporation and in subsequent years, for amounts greater than par (or stated) value.

Question 75

In most cases, U.S.GAAP requires firms to allocate the full issue price of Convertible Bonds or Convertible Preferred Stock

A)to the bonds or preferred stock and none of the price to the conversion feature.
B)to the bonds or preferred stock and the conversion feature based on fair values.
C)to the bonds or preferred stock and the conversion feature based on the present value of future cash flows.
D)to the bonds or preferred stock and the conversion feature based on the future value of present cash flows.
E)to the price to the conversion feature and none to the bonds or preferred stock.

Question 76

Which of the following is/aretrue concerning convertible bonds or convertible preferred stock?

A)Convertible bonds and convertible preferred stock permit the owner either to hold the security as a bond or preferred stock or to convert the security into shares of common stock.
B)The owner cannot detach and transfer, or separately exercise, the conversion option.
C)The issue price of a convertible bond or convertible preferred stock is payment for both debt or preferred stock and for the conversion option, but no one can observe the fair value of these separate components.
D)U.S.GAAP requires firms to allocate the full issue price to the bonds or preferred stock and none of the price to the conversion feature.
E)all of the above

Question 77

Corporations often sell, or exchange for goods and services, various call options on their shares.Which of the following is/are not true?

A)A call option gives the holder the right to acquire shares of common stock at a fixed or determinable price, called the strike price or exercise price.
B)If the market price of the shares increases above the exercise price, the holder of the option can benefit by exercising the option to purchase shares.
C)The excess of the market price over the exercise price is the option's intrinsic value.
D)Many firms pay part of the compensation of some employees by issuing call options on their own shares referring to these arrangements as employee stock options (ESOs).
E)none of the above

Question 78

In U.S.GAAP, preferred stock subject to redemption at the option of the preferred shareholders appears

A)between liabilities and shareholders' equity.
B)as a liability.
C)as a shareholders' equity.
D)as a revenue.
E)as an expense.

Question 79

Which of the following is/are true?

A)U.S.GAAP and IFRS classify preferred stock subject to redemption only at the option of the issuing firm as shareholders' equity.
B)U.S.GAAP and IFRS classify preferred stock subject to mandatory redemption is a liability.
C)U.S.GAAP classify preferred stock subject to redemption at the option of the preferred shareholders appears between liabilities and shareholders' equity.
D)IFRS classify preferred stock subject to redemption at the option of the preferred shareholders appears as a liability.
E)all of the above

Question 80

A firm issues convertible bonds that pay 8% interest and receives $100,000.The firm could have issued nonconvertible bonds that pay 8% interest but would have received only $80,000 in bond proceeds.What journal entry is necessary under GAAP to record the issuance of the convertible bonds?

A)Cash 100,000 Convertible Bonds Payable 80,000
Additional Paid-in Capital 20,000
B)Cash 100,000 Convertible Bonds Payable 80,000
Convertible Bond income 20,000
C)Cash 100,000 Convertible Bonds Payable 100,000
D)Convertible Bonds Payable 100,000 Cash 100,000
E)No entry is required