Question 1

The write-down of an asset will affect

Accepted Answer

When an asset is written down, it means that its value has decreased and therefore its recorded value on the balance sheet needs to be reduced. This reduction in value will decrease total assets. At the same time, the write-down is recognized as an expense on the income statement, which will decrease net income. Therefore, both total assets and net income are affected.

Question 2

A 2-for-1 stock split will have the same effect on the number of shares outstanding as a 200 percent stock dividend.

Accepted Answer

The answer of A 2-for-1 stock split will have the...

Question 3

When alternative acceptable accounting methods exist,a better quality of earnings generally is produced from selecting an accounting method that has the effect of reporting the

Accepted Answer

The answer of When alternative acceptable accounting methods exist,a better...

Question 4

A small stock dividend normally results in a transfer from Retained Earnings to Contributed Capital of an amount equal to the par value of the stock.

Accepted Answer

The answer of A small stock dividend normally results in...

Question 5

Par value or stated value is arbitrarily set when stock is authorized.

Accepted Answer

Par value or stated value is indeed arbitrarily set when stock is authorized. It is not based on any market value or valuation of the company. It is simply a nominal amount assigned to each share of stock.

Question 6

Book value per share of stock represents the amount the shareholder will receive per share if the company is sold or liquidated.

Accepted Answer

Book value per share of stock represents the net asset value of the company divided by the number of outstanding shares, not the amount shareholders will receive if the company is sold or liquidated.

Question 7

A stock split results in a transfer of the market value of the stock from Retained Earnings to Contributed Capital.

Accepted Answer

A stock split does not result in a transfer of market value from Retained Earnings to Contributed Capital. It simply increases the number of shares outstanding and reduces the price per share. The total market value remains unchanged.

Question 8

The declaration of cash dividends will decrease the book value per share of common stock.

Accepted Answer

When cash dividends are declared, the amount of cash available with the company decreases, which in turn reduces the total equity available to shareholders. As a result, the book value per share of common stock also decreases.

Question 9

The book value of one share of callable preferred stock is equal to the call value of the preferred share minus any dividends in arrears.

Accepted Answer

The book value of one share of callable preferred stock is typically calculated based on the company's equity on the balance sheet divided by the number of outstanding shares, and does not directly factor in the call value or dividends in arrears.

Question 10

When common stock is originally issued,its market value per share should approximate its par or stated value per share.

Accepted Answer

When common stock is originally issued, its market value per share may be higher or lower than its par or stated value per share, depending on various factors such as investor demand, perceived company performance, and market conditions.

Question 11

The consistency convention requires that

Accepted Answer

The consistency convention requires that a company use the same accounting procedures year after year. This helps ensure that financial statements are comparable from year to year, allowing investors and other users of financial information to make informed decisions based on consistent information.

Question 12

The account Common Stock Distributable is classified as a current liability.

Accepted Answer

Common Stock Distributable is classified as part of stockholders' equity, not as a current liability. It represents shares that have been authorized for issuance but have not yet been issued.

Question 13

In computing book value per share of common stock,common stock distributable is included in the divisor.

Accepted Answer

Common stock distributable represents shares of common stock that have been authorized but not yet issued. It is included in the divisor when computing book value per share of common stock because it represents the potential dilution of existing shareholders.

Question 14

The quality of a company's earnings may be affected by the

Accepted Answer

The quality of a company's earnings can be affected by the accounting methods the company uses. Some practices, such as aggressive revenue recognition or off-balance-sheet financing, can be used to manipulate earnings and create the illusion of financial strength. Therefore, it is important to analyze a company's accounting policies and practices to determine the quality of its earnings.

Question 15

A stock split normally increases total stockholders' equity.

Accepted Answer

A stock split does not change the total stockholders' equity; it merely increases the number of shares outstanding while proportionally decreasing the par value per share, leaving the overall equity unchanged.

Question 16

A stock dividend does not affect the total amount of stockholders' equity.

Accepted Answer

A stock dividend is simply a redistribution of shares among existing shareholders. It does not involve any new capital being contributed to the company, so it does not change the total amount of stockholders' equity.

Question 17

A stock dividend will cause an increase in total contributed capital at the date the dividend is declared.

Accepted Answer

When a stock dividend is declared, it means that the company is distributing additional shares of stock to its shareholders. As a result, the total number of shares outstanding (and therefore the total contributed capital) will increase.

Question 18

A stock dividend exceeding 20 to 25 percent is properly treated as a stock split.

Accepted Answer

The answer of A stock dividend exceeding 20 to 25...

Question 19

Which of the following is not a component of income from operations?

Accepted Answer

Income from operations includes revenue generated from normal business activities minus the costs and expenses incurred to generate that revenue. Write-downs of assets and restructuring costs may also be factored into the calculation of income from operations as they are considered part of the normal operating expenses for a business. However, extraordinary losses are not considered part of the normal business activities and therefore are not included in the calculation of income from operations.

Question 20

A stock dividend will cause an increase in the total number of shares issued and outstanding.

Accepted Answer

A stock dividend involves distributing additional shares of stock to current shareholders, which will increase the total number of shares issued and outstanding.

Quiz 13: The Corporate Income Statement and the Statement of Stockholders Equity