Question 1

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

Accepted Answer

Par value or stated value is not based on any tangible calculation or market value, but is instead arbitrarily set when the company's stock is authorized.

Question 2

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 3

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. Instead, it results in an increase in the number of outstanding shares, and a proportionate decrease in the share price. The overall market value of the stock remains the same, but the number of shares outstanding increases.

Question 4

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

Accepted Answer

The accounting methods a company uses can affect the quality of its earnings. Accounting methods can impact how revenue is recognized, expenses are reported, and assets are valued, which can all affect the reported earnings of a company. Different accounting methods can result in different levels of earnings quality.

Question 5

The consistency convention requires that

Accepted Answer

The consistency convention requires that a company use the same accounting procedures year after year. This ensures consistency and comparability in financial statements over time. A company can change its accounting policies, but it must disclose the change and explain the reasons for the change in the financial statements.

Question 6

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

Accepted Answer

Extraordinary losses are not a component of income from operations. Income from operations includes revenues and gains, and subtracts costs and expenses, including write-downs of assets and restructuring costs. Extraordinary losses are typically one-time, unusual events that are not part of regular business operations.

Question 7

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

Accepted Answer

A stock dividend distributes additional shares to current shareholders, increasing the total number of shares issued and outstanding.

Question 8

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 9

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 10

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 11

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

Accepted Answer

Stock dividends represent a transfer of retained earnings to paid-in capital accounts, but they do not affect the overall amount of stockholders' equity.

Question 12

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

Accepted Answer

The declaration of cash dividends will decrease the retained earnings account, which is a component of shareholder's equity on the balance sheet. Since book value per share of common stock is calculated by dividing shareholder's equity by the number of outstanding common shares, a decrease in shareholder's equity will lead to a decrease in book value per share of common stock.

Question 13

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 14

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. The market value depends on various factors such as demand and supply, company's financial performance, industry trends, etc.

Question 15

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

Accepted Answer

A stock dividend involves issuing additional shares to existing shareholders, thus increasing the total number of shares outstanding. This results in an increase in total contributed capital, which is the amount of capital contributed by shareholders to the company. Therefore, the statement is true.

Question 16

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

Accepted Answer

Common stock distributable is considered part of shareholders' equity and is included in the calculation of book value per share of common stock, affecting the divisor by increasing the total equity used to calculate the per-share value.

Question 17

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 18

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 19

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 20

The write-down of an asset will affect

Accepted Answer

A write-down of an asset means the company has recognized a decrease in the value of the asset. This decrease will impact both the total assets (as it reduces the value on the balance sheet) and net income (as it is recognized as an expense on the income statement).

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