Spring Exam 1 Key

Spring Exam 1 Key - Intermediate Accounting III ACCTG 303...

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Intermediate Accounting III ACCTG 303 Section D Spring 2005 Instructor J.B. Paperman Exam #1 April 19, 2005 Name: ____________________________ INSTRUCTIONS: a) This exam is closed book. You may use one double-sided sheets of notes. You may use a calculator to assist in computations. b) You must complete this exam on your own. No assistance is allowed except that provided by the instructor. c) If you feel there is ambiguity in a problem, state your assumptions clearly. d) The exam has 9 pages in total and 14 questions with 100 points. 1
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Multiple Choice (5 points each) – Circle the MOST correct answer 1. When a corporation issues its capital stock in payment for services, the LEAST appropriate basis for recording the transaction is the a. market value of the services received. b. par value of the shares issued. c. market value of the shares issued. d. Any of these provides an appropriate basis for recording the transaction. B – market value of the service or stock, whichever is more reliable, but par value is not appropriate. 2. Which of the following best describes a possible result of treasury stock transactions by a corporation? a. May increase but not decrease retained earnings. b. May increase net income if the cost method is used. c. May decrease but not increase retained earnings. d. May decrease but not increase net income. C – Never a gain/loss so no income effect. “gains” go to APIC – TS and “losses” to RE so may decrease but not increase RE. 3. Cash dividends are paid on the basis of the number of shares a. authorized. b. issued. c. outstanding. d. outstanding less the number of treasury shares. C – outstanding (treasury shares have already been subtracted so you don’t need to take out again) 4. A dividend which is a return to stockholders of a portion of their original investments is a a. liquidating dividend. b. property dividend. c. liability dividend. d. participating dividend. A – return of investment is a liquidation of the owners investment. 5. Stock warrants outstanding should be classified as a. liabilities. 2
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b. reductions of capital contributed in excess of par value. c. assets. d. none of these. D – an INCREASE in contributed capital 6. In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the a. preferred dividends in arrears. b. preferred dividends in arrears times (one minus the income tax rate). c. annual preferred dividend times (one minus the income tax rate). d. none of these. D – subtract one year of dividends. Not deductible so no tax effect 7. What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? a. Decrease and no effect
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This note was uploaded on 12/14/2011 for the course AC 100 taught by Professor Strickland during the Spring '11 term at Alabama.

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Spring Exam 1 Key - Intermediate Accounting III ACCTG 303...

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