15-Owners-Equity - True-False 1. uity. The entity view of a...

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True-False 1. The entity view of a firm stresses the importance of the owners’ eq- uity. 2. Dividends paid by a corporation represent a distribution of earnings to stockholders. 3. The par value of common stock is set by the state government. 4. Treasury stock is considered to be a deduction from stockholders’ eq- uity. 5. The most satisfactory method for the repurchase of a company’s own shares is the Dutch auction. 6. Preferred stock that entitles its holders to share in profits with common stockholders above and beyond the stipulated dividend is participating. 7. Corporations that issue preferred stock do so because preferred stock is less risky than debt. 8. Mandatorily redeemable preferred stock is not considered to be equity by the FASB. The FASB requires that this type of stock be reported on the bal- ance sheet on a separate line between liabilities and shareholders’ equity. 9. Corporate distributions to shareholders are governed by state law. 10. The 1984 Revised Model Business Corporation Act redefined solvency as a situation where the fair value of assets exceed the fair value of liabilities after a distribution to shareholders. 11. Under current GAAP a stock dividend will reduce assets. 12. When a company has no convertible securities and no options or war- rants outstanding, the company has a minimal capital structure. 13. A security issued together with a bond that entitles the holder to buy a designated amount of common stock at a specified price is a stock option. 14. When a company has a complex capital structure, the formula used to calculate earnings per share is called diluted earnings per share. 15. Stock options are used to provide a way for employees to build wealth and postpone taxes. 16. APB No. 25 assumed that when options were issued that had a price equal to or above the market price of underlying common shares, the options have no value. 17. Opposition to the FASB review of on stock options arose because stock options do not involve a cash outflow, and to treat them as an expense violates materiality. 18. SFAS No. 123 was issued as a compromise to the FASB’s original posi- tion regarding stock options as it allowed companies to choose either the APB No. 25 approach or expense the fair value of the options. 19. requires companies to measure the fair value of stock options at the grant date. 20. The dollar value at which debt may be exchanged for common stock is the exercise price. 21. According to APB No. 14 , convertible bonds must be recorded at the value of debt only. 22. By using the book value method to record the conversion of converti- ble bonds managers are able to protect themselves from recording extraordi- nary losses. 23. An employee stock ownership plan is an employee benefit pension plan that invests primarily in the common stock of the employer company.
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This note was uploaded on 02/27/2012 for the course FIN 132 taught by Professor Afda during the Spring '12 term at Centenary College New Jersey.

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15-Owners-Equity - True-False 1. uity. The entity view of a...

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