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101. Firms occasionally issue stock options in order to
102. The Prime 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:
103. 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 _____.
104. Which of the following is true regarding firms use of net assets (assets minus liabilities)?
105. Which of the following is not true regarding firms use of net assets (assets minus liabilities)?
106. Which of the following is not true regarding firms use of net assets (assets minus liabilities)?
107. The _____ has the legal authority to declare dividends. When considering whether to declare dividends,
they must conclude that declaring a dividend is both legal (under law and contract) and financially desirable.
108. Jurisdiction-specific corporate laws limit directors’ freedom to declare dividends. Which of the following
is/are true?
109. Jurisdiction-specific corporate laws limit directors’ freedom to declare dividends. Which of the following
is/are not true?
110. Jurisdiction-specific corporate laws limit directors’ freedom to declare dividends. Which of the following
is/are true?
111. Jurisdiction-specific corporate laws limit directors’ freedom to declare dividends. Without these limits,
directors might dissipate the firm’s assets for the benefit of
112. Contracts with bondholders, other lenders, and preferred shareholders often limit dividend payments and
thereby compel the retention of earnings. Which of the following is/are true?
113. Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to
increase as a matter of corporate financial policy for what reason(s)?
114. Directors usually declare dividends less than the legal maximum and thereby allow retained earnings to
increase as a matter of corporate financial policy. Which of the following is not a valid reason for this
practice?
115. Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following
is true?
E. all of the above
116. Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following
is not true?
117. Corporations sometimes distribute assets other than cash when paying a dividend. Which of the following
is not true?
118. The stock dividend relabels a portion of the retained earnings that had been legally available for dividend
declarations as a more permanent form of shareholders’ equity, because
119. Stock dividends
120. Which of the following is not true regarding the issuance of a stock dividend?
121. Distinguishing a stock dividend from a stock split can sometimes cause difficulties. Usually firms treat
small-percentage distributions, say less than a _____ increase in the number of shares, as stock dividends and
larger ones as stock splits.
122. Which of the following is true regarding stock splits?
123. A stock split accomplished by altering the par value in direct proportion to the number of new shares
124. A stock split that is accomplished by a change in par value that is not proportional to the new number of
shares or if the firm does not change the par value, the firm
125. Which of the following is true regarding a reverse stock split?
126. Which of the following is not true regarding a reverse stock split?
127. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of
the following is/are true?
128. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Reasons for
reacquiring outstanding common stock include which of the following?
129. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of
the following is/are true?
130. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of
the following is/are true?
131. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of
the following is/are not true?
132. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of
the following is/are not true?
133. U.S. GAAP and IFRS on accounting for repurchases and reissuances of treasury shares follow the
principle that
134. Firms use this 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.
135. When a firm reacquires common shares under the Cost Method,
136. When a firm reacquires common shares under the Par Value Method for Repurchased Shares,
137. When a firm reacquires common shares under the Constructive Retirement Method for Repurchased
Shares,
138. When a firm uses the par value method to account for treasury shares, ________________.
The par value method requires specific identification of the date and initial proceeds of the shares repurchased,
which is why firms seldom use this method.
139. In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock
options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price. If the
firm uses the cost method, it debits the balance to
140. In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock
options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price. If the
firm applied the constructive retirement method, it is unlikely that the reissue price would be so low as to
require a debit to _____.
141. U.S. GAAP and IFRS require firms to initially report the results of most income transactions in the
142. U.S. GAAP and IFRS aid the investors’ analysis process by requiring firms to classify income transactions
in particular ways in the financial statements which include
143. U.S. GAAP and IFRS distinguish between revenues and expenses on the one hand and gains and losses on
the other. Which of the following is/are true?
144. U.S. GAAP and IFRS distinguish between revenues and expenses on the one hand and gains and losses on
the other. Which of the following is/are not true?
145. Income statements contain which of the following sections or categories, depending on the nature of a
firm’s earnings for the period?
146. Income statements prepared under U.S. GAAP contain which of the following sections or categories,
depending on the nature of a firm’s earnings for the period?
147. Income statements prepared under IFRS contain which of the following sections or categories, depending
on the nature of a firm’s earnings for the period?
148. Which section includes income derived from a firm’s primary business activities as well as from activities
peripherally related to operations. The firm expects these sources of earnings to continue.
149. Revenues from marketable securities and investments in securities, interest expense on borrowings, and
gains and losses from peripheral activities appear as _____. The firm expects these sources of earnings to
continue.
150. Firms almost always report asset impairment charges or restructuring charges in _____.
151. Under U.S. GAAP, sometimes a firm sells or otherwise disposes of a major division or segment of its
business during the year or contemplates its sale or disposal within a foreseeable time after the end of the
accounting period. If so, it must disclose separately any income, gains, and losses related to that division or
segment. The separate disclosure appears in the
152. For most firms a loss from an earthquake or confiscation of assets by a foreign government under U.S.
GAAP would be considered a(n)
153. IFRS uses the idea of a disposal group, a group of assets and directly associated liabilities that a firm will
dispose of as a group in a single transaction. The disposal group notion of IFRS envisions a larger unit than the
component notion of U.S. GAAP. In the year that a firm decides to sell or otherwise dispose of a unit that
qualifies as a(n) _____ it aggregates the assets and liabilities of that unit on the balance sheet into four groups:
current assets, noncurrent assets, current liabilities, and noncurrent liabilities.
154. IFRS uses the idea of a disposal group, a group of assets and directly associated liabilities that a firm will
dispose of as a group in a single transaction. The disposal group notion of IFRS envisions a larger unit than the
component notion of U.S. GAAP. In the year that a firm decides to sell or otherwise dispose of a unit that
qualifies as a discontinued operation, it aggregates the assets and liabilities of that unit on the balance sheet into
four groups. Which of the following is not one of the groups?
155. Under U.S. GAAP and IFRS, the firm measures the assets and liabilities of a discontinued operation at the
lower of their _____ It reports any gain or loss that results in the Discontinued Operations section of the
income statement. The Discontinued Operations section also includes income or loss from operating the unit for
that year. Financial statements for prior years included for comparative purposes classify those amounts also as
a discontinued operation.
156. A separate section of an income statement prepared under U.S. GAAP presents Extraordinary Gains and
Losses. For an item to be extraordinary, it must generally meet which of the following:
157. The FASB and IASB have increasingly required or permitted firms to report certain assets and liabilities at
their fair values (or the lower of fair value or carrying value) at the end of each period instead of their historical
(or acquisition) costs. Examples include which of the following?
158. The FASB and IASB have increasingly required or permitted firms to report certain assets and liabilities
at their fair values (or the lower of fair value or carrying value) at the end of each period instead of their
historical (or acquisition) costs. Examples include which of the following?
159. The FASB and IASB have increasingly required or permitted firms to report certain assets and liabilities
at their fair values (or the lower of fair value or carrying value) at the end of each period instead of their
historical (or acquisition) costs. Examples include which of the following?
160. The FASB and IASB have increasingly required or permitted firms to report certain assets and liabilities at
their fair values (or the lower of fair value or carrying value) at the end of each period instead of their historical
(or acquisition) costs. Examples include which of the following?
161. The FASB and IASB have increasingly required or permitted firms to report certain assets and liabilities at
their fair values (or the lower of fair value or carrying value) at the end of each period instead of their historical
(or acquisition) costs. Examples include which of the following?
162. The FASB and IASB have increasingly required or permitted firms to report certain assets and liabilities at
their fair values (or the lower of fair value or carrying value) at the end of each period instead of their historical
(or acquisition) costs. Examples include which of the following?
163. In some cases U.S. GAAP and IFRS require firms to recognize the gains and losses in measuring net
income in the period of the revaluation, even though the firm has not yet realized the gain or loss in a cash
transaction. For example, firms include losses from decreases in the carrying values of inventories, fixed assets,
and intangibles in computing _____ in the period of the remeasurement.
164. In some cases U.S. GAAP and IFRS require firms to recognize the gains and losses in measuring net
income in the period of the revaluation, even though the firm has not yet realized the gain or loss in a cash
transaction. For example, As the fair value of the hedged financial instrument and its derivative change, firms
include gains and losses from the remeasurement of financial instruments classified as fair value hedges in
_____.
165. U.S. GAAP and IFRS require firms to disclose unrealized gains and losses that historically have bypassed
the income statement in a category called _____.
166. Why does U.S. GAAP and IFRS not require firms to include in net income all unrealized gains and losses
from the remeasurement of assets and liabilities?
167. Other comprehensive income for a reporting period includes
168. Accumulated Other Comprehensive Income
169. Firms have considerable flexibility as to how they report other comprehensive income each period. Under
U.S. GAAP, they can
170. Firms have considerable flexibility as to how they report other comprehensive income each period. Under
IFRS, they can
171. U.S. GAAP and IFRS require firms to account for correction of errors, if material, by
172. Accrual accounting requires frequent, ongoing changes in estimates. Which of the following is/are true?
173. Accrual accounting requires frequent, ongoing changes in estimates. Which of the following is/are not
true?
174. A separate section of the income statement reporting information about discontinued operations is
included
175. Correction of a material error occurring in prior periods is reported as
176. Extraordinary gains and losses is a separate section of the income statement and for an item to be classified
as extraordinary it must be material in amount and
177. An extraordinary item should be reported separately on the statement of income as a component of income
178. Publicly held firms that apply U.S. GAAP or IFRS must show earnings per common share data in the
179. Earnings per common share result from dividing net income
180. Publicly held firms that apply U.S. GAAP or IFRS must show earnings per common share data. Firms
reporting multiple categories of income items must disclose earnings per common share
181. Book value per common share equals
