1. The pre-emptive right of a common stockholder is the right to
a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preferred stockholders.
d. exclude preferred stockholders from voting rights.

2. Porter Corp. purchased its own par value stock on January 1, 2014 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from
a. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.
b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.
c. retained earnings.
d. net income.

3. Direct costs incurred to sell stock such as underwriting costs should be accounted for as
1. a reduction of additional paid-in capital.
2. an expense of the period in which the stock is issued.
3. an intangible asset.
a. 1
b. 2
c. 3
d. 1 or 3

4. In January 2014, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2014, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares
a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.

5. 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.

6. Which dividends do not reduce stockholders' equity?
a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends

7. What effect does the issuance of a 2-for-1 stock split have on each of the following?
Par Value per Share Retained Earnings
a. No effect No effect
b. Increase No effect
c. Decrease No effect
d. Decrease Decrease

8. Dividends are not paid on
a. noncumulative preferred stock.
b. nonparticipating preferred stock.
c. treasury common stock.
d. Dividends are paid on all of these.

9. Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $630,000. How much of the proceeds would be allocated to the common stock?
a. $250,000
b. $240,909
c. $300,000
d. $286,363

10. Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were purchased in 2011 for $270,000. On November 15, 2015, Stinson declared a property dividend of one share of Matile for every ten shares of Stinson held by a stockholder. On that date, when the market price of Matile was $25 per share, there were 270,000 shares of Stinson outstanding. What gain and net reduction in retained earnings would result from this property dividend?
Gain Net Reduction in
Retained Earnings
a. $0 $108,000
b. $513,000 $756,000
c. $432,000 $243,000
d. $432,000 $675,000

11. Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2014:
Common stock, par value $20; authorized 75,000 shares;
issued and outstanding 45,000 shares $ 900,000
Paid-in capital in excess of par value 350,000
Retained earnings 300,000
$1,550,000
During 2015, the following transactions occurred relating to stockholders' equity:
3,000 shares were reacquired at $28 per share.
3,000 shares were reacquired at $35 per share.
1,800 shares of treasury stock were sold at $30 per share.

For the year ended December 31, 2015, Oaks reported net loss of $150,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2015, balance sheet?
a. $1,265,000.
b. $1,261,400.
c. $1,565,000.
d. $1,415,000.

12. Layne Corporation had the following information in its financial statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $    12,000
Net income for the year ended 2015 115,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,600,000
Common stockholders’ equity, 12/31/15 1,980,000
Outstanding shares, 12/31/15 180,000
Preferred dividends for the year ended 2015 15,000

What is the payout ratio for Layne Corporation for the year ended 2015?
a. 30.1%
b. 18.1%
c. 14.7%
d. 12.0%

13. Colson Inc. declared a $320,000 cash dividend. It currently has 12,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is two years in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders?
a. $152,000.
b. $68,000.
c. $136,000.
d. None.

14. Hernandez Company has 560,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 20% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by
a. $ 1,988,000.
b. $ 1,960,000.
c. $ 2,016,000.
d. $ 3,696,,000.

15. Layne Corporation had the following information in its financial statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $    10,000
Net income for the year ended 2015 83,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,600,000
Common stockholders’ equity, 12/31/15 1,785,600
Outstanding shares, 12/31/15 180,000
Preferred dividends for the year ended 2015 15,000

What is the book value per share for Layne Corporation for the year ended 2015?
a. $11.00
b. $9.92
c. $9.94
d. $8.89

16. Sealy Corporation had the following information in its financial statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $    5,000
Net income for the year ended 2015 87,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,000,000
Common stockholders’ equity, 12/31/15 1,200,000
Outstanding shares, 12/31/15 100,000
Preferred dividends for the year ended 2015 15,000

What is the rate of return on common stock equity for Sealy Corporation for the year ended 2015?
a. 7.9%
b. 6.4%
c. 7.0%
d. 6.5%

17. Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the previous year and the current year.
Assuming that $300,000 will be distributed as a dividend in the current year, how much will the common stockholders receive?
a. Zero.
b. $156,000.
c. $204,000.
d. $252,000.

18. The conversion of bonds is most commonly recorded by the
a. incremental method.
b. proportional method.
c. market value method.
d. book value method.

19. When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be
a. reflected currently in income, but not as an extraordinary item.
b. reflected currently in income as an extraordinary item.
c. treated as a prior period adjustment.
d. treated as an adjustment of additional paid-in capital.

20. In 2014, Eklund, Inc., issued for $103 per share, 70,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $26 par value common stock at the option of the preferred stockholder. In August 2015, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?
a. $1,190,000.
b. $ 910,000.
c. $1,750,000.
d. $1,960,000.

21. The major difference between convertible debt and stock warrants is that upon exercise of the warrants
a. the stock is held by the company for a defined period of time before they are issued to the warrant holder.
b. the holder has to pay a certain amount of cash to obtain the shares.
c. the stock involved is restricted and can only be sold by the recipient after a set period of time.
d. no paid-in capital in excess of par can be a part of the transaction.

22. Compensation expense resulting from a compensatory stock option plan is generally
a. recognized in the period of exercise.
b. recognized in the period of the grant.
c. allocated to the periods benefited by the employee's required service.
d. allocated over the periods of the employee's service life to retirement.

23. Grant, Inc. had 60,000 shares of treasury stock ($10 par value) at December 31, 2014, which it acquired at $12 per share. On June 4, 2015, Grant issued 30,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $14 at December 31, 2014, $15 at June 4, 2015, and $18 at December 31, 2015. The stock options had been granted for $13 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2015?
a. $210,000.
b. $270,000.
c. $330,000.
d. $360,000.

24. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is
Dilutive Antidilutive
a. Yes Yes
b. Yes No
c. No Yes
d. No No

25. What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively?
a. Decrease and no effect
b. Increase and no effect
c. Decrease and increase
d. Increase and decrease

26. Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the
a. greater earnings adjustment.
b. greater earnings per share adjustment.
c. smaller earnings adjustment.
d. smaller earnings per share adjustment.

27. On January 1, 2014, Ellison Company granted Sam Wine, an employee, an option to buy 1,000 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $4,500. Wine exercised his option on October 1, 2014 and sold his 1,000 shares on December 1, 2014. Quoted market prices of Ellison Co. stock in 2014 were:
July 1 $30 per share
October 1 $36 per share
December 1 $40 per share
The service period is for four years beginning January 1, 2014. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense for 2014 on its books in the amount of
a. $4,500.
b. $1,500.
c. $1,125.
d. $0.

Use the following information for questions 28 and 29.

On May 1, 2014, Payne Co. issued $900,000 of 7% bonds at 102, which are due on April 30, 2024. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne’s common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2014, the fair value of Payne’s common stock was $35 per share and of the warrants was $2.
28. On May 1, 2014, Payne should credit Paid-in Capital from Stock Warrants for
a. $36,560.
b. $36,720.
c. $37,080.
d. $65,000.

29. On May 1, 2014, Payne should record the bonds with a
a. discount of $36,000.
b. premium of $10,080.
c. discount of $18,720.
d. premium of $27,000.

30. The following information is available for Barone Corporation:
January 1, 2015 Shares outstanding 2,000,000
April 1, 2015 Shares issued 320,000
July 1, 2015 Treasury shares purchased 120,000
October 1, 2015 Shares issued in a 50% stock dividend 2,200,000
The number of shares to be used in computing earnings per common share for 2015 is
a. 3,270,000.
b. 3,380,000.
c. 2,360,000.
d. 4,360,000.

Use the following information for questions 31 and 32.

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 6% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.60 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 40 shares of common stock. The net income for 2015 was $400,000 and the income tax rate was 30%.

31. Basic earnings per share for 2015 is (rounded to the nearest penny)
a. $1.57.
b. $1.71.
c. $1.80.
d. $1.85.

32. Diluted earnings per share for 2015 is (rounded to the nearest penny)
a. $1.41.
b. $1.49.
c. $1.53.
d. $1.58.

33. Warrants exercisable at $20 each to obtain 50,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by
a. 10,000.
b. 50,000.
c. 12,000.
d. 15,000.

Use the following information for questions 34 and 35.
Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $500,000 of 10% convertible bonds outstanding during 2015. The preferred stock is convertible into 27,500 shares of common stock. During 2015, Lerner paid dividends of $.45 per share on the common stock and $1.50 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2015 was $280,000 and the income tax rate was 30%.

34. Basic earnings per share for 2015 is (rounded to the nearest penny)
a. $1.11.
b. $1.21.
c. $1.25.
d. $1.35.

35. Diluted earnings per share for 2015 is (rounded to the nearest penny)
a. $1.24.
b. $1.26.
c. $1.28.
d. $1.33.

1. The pre-emptive right of a common stockholder is the right to a...