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Multiple Choice

1. On January 2, 2007 Stoner Corporation granted stock options to key employees for the purchase of 60,000 shares of the company's common stock at $25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2009, by grantees still in the employ of the company. The market price of Stoner's common stock is $32 per share at the date of grant, and application of an option pricing model results in a computed value of $10 per option as of the grant date. Assume no stock options were terminated during the year. How much should Stoner charge to compensation expense for the year ended December 31, 2007?
A. $600,000 C. $300,000
B. $420,000 D. $210,000

2. On January 2, 2007, the board of directors of Gimli Mining Corporation declared a cash dividend of $1,200,000 to stockholders of record on January 18, 2007, and payable on February 10, 2007. The dividend is permissible by law in Gimli's state of incorporation.
Selected data from Gimli's December 31, 2006 balance sheet follow:
Accumulated depletion $200,000
Capital Stock $1,100,000
Additional paid-in capital $800,000
Retained Earnings $500,000
The $1,200,000 dividends includes a liquidating dividend of
A. $800,000 C. $600,000
B. $700,000 D. $200,000

3. At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the
A. Declaration of a stock split
B. Declaration of a stock dividend
C. Purchase of treasury stock
D. Payment in full of subscribed stock

4. A company issued rights to its existing shareholders to acquire, at $15 per share, 5,000 unissued shares of common stock with a par value of $10 per share. Common Stock will be credited at
A. $15 per share when the rights are exercised
B. $15 per share when the rights are issued
C. $10 per share when the rights are exercised
D. $10 per share when the rights are issued

5. On December 10, Daniel Co. split its stock 5 for 2 when the market value was $65 per share. Prior to the split, Daniel had 200,000 shares of $15 par value stock. After the split, the par value of the stock was
A. $3 C. $15
B. $6 D. $26

6. Thorpe Corporation holds 10,000 shares of its $10 par common stock as treasury stock, which was purchased in 2006 at a cost of $120,000. On December 10, 2007, Thorpe sold all 10,000 shares for $210,000. Assuming that Thorpe used the cost method of accounting for treasury stock, this sale would result in a credit to
A. Paid in Capital from Treasury Stock of $90,000
B. Paid in Capital from Treasury Stock of $110,000
C. Gain on Sale of Treasury Stock of $90,000
D. Retained Earnings of $90.000

7. The stockholders' equity section of Dolphin Corporation as of December 31, 2007, contained the following accounts:
Common stock, 25,000 shares authorized; 10,000 shares issued and
outstanding $30,000
Capital contributed in excess of par $40,000
Retained earnings $80,000
Dolphin's board of directors declared a 10 percent stock dividend on April 1, 2008, when the market value of the stock was $7 per share. Accordingly, 1,000 new shares were issued. All of Dolphin's stock has a par value of $3 per share. Assuming Dolphin sustained a net loss of $12,000 for the quarter ended March 31, 2008, what amount should Dolphin report as retained earnings as of April 1, 2008?
A. $61,000 C. $68,000
B. $64,000 D. $73,000
8. On September 20, 2007 Nozzle Corporation declared the distribution of the following dividend to its stockholders of record as of September 30, 2007:
Investment in 100,000 shares of Astro Corporation stock, carrying value $600,000; fair market value on September 20, $1,450,000; fair market value on September 30, $1,575,000.
The entry to record the declaration of the property dividend would include a debit to Retained Earnings of
A. $1,575,000 C. $850,000
B. $1,450,000 D. $600,000
9. At December 31, 2007, Reed Corp. owed notes payable of $1,000,000 with a maturity date of April 30, 2008. These notes didn't arise from transactions in the normal course of business. On February 1, 2008, Reed issued $3,000,000 of 10 year bonds with the intention of using part of the bond proceeds to liquidate the $1,000,000 of notes payable. Reed's December 31, 2007 financial statements were issued on March 29. How much of the $1,000,000 notes payable should be classified as current in Reed's balance sheet at December 31, 2007?
A. $0 C. $900,000
B. $100,000 D. $1,000,000

Solution Summary

The solution explains various multiple choice questions relating to stockholders equity