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1. Lott Co. has outstanding 20,000 shares of 8% preferred stock with a $10 par value...

1.

Lott Co. has outstanding 20,000 shares of 8% preferred stock with a $10 par value and 100,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and fully participating and $131,000 is distributed, the common stockholders will receive:

Select one:

a. $0

b. $51,000

c. $61,000

d. $69,000

e. $85,000

2.

What effect will the acquisition of treasury stock have on earnings per share and Retained Earnings, respectively?

Select one:

a. Decrease and no effect

b. Increase and no effect

c. Decrease and increase

d. Increase and decrease

e. Decrease and decrease

3.

A company grants its executives stock options as a form of compensation. The company correctly determines the fair value of the options. During the expected period of benefit, the company records the complete journal entry relating to compensation expense. How does this journal entry affect Net Income and Total Stockholders' Equity, respectively?

Select one:

a. No Effect, Increase

b. No Effect, No Effect

c. Decrease, Increase

d. Decrease, Decrease

e. Decrease, No Effect

4.

Stock Options should be included in the diluted earnings per share computation as if the options had been converted into common stock if their exercise price is, in relation to the market price of the stock,

Select one:

a. Either Greater or Lower

b. Lower, but not Greater

c. Greater, but not Lower

5,

A liability for compensated absences (such as vacations) that employees will be paid should:

Select one:

a. Be accrued following the employee's retirement

b. Be accrued during the period when earned by the employees

c. Be accrued during the period when the compensated time is expected to be used by employees

d. Be accrued when the employee begins vacation time

Solutions

Expert Solution

Question 2

Answer b) Increase and no effect

Treasury stock means the stock which was repurchased by the company. After the repurchase the eps will increase as the total stocks available in the Market will decrease. There would not be any impact on retained earnings as cash is being used for repurchase.

Question 3

Answer c) Decrease, Increase

The compensation expense of stock options granted reduces the net income and the issue of stock options increases the total stockholders equity.

Question 4

Answer a) Either greater or lower

While calculating diluted EPS the no. of shares taken are including all the convertible securities during the exercise period g.enerally diluted EPS is lower than EPS.

Question 5

Answer b) Be accrued during the period when earned by the employee

The liability for compensated absences must be charged to expense and recorded as a liability when they are earned and their use is deferred to later period.

ekkarill92 answered 2 years ago
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