Question

I. ABC company repurchased its stock, this resulted in a “downsized” company. This is opposite to financial statement effects when common stocks are issued.

II. Preferred stock has preference over common stock in terms of liquidation and dividend payments.

III.  If US dollar appreciates then ABC company's subsidiary in Europe will experience a decrease in earnings when translated to US dollars.

IV. Star Wars Co. employees have the option to purchase company's own stock at a fixed price called the exercise price or star track price.

True

False

Answer 1

I.             ABC company repurchased its stock, this resulted in a “downsized” company. This is opposite to financial statement effects when common stocks are issued. This statement is true as the repurchase of stock will have to be recorded by using an opposite entry compare to the entry recorded at the time of issue of common stock.

II.           Yes it is true that preferred stock has preference over common stock in terms of liquidation and dividend payments.

III.          Yes, it is true that if US dollar appreciates then ABC company's subsidiary in Europe will experience a decrease in earnings when translated to US dollars.

False if Star Wars Co. employees have the option to purchase company's own stock at a fixed price it will not be called the exercise price or star track price. Rather it will be called option price.