A "secret reserve" will be created if

A "secret reserve" will be created if

a. inadequate depreciation is charged to income.
b. a capital expenditure is charged to expense.
c. liabilities are understated.
d. stockholders' equity is overstated.


Answer: a capital expenditure is charged to expense.

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

a. authorized shares
b. issued shares
c. unissued shares
d. outstanding shares


Answer: authorized shares

Stock that has a fixed per-share amount printed on each stock certificate is called

Stock that has a fixed per-share amount printed on each stock certificate is called

a. stated value stock.
b. fixed value stock.
c. uniform value stock.
d. par value stock.


Answer: par value stock

Which of the following is not a legal restriction related to profit distributions by a corporation?

Which of the following is not a legal restriction related to profit distributions by a corporation?

a. The amount distributed to owners must be in compliance with the state laws governing corporations.
b. The amount distributed in any one year can never exceed the net income reported for that year.
c. Profit distributions must be formally approved by the board of directors.
d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.


Answer: The amount distributed in any one year can never exceed the net income reported for that year.

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

a. market value of the services received.
b. par value of the shares issued.
c. market value of the shares issued.
d. Any of these provides an appropriate basis for recording the transaction.


Answer: par value of the shares issued.

Direct costs incurred to sell stock such as underwriting costs should be accounted for as...

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


Answer: 1

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

a. pro forma method.
b. proportional method.
c. incremental method.
d. either the proportional method or the incremental method.


Answer: either the proportional method or the incremental method