Multiple Choice Answers

The entry to record the purchase of treasury stock will cause total stockholders’ equity to decrease by the amount of the cost of the treasury shares.
A. True
B. False

Bond issue costs
A. must be expensed when incurred.
B. must be amortized over the life of the bonds.
C. are recorded in an asset account and not amortized.
D. appear on the balance sheet as a liability.

The par value of stock refers to its value on the open market.
A. True
B. False

Bondholders share voting rights with stockholders.
A. True
B. False

The Additional Paid-in Capital account normally arises in the accounting records when
A. the number of shares issued exceeds par value.
B. the stated value of capital stock is greater than the par value.
C. the market value of the stock rises above par value.
D. capital stock is issued at an amount greater than par value.

The convertibility feature of a bond can be exercised by the issuing corporation.
A. True
B. False

How should dividends in arrears be shown on a corporation’s balance sheet?
A. As an increase in liabilities
B. In a note or in the body of the financial statements
C. As a decrease in assets
D. As an increase in stockholders’ equity

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of
A. interest payments made over the life of the bonds minus the amount of issuance premium.
B. issuance premium.
C. interest payments made over the life of the bonds plus the amount of issuance premium.
D. interest payments made over the life of the bonds.

On the balance sheet, treasury stock owned by the company is classified properly as
A. contra-stockholders’ equity.
B. current assets.
C. investments.
D. a note to the financial statements.

Which of the following is an example of off-balance-sheet financing?
A. Leases
B. Bonds
C. Dividends
D. Notes