Question :
11.Which one of the following represents the economic effects of : 1253530
11.Which one of the following represents the economic effects of declaring and issuing a stock dividend?
a.Has no effect on total assets or total shareholders’ equity
b. Decreases the debt/equity ratio
c. Decreases total shareholders’ equity
d. Increases the current ratio
12.Which one of the following represents the economic effects of issuing a 2-for-1 stock split?
a. No effect on par value per share or retained earnings
b. Decrease par value per share, and no effect on retained earnings
c.No effect on par value per share, and decrease retained earnings
d.Increase par value per share and retained earnings
13.Which one of the following is an effect when a company buys back it own shares of stock?
a.Leverage is affected.
b.It will pay more dividends.
c.It will have a higher debt/equity ratio.
d.Fixed assets will decrease.
14.On January 1, 2010, Garner Corp. had 10,000 shares of $1 par value common stock issued and outstanding. The stock was selling at $10 per share. During 2010, Garner declared and issued a 10% stock dividend. The stock dividend causes
a. total shareholders’ equity to increase by $1,000.
b. net income to decrease by $1,000.
c. earnings per share to decrease by $10,000.
d. no change in total shareholders’ equity
15.If a corporation uses retention of earnings to finance the purchase of property instead of issuing equity securities, then
a.it will have a higher debt/equity ratio.
b.it will pay more dividends.
c.leverage is being used.
d.a company’s earnings per share will decrease.
16.If a corporation issues debt instead of common stock to finance the purchase of property, then the corporation has
a. a disadvantage of higher tax payments because dividends are a bigger deduction than interest.
b. no ability to avoid interest payments from the debt issuance under any circumstances.
c. required dividend payments that are usually double-taxed.
d.a higher earnings per share.
17.Which one of the following is a characteristic of equity as opposed to debt?
a. Voting rights are typically attached.
b. There is a fixed maturity date.
c. There is a legal contract.
d. There is a fixed payment schedule.
18.Which one of the following serves to differentiate debt from equity?
a. Interest on debt may be deferred, but dividends are a legal liability and must be paid every year.
b. Interest on debt is tax deductible while dividends to equity investors are not.
c. Debt has a maturity date which is much shorter than the maturity period of equity.
d. Debt holders are appointed while the board of directors elects equity holders.
19.Which of the following is considered to be an important economic consequence of incentive compensation plans using stock options?
a.dilution of ownership interests.
b.the current ratio is affected.
c.the effects on the financial statements are costly to quantify.
d.the effect on cash flows
20.If preferred stock, which can be exchanged for long-term debt in three years, is classified as an equity financial instrument instead of a liability, then
a.the current ratio declines.
b.earnings per share is less than if the preferred stock was reported as debt.
c.fixed assets and net worth increase.
d.the debt/equity ratio is less than if the preferred stock was reported as debt.
