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Principles of Accounting, Volume 1: Financial Accounting

Chapter 14

Principles of Accounting, Volume 1: Financial AccountingChapter 14

Chapter 14

Multiple Choice

1.

D

3.

A

5.

D

7.

D

9.

B

11.

A

13.

C

15.

C

17.

D

19.

D

21.

B

23.

C

Questions

1.

Advantages of raising capital through stock include no repayment, no interest, and no mandatory dividends. Disadvantages include giving up ownership and marketability of stock. Debt requires repayment and an interest component. Interest is tax deductible whereas dividends are not.

3.

The incorporation laws and which states have favorable laws for corporations.

5.

To affect the market price, avoid takeover, and limit need for dividend payouts.

7.
9.
11.
13.

In total, there is no change to the total dollar value of the equity section, just a change in the number of shares outstanding and a change in the par or stated value of the stock.

15.

Owners’ equity is the value of assets in a company that remains after liabilities are fulfilled. It is also referred to as net worth or net assets.

17.

An example would be the omission of a payroll accrual or a warranty estimate.

19.

Comparative balance sheets and income statements.

21.

Yes, as one analytical tool among others.

23.

EPS is the only ratio required by GAAP to be reported on the face of the income statement. It must be reported in two ways: basic and diluted (if applicable).

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