ACG 3113 ACTUAL FINAL EXAM QUESTIONS
WITH CORRECT SOLUTIONS 100 PERCENT
VERIFIED
⩥ Which of the following is one reason corporations issue convertible
debt?
A. They can obtain debt financing at lower rates.
B. They can easily sell convertible debt even if the company has a poor
credit rating.
C. They can avoid issue costs associated with equity capital.
D. They can always sell convertible bonds at a premium.. Answer: A -
Corporations issue convertible securities for two main reasons. One is to
raise equity capital without giving up more ownership control than
necessary. A second reason to issue convertibles is to obtain debt
financing at cheaper rates.
⩥ When will the distribution of stock rights to existing common
stockholders increase paid-in capital?
Select answer from the options below:
A - at the date of issuance of the rights
B - at the date of issuance of the rights and at the date of ececise of the
rights.
C - It will never increase paid-in-capital
,D - at the date of exercise of the rights. Answer: D - To have an increase
in paid-in capital, the stockholder would need to exercise their right, and
then they would receive cash in excess of par value, which credits Paid-
in Capital in Excess of Par.
⩥ Winter Sports Apparel issued convertible debt securities. Which of the
following statements is true regarding their journal entries as a result of
this issuance?
A - They will have a single journal entry at issuance for all securities and
another single entry at retirement for all securities in the issue.
B - They will have two separate journal entries at issuance, one for the
bonds to be converted and one for bonds that will not be converted.
Then they will have a single entry at conversion for all bonds to be
converted and another single entry at retirement for all securities that
were not converted.
C - They will have a single journal entry at issuance for all securities and
another single entry at conversion for all securities in the issue.
D - They will have a single journal entry at issuance for all securities,
separate entries each time bonds are converted to common stock, and a
single entry at the end of the. Answer: D - Under GAAP, proceeds from
the issuance of convertible debt are recorded entirely as debt. The entry
to record would be a credit to cash and debit to bonds payable. When
recording the conversion of bonds to common stock, there will always
be a debit to Bonds Payable and a credit to Common Stock. Companies
need to recognize a gain or loss on retiring convertible debt in the same
way that they recognize a gain or loss on retiring nonconvertible debt.
, ⩥ Justice Enterprises issued $1,000 par value convertible bonds at 98. At
the time of issuance, they should record credits to
A - Common Stock and Premium on Bonds Payable.
B - Bonds Payable and Common Stock.
C - Bonds Payable only.
D - Bonds Payable and Discount on Bonds Payable.. Answer: C - At the
time of issuance, the method for recording convertible bonds at the date
of issue follows the method used to record straight debt issues.
Convertible bonds are classified as a liability, in this case, Bonds
Payable only.
⩥ How should the difference between the cash acquisition price of
retired convertible debt and the carrying amount of the debt be recorded
by the issuer?
A - It should be recorded currently in income.
B - It should be recorded as an adjustment of additional paid-in capital.
C - It should be recorded as a prior period adjustment.
D - It should be recorded currently in other comprehensive income, but
not included in the calculation of EPS.. Answer: A - Companies need to
recognize a gain or loss on retiring convertible debt in the same way that
they recognize a gain or loss on retiring nonconvertible debt. Gains and
losses are recorded as income for that year. The company should record
WITH CORRECT SOLUTIONS 100 PERCENT
VERIFIED
⩥ Which of the following is one reason corporations issue convertible
debt?
A. They can obtain debt financing at lower rates.
B. They can easily sell convertible debt even if the company has a poor
credit rating.
C. They can avoid issue costs associated with equity capital.
D. They can always sell convertible bonds at a premium.. Answer: A -
Corporations issue convertible securities for two main reasons. One is to
raise equity capital without giving up more ownership control than
necessary. A second reason to issue convertibles is to obtain debt
financing at cheaper rates.
⩥ When will the distribution of stock rights to existing common
stockholders increase paid-in capital?
Select answer from the options below:
A - at the date of issuance of the rights
B - at the date of issuance of the rights and at the date of ececise of the
rights.
C - It will never increase paid-in-capital
,D - at the date of exercise of the rights. Answer: D - To have an increase
in paid-in capital, the stockholder would need to exercise their right, and
then they would receive cash in excess of par value, which credits Paid-
in Capital in Excess of Par.
⩥ Winter Sports Apparel issued convertible debt securities. Which of the
following statements is true regarding their journal entries as a result of
this issuance?
A - They will have a single journal entry at issuance for all securities and
another single entry at retirement for all securities in the issue.
B - They will have two separate journal entries at issuance, one for the
bonds to be converted and one for bonds that will not be converted.
Then they will have a single entry at conversion for all bonds to be
converted and another single entry at retirement for all securities that
were not converted.
C - They will have a single journal entry at issuance for all securities and
another single entry at conversion for all securities in the issue.
D - They will have a single journal entry at issuance for all securities,
separate entries each time bonds are converted to common stock, and a
single entry at the end of the. Answer: D - Under GAAP, proceeds from
the issuance of convertible debt are recorded entirely as debt. The entry
to record would be a credit to cash and debit to bonds payable. When
recording the conversion of bonds to common stock, there will always
be a debit to Bonds Payable and a credit to Common Stock. Companies
need to recognize a gain or loss on retiring convertible debt in the same
way that they recognize a gain or loss on retiring nonconvertible debt.
, ⩥ Justice Enterprises issued $1,000 par value convertible bonds at 98. At
the time of issuance, they should record credits to
A - Common Stock and Premium on Bonds Payable.
B - Bonds Payable and Common Stock.
C - Bonds Payable only.
D - Bonds Payable and Discount on Bonds Payable.. Answer: C - At the
time of issuance, the method for recording convertible bonds at the date
of issue follows the method used to record straight debt issues.
Convertible bonds are classified as a liability, in this case, Bonds
Payable only.
⩥ How should the difference between the cash acquisition price of
retired convertible debt and the carrying amount of the debt be recorded
by the issuer?
A - It should be recorded currently in income.
B - It should be recorded as an adjustment of additional paid-in capital.
C - It should be recorded as a prior period adjustment.
D - It should be recorded currently in other comprehensive income, but
not included in the calculation of EPS.. Answer: A - Companies need to
recognize a gain or loss on retiring convertible debt in the same way that
they recognize a gain or loss on retiring nonconvertible debt. Gains and
losses are recorded as income for that year. The company should record
