1. On January 2, 2016, Kine Co. granted Morgan, its president, compensatory stock options to buy 1,000 shares of Kine's $10 par common stock. The options call for a price of $20 per share and are exercisable beginning on December 31, 2016. The options can be exercised any time during the three years beginning with this date. Morgan exercised the options on December 31, 2016. The market price of the stock was $40 on January 2, 2016, and $70 on December 31, 2016. The fair value of the options was $25. By what net amount should stockholders' equity increase as a result of the grant and exercise of the options?

(a) $20,000

(b) $25,000

(c) $30,000

(d) $50,000

2. A company issued rights to its existing shareholders without consideration. The rights allowed the recipients to purchase unissued common stock for an amount in excess of par value. When the rights are issued, which of the following accounts will be increased?

3. If a corporation sells some of its treasury stock at a price that exceeds its cost, this excess should be
(a) Reported as a gain in the income statement.
(b) Treated as a reduction in the carrying amount of remaining treasury stock.
(c) Credited to Additional Paid-In Capital.
(d) Credited to Retained Earnings
4. Which of the following should be reported as a stockholders' equity contra account?
(a) Discount on convertible bonds
(b) Premium on convertible bonds
(c) Cumulative foreign exchange translation loss
(d) Organization costs

Transcribed Image Text:

Common StockAdditional Paid-In Capital (a) Yes (b) Yes (c) No (d) No Yes No No Yes