A company currently has 200,000 shares issued and 190,000 shares outstanding. If the company purchases 20,000 shares

A company currently has 200,000 shares issued and 190,000 shares outstanding. If the company purchases 20,000 shares of treasury stock, what amount of shares will be outstanding?

A) 170,000.

B) 220,000.

C) 210,000.

D) 180,000.

Answer: A

When treasury stock is sold for more than the company originally paid to purchase the shares, the difference:

A) Increases net income.

B) Increases stockholders' equity.

C) Has no effect on net income or stockholders' equity.

D) Decreases net income and decreases stockholders' equity.

Answer: B

The corporation's own stock that has been issued and then bought back by the company is referred to as:

A) Preferred Stock.

B) Authorized Stock.

C) Treasury Stock.

D) Common Stock.

Answer: C

What would be the impact on the accounting equation when a company acquires treasury stock?

A) Increase assets and increase stockholders' equity.

B) Decrease assets and increase stockholders' equity.

C) Decrease assets and decrease stockholders' equity.

D) No effect on the accounting equation.

Answer: C

When treasury stock is resold at a price above cost:

A) A gain account is credited.

B) A loss is reported.

C) A revenue account is credited.

D) Additional Paid-in Capital is increased.

Answer: D

Which of the following is TRUE regarding the accounting for treasury stock?

A) Treasury stock is reported on the balance sheet in the equity section.

B) The purchase and sale of treasury stock has no impact on the income statement.

C) Treasury stock represents a negative equity account.

D) All of the other answer choices are correct.

Answer: D

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants

a. are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share.
b. are added, net of tax, to the numerator of the calculation for diluted earnings per share.
c. are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common stock.
d. none of these.


Answer: are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share

Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the

a. greater earnings adjustment.
b. greater earnings per share adjustment.
c. smaller earnings adjustment.
d. smaller earnings per share adjustment.


Answer: smaller earnings per share adjustment

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would

a. fairly present diluted earnings per share on a prospective basis.
b. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis.
c. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share.
d. be antidilutive.


Answer: be antidilutive

Due to the importance of earnings per share information, it is required to be reported by all

Due to the importance of earnings per share information, it is required to be reported by all

Public Companies Nonpublic Companies


a. Yes Yes
b. Yes No
c. No No
d. No Yes


Answer: yes no

When applying the treasury stock method for diluted earnings per share, the market price of the common stock used for the repurchase is the

a. price at the end of the year.
b. average market price.
c. price at the beginning of the year.
d. none of these.


Answer: average market price

Antidilutive securities

a. should be included in the computation of diluted earnings per share but not basic earnings per share.
b. are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share.
c. include stock options and warrants whose exercise price is less than the average market price of common stock.
d. should be ignored in all earnings per share calculations.


Answer: should be ignored in all earnings per share calculations