Question

Treasury stock is classified as: A. An asset account B. A contra asset account C. A contra equity account D. A liability account Prior period adjustments are reported in the: A. Multiple-step income statement B. Balance sheet C. Statement of retained earnings D. Statement of cash flows Changes in accounting estimates are: A. Considered accounting errors B. Accounted for with a cumulative "catch-up" adjustment C. Extraordinary items D. Accounted for in current and future periods The Discount on Bonds Payable account is: A. A liability B. A contra liability C. An expense D. A contra equity Based on what you know about stocks, what is the best type of stock to have? (Using the following characteristics: Preferred vs. Common, Participating vs. Nonparticipating, Cumulative vs. Noncumulative, and Convertible vs. not Convertible, Callable vs. Non-callable). Write your answer. The type of business organization that is a separate legal entity and as such, has the same duties, rights and responsibilities as a person is a ____________________________.

Answer 1

Answers

• Treasury stock is classified as: Correct Answer C. A contra equity account.
  Treasury Stock account has a DEBIT balance and is deducted under Total Stockholder’s Equity section of Balance Sheet.
• Prior period adjustments are reported in the: Correct Answer C. Statement of retained earnings.
  Prior period items affect prior year Net Incomes, which are accumulated in Retained earnings. Hence, the same are adjusted/corrected under Statement of Retained Earnings.
• Changes in accounting estimates are: Correct Answer B. Accounted for with a cumulative "catch-up" adjustment.
  For example, a change in Equipment residual value or estimated useful life is adjusted in the year of such change.
• The Discount on Bonds Payable account is: Correct Answer- B. A contra liability.
  These have Debit balances and are deducted from Bonds Payable (a liability) to give Carrying Value of Bonds payable.
• Based on what you know about stocks, what is the best type of stock to have? (Using the following characteristics: Preferred vs. Common, Participating vs. Nonparticipating, Cumulative vs. Noncumulative, and Convertible vs. not Convertible, Callable vs. Non-callable).

The type of Stock would be Common Stock because of possibility of growth in investment income. Though the risks are higher, the returns are more as compared to Preferred stock.

Participating	because you get to participate in dividend over and above your regular preferred stock dividend.
Cumulative	because in case of unpaid dividend, the same is not lost, but gets accumulated as 'arrear'.
Convertible	because these get converted to Common Stock shares at later date.
Callable	because these can be redeemed in future.

• The type of business organization that is a separate legal entity and as such, has the same duties, rights and responsibilities as a person is a CORPORATION or COMPANY form of business.