D104 Intermediate Accounting II - Set 4 - Part 3

Correct Answer: Debt-to-assets ratio

The debt-to-assets ratio measures a companys financial leverage and its ability to meet long-term obligations.

Correct Answer: Increases paid-in capital

When treasury stock is sold at a price higher than the purchase price, the excess is credited to paid-in capital.

Correct Answer: Debit interest expense, credit bonds payable

Zero-coupon bonds do not make regular interest payments, so interest expense is recorded by increasing the carrying value of the bonds payable.

Correct Answer: EPS increases

When a company repurchases its own shares, the number of shares outstanding decreases, which increases EPS.

Correct Answer: Recorded as a liability

Once dividends are declared, they are recorded as a liability until they are paid to shareholders.

Correct Answer: Units-of-production method

The units-of-production method is frequently used for natural resources because it allocates depreciation based on usage.

Correct Answer: Debit investment in stock, credit gain on investment

When a property dividend is declared, any gain on investment is recorded as a credit to gain on investment.

Correct Answer: Retained earnings decrease

When dividends are paid out to shareholders, they reduce retained earnings, which represents accumulated profits.

Correct Answer: Based on the fair value of the stock options at the grant date

Stock option compensation is measured at the fair value of the options on the grant date and expensed over the service period.

Correct Answer: To measure the percentage of revenue that becomes profit

The profit margin on sales ratio measures how much of a companys revenue is turned into profit, providing insight into profitability.