Chapter 18 Shareholders' Equity True/False Questions 1. Paid-in Paid-in capital capital must consist consist solely solely of amounts amounts invested invested by sharehold shareholders. ers. Answer: False
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". #toc$ designat designated ed as preferred preferred usually usually has preferenti preferential al rights rights over other classes classes of stoc$ stoc$ relative to dividends and li%uidating distributions. Answer: &rue
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(. )ividends )ividends in arrears arrears on cumulativ cumulativee preferred preferred stoc$ are reported reported as current current liabilit liabilities. ies. Answer: False
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*. +eceivabl +eceivables es from share share purchase purchase contracts contracts are reported reported as current current and noncurrent noncurrent assets assets depending upon the terms of the underlying note. Answer: False
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,. oncash assets assets received as consideration consideration for the issue issue of stoc$ stoc$ are always valued valued based on the fair mar$et value of the stoc$. Answer: False
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!. &reasury &reasury stoc$ transacti transactions ons never never increase increase retained retained earnings earnings or net income. income. Answer: &rue
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'. +estrictions on retained earnings must must be disclosed in the body of the balance balance sheet. Answer: False
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. /ash divide dividends nds become become a bindi binding ng liability liability as as of the record record date. date. Answer: False
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0. nder 2AAP3 2AAP3 the declaratio declaration n of a property dividend dividend may may re%uire re%uire the recognition recognition of a gain or loss if the fair value of the property is different from fr om its carrying value on the declaration date. Answer: &rue
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14. #toc$ dividen dividends ds may cause a reduction reduction in retaine retained d earnings3 earnings3 but they never never reduce total total shareholders5 e%uity. Answer: &rue
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Chapter 18 Shareholders' Equity Matching Pair Questions se the following to answer %uestions 11-"4: 11-"4. 11-"4. se 6 7 6ncrease3 ) 7 )ecrease3 )ecrease3 or 7 o effect3 effect3 to indicate indicate the effect on retained retained earnings earnings for each of the listed transactions. 11. 1". 1(. 1*. 1,. 1!. 1'. 1. 10. "4.
8888 )eclaratio )eclaration n of of a property property dividend. dividend. 8888 8888 et et incom incomee for for the the year. year. 8888 Purchase Purchase of treasury treasury stoc$ stoc$ at a cost greater greater than the original original issue issue price 9cost 9cost method. method. 8888 Purchase Purchase of treasury treasury stoc$ stoc$ at a cost greater greater than the original original issue issue price 9par value value method. 8888 Purchase Purchase of treasury treasury stoc$ stoc$ at a cost less than the the original original issue price price 9cost method method.. 8888 Purchase of treasury stoc$ stoc$ at a cost less than the original issue issue price 9par value method. method. 8888 8888 6ssu 6ssuee comm common on stoc$. stoc$. 8888 +esale +esale of treasury stoc$ stoc$ for less than cost 9cost 9cost method3 method3 assuming no previous previous treasury stoc$ sales. 8888 +esale +esale of of treasury treasury stoc$ stoc$ for more more than cost cost 9cost 9cost method. method. 8888 +esale +esale of treasury treasury stoc$ stoc$ for for more than than par and cost cost 9par value value method. method. Answer: 11-); 1"-6; 1(-; 1*-); 1,-; 1!-; 1'-; 1-); 10-; "4-
se the following to answer %uestions "1-(4: "1-(4. "1-(4. se 6 7 6ncrease3 ) 7 )ecrease3 )ecrease3 or 7 o effect3 effect3 to indicate indicate the effect on retained retained earnings earnings for each of the listed transactions. "1. 8888 8888 A net loss loss for for the the year. year. "". 8888 A stoc$ stoc$ split split effected effected in the form form of a stoc$ stoc$ dividend dividend.. "(. 8888 A stoc$ stoc$ split split in which the the per share is reduced reduced 9but 9but not effected effected in the the form of a stoc$ stoc$ dividend. "*. 8888 )eclaratio )eclaration n of a ,< stoc$ dividend dividend.. ",. 8888 8888 )eclar )eclarati ation on of a cash cash divid dividend end.. "!. 8888 6ssue 6ssue stoc$ stoc$ by a share share purchase purchase contract. contract. "'. 8888 Payme Payment nt of previo previously usly declared declared cash cash dividend dividend.. ". 8888 +etire +etirement ment of common common stoc$ stoc$ at a cost cost greater greater than the origin original al issue issue price. "0. 8888 +etire +etirement ment of common common stoc$ stoc$ at a cost cost less than the the original original issue issue price. price. (4. 8888 +esale of treasury stoc$ for less than carrying carrying value 9cost method method assuming no previous treasury stoc$ sales. Answer: "1-); ""-); "(-; "*-); ",-); "!-; "'-; "-); "0-; (4-)
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Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity se the following to answer %uestions (1-(,: (1-(,. Listed below are ten terms terms followed by a list list of phrases that describe or characteri=e five of the terms. >atch each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. Terms A. /ost method ?. /umulative /. )eficit ). Large stoc$ dividend @. Li%uidating dividend F. Paid-in capital-share repurchase 2. Par value method . Participating 6. +eceivable - share purchase purchase contract B. #toc$ split Phrases (1. 8888 A debit debit balanc balancee for retained retained earnin earnings. gs. (". 8888 A feature feature that could could increase increase the the dividend dividend yield yield on preferred preferred stoc$. stoc$. ((. 8888 @ssent @ssentiall ially y identical identical to to formally formally retirin retiring g shares. shares. (*. 8888 A stoc$ stoc$ split split in the the form form of a stoc$ stoc$ divide dividend. nd. (,. 8888 An An account account that that may may be used used in a share share buybac buybac$. $. Answer: (1-/; ("-; ((-2; (*-); (,-F se the following to answer %uestions (!-*4: (!-*4. Listed below are ten terms terms followed by a list list of phrases that describe or characteri=e five of the terms. >atch each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. Terms A. )eclaration date ?. Large stoc$ dividend /. Li%uidating dividend ). Paid-in capital-share capital-share repurchase @. Par value value method method F. Participating 2. Preferred stoc$ is issued issued . Property dividend 6. +eceivable from share purchase contract B. #toc$ split Phrases (!. 8888 /ash dividends dividends become become a legal legal liabil liability. ity. ('. 8888 /lass /lassified ified as a contra contra account account to to paid-in paid-in capital. capital. (. 8888 8888 /onsid /onsidered ered a retu return rn of capit capital. al. (0. 8888 8888 /onsi /onsists sts of of noncas noncash h assets assets.. *4. 8888 )esign )esigned ed to decreas decreasee the mar$et mar$et value value of of stoc$. stoc$. Answer: (!-A; ('-6; (-/; (0-; *4-B
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
251
Chapter 18 Shareholders' Equity se the following to answer %uestions *1-*,: *1-*,. Listed below are ten terms terms followed by a list list of phrases that describe or characteri=e five of the terms. >atch each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. Terms A. Appropriation of retained earnings ?. /ost method /. /umulative ). @arnings-price ratio @. Limited liability company F. Par value 2. +etained earnings . +eturn on shareholders5 e%uity 6. +everse stoc$ split B. #hare issue issue cost Phrases *1. 8888 )esign )esigned ed to increa increase se the mar$et mar$et value of stoc$. stoc$. *". 8888 +educe +educess the net net proceeds proceeds from from sellin selling g shares. shares. *(. 8888 Featur Featuree designed designed to to favor favor preferred preferred shareho shareholders lders.. **. 8888 as no relati relationsh onship ip to to mar$et mar$et value. value. *,. 8888 >ay be reduce reduced d when when shares shares are retire retired. d. Answer: *1-6; *"-B; *(-/; **-F; *,-2 se the following to answer %uestions *!-,4: *!-,4. Listed below are ten terms terms followed by a list list of phrases that describe or characteri=e five of the terms. >atch each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. Terms A. /ost method ?. /umulative /. @arnings-price ratio ). Limited liability company @. Par value F. +estriction of retained earnings 2. +etained earnings . +eturn on shareholders5 e%uity 6. +everse stoc$ split B. #hare issue issue cost Phrases *!. 8888 et et income income as a percentag percentagee of average average boo$ boo$ value. value. *'. 8888 Paid-in Paid-in capital capital andCor andCor retained retained earnings earnings affected affected at time time of sale of treasury treasury stoc$. stoc$. *. 8888 Prefer Preferred red practice practice is to disclo disclose se in the footnot footnotes. es. *0. 8888 #imilar #imilar to to an # corporati corporation3 on3 but but no limit limit on number number of of owners. owners. ,4. 8888 sed in evaluat evaluating ing stoc$ stoc$ perform performance. ance. Answer: *!-; *'-A; *-F; *0-); ,4-/
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Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity Multiple Choice Questions ,1. &he net net assets assets of a corporatio corporation n e%ual e%ual to: A /ontri /ontribut buted ed capita capital. l. ? +eta +etain ined ed earn earnin ings gs.. / #har #hareh ehol olde ders rs55 e%uity e%uity.. ) one one of the the abo above ve.. Answer: /
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,". /haracteristics of of the corporate corporate form that that have led to the growth of this form of business ownership include all of the following eDcept: A @ase @ase of of rais raising ing capita capital. l. ? Low govern governmen mentt regu regulat lation ion.. / Limi Limite ted d liab liabil ilit ity. y. ) @ase @ase of owne ownersh rship ip tran transfe sfer. r. Answer: ?
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,(. +etain +etained ed earn earning ingss repres represent ent:: A @arn @arned ed capi capita tal. l. ? /ash. / Assets. ) et ass asset ets. s. Answer: A
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,*. &he two primary primary compone components nts of shareho shareholders lders55 e%uity e%uity are: A Preferred Preferred stoc$ stoc$ and and retained retained earnings. earnings. ? &he par par value value of common common stoc$ stoc$ plus retained retained earning earnings. s. / Paid-in Paid-in capit capital al and retained retained earnings. earnings. ) Prefer Preferred red and common common stoc$. stoc$. Answer: /
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,,. nreali=ed nreali=ed pensio pension n cost is include included d among shareh shareholde olders5 rs5 e%uity e%uity as: A Futu Future re earn earnin ings gs.. ? An addit addition ion to paidpaid-in in capi capital tal.. / A restri restricti ction on of retai retained ned earn earning ings. s. ) A con contr traa acc accou ount nt.. Answer: )
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,!. )etails )etails of each class class of of stoc$ stoc$ must must be reported: reported: A On the the face face of the balance balance sheet sheet only. only. ? 6n disclo disclosur suree note notess only only.. / On the face of of the balance balance sheet sheet or or in disclos disclosure ure notes. notes. ) On the face face of the balance balance sheet sheet and and in disclosu disclosure re notes. notes. Answer: /
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Chapter 18 Shareholders' Equity ,'. 6n terms of business business volume3 volume3 the the dominant dominant form of business business organi= organi=atio ation n is the: A Part Partne ners rshi hip. p. ? /orp /orpor orat atio ion n. / Limite Limited d liabi liabilit lity y compa company. ny. ) Prop Propri riet etor orsh ship ip.. Answer: ?
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,. &he corpora corporate te charter charter someti sometimes mes is is $nown $nown as as 9a: A Articl Articles es of of incor incorpor porati ation. on. ? #tatem #tatement ent of orga organi= ni=ati ation on.. / ?y-laws. ) +egis +egistrat tration ion statem statement ent.. Answer: A
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,0. &he preempt preemptive ive right right refers refers to the shareh shareholder older5s 5s right right to: A >aintain >aintain a proportio proportional nal ownership ownership interes interestt in the corporatio corporation. n. ? Eote for members members of of the the board board of of director directors. s. / +eceiv +eceivee a shar sharee of divide dividends nds.. ) #hare in profits profits propor proportiona tionally lly with with all other other stoc$hold stoc$holders. ers. Answer: A
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!4. /ommon /ommon sharehold shareholders ers usually usually have have all of the follow following ing rights rights eDcept: eDcept: A &o share share in in the the profit profits. s. ? &o share share in assets assets upon li%uidati li%uidation. on. / &o elec electt a boar board d of direct directors ors.. ) &o partici participate pate in the the day-to-d day-to-day ay operati operations. ons. Answer: )
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!1. /orporati /orporations ons are formed formed in accord accordance ance with: with: A &he >odel >odel ?usin ?usiness ess /orporati /orporation on Act. ? Fede Federa rall stat statut utes es.. / &he laws laws of of indivi individua duall state states. s. ) Federal Federal trade trade commissi commission on regulation regulations. s. Answer: /
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!". Preferred Preferred stoc$ stoc$ is called preferred preferred because because it usually usually has two preferen preferences. ces. &hese &hese preferences preferences relate to: A )ivide )ividends nds and and voti voting ng right rights. s. ? Par value value and divide dividend nds. s. / &he preemptiv preemptivee right right and voting voting right rights. s. ) Assets Assets at at li%uida li%uidation tion and dividend dividends. s. Answer: )
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Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity !(. &he par value value of of shares issue issued d is normally normally recorded recorded in the: the: A Paid-in Paid-in capital capital in eDcess eDcess of par par account account.. ? /omm /ommon on stoc stoc$ $ accou account nt.. / +etain +etained ed earn earning ingss accou account. nt. ) Appropriat Appropriated ed retain retained ed earnin earnings gs accoun account. t. Answer: ?
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!*. Authori=e Authori=ed d capital capital stoc$ stoc$ refers refers to the total total numbe numberr of shares: shares: A Outs Outsta tand ndin ing. g. ? 6ssued. / 6ssued 6ssued and outsta outstandi nding ng.. ) &hat &hat can can be be issu issued ed.. Answer: )
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!,. &he par par value value of of common common stoc$ stoc$ represen represents: ts: A &he arbitrar arbitrary y dollar dollar amount amount assigned assigned to a share share of stoc$. stoc$. ? &he li%u li%uida idatio tion n value value of of a share. share. / &he boo$ boo$ value value of of a share share of of stoc$ stoc$.. ) &he amount amount received received when when the stoc$ stoc$ was was issued. issued. Answer: A
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!!. hich of the follow following ing statemen statements ts is true when dividen dividends ds are not declared declared or paid on cumulative preferred stoc$G A &he sharehold shareholders ers must be allowed allowed to convert convert their their shares to common common stoc$. stoc$. ? &he unpaid unpaid dividends dividends are accrued accrued as a liabi liability. lity. / &he unpaid unpaid dividend dividendss are reported reported in a note note to the financia financiall statements. statements. ) &he unpaid unpaid divid dividends ends accrue accrue intere interest st until until paid. paid. Answer: /
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!'. Outsta Outstandi nding ng comm common on sto stoc$ c$ is: is: A #toc$ that that is perfor performing ming well well on the the ew Hor$ Hor$ #toc$ #toc$ @Dchange. @Dchange. ? #toc$ that has has been been authori=e authori=ed d by the the state state for issue issue.. / #toc$ #toc$ held held in the the corpo corporat ratee treasu treasury. ry. ) #toc$ #toc$ in the the hands hands of of shareho shareholde lders. rs. Answer: )
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!. 6ssued 6ssued stoc$ stoc$ refers refers to the the number number of shares: shares: A Outsta Outstandi nding ng plus plus treasur treasury y shares. shares. ? #har #hares es iss issue ued d for for cash cash.. / 6n the the hand hand of of share sharehol holder ders. s. ) &hat &hat may be be issued issued unde underr state state law. law. Answer: A
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Chapter 18 Shareholders' Equity !0. Preferred Preferred shares shares that are parti participat cipating ing may: A Eote Eote for the the board board of of direct directors ors.. ? ?e eDcha eDchange nged d for comm common on stoc stoc$. $. / +eceive +eceive eDtra eDtra cash cash during during corpo corporate rate li%ui li%uidatio dation. n. ) +eceive +eceive addition additional al dividends dividends beyond beyond the the stated amoun amount. t. Answer: )
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'4. &he >odel >odel ?usin ?usiness ess /orporati /orporation on Act: A ses the word IcommonI IcommonI and IpreferredI in describing distinguishing characteristics of stoc$. ? )efines )efines legal capital capital as the amount amount of net assets assets not availabl availablee for distributi distribution on to shareholders. / Provides Provides guidance guidance for choosing choosing an appropri appropriate ate par value value for new issues of stoc$. stoc$. ) as affecte affected d the the laws laws of most states. states. Answer: )
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'1. hen preferred preferred stoc$ stoc$ carries carries a redemption redemption privilege privilege33 the shareholders shareholders may: may: A Purchase Purchase new new shares shares as as they they become become availa available. ble. ? @Dchange @Dchange their their preferred preferred shares shares for commo common n shares. shares. / #urrender #urrender the the preferred preferred shares shares for a specifi specified ed amount amount of cash. cash. ) Purchase Purchase treasury treasury shares shares ahead ahead of commo common n sharehold shareholders. ers. Answer: /
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'". &reasury &reasury shares shares are most most often reported reported as: as: A A reduction reduction of total total shareh shareholder olders5 s5 e%uity e%uity.. ? A reducti reduction on of total total paid paid-in -in capi capital tal.. / A reduct reduction ion to retai retained ned earn earning ings. s. ) An eDpen eDpense se on on the the income income statemen statement. t. Answer: A
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'(. hen treasury treasury shares shares accounted accounted for for under the the cost method method are sold sold at a price above above cost: cost: A A gain gain acco accoun untt is credi credited ted.. ? A los losss is is rep repor orte ted. d. / A reven revenue ue acco account unt is cred credite ited. d. ) Addition Additional al paid-in paid-in capital capital is increase increased. d. Answer: )
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'*. hen treasury treasury shares shares accounted accounted for under under the cost cost method are resold resold at a price below cost: cost: A Addition Additional al paid-in paid-in capital capital andCor andCor retained retained earnings earnings is reduced. reduced. ? Addition Additional al paid-in paid-in capital capital andCor andCor retained retained earnings earnings is is increased. increased. / +etain +etained ed earnin earnings gs is alway alwayss reduced reduced.. ) A loss loss is ta$en ta$en on on the income income statemen statement. t. Answer: A
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Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity ',. hen treasury treasury stoc$ stoc$ is purchased purchased for an amount amount greater greater than its par value3 value3 what is the effect effect on total shareholders5 e%uity under the cost methodG A 6ncrea rease ? )ecre crease / o ef effect ) /annot /annot tell tell from from the given given informa information tion.. Answer: ?
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'!. hen stoc$ stoc$ is issued issued in eDchange eDchange for property3 property3 the best evidence evidence of mar$et mar$et value might might be any of the following eDcept: A &he apprais appraised ed value value of the proper property ty received received.. ? &he sellin selling g price price of the the stoc$ stoc$ in a recent recent transa transaction ction.. / &he price price of the stoc$ stoc$ %uoted %uoted on on the stoc$ eDchange. eDchange. ) &he average average boo$ value of outstan outstanding ding stoc$. stoc$. Answer: )
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''. hen stoc$ stoc$ is issued issued under under a stoc$ stoc$ subscri subscriptio ption: n: A o entry entry is recorded recorded until until the the shares shares are fully fully paid for. for. ? An asset asset is recorded recorded for the receivab receivable le from share share purchase purchase contract. contract. / A credit is made made to common common stoc$ stoc$ upon upon receipt receipt of the subscrip subscription tion.. ) A debit debit is made made to paid-i paid-in n capital capital - eDcess eDcess of of par. Answer: /
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'. &he #@/ re%uire re%uiress that a receivabl receivablee from a share share purchase purchase contract contract be reported: reported: A As a reduct reduction ion of of paid-i paid-in n capita capital. l. ? As a cur curre rent nt asse asset. t. / As a non noncu curr rren entt asse asset. t. ) As an increase increase in in shareho shareholders lders55 e%uity. e%uity. Answer: A
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'0. hen preferred stoc$ is purchased by by the issuing corporation at a price below the original original issue price and the stoc$ is retired3 the transaction: A 6ncreas 6ncreases es net net incom incomee for the the year. year. ? 6ncreas 6ncreases es reta retain ined ed earni earnings ngs.. / 6ncreas 6ncreases es reven revenue ue for for the year. year. ) 6ncreases 6ncreases paid-in paid-in capit capital al share share repurch repurchase. ase. Answer: )
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4. hen more more than one security security is sold for for a single price price and the total selling selling price price is not e%ual to the sum of the mar$et prices3 the cash received is allocated between the securities based on: A +elati +elative ve boo$ boo$ values values.. ? Par Par val valu ues. es. / +elati +elative ve mar$et mar$et values values.. ) &he earnin earnings gs per share. share. Answer: /
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Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
25"
Chapter 18 Shareholders' Equity 1. &he retained retained earnings earnings balance balance reported reported on the balance balance sheet sheet typically typically is not affected affected by: A et inc inco ome. ? A prior prior period period adus adustme tment. nt. / )ivi )ivide dend ndss paid paid.. ) +est +estri rict ctio ions ns.. Answer: )
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". hen dividen dividends ds are declared declared in one fiscal fiscal year and paid in the neDt neDt fiscal year3 year3 the liability liability for the dividend should be recorded as of the: A )ate )ate the divi dividen dend d is decla declared red.. ? Last Last day day of of the the fisca fiscall year. year. / )ate )ate of reco record rd.. ) )ate )ate of paym paymen ent. t. Answer: A
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(. hen a property property dividend dividend is declared declared33 the reduction reduction in retained retained earnings earnings is for: for: A &he boo$ boo$ value of of the property property on the date date of declarati declaration. on. ? &he boo$ boo$ value of of the property property on the date date of distribu distribution tion.. / &he fair fair mar$et mar$et value value of the property property on the date date of distrib distributio ution. n. ) &he fair fair mar$et mar$et value value of the property property on the date date of declarat declaration. ion. Answer: )
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*. Any dividend dividend that that is considered considered to to be a li%uidatin li%uidating g dividend dividend will: will: A +educe +educe retain retained ed earn earning ings. s. ? +educe +educe addit addition ional al paid-in paid-in capita capital. l. / 6ncreas 6ncreasee addition additional al paid-in paid-in capita capital. l. ) +educe +educe the the commo common n stoc$ stoc$ accoun account. t. Answer: ?
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,. +etained +etained earnings earnings represent represent a compan company5s: y5s: A ndist ndistrib ribut uted ed net net inco income. me. ? ndist ndistrib ribut uted ed net net assets assets.. / @Dtr @Dtraa paidpaid-in in capi capita tal. l. ) ndi ndist stri ribu bute ted d cash. cash. Answer: A
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!. hen a property property dividend dividend is declared3 declared3 the property property to be be distributed should be revalued to fair mar$et value as of the: A +eco +ecord rd date date.. ? )ate )ate of dis distr trib ibut utio ion. n. / )ate )ate of of decl declar arat atio ion. n. ) Anno Announ unce ceme ment nt date date.. Answer: /
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Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity '. &he declarat declaration ion and issuance issuance of a commo common n stoc$ dividend: dividend: A as no effect effect on assets3 assets3 liabilit liabilities3 ies3 or total total sharehold shareholders5 ers5 e%uity. e%uity. ? )ecreases )ecreases total total sharehold shareholders5 ers5 e%uity e%uity and increas increases es common common stoc$. stoc$. / )ecreases )ecreases assets assets and and decreases decreases total total sharehol shareholders5 ders5 e%uity e%uity.. ) )oes not not change change retained retained earnings earnings or paid-i paid-in n capital. capital. Answer: A
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. #toc$ #toc$ split splitss are issued issued prima primaril rily y to: A 6ncrease 6ncrease the the number number of of outstand outstanding ing shares shares.. ? 6ncrease 6ncrease the number number of of authori authori=ed =ed shares. shares. / 6ncreas 6ncreasee legal legal capita capital. l. ) 6nduce 6nduce a declin declinee in mar$et mar$et value value per share. share. Answer: )
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0. A small small stoc$ stoc$ dividend dividend is defined defined as as one that that is: is: A Less Less than than or or e%ual e%ual to ",<. ",<. ? Less Less than than "4<. "4<. / Less Less than than or e%ual e%ual to "4<. "4<. ) Less Less than than ",<. ",<. Answer: )
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04. &he common common stoc$ stoc$ account account on a company5 company5ss balance balance sheet is measur measured ed as: A &he number number of common common shares shares outstandi outstanding ng D the stoc$5s stoc$5s par value value per share. share. ? &he number number of common shares shares outstan outstanding ding D the stoc$5s stoc$5s current current mar$et mar$et value per share. share. / &he number number of common common shares shares issued issued D the stoc$5s stoc$5s par par value per share. share. ) one one of the the abov abovee is correct correct.. Answer: /
Learning Obective: 1
Level of Learning: 1
se the following to answer %uestions 01-0*: &he following partial information is ta$en from the comparative balance sheet of Levi /orporation: #hare #hareho hold lder ersJ sJ e%ui e%uity ty /ommon stoc$3 stoc$3 K, par par value; "4 "4 million shares authori=ed; 1, million shares issued and 0 million shares outstanding at 1"C(1C"44!; and 8888million shares shares issued and 8888shares outstanding outstanding at 1"C(1C"44,. Additional paid-in capital on common stoc$ +etained earnings &reasury common stoc$3 at cost3 ! million shares at 1"C(1C"44! and * million shares at 1"C(1C"44, &otal shareholdersJ sharehold ersJ e%uity
1"C( 1"C(1C 1C"4 "44! 4!
1"C( 1"C(1C 1C"4 "44, 4,
K', million
K*, million
,"4 million
(0" million
10' million
1,' million
9'" million
9,4 million
K'"4 million
K,** million
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
259
Chapter 18 Shareholders' Equity 01. ow many many of Levi5s Levi5s common common shares shares were outstand outstanding ing on 1"C(1C4 1"C(1C4,G ,G A 1* millio llion n ? 0 mi million / , mi million ) one one of the the abov abovee is correct correct.. Answer: / Learning Obective: 1 Level of Learning: " +ationale: , million shares were outstanding at this date 90 million were issued3 and * million shares were in the treasury. 0". hat was was the average average price of of the additional additional shares shares issued issued by Levi Levi in "44!G "44!G A K, per share are ? K"! K"! pe per sh share are / K(0 K(0 pe per sh share are ) /annot /annot be determ determined ined from from the the given given informati information. on. Answer: ? Learning Obective: 1 Level of Learning: " +ationale: Proceeds Proceeds 7 6ncrease 6ncrease in commo common n stoc$ stoc$ increase increase in addit additional ional paid-in paid-in capit capital al 7 K(4 million K1" million 7 K1, million Average issue price 7 ProceedsCumber of shares issued 7 K1, millionC! million shares 7 K"!Cshare 0(. hat was the the average price price 9rounded 9rounded of the additional additional treasur treasury y shares purchase purchased d by Levi during "44!G A K11 K11 per per shar sharee ? K1" K1" pe per sh share are / K1". K1".,4 ,4 per per shar sharee ) one one of the the abov abovee is correct correct.. Answer: A Learning Obective: 1 Level of Learning: " +ationale: /ost of additional shares 7 K'" million M K,4 million 7 K"" million Aver Averag agee pri price ce pai paid d 7 /os /ostC tCnu numb mber er of of addi additi tion onal al tre treas asur ury y sha share ress 7 K"" millionC" million shares 7 K11 per share 0*. hat was was the amount amount of of net income income earned earned by Levi Levi during during "44!G "44!G A K4 ? K*4 K*4 mil milli lio on / K!" K!" mil milli lio on ) /annot /annot be determ determined ined from from the the given given informati information. on. Answer: ) Learning Obective: 1 Level of Learning: " +ationale: &he increase in retained earnings is a composite of net income and changes due to dividends. Hou cannot determine the portion due to net income income unless you have information about the dividends.
2!0
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity se the following to answer %uestions 0,-00: &he 1"C(1C4, balance sheet of )espot 6nc. included the following: /ommo mon n stoc$ toc$33 ", ", milli illion on shar sharees at at K"4 K"4 par Paid-in capitalNeDcess of par +etained earnings
K,4 K,44 milli illio on (3444 million 04 million
0,. 6n Banuar Banuary3 y3 "44!3 "44!3 )espo )espott recorded a transaction with this ournal entry: /ash /ommon stoc$ Paid-in capitalNeDcess of par
K1,4 million K144 million ,4 million
&he transaction was: A 6ssue of of " million million shares shares of common common stoc$ stoc$ at at par value value ? 6ssue of common common stoc$ stoc$ for K1,4 K1,4 million million in cash cash / +eceipt +eceipt of of K"4 per share share for for a new new stoc$ stoc$ issue issue ) All of the the abov abovee are are corre correct. ct. Answer: ?
Learning Obective: (
Level of Learning: "
0!. 6n Februa February3 ry3 "44!3 "44!3 )espot )espot declared cash dividends of K1" million to be paid in April of that year. hat effect did the April transaction transaction have on )espot5s accountsG A )ecrea )ecreased sed asset assetss and liabi liabilit lities ies ? )ecreased )ecreased assets assets and and shareholde shareholders5 rs5 e%uity e%uity / 6ncreased 6ncreased liabil liabilities ities and and decreased decreased shareh shareholde olders5 rs5 e%uity e%uity ) one one of the the abov abovee is correct correct.. Answer: A
Learning Obective: '
Level of Learning: "
0'. 6n October3 "44!3 )espot5s )espot5s ?oard ?oard of )irectors declared declared and distributed a 1< common stoc$ stoc$ dividend when the mar$et mar$et value of the common stoc$ stoc$ was K!4 per share. 6n recording this transaction3 )espot would: A )ebit retained retained earnings earnings for K1 millio million n ? /redit /redit paid-in paid-in capital capital M eDcess eDcess of par for K1 K1 million million / /redit /redit common common stoc$ for K1 million million ) one one of the the abov abovee is correct correct.. Answer: A Learning Obective: Level of Learning: " +ationale: #hares to be distributed 7 .41 . 41 D (4 million 9including the Banuary issue 7 (443444 +etained earnings: >ar$et value of shares 7 (443444 D K!4 7 K1 million 0. hich hich of of the the follo followin wing g )esp )espot ot transactions decreases its retained earningsG A A prop proper erty ty div divid iden end d ? A stoc stoc$ $ divi divide dend nd / A cas cash h div divid iden end d ) All of the the abov abovee are are corre correct. ct. Answer: )
Learning Obective:
Level of Learning: "
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2!1
Chapter 18 Shareholders' Equity 00. )espot declared declared a property dividend dividend to give mar$etable mar$etable securities securities to its common common stoc$holders. stoc$holders. &he securities had cost )espot K' million and currently had a fair value of K1! million. hich of the following would be included in recording the property dividend declarationG A 6ncrease 6ncrease in in a liability liability for K1! million. million. ? )ecrease )ecrease in retained retained earnin earnings gs for for K' milli million. on. / )ecrease )ecrease in mar$et mar$etable able securi securities ties by K1! million. million. ) All of the the abov abovee are are corre correct. ct. Answer: A
Learning Obective: '
Level of Learning: "
144. Pug /orporation /orporation has 143444 143444 shares of K14 par par common stoc$ outstanding outstanding and "43444 shares of K144 par3 !< noncumulative3 nonparticipating nonparticipating preferred stoc$ outstanding. )ividends have not been paid for the past two years. &his year3 a K1,43444 dividend will be paid. hat are the dividends per share for preferred and common3 respectivelyG A K'., K'.,4 4; K4 K4. ? K!; K( K(. / K!; K!; K1., K1.,4 4. ) one one of the the abov abovee is correct correct.. Answer: / Learning Obective: ' Level of Learning: ( +ationale: Preferred: K! per share D "43444 7 K1"43444 /ommon: 9K1,43444 K1"43444C"43444 7 K1.,4 141. ?eagle /orporation /orporation has "43444 shares of K14 par common stoc$ outstanding outstanding and and 143444 shares of K144 par3 !< cumulative3 nonparticipating nonparticipating preferred stoc$ outstanding. )ividends have not been paid for the past two years. &his year3 a K(443444 dividend will be paid. hat are the dividends per share payable to preferred and common3 respectivelyG A K!; K1". ? K1; K! K!. / K!; K! K!. ) one one of the the abov abovee is correct correct.. Answer: ? Learning Obective: ' Level of Learning: ( +ationale: Preferred: K! D ( D 143444 7 K143444 /ommon: 9K(443444 K143444C"43444 7 K!
2!2
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity 14". &he changes changes in account account balances balances for for @lder /ompan /ompany y for "44! are are as follows: follows: Assets /ommon stoc$ Liabilities Paid-in capital M eDcess of par
K*43444 debit ",43444 credit 1!43444 credit (43444 credit
Assuming the only charges in retained earnings in "44! were for net income and a K,43444 dividend3 what was net income for "44!G A K*43444. ? K!43444. / K'43444. ) K043444. Answer: ) +ationale:
Learning Obective: 1
Assets /ommon stoc$ Liabilities Paid-in capital M eDcess of par )ividends et income &otals et income 7 K043444
Level of Learning: ( )ebits K*43444
/redits K",43444 1!43444 (43444
,43444 8888888 K,(43444
888888G K,(43444
14(. &he changes changes in account account balances balances for for Allen 6nc. 6nc. for "44! are as follows follows:: Assets /ommon stoc$ Liabilities Paid-in capital - eDcess of par
K"",3444 debit 1",3444 credit 43444 credit 1,3444 credit
Assuming the only changes in retained earnings in "44! were for net income and a K",3444 dividend3 what was net income for "44!G A K(43444 ? K"43444 / K1,3444 ) K ,3444 Answer: A +ationale:
Learning Obective: 1
Assets /ommon stoc$ Liabilities Paid-in capital M eDcess of par )ividends et income &otals et income 7 K(43444
Level of Learning: ( )ebits K"",3444
/redits K1",3444 43444 1,3444
",3444 8888888 K",43444
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
888888G K",43444
2!
Chapter 18 Shareholders' Equity 14*. Poodle Poodle /orporatio /orporation n was organi=ed organi=ed on Banuary Banuary (3 "44!. &he firm firm was authori=ed authori=ed to issue issue 1443444 shares of K, par common stoc$. )uring "44!3 Poodle had the following transactions relating to shareholders5 e%uity: 6ssued (43444 shares of common stoc$ at K' per share. 6ssued "43444 shares of common stoc$ at K per share. +eported a net income of K1443444. Paid dividends of K,43444. hat is total contributed capital at the end of "44!G A K*"4 K*"434 344 44. ? K('4 K('434 344 44. / K*'4 K*'434 344 44. ) K("4 K("434 344 44. Answer: ? Learning Obective: ( Level of Learning: ( +ationale: 9(43444 D K' 9"43444 D K 7 K('43444 14,. +oberto +oberto /orporati /orporation on was organi=ed organi=ed on Banuary Banuary 13 "44!. "44!. &he firm was authori=e authori=ed d to issue 1443444 shares of K, par common stoc$. )uring "44!3 +oberto had the following transactions relating to shareholders5 e%uity: 6ssued 143444 shares of common stoc$ at K' per share. 6ssued "43444 shares of common stoc$ at K per share. +eported a net income of K1443444. Paid dividends of K,43444. Purchased "3444 shares of treasury stoc$ at K14 9part of the "43444 shares issued at K. hat is total shareholders5 e%uity at the end of "44!G A K"'4 K"'434 344 44. ? K(44 K(4434 344 44. / K",4 K",434 344 44. ) K"44 K"4434 344 44. Answer: / Learning Obective: 1 Level of Learning: " +ationale: 6ssue of stoc$ 9143444 D K' K'43444 6ssue of stoc$ 9"43444 D K 1!43444 et income 1443444 )ividends 9,43444 &reasury stoc$ 9(3444 D K14 9(43444 K",43444
2!4
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity 14!. ?oDer ?oDer /ompany /ompany owned "43444 "43444 shares shares of ing /ompany /ompany that were were purchased purchased in "44* for K,443444. On >ay 13 "44!3 ?oDer declared a property dividend of 1 share of ing for every 14 shares of ?oDer stoc$. On that date3 there were ,43444 shares of ?oDer stoc$ outstanding. &he mar$et value of the ing stoc$ was K(4 per share on the date of declaration and K(" per share on the date of distribution. ?y how much is retained earnings reduced by the property dividendG A K4. ? K1,4 K1,434 344 44. / K1!4 K1!434 344 44. ) K(44 K(4434 344 44. Answer: ? Learning Obective: ! Level of Learning: ( +ationale: 9,443444C14 D K(4 7 K1,43444 14'. On Banuary Banuary 13 "44!3 the board board of directors directors of 2oby 6nc. declared declared a K,*43444 K,*43444 dividen dividend. d. &he following data are from the balance sheet of 2oby on that date: /apital stoc$ Additional paid-in capital +etained earnings Paid-in capital from sale of treasury stoc$
K,443444 K(443444 K*443444 K ,43444
ow much is the li%uidating dividendG A K1*4344 3444 ? K"*4344 3444 / K"04344 3444 ) one one of the the abov abovee is correct correct.. Answer: A Learning Obective: ' +ationale: &otal dividend K,*43444 +etained earnings *443444 Li%uidating dividends K1*43444
Level of Learning: (
14. A?/ declared declared a property dividend. dividend. &he dividend consisted of 143444 common shares of its investment in HQ /ompany. &he shares had originally been purchased at K* per share and had a K1 par value. &he value of the shares on the declaration date is K' per share. hat is the first entry that should be recorded related to this dividendG A +etained earnings '43444 Property dividends payable '43444 ? +etained earnings '43444 Property dividends payable *43444 2a 2ain (43444 / 6nvestment in HQ (43444 +etained earnings (43444 ) 6nvestment in HQ (43444 2a 2ain (43444 Answer: ) Learning Obective: ' Level of Learning: ( +ationale: 6nvestment in HQ R143444 D 9K' M K*S (43444 2ain on appreciation of investment (43444 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2!5
Chapter 18 Shareholders' Equity 140. &he board of directo directors rs of /apstone /apstone 6nc. declared declared a K4.!4 per share share cash dividend dividend on its K1 par common stoc$. On the date of declaration3 there were ,43444 shares authori=ed3 "43444 shares issued3 and ,3444 shares held as treasury stoc$. hat is the entry for the dividend declarationG A +etained earnings 03444 )ividends payable 03444 ? +etained earnings 03444 /a /ash 03444 / +etained earnings 143444 )ividends payable 143444 ) +etained earnings 143444 /a /ash 143444 Answer: A Learning Obective: ' Level of Learning: ( +ationale: +etained ea earnings R9" R9"4344 3444 M ,34 ,344 44 D K.!4 .!4S 0344 3444 )ividends payable 03444 114. On October October 13 "44!3 /hief /hief /orporatio /orporation n declared declared and issued issued a "4< stoc$ dividen dividend. d. Prior to this date3 /hief had *43444 shares of common stoc$ outstanding with a K, par value. &he mar$et value of /hief /orporation on the date of declaration was K14 per share. As a result of this dividend3 /hief5s retained earnings will: A )ecre )ecreas asee by K43 K4344 444. 4. ? ot chan chang ge. / )ecre )ecreas asee by K*4 K*434 3444 44.. ) 6ncr 6ncrea ease se by by K43 K4344 444. 4. Answer: A Learning Obective: ! Level of Learning: ( +ationale: +eta +etain ined ed ear earni ning ngss 934 93444 44 shar shares es D K14C K14Csh shar are e 434 43444 44 /ommon stoc$ 93444 shares D K,Cshare *43444 Paid-in capitalMeDcess of par *43444 111. Lucid /ompan /ompany y declared declared a property divide dividend nd of "43444 shares shares of K1 par Pol$ /ompan /ompany y common stoc$. &he Pol$ stoc$ was purchased for K, per share. >ar$et value was K14 per share on the declaration date and K11 per share on the distribution date. hat is the amount of the dividendG A K144 K14434 344 44. ? K"44 K"4434 344 44. / K""4 K""434 344 44. ) K(44 K(4434 344 44. Answer: ? Learning Obective: ' +ationale: "43444 D K14 7 K"443444
2!!
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity se the following to answer %uestions 11"-11*: As of )ecember (13 "44!3 arner /orporation reported the following: )ividends payable &reasury stoc$ Paid-in capital-share repurchase Other paid-in capital accounts +etained earnings
"43444 !443444 "43444 *34443444 (34443444
)uring "44'3 half of the treasury stoc$ was resold for K"*43444; net income was K!443444; cash dividends declared were K13,443444; and stoc$ dividends declared were K,443444. 11". hat was was sharehol shareholders5 ders5 e%uity e%uity as of of )ecember )ecember (13 (13 "44!G "44!G A K'34 K'34"4 "434 3444 44.. ? K!3* K!3**4 *434 3444 44.. / K!3* K!3*"4 "434 3444 44.. ) K!3* K!3*44 4434 3444 44.. Answer: / Learning Obective: 1 +ationale: Paid-in capitalMshare repurchase Other paid-in capital accounts +etained earnings &reasury stoc$ &otal shareholdersJ e%uity
Level of Learning: ( K "43444 *34443444 (34443444 9!443444 K!3*"43444
11(. &he "44' "44' sale sale of half half of the the treasury treasury stoc$ stoc$ would: would: A +educe +educe incom incomee before before taD by K!4344 K!43444. 4. ? +educe +educe retai retained ned earni earnings ngs by K!43 K!43444 444.. / 6ncrease 6ncrease total total shareho shareholders lders55 e%uity e%uity by by K(44344 K(443444. 4. ) )ecrease )ecrease retain retained ed earning earningss by K*43444. K*43444. Answer: ) +ationale: /ash
Learning Obective: ,
Paid-in capitalMshare repurchase +etained earnings &reasury stoc$ 9K!443444C"
Level of Learning: ( "*4344 4 "43444 *43444
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
(44344 4
2!"
Chapter 18 Shareholders' Equity 11*. hat would would shareho shareholders lders55 e%uity e%uity be as of )ecemb )ecember er (13 "44'G "44'G A Amou Amount nt is is not not show shown. n. ? K,3' K,3'!4 !434 3444 44.. / K,3 K,3"4 "434 3444 44.. ) K!3' K!3'!4 !434 3444 44.. Answer: ? +ationale:
Learning Obective: 1
1"C(1C"44! #ale of &reasury #toc$ et 6ncome /ash )ividends #toc$ )ividends
Level of Learning: (
Paid-inOther Paid-in /apital #hare /apital +epurchase Accounts K"43444 K*34443444 9"43444
888888888 K4
,443444 K*3,443444
+etained @arnings K(34443444
&reasury 9)r /r #toc$ &otal K9!443444 K!3*"43444
9*43444 (443444 "*43444 !443444 !443444 913,443444 913,443444 9,443444 88888888 88888888 K13,!43444 K9(443444 K,3'!43444
11,. Olsson /orporation /orporation received received a chec$ from its underwriters underwriters for K'" million. million. &his was for the issue of one million of its K, par value stoc$ that the underwriters eDpect to sell for K," per share. hich is the correct entry to record the issue of the stoc$G A /a /ash '"3444344 4 #toc$ issue eDpense "43444344 4 #toc$ contract receivable ,"3444344 4 ? /a / ash '"3444344 4 )eferred stoc$ issue revenue "43444344 4 /ommon stoc$ ,34443444 Paid-in capitalNeDcess of par *'3444344 4 / /a / ash '"3444344 4 /ommon stoc$ '"3444344 4 ) /a /ash '"3444344 4 /ommon stoc$ ,34443444 Paid-in capitalNeDcess of par !'3444344 4 Answer: ) Learning Obective: ( Level of Learning: ( +ationale: /ash '"34443444 /ommon stoc$ 9134443444 D K, par Paid-in capital M eDcess of par
2!#
,34443444 !'34443444
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity se the following to answer %uestions 11!-11': ?lac$ @nterprises reported the following 9in thousands of dollars as of )ecember (13 "44!. All accounts have normal balances. )eficit /ommon stoc$ Paid-in capital-stoc$ options &reasury stoc$ at cost Paid-in capital-eDcess of par
(3444 "3444 13444 *44 (43444
)uring "44' 9in thousands of dollars3 net income was K03444; ",< of the treasury stoc$ was resold for K*,4; cash dividends declared were K!44; cash dividends paid were K,44; and all of the stoc$ options eDpired. 11!. hat 9in thousan thousands ds of dollars dollars was sharehold shareholders5 ers5 e%uity e%uity as of )ecember )ecember (13 "44!G A K"03!44. ? K(,3!44. / K(43*44. ) K"3!44. Answer: A Learning Obective: 1 +ationale: /ommon stoc$ Paid-in capitalMeDcess of par Paid-in capitalMstoc$ options +etained earnings &reasury stoc$ &otal shareholdersJ e%uity
Level of Learning: ( K"3444 (43444 13444 9(3444 9*44 K"03!44
11'. hat 9in thousan thousands ds of dollars dollars was sharehold shareholders5 ers5 e%uity e%uity as of )ecember )ecember (13 "44'G A K(3144. ? K('3*,4. / K(3*,4. ) K(3(,4. Answer: / Learning Obective: 1 +ationale: #hareholdersJ e%uity 1"C(1C"44! 9determined above et income #ale of treasury stoc$ )ividends declared #hareholdersJ e%uity 1"C(1C"44'
Level of Learning: ( K"03!44 03444 *,4 9!44 K(3*,4
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2!9
Chapter 18 Shareholders' Equity 11. >ontgome >ontgomery ry T /o.3 a well establish established ed law firm3 provided provided ,44 ,44 hours of its time time to Fin$ /orporation in eDchange for 13444 shares of Fin$5s K, par common stoc$. >itchell5s usual billing rate is K'44 per hour3 and Fin$5s stoc$ has a boo$ value of K",4 per share. ?y what amount will Fin$5s additional paid-in capital increase for this transactionG A K(*, K(*,34 344 44. ? K"0, K"0,34 344 44. / K(,4 K(,434 344 44. ) K(44 K(4434 344 44. Answer: A Learning Obective: ( +ationale: Legal eDpense 9,44 D K'44 /ommon stoc$ 913444 D K, Paid-in capital
Level of Learning: ( (,43444 ,3444 (*,3444
110. &hree years ago3 @mily @mily /orporation /orporation issued issued 1"3444 shares of K144 par3 par3 convertible3 preferred stoc$ for K14, per share. @ach share of preferred can be converted into * shares of K1 par common stoc$. alf of the preferred shares were converted in the current year when the common stoc$ was trading for K*4 per share. ow much will total paid-in capital increase as a result of the conversionG A K!(4 K!(434 344 44. ? K0!4 K0!434 344 44. / K((4 K((434 344 44. ) K4. Answer: ) Learning Obective: ( Level of Learning: ( +ationale: &otal paid-in capital is unchanged by the conversion.
2"0
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity Pro!lems 1"4. )uring its first year of of operations3 )enton /orporation /orporation issued issued (443444 shares of its K1 par par common stoc$. )uring the fiscal year ending )ecember (13 "44,3 net income was K"34443444 and no dividends were paid. "equired 91. Prepare the ournal entry to record the the issue of the shares for cash at a price price of K14 per share. 9". Prepare the ournal entry to record the the issue by subscription subscription for K14 per share3 with ,4< received as a down payment. 9(. Prepare the ournal entry to record the the receipt of the remainder of the the subscription during during "44!. Answer: 1. /ash 9(443444 D K14 /ommon stoc$ 9(443444 D K1 Paid-in capital - eDcess of par ". /ash 9,4< D K(34443444 +ece eceivable from rom share purchase contract /ommon stoc$ Paid-in capital - eDcess of par (. /ash +eceivable from share purchase contract Learning Obective: (
(34443444 (443444 "3'443444 13,443444 13,4 3,443444 (443444 "3'443444 13,443444 13,443444
Level of Learning: (
1"1. )uring its its first year of operations3 /ole5s @lectronics @lectronics 6nc. completed completed the following transactions relating to shareholders5 e%uity. Ban. ,: 6ssued 134443444 shares of common stoc$ for K", per share. Feb. 1": 6ssued "43444 shares of common stoc$ to accountants accountants for professional professional services. &he articles of incorporation authori=e ,34443444 shares of common stoc$ with a par value of K1 per share and 134443444 preferred shares with a par value of K144 per share. "equired +ecord the above transactions in general ournal form. Answer: 1. Banuary , /ash 9134443444 D K", /ommon stoc$ 9134443444 D K1 Paid-in capital - eDcess of par ".
February 1" Professional services eDpense 9"43444 D K", /ommon stoc$ 9"43444 D K1 Paid-in-capital - eDcess of par
Learning Obective: (
",34443444 134443444 "*34443444
,443444 "43444 *43444
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2"1
Chapter 18 Shareholders' Equity 1"". )uring its its first year of operations3 /riswell 6nc. completed completed the following transactions relating to shareholders5 e%uity. Ban. ,: 6ssued (443444 of its common common shares for for K per share share and (3444 preferred shares shares at K114. Feb. 1": 6ssued ,43444 shares of common stoc$ in eDchange eDchange for e%uipment e%uipment with a $nown $nown cash price of K(143444. &he articles of incorporation authori=e ,34443444 shares with a par value of K1 per share of common and 134443444 preferred shares with a par value of K144 per share. "equired +ecord the above transactions in general ournal form. Answer: 1. Banuary , /ash 9(443444 D K /ommon stoc$ 9(443444 D K1 Paid-in capital - eDcess of par3 common /ash 9(3444 D K114 Preferred stoc$ 9(3444 D K144 Paid-in capital - eDcess of par3 preferred ".
"3*443444
February 1" @%uipment 9cash price /ommon stoc$ 9,43444 D K1 Paid-in capital - eDcess of par
Learning Obective: (
(443444 "31443444 ((43444 (443444 (43444
(143444 ,43444 "!43444
Level of Learning: (
1"(. )uring the current year B@& B@& 6ndustries issued , million of its K1 par common shares to its underwriters for K",34443444 less promotional and accounting services of K,443444 to effect the issue. "equired Prepare the ournal entry to record the issuance of the shares. Answer: /ash 9K",34443444 - K,443444 /ommon stoc$ 9,34443444 D K1 Paid-in capital M eDcess of par Learning Obective: (
2"2
"*3,443444 ,34443444 103,443444
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity 1"*. &he shareholders5 shareholders5 e%uity of ic$ /o. /o. includes the the items shown below. below. &he board board of directors directors of ic$ declared cash dividends of K* million3 K million3 and K,4 million in each of its f irst ( years of operation: "44*3 "44,3 "44!3 respectively. /ommon stoc$3 K1 par3 ,434443444 shares outstanding Preferred stoc$3 !<3 K144 par3 134443444 shares outstanding "equired )etermine the amount of dividends per share on preferred and common stoc$ for each of the three years. &he preferred stoc$ is noncumulative and nonparticipating. nonparticipating. Answer: 9K in millions3 eDcept per share amounts Preferred /ommon "44* K*C1 7 K* 4 "44, "44, K!C1 K!C1 7 K! 9K9K-K! K!C C,4 ,47K 7K4. 4.4* 4* "44! "44! K!C1 K!C1 7 K! 9K,4 9K,4 - K!C K!C,4 ,4 7 K. K. Preferred annual dividend 7 K144 par D !< 7 K! per share K! per share D 134443444 shares 7 K!34443444 Learning Obective: '
Level of Learning: (
1",. &he shareholders5 shareholders5 e%uity of /rystal /ompany includes the the items shown below. below. &he board of of directors of /rystal declared cash dividends of K( million3 K! million3 and K,4 million in each of its first ( years of operation: "44*3 "44,3 "44!3 respectively. /ommon stoc$3 K1 par3 ,434443444 shares outstanding Preferred stoc$3 !<3 K144 par3 134443444 shares outstanding "equired )etermine the amount of dividends per share on preferred and common stoc$ for each of the three years. &he preferred stoc$ is cumulative and nonparticipating. Answer: 9K in millions3 eDcept per share amounts Preferred /ommon "44* K(C1 7 K( 4 "44, K!C1 7 K! 4 "44! "44! K0C1 K0C1 7 K0 9K,4 9K,4 - K0C K0C,4 ,4 7 K." K." Preferred annual dividend 7 K144 par D !< 7 K! per share K! per share D 134443444 shares 7 K!34443444. 6n "44!3 the preferred shareholders will receive their regular dividend 9K! plus the dividends in arrears from "44* 9K(. Learning Obective: '
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2"
Chapter 18 Shareholders' Equity 1"!. /al /oo$ie /oo$ie /ompany 9/// has 144 million million shares of K1 par common stoc$ stoc$ authori=ed. authori=ed. &he transactions below caused changes in ///5s outstanding shares. Banuary *3 "44!: +epurchased and retired retired 1 million shares at K per share. Bune ",3 "44!: "44!: +epurchased and retired " million million shares at K" per share. share. Prior to the transactions3 ///5s shareholders5 e%uity included the following: /ommon stoc$3 4 million shares at K1 par Paid-in capital eDcess of par +etained earnings
K 434443444 1!434443444 1"434443444
"equired +ecord entries for the above transactions. Answer: Banuary *3 "44! /ommon stoc$ 91 million D K1 par Paid-in capital M eDcess of par 91 million D K"U +etained earnings 9difference /ash 91 million D K Bune ",3 "44! /ommon stoc$ 9" million D K1 par Paid-in capital M eDcess of par 9" million D K" /ash 9 " million D K" Paid-in capital M share repurchase 9difference
134443444 "34443444 ,34443444 34443444
"34443444 *34443444 *34443444 "34443444
UK1!434443444C434443444 UK1!434443444C434443444 7 K" Learning Obective: *
Level of Learning: (
1"'. 6n "44!3 Poe5s Products Products complet completed ed the treasury treasury stoc$ transactio transactions ns described described below. below. Banuary ": +eac%uired 14 million shares at K1! per share. February 1,: #old ( million million shares at K"4 K"4 per per share. share. #eptember "4: #old ( million treasury treasury shares at K1, per share. Poe had issued ,4 million shares of its K1 par common stoc$ for K1 several years ago. "equired +ecord the above transactions3 assuming that Poe5s Products uses the cost method.
2"4
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity Answer: 9K in millions3 eDcept per share amounts Banuary "3 "44! &reasury stoc$ 914 D K1! /ash 914 D K1!
1!4 1!4
February 1,3 "44! /ash 9( D K"4 &reasury stoc$ 9( D K1! Paid-in capital M share repurchase #eptember "43 "44! /ash 9( D K1, Paid-in capital - share repurchase &reasury stoc$ 9( D K1! Learning Obective: ,
!4 * 1"
*, ( *
Level of Learning: (
1". 6n "44!3 #outhwestern /orporation completed the the treasury stoc$ transactions transactions listed listed below. below. February ": +eac%uired '43444 '43444 shares at K1". K1". >arch 1': #old "43444 shares at K1*. >ay 1': #old ",3444 shares at K. #outhwestern had issued 1443444 shares of its K1 par common stoc$ for K14 several months ago. "equired Prepare the ournal entries to record the above transactions using the cost method. Answer: February "3 "44! &reasury stoc$ 9'43444 D K1" /ash 9'43444 D K1" >arch 1'3 "44! /ash 9"43444 D K1* &reasury stoc$ 9"43444 D K1" Paid-in capital - share repurchase >ay 1'3 "44! /ash 9",3444 D K Paid-in capital - share repurchase +etained earnings 9to balance &reasury stoc$ 9",3444 D K1" Learning Obective: ,
*43444 *43444
"43444 "*43444 *43444
"443444 *43444 !43444 (443444
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2"5
Chapter 18 Shareholders' Equity 1"0. &he )ecember )ecember (13 "44!3 "44!3 balance sheet sheet of #pringer #pringer /ompany /ompany included included the follow following: ing: /omm /ommon on stoc stoc$3 $3 "4 mill millio ion n sha share ress out outst stan andi ding ng at K1 par par Paid-in capital M eDcess of par +etained earnings
K "43 "4344 4443 4344 444 4 14434443444 11,34443444
#pringer completed the following transactions in "44! relating to treasury stoc$: >arch 1': +eac%uired , million shares at K14. >ay 1': +eac%uired ( million shares at K0. August 14: #old ! million shares at K1". "equired Assuming #pringer uses the cost method3 prepare ournal entries to record the foregoing transactions on a F6FO basis. Answer: 9in millions3 eDcept per share amounts >arch 1'3 "44! &reasury stoc$ 9, D K14 /a /ash >ay 1'3 "44! &reasury stoc$ 9( D K0 /a /ash
"'
'" ,0 1(
K ,4 0 K ,0
Learning Obective: ,
2"!
,4
"'
August 143 "44! /ash 9! D K1" &reasury stoc$ U Paid-in capital M share repurchase U, D K14 7 1 D K0 7
,4
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity 1(4. &he )ecember )ecember (13 "44! balance balance sheet sheet of >?6 /ompany /ompany included included the the following: following: /omm mmon on stoc stoc$ $3 "4 "4 mill millio ion n shar sharees out outst stan and ding ing at at K1 K1 par par Paid-in capital - eDcess of par +etained earnings
K "4 "43444 344434 3444 44 14434443444 11,34443444
>?6 completed the following transactions in "44! relating to treasury stoc$: >arch 1': 1': +eac%uired " million million shares at K14. >ay 1': +eac%uired " million shares at K0. August 14: 6ssued ( million million shares at K1". "equired Assuming >?6 uses the cost method3 prepare ournal entries to record the foregoing transactions on a weighted average basis. Answer: 9in millions3 eDcept per share amounts >arch 1'3 "44! &reasury stoc$ 9" D K14 /ash >ay 1'3 "44! &reasury stoc$ 9" D K0 /ash
1
August 143 "44! /ash 9( D K1" &reasury stoc$ U Paid-in capital M share repurchase
U" D K14 7 " D K0 7
"4
(!
K "434443444 K 134443444 K (34443444
K(C* 7 K0.,4 per share ( D K0.,4 7 K"., Learning Obective: ,
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2""
Chapter 18 Shareholders' Equity 1(1. Q6P /ompany /ompany owns owns *43444 *43444 shares shares of the common common stoc$ stoc$ of P6 /ompany. /ompany. Q6P Q6P decided decided to divest itself of this investment by distributing the P6 shares in the form of a property dividend. &he dividend ratio is one share of P6 for every four shares of Q6P common held by shareholders. Q6P has 1!43444 common shares outstanding. On April 1,3 "44!3 the date of declaration3 P6 stoc$ had a par value of K, per share3 a cost of K1" per share3 and a mar$et value of K1' per share. "equired Prepare any necessary ournal entries. &he shares were distributed on >ay 1,3 "44!3 to stoc$holders of record on >ay 13 "44!. Answer: April 1,3 "44! 6nvestment in P6 common stoc$ R9*43444 D 9K1' - K1"S 2ain on investment +etained earnings 9*43444 D K1' Property dividends payable
"443444 "443444 !43444 !43444
>ay 13 "44! O @&+H >ay 1,3 "44! Property dividends payable 6nvestment in P6 common stoc$ Learning Obective: '
2"#
!43444 !43444
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity 1(". Fowler Fowler /o.5s balance balance sheet sheet showed showed the followi following ng at )ecember )ecember (13 (13 "44!: /apital stoc$3 K14 par Paid-in capital - eDcess of par +etained earnings
K1443444 ,43444 "43444
A cash dividend is declared on )ecember (13 "44!3 and is payable on Banuary "43 "44'3 to shareholders of record on Banuary 143 "44'. "equired 91. Prepare all appropriate ournal entries3 assuming a cash dividend in the amount amount of K1.44 per share. 9". Prepare all appropriate ournal entries3 assuming a cash dividend in the amount amount of K,.44 per share. Answer: 91. )ecember (1 (13 "4 "44! +etained earnings R9K1 D 9K1443444CK14S /ash dividends payable
143444 143444
Banuary 143 "44' O @&+H Banuary "43 "44' /ash dividends payable /ash 9".
)ecember (1 (13 "4 "44! +etained earnings R9K" D 9K1443444CK14S Paid-in capital - eDcess of parU /ash dividends payable
143444 143444
"43444 (43444 ,43444
Banuary 143 "44' O @&+H Banuary "43 "44' /ash dividends payable /a /ash
,43444 ,43444
U#ince the dividend eDceeds the retained earnings balance3 the eDcess is a li%uidating dividend. Learning Obective: '
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2"9
Chapter 18 Shareholders' Equity 1((. On #eptember #eptember 1,3 "44!3 "44!3 the #cottie #cottie /ompany /ompany board board of directors directors declared declared a 14< stoc$ dividend on common shares. &he shares are to be distributed on October 143 "44!3 to shareholders of record on October 13 "44!. &he mar$et price per share on the date of declaration was K"* while the mar$et price on the date of distribution was K"!. &he common stoc$ has a par value of K, per share and there were 134443444 shares outstanding outstanding prior to the declaration of the stoc$ dividend. "equired Prepare any necessary ournal entries to record the above transactions. Answer: #eptember 1,3 "44! +etained earnings R9134443444 D 14< D K"*S /ommon stoc$ dividends issuable Paid-in capital - eDcess of par
"3*443444 ,443444 130443444
October 13 "44! O @&+H October 143 "44! /ommon stoc$ dividends issuable /ommon stoc$ Learning Obective:
,443444 ,443444
Level of Learning: (
1(*. On October October 1,3 "44!3 a ,< stoc$ divid dividend end was declared declared and distribu distributed. ted. &he mar$et mar$et value value of the common stoc$ on on this date was K(" per share. Fractional share rights represented represented 1443444 shares. /ash was paid in lieu of issuing fractional share rights. On the date of declaration and payment3 the company had 14 million shares of common stoc$ outstanding. &he par value of the common shares was K,. "equired Prepare any necessary ournal entries to record the above events. Answer: October 1,3 "44( +etained earnings 9,443444 D K(" /ommon stoc$ 9,443444 - 1443444 D K, Paid-in capital - eDcess of par R9*443444 D 9K(" - K,S /ash 91443444 D K("
1!34443444 "34443444 143443444 (3"443444
14 million shares D ,< 7 ,443444 shares Learning Obective:
2#0
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity 1(,. On Banuary Banuary 13 "44!3 2erlach 2erlach 6nc. had the followi following ng account account balances balances in its shareholde shareholders5 rs5 e%uity accounts. /ommon stoc$3 K1 par3 ",43444 shares issued Paid-in capital eDcess of par3 common Paid-in capital eDcess of par3 preferred Preferred stoc$3 K144 par3 143444 shares outstanding +etained earnings &reasury stoc$3 at cost3 ,3444 shares
",43444 ,443444 1443444 134443444 "34443444 ",3444
)uring "44!3 2erlach 6nc. had several transactions relating to common stoc$. Banu Banuar ary y 1,: 1,: Febr Februa uary ry 1': 1': Apri Aprill 14: 14:
Buly Buly 1: 1: )ecemb )ecember er 1: 1: )ece )ecemb mber er "4: "4:
)ecl )eclar ared ed a prop proper erty ty divi divide dend nd of 1443 144344 444 4 shar shares es of #low #lowdo down wn /ompany 9boo$ value3 K14 per share3 mar$et value K0 per share. )ist )istri ribu bute ted d the the prope ropert rty y div dividen idend. d. A " for for 1 stoc stoc$ $ spl split it was was dec decla lare red d on on out outst stan andi ding ng comm common on stoc stoc$ $ and and affe affect cted ed in the form of a stoc$ dividend. &he mar$et value of the stoc$ was K* on this date. )ecl )eclar ared ed and and dist distri ribu bute ted d a (< stoc stoc$ $ divi divide dend nd on outs outsta tand ndin ing g comm common on stoc stoc$; $; mar$et value per share3 K,. )eclar )eclared ed a fifty fifty cent centss per per share share cash cash divi dividen dend d on on the the outst outstand anding ing common common shares. Paid Paid the the cash cash divi divide dend nd..
"equired +ecord the above transactions and events in ournal entry format. Answer: Banuary 1,3 "44! Loss oss on on in invest vestm ment ent R91 R914 443444 3444 - 9K1 9K14 4 - K0S 0S 6nvestment in #lowdown /o. +etained earnings 91443444 D K0 Property dividend payable
14434 44344 44 1443444 0443444 0443444
February 1'3 "44! Property dividend payable 6nvestment in #lowdown /o.
0443444
April 143 "44! +etained earnings R9",43444 M ,3444 D K1S /ommon stoc$
"*,3444
Buly 13 "44! +etained earnings R9(< D *043444 D K,S /ommon stoc$ R9(< D *043444 D K1S Paid-in capital - eDcess of par
0443444
"*,3444
'(3,44
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
1*3'44 ,344
2#1
Chapter 18 Shareholders' Equity )ecember 13 "44! +etained earnings 9,4*3'44 D K.,4 /ash dividends payable
","3(,4
)ecember "43 "44! /ash dividends payable /a /ash
","3(,4
Learning Obective:
","3(,4
","3(,4 Level of Learning: (
1(!. On Banuary 13 "44!3 Fascom had the following following account account balances in its shareholders5 e%uity accounts. /ommon stoc$3 K1 par3 ",43444 shares issued Paid-in capital eDcess of par3 common Paid-in capital eDcess of par3 preferred Preferred stoc$3 K144 par3 143444 shares outstanding +etained earnings &reasury stoc$3 at cost3 ,3444 shares
",43444 ,443444 1443444 134443444 "34443444 ",3444
)uring "44!3 Fascom 6nc. had several transactions relating to common stoc$. Banu Banuar ary y 1,: 1,: Febr Februa uary ry 1': 1': Apri Aprill 14: 14:
Buly Buly 1: 1: )ecemb )ecember er 1: )ece )ecemb mber er "4: "4:
)ecl )eclar ared ed a prop proper erty ty divi divide dend nd of of 14434 1443444 44 shar shares es of of #low #lowdo down wn /ompany 9boo$ value3 K14 per share3 mar$et value K0 per share. )ist )istri ribu bute ted d the the prop proper erty ty divi divide dend nd.. A " for for 1 stoc stoc$ $ spli splitt was was dec decla lare red d on on out outst stan andi ding ng comm common on stoc stoc$ $ and and affe affect cted ed in the form of a stoc$ dividend. &he mar$et value of the stoc$ was K* on this date. )ecl )eclar ared ed and and dis distr trib ibut uted ed a (< (< sto stoc$ c$ divi divide dend nd on outs outsta tand ndin ing g com commo mon n sto stoc$ c$ mar$et value per share3 K,. )eclar )eclared ed a fifty fifty cen cents ts per per share share cash cash divid dividend end on on the outs outstan tandin ding g common common shares. Paid Paid the the cas cash h div divid iden end. d.
"equired ithout preparing ournal entries3 prepare the shareholders5 e%uity section of Fascom5s balance sheet as of )ecember (13 "44!. Assume net income is K,443444 for "44!.
2#2
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity Answer: Fascom #hareholders5 @%uity Preferred stoc$3 143444 shares at K144 par /ommon stoc$3 ,403'44 shares at K1 par1 Paid-in capital - eDcess of par3 preferred Paid-in capital - eDcess of par3 common" +etained earnings( &reasury stoc$3 at cost; ,3444 shares &otal shareholders5 e%uity
K134443444 ,403'44 1443444 ,,344 134"031,4 9",3444 K(31'"3!,4
1 9",43444 - ,3444 D " 7 *043444 D 1.4( D K1 7 K,4*3'44 9,3444 treasury shares at K1 " K,443444 R9*043444 D (< D 9K, - K1S 7 K,,344 ( K"34443444 - 91443444 D K0 - R9",43444 - ,3444 D K1S - R9*043444 D (< D K,S - 9,4*3'44 D K.,4 K,443444 7 K134"031,4 Learning Obective: '
Level of Learning: (
1('. On )ecember )ecember (13 "44,3 "44,3 +ebel /orporat /orporation5s ion5s balance balance sheet sheet reported reported the followin following. g. /ommon stoc$3 K1 par Paid-in capital - eDcess of par +etained earnings &reasury stoc$ 9"43444 shares at cost
K134443444 *34443444 ,3"43444 9!",3444 9!",3444
)uring "44!3 +ebel decided to discontinue accounting for share buybac$s as treasury shares. 6nstead3 the shares will be treated as having been retired. "equired Prepare the appropriate ournal entry to effect this change. Answer: /ommon stoc$ 9"43444 D K1 Paid-in capital - eDcess of par +etained earnings 9difference &reasury stoc$
"43444 43444U ,",3444 !",3444
U9K*>C1>7K*; U9K*>C1>7K*; thus3 9K* D "43444 7 K43444 Learning Obective: *
Level of Learning: (
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2#
Chapter 18 Shareholders' Equity se the following to answer %uestions 1(-1*": &he following information comes from the "44* Annual +eport to stoc$holders of #tubblefield 6nc. 96n thousands: From the #tatement of /hanges in #toc$holders5 @%uity: Capital in Treasury E#cess o$ o$ Treasury Stoc% "etained Par &alue Shares mount Earnings -(43,!1 -,"*3("1 13!'(3(" "*"30*1 -,311 ('' 143'( -
?ALA/@# A& )ecember (13 "44" et earnings #ales of common stoc$ under option plans /ash dividends declared on common stoc$ - K.,(', per share /ompensation under employee incentive Plans &reasury shares eDchanged for Ac%uisitions Purchase of shares for treasury ?ALA/@# A& )ecember (13 "44( et earnings #ales of common stoc$ under option plans /ash dividends declared on common stoc$K.,*', per share /ompensation under employee incentive plans Purchase of shares for treasury ?ALA/@# A& )ecember (13 "44*
-
-
-134" 1(03"40 1("3""! -(3,(
-
-
(0, 03*4 "43**0 (13"0( -!3!! -1""304!
-1!344 -(43' 13*'3('1 130!, "'0 '340, -
-10! K1"3*0"
-!30," -
(!! -"30((
3"'1 -*3!'
-'"304( -
-13"0! -(*"3144 K1 K 13,!3*((
From the #tatement of /ash Flows: 6n /ash flows from financing activities:
)ividends paid
"44* '"3"**
"44( !!30("
1(. hat was the average cost per share of the treasury treasury stoc$ purchased by by #tubblefield #tubblefield during "44( and "44*3 respectivelyG Answer: 6n "44(: "44(: K1""304!C!3!! 7 (18)*+/share 6n "44*: "44*: K*3!'C"30(( 7 (1,),-/share Learning Obective: ,
Level of Learning: "
1(0. ow many shares of treasury stoc$ stoc$ did #tubblefield use during "44(3 and for what purpose9sG Answer: .1..1 thousand shares were used. used. Of these3 the main use was for ac%uisitions ac%uisitions 9"43**0 thousand shares. shares. &he remaining shares were were used for stoc$ option and other employee incentive plans. Learning Obective: ,
2#4
Level of Learning: "
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
Chapter 18 Shareholders' Equity 1*4. hat was the fair value of the treasury treasury stoc$ eDchanged for for asset ac%uisitions for "44(G "44(G Answer: &he total is (*00-. is (*00-. thousand. &his is the sum of the the K(13"0( thousand cost cost of treasury stoc$ used and the K1(03"40 thousand additional paid-in capital resulting from the ac%uisition. Learning Obective: ,
Level of Learning: "
1*1. Assuming that #tubblefield #tubblefield had )ividends Payable of K1'3*,4 thousand at at )ecember (13 "44"3 compute the balance in that account at )ecember (13 "44*. Answer: &he balance would be (.-1.2 be (.-1.2 thousand3 computed as follows: 1"C(1C"44" balance Add: )ividends declared: 6n "44( 6n "44* Less: )ividends paid: 6n "44( 6n "44* 1"C(1C"44* balance Learning Obective: '
K1'3*,4 !30," '"304( -!!30(" -'"3"** K"431"0 Level of Learning: "
1*". hat was the the average eDercise eDercise price price per share of stoc$ stoc$ issued issued under option option plans plans in "44*G Answer: &he average price was (1.),8/share was (1.),8/share33 K(3,(C"'0. Learning Obective: (
Level of Learning:
Essay 6nstructions: &he following answers point out the $ey phrases that should should appear in students5 answers. &hey are not intended to be eDamples of complete student responses. 6t might be helpful to provide detailed instructions to students on how brief or in-depth you want their answers to be. 1*(. #ome preferred stoc$ is cumulative while other other preferred stoc$ is noncumulative. noncumulative. hat does this meanG Answer: 6f preferred shares are noncumulative3 dividends not declared in a given year are irrelevant to the calculation of dividends in any future year. owever3 if cumulative3 when the specified dividend is not paid in a given year3 the unpaid dividends accumulate as dividends in arrears and must be made up in a later dividend year before any dividends are paid on common shares. Learning Obective: '
Level of Learning: "
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
2#5
Chapter 18 Shareholders' Equity 1**. hen stoc$ is issued for consideration consideration other other than cash3 what is the measurement obectiveG Answer: &he measurement obective is that the transaction should be measured and recorded at fair mar$et value. &his might be the fair mar$et value of the issued shares or of the noncash asset received in the eDchange. &he value that should be used is the one that is more clearly evident. &his is consistent with the general practice of recording any noncash transaction at mar$et value. hen the stoc$ is actively traded on an organi=ed stoc$ eDchange3 the mar$et value of the stoc$ might be the best evidence. Learning Obective: (
Level of Learning: "
1*,. hat is the the difference difference between between a stoc$ split split and and a stoc$ split split affected affected in the the form of a stoc$ stoc$ dividendG Answer: A stoc$ split is usually motivated by a desire to increase a stoc$5s mar$etability. A stoc$ split has the effect of by reducing the mar$et price of the stoc$ to attract a broader participation from investors. hen a standard stoc$ split occurs3 there is no ournal entry prepared by the issuing company. &he number of outstanding shares increases while the par value per share decreases. owever3 in those rare instances when the par value of the stoc$ is not changed3 the stoc$ distribution is accounted for as a stoc$ split effected as stoc$ dividend. 6n this case there is a transfer of capital from retained earnings to paid-in capital at the par value of the stoc$ issued. Learning Obective:
2#!
Level of Learning: 1
Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition
