CHAPTER 15 STOCKHOLDERS’ EQUITY IFRS questions are aai!a"!e at t#e en$ o% t#is &#a'ter(
TRUE)FALSE*Con&e'tua! Ans+er T F T F T F T F F T F T T F F T T F F T
,o(
Des&ri'tion
1. 2. 3. 4. . #. %. &. (. 1). 11. 12. 13. 14. 1. 1#. 1%. 1&. 1(. 2).
State a corporation incorporates in. Definition of preemptive right. Common stock as residual interest. Earned capital definition. !eporting true no"par stock. $llocating proceeds in lump sum sales. $ccounting for stock issued for noncash consideration. Definition of treasur' stock. !eporting treasur' stock under cost method. Selling treasur' stock *elo+ cost. ,articipating preferred stock. Calla*le preferred stock. !estricting legal capital. Disclosing dividend polic'. $ffect of of di dividends on on to total st stockholders- euit'. ,ropert' dividends definition. $ccounting for small stock dividend. Stock splits and large stock dividends. Compu omputi ting ng rate rate of retu return rn on commo ommon n stoc stock k eui euit' t'.. Computing pa'out ratio.
-ULTIPLE -ULTIPLE CHOICE*Con&e'tua! Ans+er c * a * c c d d d * a * a d * a d c
,o(
Des&ri'tion
21. 22. 23. S 24. S 2. 2#. 2%. 2&. 2(. 3). 31. 32. , 33. S 34. S 3. 3. S 3#. , 3%. 3&.
/ature of stockholders0 interest. ,re"emptive right. ,re"emptive right. Defin efinit itio ion n of lega legall capit apital al.. Defin efinit itio ion n of of res resiidual dual o+ne o+nerr. /ature of stockholders0 euit'. Sources of stockholders0 euit'. Classification of stockholders0 euit'. $llocation methods for a lump sum issuance. Capital stock issued in pa'ment of services. Costs of issuing capital stock. Creation of secret reserves. $uthoried shares. ,ar value stock. ega egall res restr tric icti tion ons s for for prof profit it dist distri ri*u *uti tion ons. s. $cu $cuiisiti sition on of of tre treas asur ur' ' sha share res s. Treasur asur' ' share hares s defi defini niti tion on.. ,urchase of of treasur' stock at gr greater th than par va value.
15 )
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
-ULTIPLE -ULTIPLE CHOICE*Con&e'tua! 3&ont(4 Ans+er a a * c c * * c c * c c a a * * * * * a a * * c * a * c a c a a
,o(
Des&ri'tion
3(. 4). 41. 42. 43. 44. , 4. 4. S 4#. 4#. 4%. 4&. 4(. ). 1. 2. 3. 4. . #. %. &. (. #). #1. #2. #3. #4. #. ##. , #%. #%. 7#&. 7#(. 7%).
Sale of treasur' stock. !eissued treasur' stock at less than acuisition cost. !eissued tr treasur' stock at gr greater than acuisition co cost. Effect of treasur' stock transactions. ,referred stockde*t features. Cumulative feature of preferred stock. !epor eporti ting ng rede redeem ema* a*le le stoc tock. !epor eporti ting ng divi divide dend nds s in in arr arrea ears rs.. 5ssued vs. outstanding common stock. Timing of entr' to record dividends. Shares entitled to receive a cash dividend. $ccounting for a propert' dividend. Distri*ution of a propert' dividend. iuidating dividend. Entr' to record a liuidating dividend. Effects of a stock dividend. Effects of a stock dividend. Effect of a large stock dividend. arge stock dividend. Small stock dividend. Small stock dividend. Classification of of st stock di dividends di distri*uta*le. Effect of stock splits and stock dividends. Effect of a stock split. Disclosures in the *alance sheet. !eturn on common stock euit' calculation. ,a'out ratio calculation. 6ook value per share. Compu omputi ting ng *ook *ook val value per per sha share re.. Dividends and treasur' stock. /oncumulative preferred stock and dividends in arrears. rs. Disclosure of of pr preferred di dividends in in ar arrears.
,
These uestions also appear in the ,ro*lem"Solving Survival 8uide. These uestions also appear in the Stud' 8uide. 7This topic is dealt +ith in an $ppendi9 to the chapter.
S
-ULTIPLE -ULTIPLE CHOICE*Co0'utationa! Ans+er a * * c d * c
,o(
Des&ri'tion
%1. %2. %3. %4. %. %#. %%.
Composition of stockholders0 euit'. Calculation of total paid"in capital. $llocating proceeds in lump sum sales. $llocating proceeds in lump sum sales. Computing to total paid"in capital. $llocating proceeds in lump sum sales. $llocating proceeds in lump sum sales.
Stockholders- Euit'
-ULTIPLE -ULTIPLE CHOICE*Co0'utationa! 3&ont(4 Ans+er d d * c c d c a c c a a c d * d d a c a * * * a a c a d d c c a * c a * * * d * c *
,o( %&. %(. &). &1. &2. &3. &4. &. &#. &%. &&. &(. (). (1. (2. (3. (4. (. (#. (%. (&. ((. 1)). 1)1. 1)2. 1)3. 1)4. 1). 1)#. 1)%. 1)&. 1)(. 11). 111. 112. 113. 114. 711. 711#. 711%. 711&. 711(.
Des&ri'tion Computing paid"in capital from treasur' stock tran ransactions. !ecording purchase of treasur' stock. !eissue treasur' stocka*ove acuisition cost. !eissue tr treasur' stockcost method. $dditional paid"in capital +ith trea reasur' stock transactions. Calculation of additional paid"in capital. Calculation of additional paid"in capital. Total stockholders0 euit' +ith treasur' stock transactions. Total st stockholders0 e euit' +i +ith tr treasur' stock e9 e9change. Calculate dividends for cumulative preferred shares. Calculate dividends for common shares. Calculate dividends for common shares. !eduction in retained earnings from propert' dividends. !eduction in retained earnings from propert' dividends. !eduction in in re retained ea earnings ca caused *' *' a propert' di dividend. !eduction in retained earnings from propert' dividends. !eduction in retained earnings from propert' dividends. Decrease in in re retained ea earnings fr from cash an and st stock di dividends. Calculation of a large stock dividend. Calculation of a small stock dividend. Calculation of a small stock dividend. Small st stock di dividend0s ef effect on on re retained ea earnings. 6alance of of retained ea earnings af after a small stock dividend. Calculate ret retained earnings availa*le for dividends. Calculate decrease in retained earnings. Calculate the pa'out ratio. Calculate *ook value per share. :se same descrip. as 1)1. :se same descrip. as 1)2. Calculate rate of return on common stock euit'. Calculate price"earnings ratio. Calculate dividends pa paid to common st stockholders. !ate of return on common stock euit'. Determine th the ra rate of of re return on on co common st stock e euit'. Determine *ook value per share. Computation of pa'out ratio. Computation of *ook value per share. $ll $llocat ocatiion of cas cash div divid iden end d to to com common mon and and pref prefer erre red d sha share res s. Cash dividends for cumulative preferred shares res. Cash ash div diviidend dends s fo for cum cumul ulat atiive part partiicipa cipati ting ng pref prefer erre red d sha share res. s. Cash ash div diviidend dend allo alloc catio ation n +i +ith part partiicipa cipati ting ng pref prefer erre red d sha share res. s. Cash dividend for cumulative preferred shares.
15 ) 6
15 ) 8
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
-ULTIPLE -ULTIPLE CHOICE*CPA A$a'te$ Ans+er d * c * c d * d d a c
,o( 12). 121. 122. 123. 124. 12. 12#. 12%. 12&. 12(. 713). 13).
Des&ri'tion Capital st stock issued in in pa pa'ment of of services. ,roceeds from preferred stock in lump sum issue. Determine paid"in capital from treasur' stock. !eissue treasur' stockcost method. Effect of the reissuance of treasur' stock. Entr' to to re record pr propert' di dividends de declared. Effect of a liuidating dividend. Effect of a stock dividend. Stock di dividend +h +hen ma market pr price e9 e9ceeds pa par va value. 6alance of retained earnings follo+ing stock dividend. $ll $llocat ocatiion of cas cash div dividen idend d to com common mon and and pref prefer erre red d share hares s.
E7ERCISES Ite0 E1"13 "131 E1"132 E1"133 E1"134 E1"13 E1"13 "13# E1"13% E1" E1"13 13& & E1" E1"13 13( ( 7E1 7E1"1 "14) 4) 7E1 7E1"1 "141 41
Des&ri'tion ump su sum is issuance of of st stock. Treasur' stock. Treasur' stock. Treasur' stock. Treasur' stock. Stockholders- euit'. Stock di dividends. Stoc Stock k di divide vidend nds s and and stoc stock k spl spliits. ts. Com Computa putati tion on of sel selec ecte ted d rat ratiios. os. Divi Divide dend nds s on on pre prefe ferr rred ed stock. ock. Divi Divide dend nds s on on pre prefe ferr rred ed stock. ock.
PRO.LE-S Ite0 ,1"142 ,1" ,1"14 143 3 ,1"144 ,1"14 7,1 7,1"1 "14# 4#
Des&ri'tion Euit' tra transactions. Treasur asur' ' sto stock ck tran trans sact actions ions.. Stock di dividends. Euit' tra transactions. Divi Divide dend nds s on on pre prefe ferr rred ed and and com commo mon n sto stock ck..
Stockholders- Euit'
15 ) 5
CHAPTER LEAR,I,9 O.:ECTI;ES 1.
Discus Discuss s the char charact acteri eristi stics cs of the the corpo corporat rate e form form of organi organiat ation ion..
2.
5denti 5dentif' f' the the ke' ke' comp compone onents nts of stoc stockho kholde lders0 rs0 euit' euit'..
3.
E9plai E9plain n the acco account unting ing proc procedu edures res for for issui issuing ng share shares s of stoc stock. k.
4.
Desc Descri ri*e *e the the acco accoun unti ting ng for for treas treasur' ur' sto stock ck..
.
E9plai E9plain n the accoun accountin ting g for and repo reporti rting ng of of prefe preferre rred d stock stock..
#.
Descri Descri*e *e the the poli policie cies s used used in in distr distri*u i*utin ting g divid dividends ends..
%.
5denti 5dentif' f' the the vari various ous forms forms of of divid dividend end distri distri*ut *ution ions. s.
&.
E9plain E9plain the the accounti accounting ng for for small small and and large large stock dividends; dividends; and for stock splits. splits.
(.
5ndica 5ndicate te ho+ ho+ to pres present ent and and anal' anal'e e stock stockhol holders ders-- euit euit' '.
71). 71).
E9plai E9plain n the differe different nt t'pes t'pes of prefer preferred red stock stock divid dividend ends s and their their effect effect on *ook value value per share.
15 ) =
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
SU--ARY OF LEAR,I,9 O.:ECTI;ES .Y QUESTIO,S Item
Type
1.
TF
4.
TF
. #. %.
TF TF TF
&. (. 1). S 3#.
TF TF TF
11. 12. 13.
Item
Type
Item
2.
TF
3.
2.
2#.
S
2(. 3). 31. ,
3%. 3&. 3(. 4).
TF TF
43. 44.
TF
14.
TF
32. 33. S 34. ,
41. 42. %&. %(. ,
4. 4#.
S
1. 1#. 4%.
TF TF
4&. 4(. ).
1. 2. 3.
1%. 1&. #. %. &.
TF TF
(. #). #1. #2. (.
(#. (%. (&. ((. 1)).
1(. 2).
TF TF
#3. #4.
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%). 11.
11#. 11%.
/ote=
TF > Tr True"False
E9ercise , > ,ro*lem
Type
Item
Type
Item
Learnin O"
Type
Item
Type
Item
Type
23.
S
24.
%#. %%. 12).
121. 131. 142.
123. 124. 132. 133.
134. 13. 143.
E E ,
(4. 12. 12#.
13#. 144. 14.
E , ,
12(. 13%. 13&. 144. 14.
112. 113.
114. 13(.
141. 14#.
E ,
Stockholders- Euit'
15 ) >
TRUE)FALSE*Con&e'tua! 1.
$ corporation corporation is incorpor incorporated ated in in onl' one state state regardless regardless of the num*er num*er of states states in +hich +hich it operates.
2.
The preempti preemptive ve right right allo+s allo+s stockh stockholders olders the right right to vote for for director directors s of the the compan' compan'..
3.
Common Common stock stock is is the residual residual corporat corporate e interest interest that *ears the ultima ultimate te risks risks of of loss. loss.
4.
Earned Earned capit capital al consis consists ts of addit addition ional al paid"in paid"in capit capital al and retai retained ned earni earnings ngs..
.
True True no"par no"par stock stock should should *e carrie carried d in the account accounts s at issue issue price +ith +ithout out an' addit addition ional al paid"in capital reported.
#.
Compan Companies ies alloc allocate ate the the proceed proceeds s receive received d from a lump"s lump"sum um sale sale of securi securitie ties s *ased *ased on the securities- par values.
%.
Compan Companies ies shoul should d record record stock stock issued issued for servi services ces or noncas noncash h propert' propert' at eithe eitherr the fair fair value of the stock issued or the fair value of the consideration received.
&.
Treasur' Treasur' stock stock is a compan' compan'-s -s o+n stock stock that has *een reacuired reacuired and retire retired. d.
(.
The cost cost metho method d records records all trans transact action ions s in treasur' treasur' shar shares es at their their cost cost and reports reports the the treasur' stock as a deduction from capital stock.
1).
?hen ?hen a corporati corporation on sells sells treasu treasur' r' stock stock *elo+ *elo+ its cost cost;; it usuall' usuall' de*its de*its the differ differenc ence e *et+een cost and selling price to ,aid"in Capital from Treasur' Stock.
11. 11.
,articipati ,articipating ng preferred preferred stock stock reuires reuires that that if a compan' compan' fails fails to pa' a divide dividend nd in an' 'ear; 'ear; it must make it up in a later 'ear *efore pa'ing an' common dividends.
12.
Calla* Calla*le le preferr preferred ed stock stock permit permits s the corpor corporati ation on at its option option to redeem redeem the the outstan outstandin ding g preferred shares at stipulated prices.
13. 13.
The The la+ la+s of some some stat states es reu reuir ire e that that corp corpor orat atio ions ns rest restri rict ct thei theirr lega legall capi capita tall from from distri*ution to stockholders.
14.
The SEC reuires reuires compani companies es to to disclos disclose e their their dividen dividend d polic' polic' in their their annual report. report.
1.
$ll divide dividends nds;; e9cept e9cept for liuida liuidatin ting g dividend dividends; s; reduce reduce the total total stockh stockhold olders ers-- euit' euit' of a corporation.
1#. 1#.
Divi Divide dend nds s pa'a pa'a*l *le e in asse assets ts of the the corp corpor orat atio ion n othe otherr than than cash cash are are call called ed prop proper ert' t' dividends or dividends in kind.
1%. 1%.
?hen ?hen a stoc stock k divide dividend nd is less than than 2)"2 2)"2 perce percent nt of the commo common n stock stock outsta outstand ndin ing; g; a compan' is reuired to transfer the fair value of the stock issued from retained earnings.
1&. 1&.
Stoc Stock k spli splits ts and large large stock stock divi divide dend nds s have have the same same effe effect ct on a comp compan' an'-s -s retai retaine ned d earnings and total stockholders- euit'.
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
15 ) ?
1(. 1(.
The The rate of retu return rn on commo common n stock stock euit' euit' is compu compute ted d *' divi dividi ding ng net incom income e *' the the average common stockholders- euit'.
2).
The pa'out pa'out ratio ratio is determ determine ined d *' dividin dividing g cash divide dividends nds paid paid to common common stockh stockhold olders ers *' net income availa*le to common stockholders.
True)Fa!se True)Fa!se Ans+ers* Con&e'tua! Ite0 1. 2. 3. 4. .
Ans( T F T F T
Ite0 #. %. &. (. 1).
Ans( F T F F T
Ite0 11. 12. 13. 14. 1.
Ans( F T T F F
Ite0 1#. 1%. 1&. 1(. 2).
Ans( T T F F T
-ULTIPLE -ULTIPLE CHOICE*Con&e'tua!
S
21.
The residu residual al inte interes restt in in a corpora corporatio tion n *elon *elongs gs to to the the a. manag anagem emen ent. t. *. creditors. &( &o00 &o00on on sto& sto&/# /#o! o!$e $ers rs(( d. pref prefer erre red d stock stockho hold lder ers. s.
22.
The pre"em pre"empti ptive ve righ rightt of a commo common n stock stockhol holder der is is the the right right to a. share proportionat proportionatel' el' in in corporate corporate assets assets upon liuida liuidation. tion. "( s#are 'ro'o 'ro'ortio rtionate! nate! in in an ne+ ne+ issues o% sto&/ sto&/ o% t#e t#e sa0e &!ass( &!ass( c. receive receive cash dividen dividends ds *efore the' the' are distri*ut distri*uted ed to preferred preferred stockho stockholders lders.. d. e9clude e9clude preferr preferred ed stockh stockholder olders s from from voting voting rights. rights.
23. 23.
The The pre" pre"em empt ptiv ive e right right ena ena*l *les es a stoc stockh khol olde derr to a( s#are 'ro'ortio 'ro'ortionate! nate! in an ne+ ne+ issues issues o% sto&/ sto&/ o% t#e t#e sa0e &!ass( &!ass( *. receive receive cash dividends dividends *efore *efore other classes classes of stock stock +ithout +ithout the pre"empti pre"emptive ve right. c. sell capital capital stock stock *ack *ack to the corporati corporation on at the option option of the stockho stockholder lder.. d. rece receiv ive e the the same same amount amount of divi divide dend nds s on a perc percen enta tage ge *asi *asis s as the pref prefer erre red d stockholders.
24.
5n a corporate corporate form of *usine *usiness ss organi organiation ation;; legal legal capital capital is *est *est defined defined as a. the amount amount of capita capitall the state state of incorpor incorporati ation on allo+s allo+s the compan' compan' to accumula accumulate te over its e9istence. "( t#e 'ar 'ar a!ue a!ue o% o% a!! &a'ita! &a'ita! sto&/ sto&/ issue$ issue$(( c. the amount amount of capita capitall the federal federal governmen governmentt allo+s allo+s a corporation corporation to to generate. generate. d. the total total capital capital raised raised *' a corporat corporation ion +ithin +ithin the limits limits set *' the Securiti Securities es and E9change Commission.
Stockholders- Euit' S
15 ) @
2. 2.
Stoc Stockh khol olde ders rs of a *usi *usine ness ss enter enterpr pris ise e are said said to *e the the resi residu dual al o+ner o+ners. s. The term term residual o+ner means that shareholders a. are entitled entitled to to a dividend dividend ever' ever' 'ear 'ear in +hich +hich the *usiness *usiness earns earns a profit. profit. *. have the rights rights to specifi specific c assets assets of the the *usiness *usiness.. &( "ear t#e u!ti0ate u!ti0ate ris/s ris/s an$ un&ertai un&ertainties nties an$ an$ re&eie re&eie t#e "ene%its "ene%its o% enter'rise enter'rise o+ners#i'( d. can negotia negotiate te individual individual contracts contracts on on *ehalf *ehalf of the the enterpris enterprise. e.
2#. 2#.
Total tal stoc stockh khol olde ders rs00 euit euit' ' repre represe sent nts s a. a claim claim to specifi specific c assets assets contri* contri*uted uted *' the o+ners. o+ners. *. the ma9imu ma9imum m amount amount that can *e *orro+ed *orro+ed *' the the enterpris enterprise. e. &( a &!ai0 &!ai0 aainst aainst a 'ortion 'ortion o% o% t#e tota! tota! assets assets o% an enter' enter'rise( rise( d. onl' the the amount of earnings earnings that that have *een *een retained retained in the *usiness *usiness..
2%. 2%.
$ pri prima mar' r' sou sourc rce e of sto stock ckho hold lders ers00 euit euit' ' is a. income income reta retaine ined d *' the the corp corpora oratio tion. n. *. approp appropria riated ted retain retained ed earnin earnings. gs. c. contri contri*ut *ution ions s *' *' stockh stockhold olders ers.. $( "ot# in&o0e in&o0e retaine retaine$ $ " t#e &or'o &or'oratio ration n
and &ontri"utions &ontri"utions
" sto&/#o!$ers(
2&.
Stockh Stockhold olders ers00 euit' euit' is generall generall' ' classif classified ied into into t+o ma@or ma@or categor categories ies== a. contri*uted contri*uted capital capital and appropriated appropriated capital. capital. *. approp appropria riated ted capit capital al and retain retained ed earnin earnings. gs. c. retain retained ed earning earnings s and unappro unappropri priate ated d capital. capital. $( earne$ earne$ &a'ita &a'ita!! an$ an$ &ontr &ontri"ute i"ute$ $ &a'ita &a'ita!( !(
2(.
The accounti accounting ng pro*lem pro*lem in in a lump lump sum sum issuance issuance is the allocation allocation of of proceeds proceeds *et+e *et+een en the classes of securities. $n accepta*le method of allocation is the a. pro pro for forma ma meth method od.. *. prop propor orti tion onal al meth method od.. c. incr increm emen enta tall meth method od.. $( eit#er eit#er t#e 'ro'orti 'ro'ortiona! ona! 0et#o$ 0et#o$ or or t#e in&re0en in&re0enta! ta! 0et#o$( 0et#o$(
3).
?hen ?hen a corpor corporati ation on issue issues s its capi capital tal stoc stock k in pa'me pa'ment nt for for servic services; es; the the least appropriate appropriate *asis for recording the transaction is the a. market market valu value e of the serv service ices s receiv received. ed. "( 'ar a!ue a!ue o% t#e s#ares s#ares issue$ issue$(( c. market market value value of of the the shares shares issued issued.. d. $n' of these these provide provides s an appropriate appropriate *asis for for recording recording the the transacti transaction. on.
31.
Direct Direct costs costs incurre incurred d to sell sell stock stock such as under+ under+riting riting costs should *e account accounted ed for as 1. a reducti reduction on of addit addition ional al paid"i paid"in n capital capital.. 2. an e9pense e9pense of the period period in +hich +hich the stock stock is is issued. issued. 3. an inta intang ngi* i*le le asse asset. t. a( *. c. d.
1 2 3 1 or 3
15 ) 1B
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
32. 32.
$ sec secre rett res reser erve ve +il +illl *e crea create ted d if if a. inade inadeuat uate e deprecia depreciatio tion n is charged charged to income income.. "( a &a'ita! &a'ita! e'en$itur e'en$iture e is &#are$ &#are$ to e'ense( e'ense( c. lia*il lia*iliti ities es are unders understat tated. ed. d. stockh stockhold olders ers00 euit' euit' is over oversta stated ted..
,
33.
?hich ?hich of the the follo+i follo+ing ng represe represents nts the the total total num*er num*er of shares shares that that a corpora corporatio tion n ma' issue issue under the terms of its charterA a( aut# aut#or ori ie$ e$ s#ar s#ares es *. issue ssued d sha share res s c. uni unissue ssued d shar shares es d. outs outsta tand ndin ing g shar shares es
S
34.
Stock that has a fi9ed fi9ed per"share per"share amount amount printed printed on on each each stock stock certif certificate icate is called called a. stat stated ed valu value e stoc stock. k. *. fi9e fi9ed d valu value e stoc stock. k. c. unif unifor orm m valu value e stoc stock. k. $( 'ar 'ar a! a!ue ue sto& sto&/( /(
S
3. 3.
?hic ?hich h of the the foll follo+ o+in ing g is not a lega legall rest restri rict ctio ion n rela relate ted d to profi profitt dist distri ri*u *uti tion ons s *' a corporationA a. The amount amount distri*ute distri*uted d to o+ners must must *e in complianc compliance e +ith the state state la+s governing governing corporations. "( T# T#e e a0ou a0ount nt $istri $istri"u "ute te$ $ in an on one e ear ear &an &an nee neerr e&e e&ee$ e$ t#e net net in&o in&o0e 0e re'orte$ %or t#at ear( c. ,rofit ,rofit distri*uti distri*utions ons must must *e formall' formall' approve approved d *' the *oard *oard of direct directors. ors. d. Dividends Dividends must must *e in full agreement agreement +ith +ith the capital capital stock stock contracts contracts as to to preferences preferences and participation.
S
3#.
5n Banuar' Banuar' 2)1); 2)1); Finle Finle' ' Corporat Corporation ion;; a ne+l' ne+l' formed formed compan' compan';; issued issued 1);))) 1);))) share shares s of its its 1) 1) par par comm common on stoc stock k for for 1 1 per per shar share. e. n Bul' Bul' 1; 2)1) 2)1);; Finl Finle' e' Corpo Corpora rati tion on reacuired 1;))) shares of its outstanding stock for 12 per share. The acuisition of these treasur' shares a( $e&rea $e&rease$ se$ tota! tota! sto&/# sto&/#o!$ o!$ers ers equit equit(( *. increa increased sed total total stockh stockhold olders ers00 euit' euit'. c. did not not change change total total stoc stockho kholde lders0 rs0 euit euit' '. d. decrea decreased sed the the num*e num*err of issu issued ed share shares. s.
,
3%.
Treas easur' ur' share hares s are are a. shares shares held as an investmen investmentt *' the treasu treasurer rer of the the corporatio corporation. n. *. shares shares held held as an investm investment ent of of the the corporat corporation. ion. c. issued issued and outsta outstandi nding ng shares shares.. $( issue$ issue$ "ut "ut not not outsta outstan$ n$in in s#ar s#ares( es(
3&.
?hen ?hen treasu treasur' r' stock stock is is purchas purchased ed for more more than than the the par value value of of the stock stock and and the cost cost method is used to account for treasur' stock; +hat accounts should *e de*itedA a. Treasur' Treasur' stock stock for for the par value value and paid"in paid"in capital capital in e9cess e9cess of par par for the e9cess e9cess of the purchase price over the par value. *. ,aid"in ,aid"in capital capital in e9cess e9cess of par par for the purchase purchase price. &( Treasu reasur r sto&/ sto&/ %or t#e t#e 'ur&# 'ur&#ase ase 'ri&e 'ri&e(( d. Treasur' Treasur' stock stock for the par value value and retained retained earnings earnings for the the e9cess e9cess of the purchase purchase price over the par value.
Stockholders- Euit'
,
15 ) 11
3(.
G8ains G8ains on sales of treasur' treasur' stock stock using using the the cost cost method method should should *e credite credited d to a( 'ai$)i 'ai$)in n &a'ita &a'ita!! %ro0 %ro0 treasu treasur r sto&/( sto&/( *. capi capita tall stoc stock. k. c. reta retain ined ed ear earni ning ngs. s. d. othe otherr inc incom ome. e.
4). 4).
,ort ,orter er Corp. Corp. purch purchas ased ed its o+n o+n par par value value stoc stock k on Banu Banuar ar' ' 1; 2)1) 2)1) for 2); 2);)) ))) ) and and de*ited the treasur' stock account for the purchase price. The stock +as su*seuentl' sold for 12;))). The &;))) difference *et+een the cost and sales price should *e recorded as a deduction from a( a$$iti a$$itiona ona!! 'ai$)in 'ai$)in &a'ita! &a'ita! to t#e etent etent t#at t#at 'reious 'reious net GainsG GainsG %ro0 %ro0 sa!es o% t#e sa0e &!ass o% sto&/ are in&!u$e$ t#erein ot#er+ise2 %ro0 retaine$ earnins( *. additional additional paid"in paid"in capital capital +ithout +ithout regard regard as to +hether +hether or not there there have *een previous previous net gains from sales of the same class of stock included therein. c. reta retain ined ed ear earni ning ngs. s. d. net in income.
41.
Ho+ should should a gain gain from from the the sale sale of treasur' treasur' stock stock *e reflect reflected ed +hen +hen using using the cost method of recording treasur' stock transactionsA a. $s ordinar' ordinar' earnings earnings sho+n sho+n on on the income income stateme statement. nt. "( As 'ai$)in 'ai$)in &a'ita! &a'ita! %ro0 %ro0 treasur treasur sto&/ sto&/ transa transa&tion &tions( s( c. $s an incre increase ase in the the amount amount sho+n sho+n for comm common on stock stock.. d. $s an e9tra e9traordina ordinar' r' item item sho+n sho+n on the income income statement statement..
42.
?hich of the follo+ing follo+ing *est *est descri* descri*es es a possi* possi*le le result result of treasur' treasur' stock stock transa transaction ctions s *' a corporationA a.
43.
?hich ?hich of the follo follo+i +ing ng feature features s of preferr preferred ed stock stock makes makes the secur securit' it' more more like like de*t than than an euit' instrumentA a. ,art ,artiicipa cipati ting ng *. Ioting &( Re$ee0a"!e d. /onc /oncum umul ulat ativ ive e
44. 44.
The The cumu cumula lati tive ve fea featu ture re of of pref prefer erred red stoc stock k a. limits limits the amount amount of cumulati cumulative ve dividends dividends to the par par value of the the preferred preferred stock. stock. "( requir requires es t#at $ii$ $ii$en$ en$s s not 'ai$ in an an ear 0ust 0ust "e 0a$e u' in a !ater ear ear "e%ore $ii$en$s are $istri"ute$ to &o00on s#are#o!$ers( c. means that that the shareho shareholder lder can accumu accumulate late preferred preferred stock until itit is eual eual to the par par value of common stock at +hich time it can *e converted into common stock. d. ena*les ena*les a preferred preferred stockholder stockholder to accumul accumulate ate dividends dividends until until the' eual the the par value of the stock and receive the stock in place of the cash dividends.
4.
$ccord $ccording ing to to the F$S F$S6; 6; redee redeema* ma*le le prefe preferre rred d stock stock shou should ld *e a. includ included ed +ith +ith common common stock. stock. "( in&!u$ in&!u$e$ e$ as as a !ia"i !ia"i!it !it ( c. e9cluded e9cluded from the stockholde stockholdersrs- euit' heading. heading. d. included included as a contra contra item item in stockholder stockholders0 s0 euit' euit'..
15 ) 1 S
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
4#. 4#.
Cumu Cumula lati tive ve pref prefer erred red divid dividen ends ds in arrear arrears s shou should ld *e sho+ sho+n n in a corp corpor orat atio ion0 n0s s *ala *alanc nce e sheet as a. an incr increas ease e in curr current ent lia* lia*ili ilitie ties. s. *. an incre increase ase in in stockh stockhold olders ers00 euit' euit'.. &( a %o %ootno tnote( d. an increase increase in current current lia*ilities lia*ilities for the current current portion portion and long"term long"term lia*ilit lia*ilities ies for the long"term portion.
4%. 4%.
$t the date of the fina financ ncia iall stat statem emen ents ts;; comm common on stock stock share shares s issu issued ed +ould +ould e9ce e9ceed ed common stock shares outstanding as a result of the a. declar declarati ation on of of a stock stock split. split. *. declar declarati ation on of a stock stock divide dividend. nd. &( 'u 'ur&# r&#ase ase o% treasu treasur r sto&/( sto&/( d. pa'men pa'mentt in full full of su*scr su*scri*e i*ed d stock stock..
4&.
$n entr' is not made made on the a. date date of decl declar arat atio ion. n. "( $ate $ate o% re&o re&or$ r$(( c. date date of pa' pa'ment ment.. d. $n entr entr' ' is made made on all all of thes these e dates. dates.
4(.
Cash Cash divide dividends nds are are paid paid on on the *asis *asis of of the num*er num*er of of shares shares a. aut authori horie ed. d. *. issued. &( outsta tstan n$in in( d. outstandin outstanding g less less the the num*er num*er of treasur treasur' ' shares. shares.
).
?hich ?hich of the foll follo+i o+ing ng statem statement ents s a*out a*out prope propert' rt' divi dividen dends ds is not trueA trueA a. $ propert' propert' divid dividend end is usuall' usuall' in the form form of securiti securities es of other other companies. companies. *. $ propert' propert' dividen dividend d is also also called called a dividend dividend in kind. &( T#e a&&ountin a&&ountin %or a 'ro'ert 'ro'ert $ii$en$ $ii$en$ s#ou!$ s#ou!$ "e "ase$ "ase$ on t#e &arrin &arrin a!ue a!ue 3"oo/ a!ue4 o% t#e non0onetar assets trans%erre$( d. $ll of thes these e state statemen ments ts are are true true..
1.
Houser Houser Corporat Corporation ion o+ns o+ns 4;)));))) 4;)));))) shares shares of stock in 6aha 6aha Corpora Corporation. tion. n Decem* Decem*er er 31; 2)1); Houser distri*uted these shares of stock as a dividend to its stockholders. This is an e9ample of a a( 'ro' 'ro'er ert t $ii $ii$e $en$ n$(( *. stoc stock k divi divide dend nd.. c. liu liuid idat atin ing g divi divide dend nd.. d. cash cash divi divide dend nd..
2.
$ dividend dividend +hich +hich is a return return to stock stockholder holders s of a portion portion of their their origina originall investment investments s is a a( !iqu !iqui$ i$ati atin n $ii $ii$e $en$ n$(( *. prop proper ert' t' divi divide dend nd.. c. lia* lia*ililit it' ' divi divide dend nd.. d. part partic icip ipat atin ing g divide dividend nd..
Stockholders- Euit'
15 ) 16
3. 3.
$ mini mining ng comp compan an' ' decl declar ared ed a liu liuid idat atin ing g divi divide dend nd.. The The @our @ourna nall entr entr' ' to reco record rd the the declaration must include a de*it to a. !eta !etain ined ed Earn Earnin ings gs.. "( a 'ai$ 'ai$)in )in &a'ita &a'ita!! a&&o a&&ount unt(( c. $ccu $ccumu mula late ted d Dep Deple leti tion on.. d. $ccumu $ccumulat lated ed Deprec Depreciat iation ion..
4.
5f manag manageme ement nt +ishe +ishes s to capi capital talie ie part of of the earn earning ings; s; it ma' ma' issue issue a a. cash cash divi divide dend nd.. "( sto& sto&/ / $ii $ii$e $en$ n$(( c. prop proper ert' t' div divid iden end. d. d. liu liuid idat atin ing g div divid iden end. d.
.
?hi ?hich di dividends do do not reduce reduce stockholders0 euit'A a. Cash ash div dividen idends ds "( Sto& Sto&/ / $ii $ii$e $en$ n$s s c. ,rop ,roper ert' t' div divid iden ends ds d. iu iuid idat atin ing g divi divide dend nds s
#.
The declar declaration ation and issuan issuance ce of a stock stock divide dividend nd larger larger than than 2J 2J of the shares shares previousl' previousl' outstanding a. increases increases common common stock stock outstanding outstanding and increases increases total total stockhold stockholders0 ers0 euit' euit'.. "( $e&reases $e&reases retaine$ retaine$ earnins earnins "ut $oes $oes not &#ane tota! tota! sto&/#o!$ers sto&/#o!$ers equit( equit( c. ma' increa increase se or decrease decrease paid"i paid"in n capital capital in e9cess e9cess of par *ut does does not change change total stockholders0 euit'. d. increases increases retained retained earnings earnings and and increases increases total total stockholder stockholders0 s0 euit' euit'..
%. %.
Kuir Kuirk k Corpor Corporat atio ion n issu issued ed a 1))J 1))J stock stock divid dividen end d of its comm common on stock stock +hic +hich h had had a par value of 1) *efore and after the dividend. $t +hat amount should retained earnings *e capitalied for the additional shares issuedA a. There should should *e no no capitali capitaliation ation of retaine retained d earnings. earnings. "( Par a!ue c.
&.
The issue issuerr of a J common common stock stock dividen dividend d to common common stockh stockhold olders ers prefe prefera* ra*l' l' should should transfer from retained earnings to contri*uted capital an amount eual to the a( 0ar/et 0ar/et a!ue a!ue o% o% t#e t#e s#are s#ares s issue$ issue$(( *. *ook *ook value value of the the shar shares es issued issued.. c. mini minimu mum m legal legal reu reuir irem emen ents ts.. d. par or or state stated d value value of the the share shares s issue issued. d.
(.
$t the the date date of declar declarati ation on of a small small comm common on stock stock divi dividen dend; d; the the entr' entr' shoul should d not include include a( a &re$it &re$it to Co00on Co00on Sto&/ Dii$en$ Dii$en$ Paa"!e( Paa"!e( *. a credit credit to to ,aid"i ,aid"in n Capita Capitall in E9ces E9cess s of ,ar. ,ar. c. a de*it de*it to to !eta !etain ined ed Earn Earnin ings gs.. d. $ll $ll of thes these e are are accep accepta ta*l *le. e.
15 ) 18
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
#).
The *alan *alance ce in Commo Common n Stock Stock Divide Dividend nd Distri Distri*ut *uta*l a*le e should should *e report reported ed as an an a. deduct deduction ion from from comm common on stoc stock k issue issued. d. "( a$$iti a$$ition on to &a'ita &a'ita!! sto& sto&/( /( c. curr curren entt lia*i lia*ililit' t'.. d. cont contra ra curr curren entt ass asset et..
#1.
$ feat feature ure comm common on to *oth *oth stock stock spli splits ts and and stock stock divid dividend ends s is a. a transfe transferr to earned earned capita capitall of a corpora corporatio tion. n. "( t#at t#ere t#ere is no no e%%e&t e%%e&t on tota! tota! sto&/#o! sto&/#o!$ers $ers equit equit(( c. an increas increase e in total lia*ilitie lia*ilities s of a corpora corporation. tion. d. a reduction reduction in the contri*uted contri*uted capital capital of a corporati corporation. on.
#2.
?hat effect effect does does the the issuanc issuance e of a 2"for"1 2"for"1 stock stock split have on on each each of the follo+ follo+ingA ingA a. *. &( d.
,ar Ialue per Share /o effect 5ncrease De&rease Decrease
!etained Earnings /o effect /o effect ,o e%%e&t Decrease
#3. #3.
?hic ?hich h one one of the foll follo+ o+in ing g disc disclo losu sure res s shou should ld *e made made in the the eui euit' t' secti section on of the *alance sheet; rather than in the notes to the financial statementsA a. Divi Divide dend nd pref prefer eren ence ces s "( Liq Liqui$ ui$ati ation on 're%er 're%eren& en&es es c. Call prices d. Conver Conversio sion n or or e9er e9ercis cise e pric prices es
#4.
The rate rate of of return return on on common common stoc stock k euit' euit' is is calcul calculate ated d *' divid dividing ing a( net in&o0e in&o0e !ess 're%erre$ 're%erre$ $ii$en$ $ii$en$s s " aerae &o00on &o00on sto&/#o!$er sto&/#o!$ers’ s’ equit equit(( *. net income income *' average average common common stockhol stockholdersders- euit'. euit'. c. net income income less preferr preferred ed dividends dividends *' ending ending common common stockhold stockholdersers- euit' euit'.. d. net income income *' ending ending common common stockholde stockholdersrs- euit'. euit'.
#. #.
The The pa'o pa'out ut rat ratio io can can *e *e calc calcul ulat ated ed *' *' divi dividi ding ng a. divide dividends nds per per share share *' earni earnings ngs per per share. share. "( &as# $ii$ $ii$en$s en$s " net net in&o0e in&o0e !ess 're%er 're%erre$ re$ $ii$e $ii$en$s( n$s( c. cash cash divide dividends nds *' market market price price per per share. share. d. dividends dividends per share share *' earnings earnings per per share and and dividing dividing cash divide dividends nds *' net income income less preferred dividends.
##. ##.
Lounge ungerr Comp Compan an' ' has has outs outsta tand ndin ing g *oth *oth comm common on stoc stock k and and nonp nonpar arti tici cipa pati ting ng;; non" non" cumulative preferred stock. The liuidation value of the preferred is eual to its par value. The *ook value per share of the common stock is unaffected *' *' a. the declarat declaration ion of a stock stock dividen dividend d on preferred preferred pa'a*le pa'a*le in preferred preferred stock stock +hen the market price of the preferred is eual to its par value. *. the declaratio declaration n of a stock dividend dividend on common common stock stock pa'a*le pa'a*le in common common stock stock +hen the market price of the common is eual to its par value. &( t#e 'a0ent 'a0ent o% a 'reio 'reious! us! $e&!are$ $e&!are$ &as# &as# $ii$en$ $ii$en$ on on t#e &o00on &o00on sto&/( sto&/( d. a 2"for" 2"for"1 1 split split of the the comm common on stoc stock. k.
Stockholders- Euit' ,
#%.
15 ) 15
$ssume $ssume commo common n stock stock is the onl' onl' class class of stock stock outst outstand anding ing in the the
7#&. #&.
Divi ividend dends s are are not not pai paid d on on a. noncum noncumula ulativ tive e prefe preferre rred d stoc stock. k. *. nonpar nonpartic ticipa ipatin ting g preferre preferred d stock stock.. &( trea treasu sur r &o00 &o00on on sto&/ sto&/(( d. Divide Dividends nds are paid paid on all of thes these. e.
7#(. 7#(.
/onc /oncum umul ulat ativ ive e prefer preferre red d divid dividen ends ds in arre arrears ars a( are are not not 'ai$ 'ai$ or or $is& $is&!o !ose se$( $( *. must *e paid paid *efore an' other other cash cash dividend dividends s can *e distri*ute distri*uted. d. c. are disc disclos losed ed as a lia*il lia*ilit' it' unti untill paid. paid. d. are are paid paid to pref prefer erre red d stoc stockh khol olde ders rs if suff suffic icie ient nt fund funds s rema remain in afte afterr pa'me pa'ment nt of the the current preferred dividend.
7%). 7%).
Ho+ Ho+ shou should ld cumu cumula lati tive ve pref prefer erre red d divi divide dend nds s in arre arrear ars s *e sho+ sho+n n in a corp corpor orat atio ion0 n0s s statement of financial positionA a( ,ote ,ote $is& $is&!o !osu sure re *. 5ncrea 5ncrease se in in stock stockhol holder ders0 s0 eui euit' t' c. 5ncrea 5ncrease se in curren currentt lia* lia*ili ilitie ties s d. 5ncrease 5ncrease in current current lia*iliti lia*ilities es for the amount amount e9pected e9pected to *e declare declared d +ithin +ithin the 'ear or operating c'cle; and increase in long"term lia*ilities for the *alance
-u!ti'!e C#oi&e Ans+ers* Con&e'tua! Ite0
21. 22. 23. 24. 2. 2#. 2%. 2&.
Ans(
c * a * c c d d
Ite0
2(. 3). 31. 32. 33. 34. 3. 3#.
Ans(
d * a * a d * a
Ite0
3%. 3&. 3(. 4). 41. 42. 43. 44.
Ans(
d c a a * c c *
Ite0
4. 4#. 4%. 4&. 4(. ). 1. 2.
Ans(
* c c * c c a a
Ite0
3. 4. . #. %. &. (. #).
Ans(
* * * * * a a *
Ite0
#1. #2. #3. #4. #. ##. #%. 7#&.
Ans(
Ite0
Ans(
* c * a * c a c
7#(. 7%).
a a
15 ) 1=
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
-ULTIPLE -ULTIPLE CHOICE*Co0'utationa! :se the follo+ing information for uestions %1 and %2. ,resented *elo+ is information related to Hale Corporation= Common Stock; 1 par ,aid"in Capital in E9cess of ,arCommon Stock ,referred & 1M2J Stock; ) par ,aid"in Capital in E9cess of ,ar,referred Stock !etained Earnings Treasur' Common Stock at cost
4;3));))) );))) 2;)));))) 4));))) 1;));))) 1);)))
%1.
The total total stoc stockho kholde lders0 rs0 euit' euit' of Hale Hale Corpor Corporati ation on is is a( ?2 ?2=BB2 =BB2BB BBB( B( *. &; &;%); %);)) ))). ). c. %;1));))). d. %; %;2); 2);)) ))). ).
%2.
The tota totall paid"i paid"in n capita capitall cash cash colle collecte cted d relate related d to the the common common stoc stock k is a. 4; 4;3)); 3));)) ))). ). "( 82 82?5B2 ?5B2BB BBB( B( c. ;2);))). d. 4; 4;%)); %));)) ))). ).
%3. %3.
%4.
/orton /orton Compa Compan' n' issues issues 4;))) 4;))) share shares s of its par value value common common stock stock havi having ng a market market value of 2 per share and #;))) shares of its 1 par value preferred stock having a market value of 2) per share for a lump sum of 1(2;))). ?hat amount of the proceeds should *e allocated to the preferred stockA a. 1%2;))) *. 12);))) &( 1B82>> d. ();)))
%.
6err' 6err' Corpora Corporatio tion n has );))) );))) shares shares of 1) 1) par common common stock stock author authorie ied. d. The foll follo+ o+ing ing transactions took place during 2)1); the first 'ear of the corporation-s e9istence= Sold ;))) shares of common stock for 1& per share. 5ssued ;))) shares of common stock in e9change for a patent valued at 1));))). $t the end of the 6err'-s 6err'-s first 'ear; 'ear; total paid"in capital amounted amounted to a. 4);))). *. ();))). c. 1));))). $( 1@B2BBB(
Stockholders- Euit'
15 ) 1>
%#.
8lavin 8lavine e Compan' Compan' issue issues s #;))) #;))) shares shares of its its par value value commo common n stock stock having having a market market value of 2 per share and (;))) shares of its 1 par value preferred stock having a market value of 2) per share for a lump sum of 2&&;))). The proceeds allocated to the common stock is a. 3);))) "( 16B2@B@ c. 1);))) d. 1%;)(1
%%.
?heele ?heelerr Compan Compan' ' issued issued ;))) ;))) share shares s of its par value value commo common n stock stock havin having g a market market value of 2 per share and %;)) shares of its 1 par value preferred stock having a market value of 2) per share for a lump sum of 24);))). The proceeds allocated to the preferred stock is a. 21;))) *. 1);))) &( 16B2@B@ d. 1)(;)(1
%&. %&.
,em* ,em*er er Corpo Corpora rati tion on start started ed *usin *usines ess s in 2)) *' issui issuing ng 2));)) 2));))) ) shar shares es of 2) 2) par par common stock for 3# each. 5n 2)1); 2);))) of these shares +ere purchased for 2 per share *' ,em*er Corporation and held as treasur' stock. n Bune 1; 2)11; these 2);))) shares +ere e9changed e9changed for a piece of propert' that had an assessed value of &1);))). &1);))). ,er*er-s stock is activel' traded and had a market price of #) on Bune 1; 2)11. The cost method is used to account for treasur' stock. The amount of paid"in capital from treasur' stock transactions resulting from the a*ove events +ould *e a. &));))). *. 4&);))). c. 3();))). $( 1=B2BBB(
%(.
n Septem Septem*er *er 1; 2)1); 2)1); Ial Ialde de Compa Compan' n' reacu reacuire ired d 12;))) 12;))) shares shares of its its 1) par par value value common stock for 1 per share. Ialde uses the cost method to account for treasur' stock. The @ournal entr' to record the reacuisition of the stock should de*it a. Treas Treasur' ur' Stock Stock for 12);) 12);))). )). *. Comm Common on Stoc Stock k for for 12); 12);)) ))). ). c. Common Common Stock Stock for 12);))) 12);))) and and ,aid"in ,aid"in Capital Capital in E9cess E9cess of of ,ar for #);))). #);))). $( Treasu reasur r Sto&/ Sto&/ %or 1?B2B 1?B2BBB( BB(
&).
8annon 8annon Comp Compan' an' acui acuired red #;))) #;))) shar shares es of its its o+n o+n common common stock stock at at 2) per per share share on Fe*ruar' ; 2)1); and sold 3;))) of these shares at 2% per share on $ugust (; 2)11. The market value of 8annon0s common stock +as 24 per share at Decem*er 31; 2)1); and 2 per share at Decem*er 31; 2)11. The cost method is used to record treasur' stock transactions. ?hat accounts should 8annon credit in 2)11 to record the sale of 3;))) sharesA a. Treas Treasur' ur' Stock Stock for &1;)) &1;))). ). "( Treasur Treasur Sto&/ %or =B2BBB an$ Pai$)in Pai$)in Ca'ita! Ca'ita! %ro0 Trea Treasur sur Sto&/ %or 12BBB( 12BBB( c. Treasur' Treasur' Stock for #);))) #);))) and and !etained !etained Earnings Earnings for 21;))). 21;))). d. Treasur' Treasur' Stock for %2;))) %2;))) and and !etained !etained Earnings Earnings for (;))). (;))).
15 ) 1?
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
&1.
ong ong Co. issue issued d 1));))) 1));))) share shares s of 1) par comm common on stock stock for for 1;2)); 1;2));))) ))).. ong acui acuired red &;))) shares of its o+n common stock at 1 per share. Three months later ong sold 4;))) of these shares at 1( per share. 5f the cost method is used to record treasur' stock transactions; to record the sale of the 4;))) treasur' shares; ong should credit a. Treas Treasur' ur' Stock Stock for %#;)) %#;))). ). *. Treasur' Treasur' Stock Stock for 4);))) 4);))) and ,aid"in ,aid"in Capital from from Treasur' Treasur' Stock Stock for 3#;))). 3#;))). &( Treasur Treasur Sto&/ %or =B2BBB =B2BBB an$ Pai$)in Pai$)in Ca'ita! Ca'ita! %ro0 %ro0 Treasur Treasur Sto&/ Sto&/ %or 1=2BBB( 1=2BBB( d. Treasur' Treasur' Stock Stock for #);))) #);))) and and ,aid"in ,aid"in Capital Capital in E9cess E9cess of ,ar for 1#;))). 1#;))).
&2. &2.
$n anal' anal'si sis s of stock stockho hold lder ers0 s0 euit euit' ' of Hahn Hahn Corpo Corpora rati tion on as of Banua Banuar' r' 1; 2)1) 2)1);; is as follo+s= Common stock; par value 2)N authoried 1));))) sharesN issued and outstanding ();))) shares ,aid"in capital in e9cess of par !etained earnings Total
1;&));))) ());))) %#);))) 3;4#);)))
Hahn uses the cost method of accounting for treasur' stock and during 2)1) entered into the follo+ing transactions= $cuired 2;)) shares of its stock stock for %;))). Sold 2;))) treasur' shares at 3 per share. Sold the remaining treasur' shares at 2) per share. $ssuming no other euit' transactions occurred during 2)1); +hat should Hahn report at Decem*er 31; 2)1); as total additional paid"in capitalA a. &(;))) *. ());))) &( @B52BBB d. (1;))) &3.
,erc' ,erc' Corpor Corporati ation on +as +as organie organied d on Banuar' Banuar' 1; 2)1); 2)1); +ith +ith an authori authoriat ation ion of 1;2)) 1;2));)) ;))) ) shares of common stock +ith a par value of # per share. During 2)1); the corporation had the follo+ing capital transactions= Banuar' Bul' 2& Dece Decem* m*er er 31
issued #%;))) shares O 1) per share purchased ();))) shares O 11 per share sold sold the the ();) ();))) )) share shares s hel held d in in tre treas asur ur' ' O 1& 1& per per shar share e
,erc' used the cost method to record the purchase and reissuance of the treasur' shares. ?hat is the total amount of additional paid"in capital as of Decem*er 31; 2)1)A a. ")". *. 2; 2;)%); )%);)) ))). ). c. 2;%));))). $( 62 6266B2 66B2BB BBB( B( &4.
Sosa Sosa Co.0s Co.0s stoc stockho kholde lders0 rs0 eui euit' t' at Banu Banuar' ar' 1; 1; 2)1) 2)1) is as follo+ follo+s= s= Common stock; 1) par valueN authoried 3));))) sharesN utstanding 22;))) shares ,aid"in capital in e9cess of par !etained earnings Total
2;2);))) ());))) 2;1();))) ;34);)))
Stockholders- Euit'
15 ) 1@
During 2)1); Sosa had the follo+ing stock transactions= $cuired #;))) shares of its stock stock for 2%);))). Sold 3;#)) treasur' shares at ) a share. Sold the remaining treasur' shares at 41 per share. /o other stock transactions occurred during 2)1). $ssuming Sosa uses the cost method to record treasur' stock transactions; the total amount of all additional paid"in capital accounts at Decem*er 31; 2)1) is a. &(1;#)). *. &%);))). &( @B?28BB( d. (2%;#)). &.
,resen ,resented ted *elo+ *elo+ is the stockh stockhold olders ers00 euit' euit' section section of aks aks Corporat Corporation ion at Decem* Decem*er er 31; 2)1)= Common stock; par value 2)N authoried %;))) sharesN issued and outstanding 4;))) shares ());))) ,aid"in capital in e9cess of par value 2);))) !etained earnings ));))) 1;#);))) During 2)11; the follo+ing transactions occurred relating to stockholders0 euit'= 3;))) shares +ere reacuired at 2& per share. 3;))) shares +ere reacuired at 3 per share. 1;&)) shares of treasur' stock +ere sold at 3) per share. For For the the 'ear 'ear ende ended d Dece Decem* m*er er 31; 31; 2)1 2)11; aks aks repo report rted ed net net inco income me of 4) 4);) ;))) )).. $ssuming aks accounts for treasur' stock under the cost method; +hat should it report as total stockholders0 euit' on its Decem*er 31; 2)11; 2)11; *alance sheetA a( 12@ 12@=5 =52B 2BBB BB(( *. 1;( 1;(#1 #1;4 ;4)) )).. c. 1;(%;&)). d. 1; 1;1 1;) ;))) ))..
&#.
n Decem* Decem*er er 1; 2)1); 2)1); $*el $*el Corpo Corporat ration ion e9cha e9change nged d 2);))) 2);))) shares shares of its its 1) par value value common stock held in treasur' for a used machine. The treasur' shares +ere acuired *' $*el at a cost of 4) per share; and are accounted for under the cost method. n the date of the e9change; the common stock had a market value of per share the shares +ere originall' issued at 3) per share. $s a result of this e9change; $*el0s total stockholders0 euit' +ill increase *' a. 2));))). *. &));))). &( 121 121BB BB2B 2BBB BB(( d. ());))).
15 ) B
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
&%. &%.
uth uther er 5nc.; 5nc.; has 2;)) 2;))) ) shar shares es of #J; ) par value value;; cumu cumula lati tive ve prefe preferr rred ed stock stock and 1));))) shares of 1 par value common stock outstanding at Decem*er 31; 2)11; and Decem*er 31; 2)1). The *oard of directors declared and paid a ;))) dividend in 2)1). 5n 2)11; 24;))) of dividends are declared and paid. ?hat are the dividends received *' the preferred stockholders in 2)11A 2)11A a. 1%;))) *. 12;))) &( >2BBB d. #;)))
&&.
$nders; $nders; 5nc.; 5nc.; has has ;))) ;))) shares shares of J; J; 1)) 1)) par value; value; cumulati cumulative ve preferred preferred stock stock and 2);))) shares of 1 par value common stock outstanding at Decem*er 31; 2)11. There +ere no dividends declared in 2))(. The *oard of directors declares and pa's a 4;))) dividend in 2)1) and in 2)11. ?hat is the amount of dividends received *' the common stockholders in 2)11A 2)11A a( 152BBB *. 2;))) c. 4;))) d. )
&(.
Colson Colson 5nc. 5nc. declared declared a 1#);))) 1#);))) cash dividend. dividend. 5t currentl currentl' ' has #;))) shares shares of %J; 1)) par value cumulative preferred stock outstanding. 5t is one 'ear in arrears on its preferred stock. Ho+ much cash +ill Colson distri*ute to the common stockholdersA a( >=2BBB( *. &4;))). c. 11&;))). d. /one.
().
,ierson ,ierson Corporat Corporation ion o+ned 1);))) 1);))) shares shares of Hunter Hunter Corporation Corporation.. These These shares shares +ere +ere purchased in 2))% for ();))). n /ovem*er 1; 2)11; ,ierson declared a propert' dividend of one share of Hunter for ever' ten shares of ,ierson held *' a stockholder. n that date; +hen the market price of Hunter +as 14 per share; there +ere ();))) shares of ,ierson outstanding. ?hat gain and net reduction in retained earnings +ould result from this propert' dividendA 8ain /et !eduction in !etained Earnings a. ) 12#;))) *. ) &1;))) &( 8 5 2B B B ? 1 2B B B d. 4;))) 3#;)))
Stockholders- Euit'
15 ) 1
(1.
Stinson Stinson Corporat Corporation ion o+ned 3);))) shares of
(2.
?inger Corporation Corporation o+ned ());))) ());))) shares shares of Fegan Fegan Corpora Corporation tion stock. stock. n Decem*er Decem*er 31; 31; 2)1); +hen ?inger0s account 5nvestment in Common Stock of Fegan Corporation had a carr'ing value of per share; ?inger distri*uted these shares to its stockholders as a dividend. ?inger originall' paid & for each share. Fegan has 3;)));))) shares issued and outstanding; +hich are traded on a national stock e9change. The uoted market price for a Fegan share +as % on the declaration date and ( on the distri*ution date. ?hat +ould *e the reduction in ?inger0s stockholders0 euit' as a result of the a*ove transactionsA a. 3;# 3;#)) ));) ;))) )).. "( 825 825BB BB2B 2BBB BB(( c. %;2));))). d. &;1 &;1)) ));) ;))) ))..
(3.
8i**s 8i**s Corpor Corporati ation on o+ned o+ned 2);))) 2);))) shares shares of live liverr Corpora Corporatio tion-s n-s par par value value common common stock. These shares +ere purchased in 2))% for 1&);))). n Septem*er 1; 2)11; 8i**s declared a propert' dividend of one share of liver for ever' ten shares of 8i**s held *' a stockholder. n that date; +hen the market price of liver +as 14 per share; there there +ere +ere 1&);)) 1&);))) ) shares shares of 8i**s 8i**s outst outstand anding ing.. ?hat ?hat /ET reduction reduction in retain retained ed earnings +ould result from this propert' dividendA a. ();))) *. 22;))) c. %2;))) $( 1=2BBB
(4.
15 )
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
(.
Hernan Hernande de Compa Compan' n' has 3);) 3);))) )) shares shares of 1) 1) par value value commo common n stock stock outst outstand anding ing.. During the 'ear; Hernande declared a 1)J stock dividend +hen the market price of the stock +as 3) per share. Four months later Hernande declared a .) per share cash divide dividend. nd. $s a result result of the divide dividends nds declar declared ed during during the 'ear; 'ear; retained retained earnin earnings gs decreased *' a( 12 1282 825B 5BB( B( *. 2;))). c. 1(2;)). d. 1%;))).
(#. (#.
n Bune Bune 3); 2)1); 2)1); +hen +hen Ermle Ermlerr Co.0s Co.0s stock stock +as +as sellin selling g at # # per per share; share; its capi capita tall accounts +ere as follo+s= Capi Capita tall st stock ock pa parr val value ue )N )N #);) #);))) )) share hares s iss issue ued d ,remium on capital stock !etained earnings
3;) 3;))) ));) ;))) )) #));))) 4;2));)))
5f a 1))J stock dividend +ere declared and distri*uted; capital stock +ould *e a. 3; 3;))); )));)) ))). ). *. 3; 3;#)); #));)) ))). ). &( =2 =2BBB2 BBB2BB BBB( B( d. %; %;&)); &));)) ))). ). (%.
The stock stockhol holder ders0 s0 euit' euit' secti section on of 8unkel 8unkel Corpor Corporati ation on as of Decem* Decem*er er 31; 2)1); 2)1); +as as follo+s= Common stock; par value 2N authoried 2);))) sharesN issued and outstanding 1);))) shares 2) 2);))) ,aid"in capital in e9cess of par 3);))) !etained earnings %;))) 12;))) n
Stockholders- Euit' (&.
15 ) 6
The stockholde stockholders0 rs0 euit' of Ho+ell Ho+ell Compan' Compan' at Bul' Bul' 31; 2)1) is present presented ed *elo+= *elo+= Common stock; par value 2); authoried 4));))) sharesN issued and outstanding 1#);))) shares ,aid"in capital in e9cess of par !etained earnings
3;2));))) 1#);))) #);))) 4;)1);)))
n $ugust 1; 2)1); the *oard of directors of Ho+ell declared a 1J stock dividend on common common stock; stock; to *e distri distri*ut *uted ed on Septem Septem*er *er 1th. 1th. The market market price price of Ho+ell Ho+ell0s 0s common stock +as 3 on $ugust 1; 2)1); and 3& on Septem*er 1; 2)1). ?hat is the amount of the de*it to retained earnings as a result result of the declaration declaration and distri*uti distri*ution on of this stock dividendA a. &));))). "( ?8B2BBB( c. (12;))). d. #));))). ((. ((.
n Banua Banuar' r' 1; 2)1); 2)1); Dodd; Dodd; 5nc.; 5nc.; decl declar ared ed a 1)J 1)J stock stock divid dividen end d on its comm common on stock stock +hen the market value of the common stock +as 2) per share. Stockholders0 euit' *efore the stock dividend +as declared consisted of= Common stock; 1) par value; authoried 2));))) sharesN issued and outstanding 12);))) shares $dditional paid"in capital on common stock !etained earnings Total stockholders0 euit'
1;2));))) 1);))) %));))) 2;));)))
?hat +as the effect on Dodd-s retained earnings as a result of the a*ove transactionA a. 12) 12);) ;))) )) dec decre reas ase e "( 8B 8B2B 2BBB BB $e&r $e&rea ease se c. 4)) 4));) ;))) )) decr decrea ease se d. 2)) 2));) ;))) )) dec decre reas ase e 1)). 1)).
n Banuar' Banuar' 1; 1; 2)1); 2)1); Culver Culver Corpor Corporati ation on had 11) 11);)) ;))) ) shares shares of its par par value value common common stock outstanding. n Bune 1; the corporation acuired 1);))) shares of stock to *e held in the the trea treasu sur' r'.. n Dece Decem* m*er er 1; +hen +hen the the mark market et pric price e of the the stoc stock k +as &; &; the the corporation declared a 1)J stock dividend to *e issued to stockholders of record on Decem*er 1#; 2)1). ?hat +as the impact of the 1)J stock dividend on the *alance of the retained earnings accountA a. ); );)) ))) ) dec decre reas ase e "( ?B2 ?B2BB BBB B $e&r $e&rea ease se c. &&; &&;)) ))) ) decr decrea ease se d. /o effect
15 ) 8
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
1)1.
$t the the *eginning *eginning of 2)11 2)11;; Flahert' Flahert' Compan' Compan' had had retained retained earnin earnings gs of 2));))). 2));))). During During the 'ear Flahert' reported net income of 1));))); sold treasur' stock at a GgainP of 3#;))); declared a cash dividend of #);))); and declared and issued a small stock dividend of 3;))) shares 1) par value +hen the market value of the stock +as 2) per share. The amount of retained earnings availa*le for dividends at the end of 2)11 +as a( 1?B2BBB( *. 21);))). c. 21#;))). d. 24#;))).
1)2.
Kuestions 1)3 and 1)4 are *ased on the follo+ing information. a'ne Corporation had the follo+ing information in its financial statements for the 'ears ended 2)1) and 2)11= Cash dividends for the 'ear 2)11 &;))) /et income for the 'ear ended 2)11 (3;)))
?hat ?hat is the the pa'out pa'out ratio ratio for for a'ne a'ne Corpor Corporati ation on for for the 'ear 'ear ended ended 2)11 2)11A A a. 24.%J *. 1#.1J &( 1B(6J d. &.#J
1)4.
?hat is the the *ook *ook value value per share for a'ne a'ne Corporation Corporation for the the 'ear 'ear ended ended 2)11A 2)11A a( 1(BB *. 11.() c. 11.33 d. 1).#%
Stockholders- Euit'
15 ) 5
1).
$t the the *eginning *eginning of 2)11 2)11;; Hamilto Hamilton n Compan' Compan' had had retained retained earnings earnings of 1);))). 1);))). During During the 'ear Hamilton reported net income of %;))); sold treasur' stock at a GgainP of 2%;))); declared a cash dividend of 4;))); and declared and issued a small stock dividend of 1;)) shares 1) par value +hen the market value of the stock +as 3) per share. The amount of retained earnings availa*le for dividends at the end of 2)11 +as= +as= a. 1&4;)). *. 1#2;))). c. 1%;)). $( 1652BBB(
1)#.
Kuestions 1)% and 1)& are *ased on the follo+ing information. Seal' Corporation had the follo+ing information in its financial statements for the 'ears ended 2)1) and 2)11= Cash dividends for the 'ear 2)11 ;))) /et income for the 'ear ended 2)11 %2;)))
1)&.
?hat is the the rate rate of return return on common common stock stock euit' euit' for Seal' Seal' Corporation Corporation for the the 'ear 'ear ended 2)11A a. #.J *. #.)J & ( 5 (= J d. .2J ?hat is the the price"ear price"earnings nings ratio for Seal' Seal' Corpora Corporation tion for the the 'ear 'ear ended ended 2)11A 2)11A a. 1#.1 *. 1#.% & ( 1 @ (8 d. 21.1
15 ) =
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
1)(. 1)(.
11). 11).
,resen ,resented ted *elo *elo+ + is info informa rmatio tion n relate related d to rend render er;; 5nc.= 5nc.= Common stock 4J ,referred stock !etained earnings includes net income for current 'ear /et income for 'ear
Decem*er 31; 2)11 2)1) %;))) #);))) 3);))) 3);))) ();))) %;))) 3);))) 32;)))
?hat is render-s rate of return on common stock euit' for 2)11A 2)11A a. 2).)J "( 1B(>J c. 1&.2J d. 21.3J :se the follo+ing information for uestions 111 111 and 112. The follo+ing data are provided= 1)J Cumulative preferred stock; ) par Common stock; 1) par $dditional paid"in capital !etained earnings includes current 'ear net income /et income
Decem*er 31; 2)11 2)1) 1));))) 1));))) 12);))) ();))) &);))) #;))) 24);))) 21;))) ();)))
$dditional information= n
The rate rate of of return return on on common common stoc stock k euit' euit' for for 2)11 2)11 is a. () Q 4)). *. () Q 44). &( ?B 8BB( d. &) Q 44).
not
Stockholders- Euit' 112. 112.
15 ) >
The *ook *ook value value per per shar share e of comm common on stoc stock k at 12M31M 12M31M11 11 is a( 86B 1( *. 2)) Q 12. c. 33) Q 12. d. 44) Q 11.
:se the follo+ing information for uestions 113 and 114. Turner Corporation had the follo+ing information in its financial statements for the 'ear ended 2)1) and 2)11= Cash dividends for the 'ear 2)11 /et income for the 'ear ended 2)11
1;))) 124;))) 24 2;2));))) 2;4));))) 12);))) 3);)))
113. 113.
?hat is the the pa'out pa'out ratio ratio for for Turn Turner er Corporat Corporation ion for for the the 'ear 'ear ended ended 2)11A 2)11A a. 12.1J "( 1=(BJ c. 3#.3J d. 41.3J
114. 114.
?hat is is the *ook value value per per share share for Turner Turner Corporat Corporation ion for the 'ear 'ear ended ended 2)11A 2)11A a. 1(.1% "( B(BB c. 1).43 d. 24.))
:se the follo+ing information for uestions 11 through 11%. ?ritten; 5nc. has outstanding 3));))) shares of 2 par common stock and #);))) shares of no" par par &J prefe preferre rred d stoc stock k +ith +ith a stat stated ed valu value e of . . The The pref prefer erre red d stoc stock k is cumu cumula lati tive ve and and nonparticipating. Dividends have *een paid in ever' 'ear e9cept the past t+o 'ears and the current 'ear. 711 711.. $ssumi $ssuming ng that 1);)) 1);))) ) +ill *e distri distri*ut *uted ed as a divide dividend nd in the curren currentt 'ear; 'ear; ho+ much +ill the common stockholders receiveA a. Rero. "( >?2BBB( c. 1)2;))). d. 12#;))). 711#. 711#. $ssuming $ssuming that #3;))) #3;))) +ill +ill *e distri*uted distri*uted as a dividend dividend in the current current 'ear; 'ear; ho+ much +ill +ill the preferred stockholders receiveA a. 21;))). *. 24;))). c. 4&;))). $( =62BBB(
15 ) ?
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
711% 711%.. $ssumi $ssuming ng that 1&3;) 1&3;))) )) +ill +ill *e distri* distri*ute uted; d; and the preferr preferred ed stock stock is ho+ much +ill the common stockholders receiveA a. 11 111;))) ;))).. "( @B2BBB( c. (3;))). d. 4&;))).
also participating;
711&. 711&. Loder; Loder; 5nc. has has );))) shares shares of 1) 1) par value value common common stock and 2;))) 2;))) shares of of 1) par value; #J; cumulative; participating preferred stock outstanding. Dividends on the prefer preferred red stock stock are one 'ear 'ear in arrear arrears. s. $ssum $ssuming ing that that Loder oder +ishe +ishes s to distri distri*ut *ute e 13;))) as dividends; the common stockholders +ill receive a. 3);))). *. ;))). &( ?B2BBB( d. 1);))). 711(. 711(. B2BBB( c. 21);))). d. 2);))).
-u!ti'!e C#oi&e Ans+ers* Co0'utationa! Ite0
%1. %2. %3. %4. %. %#. %%.
Ans(
a * * c d * c
Ite0
%&. %(. &). &1. &2. &3. &4.
Ans(
d d * c c d c
Ite0
&. &#. &%. &&. &(. (). (1.
Ans(
a c c a a c d
Ite0
(2. (3. (4. (. (#. (%. (&.
Ans(
Ite0
Ans(
* d d a c a *
((. 1)). 1)1. 1)2. 1)3. 1)4. 1).
* * a a c a d
Ite0
1)#. 1)%. 1)&. 1)(. 11). 111. 112.
Ans(
Ite0
Ans(
d c c a * c a
113. 114. 711 711# 711% 711& 711(
* * * d * c *
-ULTIPLE -ULTIPLE CHOICE*CPA A$a'te$ 12). 12).
$ corpo corpora rati tion on +as organi organie ed d in Banuar Banuar' ' 2))% 2))% +ith +ith auth author ori ied ed capita capitall of 1) par valu value e common stock. n Fe*ruar' 1; 2)1); shares +ere issued at par for cash. n
Stockholders- Euit'
15 ) @
121. 121.
n Bul' Bul' 1; 2)1); 2)1); /all Co. Co. issued issued 2;)) 2;)) share shares s of its 1) par comm common on stock stock and and ;)) ;))) ) shares of its 1) par converti*le preferred stock for a lump sum of 12;))). $t this date /all0s common stock +as selling for 24 per share and the converti*le preferred stock for 1& per share. The amount of the proceeds allocated to /all0s preferred stock should *e a. #2;)). "( >52BBB( c. ();))). d. #&;%).
122.
Horton Horton Co. +as organied organied on Banuar' Banuar' 2; 2)1); +ith ));))) ));))) authorie authoried d shares shares of 1) par par value common stock. During 2)1); Horton had the follo+ing capital transactions= Banuar' issued 3%;))) shares at 14 per share. Bul' 2%purchased 2;))) shares at 11 per share. /ovem*er 2sold 1;))) shares of treasur' stock at 13 per share. Horton used the cost method to record the purchase of the treasur' shares. ?hat +ould *e the *alance in the ,aid"in Capital from Treasur' Stock account at Decem*er 31; 2)1)A a. ). *. 1;))). &( 6B2BBB( d. 4;))).
123.
5n 2)1); 2)1); Ho**s Ho**s Corp. Corp. acuired acuired (;))) shares of its its o+n o+n 1 par value common common stock stock at 1& per share. 5n 2)11; Ho**s issued 4;))) of these shares at 2 per share. Ho**s uses the cost method to account for its treasur' stock transactions. ?hat accounts and +hat amounts should Ho**s credit in 2)11 to record the issuance of the 4;))) sharesA
a. "( c. d. 124. 124.
Treasur' Stock %2;))) > 2B B B
$dditional ,aid"in Capital ?2BBB (#;))) #&;)))
!etained Earnings %);)))
Common Stock
2&;)))
4;))) 4;)))
$t its date date of incorp incorporat oration ion;; Sauder Sauder;; 5nc. 5nc. issued issued 1));))) 1));))) share shares s of its 1) 1) par common common stock at 11 per share. During the current 'ear; Sauder acuired 2);))) shares of its common stock at a price of 1# per share and accounted for them *' the cost method. Su*seuentl'; these shares +ere reissued at a price of 12 per share. There have *een no other other issuan issuances ces or acuis acuisiti itions ons of its o+n common common stock. stock. ?hat effec effectt does does the reissuance of the stock have on the follo+ing accountsA a. *. &( d.
!etained Ea Earnings Decrease /o effect De&rease /o effect
$dditional ,a ,aid"in Ca Capital Decrease Decrease ,o e%%e&t /o effect
15 ) 6B
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
12. 12.
Farmer Farmer Corp Corp.. o+ned o+ned 2);))) 2);))) share shares s of Eaton Eaton Corp. Corp. purcha purchased sed in 2))% 2))% for 24) 24);)) ;))). ). n Decem*er 1; 2)1); Farmer declared a propert' dividend of all of its Eaton Corp. shares on the *asis of one share of Eaton for ever' 1) shares of Farmer common stock held *' its stockholders. The propert' dividend +as distri*uted on Banuar' 1; 2)11. n the declaration date; the aggregate market price of the Eaton shares held *' Farmer +as 4));))). The entr' to record the declaration of the dividend +ould include a de*it to !etained Earnings of a. ). *. 1#);))). c. 24);))). $( 8BB2BBB(
12#. 12#.
$ corpo corpora rati tion on declar declared ed a divi divide dend nd;; a port portio ion n of +hich +hich +as +as liu liuid idat atin ing. g. Ho+ +ould +ould this this distri*ution affect each of the follo+ingA
a. "( c. d.
$dditional ,aid"in Capital Decrease De&rease /o effect /o effect
!etained Earnings /o effect De&rease Decrease /o effect
12%. 12%.
n
12&. 12&.
Ho+ Ho+ +ould ould the the decl declar arat atio ion n and and su*s su*se eue uent nt issua issuanc nce e of a 1)J 1)J stoc stock k divi divide dend nd *' the the issuer affect each of the follo+ing +hen the market value of the shares e9ceeds the par value of the stockA $dditional Common Stock ,aid"in Capital a. /o effect /o effect *. /o effect 5ncrease c. 5ncrease /o effect $( In&rease In&rease
Stockholders- Euit' 12(.
15 ) 61
n Decem*er Decem*er 31; 31; 2)1); 2)1); the stockh stockholders olders00 euit' euit' section section of of $rndt; $rndt; 5nc.; +as as follo+s= follo+s= Common stock; par value 1)N authoried 3);))) sharesN issued and outstanding (;))) shares $dditional paid"in capital !etained earnings Total stockholders0 euit'
() ();))) 11#;))) 11#;))) 1%4;))) 3&);)))
n
,referred Stock 1#;))) 22;))) 8 2B B B 3);)))
Common Stock 14;))) &;))) = 2B B B )
-u!ti'!e C#oi&e Ans+ers* CPA A$a'te$ Ite0
Ans(
Ite0
Ans(
Ite0
Ans(
Ite0
Ans(
Ite0
Ans(
Ite0
Ans(
12). 121.
d *
122. 123.
c *
124. 12.
c d
12#. 12%.
* d
12&. 12(.
d a
713).
c
DERI;ATIO,S * Co0'utationa! ,o( Ans+er Deriation %1.
a
4;3));))) 4));))) );))) 2;)));))) 1;));))) 1);))) > &;#));))).
%2.
*
4;3));))) );))) > 4;&);))).
%3.
*
1);))) × 2 1;))) × 2) > );))) 2);))) Q );))) × 4&);))) > 21&;1&2.
%4.
c
4;))) × 2 #;))) × 2) > 22);))) 12);))) Q 22);))) × 1(2;))) > 1)4;%2%.
%.
d
;))) × 1& 1));))) > 1();))).
15 ) 6
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
%#.
*
U#;))) × 2 Q U#;))) × 2 (;))) × 2)VV × 2&&;))) > 13);()(.
%%.
c
U%;)) × 2) Q U;))) × 2 %;)) × 2)VV × 24);))) > 13);()(.
%&.
d
#) 2 × 2);))) > 1#);))).
%(.
d
12;))) × 1 > 1&);))).
&).
*
3;))) × 2) > #);)))N 3;))) × % > 21;))).
&1.
c
4;))) × 1 > #);)))N 4;))) × 4 > 1#;))).
&2.
c
());))) 2;))) × )) × 1) > ();))).
&3.
d
#%;))) × 4 ();))) × % > 3;33);))).
&4.
c
());))) 3;#)) × 2;4)) × 4 > ()&;4)).
&.
a
1;#);))) 3;))) × 2& 3;))) × 3 1;&)) × 3) 4);))) > 1;(#;))).
&#.
c
2);))) × > 1;1));))).
&%.
c
2;))) × ) × .)# > #;))) #;))) ;))) #;))) > %;))).
&&.
a
;))) × 1)) × .) > 2;))) 4;))) × 2 2;))) × 3 > 1;))).
&(.
a
#;))) × 1)) × .)% > 42;))) 1#);))) 42;))) × 2 > %#;))).
().
c
();))) Q 1) × 14 > 12#;))) U14 ();))) Q 1);)))V × (;))) > 4;))) 12#;))) 4;))) > &1;))).
(1.
d
2%);))) Q 1) × 14 > 3%&;))) U14 2%);))) Q 3);)))V × 2%;))) > 13;))) 3%&;))) 13;))) > 243;))).
(2.
*
());))) × % U% × ());)))V > 4;));))).
(3.
d
1&);))) Q 1) × 14 > 22;))) 22;))) U22;))) 1&);))) × 1&M2)V > 1#2;))).
(4.
d
;))) × #3 > 31;))) 31;))) 31;))) 21&;))) > 21&;))).
Stockholders- Euit'
(.
a
3);))) × .1) W 3) > 1;));))) 1;));))) 3);))) × 1.1) × .) > 1;242;)).
(#.
c
#);))) × ) 3;)));))) > #;)));))).
(%.
a
%;))) 1);))) 1;)) × # > #;))).
(&.
*
1#);))) × .1 × 3 > &4);))).
((.
*
12);))) × .1) × 2) > 24);))).
1)).
*
1));))) × .1) × & > &);))).
1)1.
a
2));))) 1));))) #);))) 3;))) × 2) > 1&);))).
1)2.
a
42);))) × .) × 3# 42);))) × 1.) × .#) > 1;)2);#)).
1)3.
c
&;))) Q (3;))) 1;))) > 1).3J.
1)4.
a
1;&));))) Q 1);))) > 12.)).
1).
d
1);))) %;))) 4;))) 1;)) × 3) > 13;))).
1)#.
d
#);))) × .) × 4& #);))) × 1.) × .#) > 1;#(#;&)).
1)%.
c
%2;))) 1);))) Q U1;)));))) 1;2));)))V > .#J.
1)&.
c
%2;))) 1);))) Q 1));))) > .#2. 12 Q .#2 > 1(.4.
1)(.
a
11).
*
111.
c
X > .2; X > 43);))). 2;12);))) 4));))) $30,00 30,000 0 − ( .04 .04 × $350 350,000 ,000 ) 000 + $75, 00 000 ) + ( $75, 00 000 + $90, 00 000 ) ÷ 2 ( $60, 00
> .1)% > 1).%J.
$90 $90,000 ,000 − ( $100 100, 000 ×.10 .10 ) ,000 + $80,000 ,000 + $240,000 ,000 − $10,000 ,000 ) + ( $90,000 ,000 + $65,000 ,000 + $215,000 ,000 ) ÷ 2 ( $120,000
> &) Q 4)). 112.
a
113.
*
15 ) 66
12);))) &);))) 24);))) 1);))) > 43) Q 12. 12;))) 1;))) Q 124;))) 3);))) > 1#.)J.
15 ) 68
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
114.
*
2;4));))) Q 12);))) > 2).)).
711.
*
1);))) #);))) × × .)& × 3 > %&;))).
711#.
d
#);))) × × .)& × 3 > %2;))) Y #3;))).
711%.
*
&J × #));))) > 4&;))) %J7 × #));))) #));))) > 42;))) ();)))
current 'ear participat participating ing
73));))) × &J × 3 > %2;) %2;))) )) #));))) × &J > 4&;))) 12);))) 1&3;))) 12);))) > %J. #));))) 3));))) 711&.
c
pre prefe ferr rred ed div dividen idends ds common current dividends
Common Stock ));))) × #J #J > 3);))) current 'ear ));))) × 1)J7 > );))) parti rticipating &);))) 713;))) 3);))) 2);))) × #J W 2 > %;))) %;))) > 1)J. %);)))
711(.
*
2);))) ));))) × &J W 2 > 1%);))).
C PA A$a'te$ DERI;ATIO,S * CPA ,o( Ans+er Deriation 12).
d
Conceptual.
121.
*
24 × 2;)) 1& × ;))) > 1);))). ();))) W 12;))) > %;))). 1);)))
122.
c
1;))) × 2 > 3);))).
123.
*
4;))) × 1& > %2;)))N 4;))) × % > 2&;))).
124.
c
Conceptual.
12.
d
4));))) market value.
Stockholders- Euit'
12#.
*
Conceptual.
12%.
d
Conceptual.
12&.
d
Conceptual.
12(.
a
1%4;))) 32;))) ()) × 1& > 12;&)).
713).
c
2));))) × .)& &;))) > 24;))) 3);))) 24;))) > #;))).
15 ) 65
E7ERCISES E( 15)161ump sum issuance of stock.
,arker Corporation has issued 2;))) shares of common stock and 4)) shares of preferred stock for a lump sum of %2;))) cash. Instru&tions a 8ive the entr' for the issuance assuming the par value of the the common +as and the market value 3); and the par value of the preferred +as 4) and the market value ). Each valuation is on a per share *asis and there are read' markets for each stock.
* 8ive the entr' for the issuance issuance assuming assuming the same facts as a a*ove e9cept e9cept the preferred preferred stock has no read' market and the common stock has a market value of 2 per share.
So!ution 15)161
a Cash.. Cash..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ...... .. Common St Stock .. ................................................................ ,aid"in Capital in E9cess of ,arCommon...................... ,referred Stock ................................................................ ,aid"in Capital in E9cess of ,ar,referred .................... common 3) W 2;))) #);))) preferred ) W 4)) 2);))) &);))) market va value #)M&) W %2;))) > 2)M&) W %2;))) >
%2;))) %2;))) 1);))) 44;))) 1#;))) 2;)))
4;))) common 1&;))) preferred %2;)))
* Cash.. Cash..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ...... .. Common Stock................................................................... ,aid"in Capital in E9cess of ,arCommon....................... ,referred Stock.................................................................. ,aid"in Capital in E9cess of ,ar,referred.......................
%2;))) %2;))) 1);))) 4);))) 1#;))) #;)))
15 ) 6=
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
E( 15)16Treasur' stock.
For numerous reasons; a corporation ma' reacuire shares of its o+n capital stock. ?hen a compan' purchases treasur' stock; it usuall' accounts for the stock using the cost method. Instru&tions E9plain ho+ a compan' +ould account for each of the follo+ing= 1. ,urchase ,urchase of shares shares at a price price less less than than par value. 2. Su*seuent Su*seuent resale resale of treasur' treasur' shares shares at a price price less than than purchase purchase price; price; *ut more more than par value. 3. Su*se Su*seuen uentt resale resale of treasu treasur' r' shares shares at a price price greater greater than than *oth purchas purchase e price and par value. 4. Effe Effect ct on net net inc incom ome. e. So!ution 15)16
1. Treasur' Treasur' stock stock is de*ited de*ited for the purchase purchase price price of the shares even even though the purchase purchase price price is less than par value. 2. Treasur' Treasur' stock stock is credited credited for the original original cost cost purchase purchase price of the shares; shares; and the e9cess e9cess of the original cost purchase price over the sales price first is de*ited to paid"in capital from treasur' stock from earlier sales of treasur' stock and an' remainder then is de*ited to retained earnings. 3. Treasur' Treasur' stock stock is credited credited for the original original cost cost purchase purchase price of the shares; shares; and the e9cess e9cess of the sales price over the original cost purchase price is credited to paid"in capital from treasur' stock. 4. There is no effec effectt on net income income as a result result of treasur' treasur' stock stock transact transactions. ions. E( 15)166Treasur' stock.
$gler Corporation0s *alance sheet reported the follo+ing= Capital stock outstanding; ;))) shares; par 3) per share ,aid"in capital in e9cess of par !etained earnings
1);))) &);))) 1));)))
The follo+ing transactions occurred this 'ear= a ,urchased ,urchased 12) shares shares of capital capital stock stock to *e held held as treasur' treasur' stock; stock; pa'ing pa'ing #) per per share. * Sold () () of the the shares shares of treasu treasur' r' stock stock at # per share. share. c Sold the the remaining remaining shares of treasur' treasur' stock at ) per share. share. Instru&tions ,repare the @ournal entr' for these transactions under the cost method of accounting for treasur' stock.
Stockholders- Euit'
15 ) 6>
So!ution 15)166
a a Trea Treasu sur' r' Stoc Stock. k... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ... Cash.......................................................................................
%;2) %;2)) )
* Cash Cash ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ .... Treasur' Stock........................................................................ ,aid"in Ca Capital fr from Treasur' Stock........................................
;&) ;&)
c Cash.. Cash..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ....... ... ,aid ,aid"i "in n Capit Capital al from from Tre Treas asur ur' ' Stock Stock.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Treasur' Stock........................................................................
1;)) 1;)) 3)) 3))
%;2)) ;4)) 4)
1;&))
E( 15)168Treasur' stock.
Ellison Compan'0s *alance sheet sho+s= Common stock; 2) par ,aid"in capital in e9cess of par !etained earnings
3;)));))) 1;));))) %);)))
Instru&tions !ecord the follo+ing transactions *' the cost method. a 6ought 6ought ;))) shares shares of its its common common stock stock at 2( a share. share. * Sold Sold 2;)) 2;)) treas treasur' ur' shar shares es at at 3) a shar share. e. c Sold 1;))) 1;))) shares of treasur treasur' ' stock stock at 2# a share. share. So!ution 15)168
a *
c
Treas Treasur' ur' Stock Stock... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ...... Cash............................................................... ...... .... .... .... .... ........ ...... ....
14;)) 14;))) )
Cash.. Cash..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ...... .. Treasur' Stock.................................................................. ,aid"in Capital from Treasur' Stock..................................
%;))) %;)))
Cash.. Cash..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ...... .. ,aid"in ,aid"in Capita Capitall from from Treas Treasur' ur' Stock. Stock.... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ...... .. !eta !etain ined ed Earnin Earnings gs.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ..... .. Treasur' Stock..................................................................
2#;))) 2#;))) 2;)) 2;)) )) ))
14;))) %2;)) 2;))
2(;)))
15 ) 6?
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
E( 15)165Treasur' stock.
5n 2)1);
a
The t+o t+o methods methods of accoun accountin ting g for treasur treasur' ' stock stock are the cost cost method method and the par value value method.
*
Treas Treasur' ur' Stock Stock... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ...... Cash............................................................... ...... .... .... .... .... .... .... .... .....
4);)) 4);))) )
Cash.. Cash..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ...... .. ,aid"in Ca Capital fr from Tr Treasur' St Stock.................................. Treasur' Stock..................................................................
1#;)) 1#;))) )
c
4);))) 1;))) 1);)))
E( 15)16=Stockholders- Euit'.
5ndicate the effect of each of the follo+ing transactions on total stockholders0 stockholders0 euit' *' placing an X in the appropriate column. 5ncrease Decrease /o Effect 1. Treasur' stock is resold at mo more th than cost.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
2. perating loss for the period.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
3. !etire !etiremen mentt of *onds *onds pa'a* pa'a*le le at more more than than *ook value.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
4. Declaration of a stock dividend.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
. $cuisition of machiner' for common stock.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
#. Conver Conversio sion n of *onds *onds pa'a*l pa'a*le e into comm common on stock.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
%. /ot decl declari aring ng a divid dividend end on cumula cumulativ tive e preferred stock.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
&. Declaration of cash dividend.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
(. ,a'ment of cash dividend.
ZZZZZZZZZ
ZZZZZZZZZ
ZZZZZZZZZ
Stockholders- Euit'
15 ) 6@
So!ution 15)16=
5ncrease 1. Treasur' stock is res resold at more than cost.
Decrease
X
2. perating loss for the period.
X
3. !etire !etiremen mentt of *onds *onds pa'a* pa'a*le le at more more than than *ook value.
X
4. Declaration of a stock dividend.
X
. $cu $cuiisit sition ion of mac machine hiner' r' for for comm common on stoc stock k.
X
#. Conver Conversio sion n of *onds *onds pa'a*l pa'a*le e into comm common on stock.
X
%. /ot decl declari aring ng a divid dividend end on cumula cumulativ tive e preferred stock. &. Declaration of cash dividend. (. ,a'ment of cash dividend.
/o Effect
X X X
E( 15)16>Stock dividends.
Descri*e the @ournal entr' for a stock dividend on common stock +hich has a par value.
So!ution 15)16>
$ stock dividend results in the transfer from retained earnings to paid"in capital of an amount eual to the fair value of each share; if the dividend is less than 2)"2J; or par value of each share; share; if the dividend dividend is greater greater than 2)"2J. !etained !etained Earnings is de*ited de*ited for the total amount amount transferred; Common Stock Dividend Distri*uta*le is credited for the total par value of the shares; and; for a small stock dividend; the e9cess of market value over par value is credited to ,aid"in Capital in E9cess of ,ar.
15 ) 8B
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
E( 15)16?Stock dividends and stock splits.
5ndicate the principal effects of a stock dividend versus a stock split as the' affect the issuing corporation. !espond in the spaces as follo+s= C for changeN /C for no change. Stock Dividend
Stock Split
/um*er of Shares utstanding
ZZZZZZZZZ
ZZZZZZZZZ
,ar Ialue per Share
ZZZZZZZZZ
ZZZZZZZZZ
Total ,ar utstanding
ZZZZZZZZZ
ZZZZZZZZZ
!etained Earnings
ZZZZZZZZZ
ZZZZZZZZZ
Total Stockholders0 Euit'
ZZZZZZZZZ
ZZZZZZZZZ
Composition of Stockholders0 Euit'
ZZZZZZZZZ
ZZZZZZZZZ
So!ution 15)16?
/um*er of Shares utstanding ,ar Ialue per Share Total ,ar utstanding !etained Earnings Total Stockholders0 Euit' Composition of Stockholders0 Euit'
Stock Dividend C /C C C /C C
Stock Split C C /C /C /C /C
E( 15)16@Computation of selected financial ratios.
The follo+ing information pertains to ,arsons Co.= ,referred stock; cumulative= ,ar per share Dividend rate Shares outstanding Dividends in arrears Common stock= ,ar per share Shares issued Dividends paid per share
1)) &J ;))) none 1) #);))) 2.%) 4&.)) 2));))) 13;))) 1);))) ;))) 12;))) 3%);)))
Stockholders- Euit'
15 ) 81
Instru&tions Compute assume no changes in *alances during the past 'ear= a Total amou amount nt of stoc stockho kholde ldersrs- euit' euit' in in the *alan *alance ce sheet sheet * * Earn Earnin ings gs per per sha share re of comm common on stoc stock k c c 6ook 6ook valu value e per per shar share e of of com commo mon n sto stock ck d d ,a' ,a'out out rati ratio o of comm common on sto stock ck e e !etu !eturn rn on on comm common on sto stock ck eui euit' t' So!ution 15)16@
a
;))) ;))) W 1)) 1)) #);))) #);))) W 1) 1) 2)) 2));)) ;))) ) 13;)) 13;))) ) 1);)) 1);))) ) 12;)) 12;))) ) > 1;4#);))).
*
U3%); U3%);))) ))) ;) ;))) )) W 1)) 1)) W &JV &JV Q #);)) #);))) ) ;))) ;))) > 33); 33);))) ))) Q ;))) ;))) > #.)) per share.
c 1;4#);))) 1;4#);))) ));))) ));))) Q #);))) #);))) ;))) ;))) > (#);))) (#);))) Q ;))) > 1%.4 1%.4 per per share. share. So!ution 15)16@ cont. d
2.%) 2.%) Q # # > 4J or U2 U2.%) .%) W ;) ;))) )) Q 3%); 3%);))) ))) 4); 4);))) )))V. V.
e
3%); 3%);))) ))) 4);)) 4);))) ) Q 1; 1;4#) 4#);)) ;))) ) )); ));))) ))) > 34.4J 34.4J..
E( 15)18BDividends on preferred stock.
The stockholders0 euit' section of ema' Corporation sho+s the follo+ing on Decem*er 31; 2)11= ,referred stock#J; 1)) par; 4;))) shares outstanding Common stock1) par; #);))) shares outstanding ,aid"in capital in e9cess of par !etained earnings Total stockholders0 euit'
4));))) #));))) 2));))) 114;))) 1;314;)))
Instru&tions $ssuming that all of the compan'0s retained earnings are to *e paid out in dividends on 12M31M11 and that preferred dividends +ere last paid on 12M31M)(; sho+ ho+ much the preferred and common stockholders should receive if the preferred stock is cumulative and full' participating. So!ution 15)18B
Dividends in arrears #J of 4));))) Current 'ear0s dividends ,articipating dividend 3J U3);))) Q 1;)));))) 9 4));)))V
,referred 24;))) 24;)))
Common 3#;)))
Total 24;))) #);)))
12;))) #);)))
1&;))) 4;)))
3);))) 114;)))
15 ) 8
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
E( 15)181Dividends on preferred stock.
5n each of the follo+ing independent cases; it is assumed that the corporation has 4));))) of #J preferred stock and 1;#));))) of common stock outstanding; each having a par value of 1). /o dividends have *een declared for 2))( and 2)1). a $s of 12M31M11; 12M31M11; it is desired to distri*ute distri*ute 2);))) in dividends. dividends. Ho+ much +ill the preferred stockholders receive if their stock is cumulative and nonparticipatingA * $s of 12M31M11; 12M31M11; it is desired to distri*ute distri*ute 4));))) in dividends. dividends. Ho+ much +ill the preferred stockholders receive if their stock is cumulative and participating up to 11J in totalA c n 12M31M11; 12M31M11; the preferred preferred stockholders stockholders received received a 12);))) dividend dividend on their stock stock +hich is cumulative and full' participating. Ho+ much mone' +as distri*uted in total for dividends during 2)11A 2)11A So!ution 15)181
a %2;)) %2;))) ) 4)) 4));)) ;))) ) 9 .)# .)# 9 3 'rs. 'rs.. . * (2;))) (2;))) 4));))) 4));))) 9 .)# .)# 9 3 'rs. 'rs. U4));) U4));))) )) 9 .11 .11 ".)#V. ".)#V. c 4)&;))) 4)&;))) 2&&;)) 2&&;)))7 )7 to common common and 12);))) 12);))) to preferred. preferred. 7 1;#));))) 9 .)# U12);))) " %2;))) Q 4));))) 9 1;#));)))V.
PRO.LE-S Pr( 15)18Euit' transactions.
,resented *elo+ is information related to ?'rick Compan'= 1. The compan' compan' is granted granted a charter charter that authori authories es issuance issuance of 1;))) 1;))) shares shares of 1)) 1)) par value preferred stock and 4);))) shares of no"par common stock. 2. &;))) shares shares of common common stock stock are issued issued to the the founders founders of the corporat corporation ion for land land valued *' the *oard of directors at 3));))). The *oard esta*lishes a stated value of a share for the common stock. 3. ;))) shares shares of preferred preferred stock stock are sold sold for cash at 12) 12) per share. share. 4. The compan' compan' issues issues 1)) shares shares of common stock stock to its its attorne's attorne's for costs costs associat associated ed +ith starting the compan'. $t that time; the common stock +as selling at #) per share. Instru&tions ,repare the general @ournal entries necessar' to record these transactions. So!ution 15)18
1. /o entr' entr' nece necess ssar ar' '. 2. and.. and..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ...... .. 3));)) 3));))) ) Common Stock.................................................................... ,aid"in Capital in E9cess of Stated Ialue............................
4);))) 2#);)))
Stockholders- Euit' 3. Cash...... Cash........... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .............. ........... #));))) #));))) ,referred Stock................................................................ ...... .... .. ,aid"in Capital in E9cess of ,ar,referred Stock............... 4. rgan rgani iat atio ion n E9pe E9pens nse. e... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ..... .. Common Stock.................................................................... ,aid"in Capital in E9cess of Stated Ialue............................
15 ) 86
));))) 1));)))
#;)) #;))) ) )) ;))
Pr( 15)186Treasur' stock transactions. The original sale of the ) par value common shares of 8ra' Compan' +as recorded as follo+s= Cash...... Cash........... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ................. .............. .. 2();))) 2();))) Common Stock.............................................................. 2);))) ,aid"in Capital in E9cess of ,ar..................................... 4);))) Instru&tions !ecord the treasur' stock transactions given *elo+ under the cost method=
Transactions= a 6ought 6ought 3)) 3)) share shares s of comm common on stock stock as as treas treasur' ur' shar shares es at #2. #2. * * Sold Sold &) &) shar shares es of of tre treas asur' ur' stoc stock k at #). #). c c Sold Sold 4) 4) tre treas asur ur' ' sha share res s at at #& #&.. So!ution 15)186
a * *
c c
Treas Treasur' ur' Stock Stock... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ....... ... Cash. ash... .... .... .... .... .... ........ ...... .... ........ ...... .... ........ ...... .... ........ ...... .... ........ ...... .... ........ ...... .... ........ ...... .... .... .... .... .... .... .... .... ..
1&;#)) 1&;#))
Cash Cash.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ..... .. !eta !etain ined ed Earn Earnin ings gs.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ..... .. Treasur' Sto Stock.............................................. ...... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
4;&) 4;&)) ) 1#) 1#)
Cash Cash.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ..... .. ,aid"in Capital from Treasur' Stock.......................................... Treasur' Sto Stock.............................................. ...... .... .... .... .... .... .... .... .... .... .... .... .... .... ..
2;%2 2;%2) )
1&; 1&;#)) #))
4;(#) 24) 2;4&)
Pr( 15)188Stock dividends.
The stockholders0 euit' section of 6enton Corporation0s *alance sheet as of Decem*er 31; 2)1) is as follo+s= Stockholders0 Euit' Common stock; par valueN authoried; 2;)));))) sharesN issued; 4));))) shares 2;)));))) ,aid"in capital in e9cess of par &);))) !etained earnings 3;)));))) ;&);))) The follo+ing events occurred during 2)11=
15 ) 88
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
1. Ban. Ban.
1);) 1);))) )) sha share res s of aut autho hori rie ed d and and unis unissu sued ed com commo mon n stoc stock k +er +ere e sold sold for for & & per per share.
2. Ban. Ban. 1#
Decl Declar ared ed a cash cash divi divide dend nd of 2) cent cents s per shar share; e; pa' pa'a*le a*le Fe*r Fe*rua uar' r' 1 to stoc stock" k" holders of record on Fe*ruar' .
3. Fe*. Fe*. 1)
2);) 2);))) )) shar shares es of auth author ori ied ed and and uniss unissue ued d comm common on stoc stock k +ere +ere sold sold for for 12 per per share.
4.
$ 3)J 3)J stock tock div dividen idend d +as dec declare lared d and and issue ssued. d.
. $pri $prill 1
$ t+o t+o"f "for or"o "one ne spl split it +as +as car carri ried ed out out.. The The par par valu value e of the the sto stock ck +as +as to to *e redu reduce ced d to 2.) per share.
#. Bul' Bul' 1
$ 1J 1J sto stock ck divi divide dend nd +as +as dec decla lare red d and and issu issued ed..
%. $ug. $ug. 1
$ cash cash div diviidend dend of 2) cen cents ts per per shar share e +as +as decl declared ared;; pa'a* pa'a*lle Sept Septem em*e *err 1 to stockholders of record on $ugust 21.
Instru&tions Enter the a*ove events into the follo+ing +ork sheet sho+ing ho + each event affects the column. Event /o. 1 +ill serve as an e9ample.
Common Comm on /o. of 5tem Shares Sha res 5ssued 5ssu ed 6eginning 6alance1M1M11 4));))) Event [1Ban. 1);))) 6alance 41);))) Event [ 2Ban. 1# and events 3 through %
Stock Sto ck Total ,ar Ialue 2;)));))) );))) 2;));)))
,aid"in Capital 5n E9cess E9ce ss of ,ar !etaine !eta ined d Earnin Ear nings gs &);))) 3;)));))) 3);))) ")" &&);))) 3;)));)))
Stockholders- Euit'
15 ) 85
So!ution 15)188
Event [2Ban. 1# ")" ")" ")" &2;))) 6alance 41);))) 2;));))) &&);))) 2;(1&;))) [3Fe*. 1) 2);))) 1));))) 14);))) ")" 6alance 43);))) 2;1);))) 1;)2);))) 2;(1&;))) [4
15 ) 8=
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
Pr( 15)185Euit' transactions.
Fole' Corporation has the follo+ing capital structure at the *eginning of the 'ear= #J ,referred stock; ) par value; 2);))) shares authoried; #;))) shares issued and outstanding Common stock; 1) par value; #);))) shares authoried; 4);))) shares issued and outstanding ,aid"in capital in e9cess of par
3));))) 4));))) 11);)))
Total paid"in capital !etained earnings Total stockholders0 euit'
&1);))) 44);))) 1;2);)))
Instru&tions a !ecord the follo+ing follo+ing transactions +hich occurred consecutivel' sho+ all calculations.
1. $ total total cash cash dividend dividend of ();)) ();))) ) +as declare declared d and pa'a*le pa'a*le to stockh stockhold olders ers of record. record. !ecord dividends pa'a*le on common and preferred stock in separate accounts. 2. $ 1)J common common stock stock dividend dividend +as declare declared. d. The average average market market value value of the common common stock is 1& a share. 3. $ssume $ssume that that net income income for the 'ear +as 1);) 1);))) )) record record the closin closing g entr' entr' and the *oard of directors appropriated %);))) of retained earnings for plant e9pansion. * Construct the stockholders0 euit' section incorporating all the a*ove a*ove information. So!ution 15)185
a a 1. !eta !etain ined ed Earn Earnin ings gs.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ..... .. Dividends ,a'a*le,referred 3));))) W .)#.......... Dividends , a' a'a*leCommon...................................... 2.
();) ();))) )) 1&;))) %2;)))
4);))) shares 1)J 4;)) 4;))) ) shar shares es as sto stock ck divi divide dend nd 1& %2; %2;)) ))) ) tota totall divi divide dend nd !etain !etained ed Earnin Earnings. gs.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ .... Common Stock Dividend Distri*uta*le........................ ,aid"in Capital in E9cess of ,ar..................................
%2;))) %2;)))
3. 5ncome 5ncome Summar Summar'.. '..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ........ .... !etained Earnings.......................................................
1);)) 1);))) )
!etain !etained ed Earnin Earnings. gs.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ .... !etained Earnings $ppropriated for ,lant E9pansion. .
4);))) 32;))) 1);))) %);))) %);))) %);)))
Stockholders- Euit'
15 ) 8>
So!ution 15)185 cont.
* Stockh Stockhold olders ers00 euit' euit' #J ,referred stock; ) par value; 2);))) shares authoried; #;))) shares issued and outstanding Common stock; 1) par value; #);))) shares authoried; 4);))) shares issued and outstanding Common stock dividend distri*uta*le ,aid"in capital in e9cess of par Total paid"in capital !etained earningsunappropriated7 3&;))) $ppropriated for plant e9pansion %);))) Total retained earnings Total stockholders0 euit'
3) 3));))) 4));))) 4);))) 142;))) &&2;))) 42&;))) 1;31);)))
744);))) ();))) %2;))) 1);))) %);))) > 3&;)))
Pr( 15)18=Dividends on preferred and common stock.
!ensing; 5nc.; has &));))) of &J preferred stock and 1;2));))) of common stock outstanding; each having a par value of 1) per share. /o dividends have *een paid or declared during 2))( and 2)1). $s of Decem*er 31; 2)11; it is desired to distri*ute 4&&;))) in dividends. Instru&tions Ho+ much +ill the preferred and common stockholders receive under each of the follo+ing assumptions= a The preferred preferred is is noncumu noncumulativ lative e and nonparticip nonparticipating ating.. * The preferred preferred is is cumulat cumulative ive and nonpart nonparticipa icipating. ting. c The preferred preferred is is cumulat cumulative ive and full' full' participati participating. ng. d The preferr preferred ed is cumula cumulative tive and and particip participating ating to to 12J total. total. So!ution 15)18=
a Current 'ear0s dividend &J of &));))) !emainder to common
,referred #4 #4;))) #4;)))
*
c
Total #4 #4;))) 424;))) 4&&;)))
1(2;)))
Common 2(#;))) 2(#;)))
Total 12&;))) #4;))) 2(#;))) 4&&;)))
,referred Dividends in arrears; &J of &));))) for t+o 'ears 12&;))) Current 'ear0s dividend #4;))) ,arti rticipating dividend 1)J 2 2));))) Q 2;)));))) &);))) 2%2;)))
Common (#;))) 12);))) 21#;)))
Total 12&;))) 1#);))) 2));))) 4&&;)))
Dividends in arrears; &J of &));))) for t+o 'ears Current 'ear0s dividend !emainder to common
,referred 12&;))) #4;)))
Common 424;))) 424;)))
15 ) 8?
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
So!ution 15)18= cont. d Dividends in arrears; &J of &));))) for t+o 'ears Current 'ear0s dividend ,articipating dividend 4J !emainder to common
,referred 12&;))) #4;))) 32;))) 224;)))
Common (#;))) 4&;))) 12);))) 2#4;)))
Total 12&;))) 1#);))) &);))) 12);))) 4&&;)))
Stockholders- Euit'
15 ) 8@
IFRS QUESTIO,S TrueFa!se
1. 5n the :nited :nited States; States; like like man' other other countries; countries; *anks *anks are ma@or ma@or creditors creditors as +ell +ell as the largest investors. 2. The i8$$, i8$$, statement statement of recogni recognied ed income income and e9penses e9penses is identic identical al to the :.S. :.S. 8$$, statement of retained earnings *eginning *alance retained earnings; plus net income; less dividends; euals ending *alance retained earnings. 3. ?hen the statem statement ent of recognie recognied d income income and e9penses e9penses is utilied utilied the the reuirement reuirement for for additional note disclosure is reduced. 4. :nder i8$$, i8$$, compliance compliance reuireme reuirements nts the :.S. :.S. 8$$, formatted formatted income income statement statement need need not *e replaced +ith the i8$$, statement of recognied income and e9penses. . :nder i8$$, i8$$, compliance compliance reuireme reuirements nts the revaluati revaluation on surplus is not not considered considered contri*ute contri*uted d capital. Ans+ers to TrueFa!seM TrueFa!seM 1. False 2. False 3. False 4. True . True -u!ti'!e C#oi&e
1. The account accounting ing for for treasur' treasur' stock stock retirem retirements ents under under i8$$, i8$$, a. is to charge charge the entire amount to paid"in paid"in capital. capital. *. ma' have have the e9cess e9cess charged charged to paid"in paid"in capita capital; l; dependin depending g on the origin original al transact transaction ion related to the issuance of the stock. c. is to charge charge the e9cess e9cess of the cost cost of treasur' treasur' stock stock over over par value value to retained retained earnings. earnings. d. is to allocate allocate the differ difference ence *et+een *et+een paid"in paid"in capital capital and retained retained earnings. earnings. 2. The !eva !evalua luatio tion n Surplu Surplus s of i8$$ i8$$, , is a. similar similar to :.S. 8$$, 8$$, in that that it allo+s allo+s *oth increases increases and decreas decreases es in valuation valuation.. *. similar similar to :.S. :.S. 8$$, in that it onl' allo+ allo+s s for the decreas decrease e in valuatio valuation. n. c. similar similar to :.S. :.S. 8$$, in that it onl' allo+ allo+s s for the increas increase e in valuation valuation.. d. different different than than :.S. :.S. 8$$, in in that itit allo+s allo+s the increase increase in in valuation. valuation.
15 ) 5B
Test Test .an/ %or Inter0e$iate A&&ountin2 T#irteent# E$ition
3. The i8$$, i8$$, statement statement of recogni recognied ed income income and e9pense e9penses s a. does not not recognie recognie charges charges to to euit' euit' such as revaluation revaluation surplus surplus values. values. *. is a reuired reuired report report under under i8$$, i8$$, reporting reporting reuire reuirements ments.. c. reports reports the items items that +ere +ere charged charged directl' directl' to euit' euit' such as revalua revaluation tion surplus. surplus. d. is simil similar ar to the the :.S. :.S. 8$$, incom income e stat statem emen entt in that it onl' onl' report reports s reve revenu nues es and e9penses of the period. 4. :nder i8$$, i8$$, compli compliance ance reuirem reuirements ents the the !evaluat !evaluation ion Surplus Surplus is a. onl' utili utilied ed to record record the change changes s in deprecia*l deprecia*le e items plant plant and and euipment. euipment. *. considered considered as revenue revenue +hen +hen utiliing utiliing the :.S. :.S. 8$$, 8$$, formatted formatted income income stateme statement. nt. c. utilied utilied to record record the the changes changes in propert' propert';; plant; plant; and euipment. euipment. d. reported as contri*uted capital. . The current current pro@ect pro@ect of the 5$S6 and the F$S6 F$S6 related related to financial financial statemen statementt presentatio presentation n indicates a. that the i8$$, i8$$, statement statement of recogni recognied ed income income and e9penses e9penses +ill most likel' likel' *e adopted adopted *' the F$S6 as a :.S. reuirement in the near future. *. that the i8$$, i8$$, statement statement of recognie recognied d income and e9penses e9penses +ill +ill pro*a*l' *e eliminat eliminated. ed. c. that that the :.S. 8$$, standa standard rd for reportin reporting g comprehe comprehensi nsive ve income income +ill most likel' likel' *e adopted *' the 5$S6 for i8$$,. d. that h'*rid h'*rid financial financial instrument instruments s are are unaccept unaccepta*le. a*le. Ans+ers to -u!ti'!e C#oi&eM
1. 2. 3. 4. .
* d c c *
S#ort Ans+er
1. 6riefl' 6riefl' descri*e descri*e some of the similari similarities ties and differen differences ces *et+een *et+een :.S. 8$$, and and i8$$, +ith +ith respect to the accounting for stockholders- euit'. 1( Ke si0i!arities *et+een i8$$, and :.S. 8$$, for transactions related to stockholderseuit' pertain to 1 issuance of shares; 2 purchase of treasur' stock; 3 declaration and pa'ment of dividends; 4 the accounting for start up coststhat is; the' should *e e9pensed as incurred; the costs associated +ith issuing stock reduce the proceeds from the issuance and reduce paid in capital; and # the accounting for par; no par and no par stock +ith a stated value. -a
Stockholders- Euit'
15 ) 51
Surplus. !evaluation surplus arises under i8$$, *ecause companies are permitted to revalue their propert'; plant and euipment to fair value under certain circumstances. This account is part of general reserves under i8$$, and is not considered contri*uted capital. ?hile *oth i8$$, and :.S. 8$$, 8 $$, consider the statement of stockholders- euit' a primar' financial statement; under i8$$,; a compan' has the option of preparing a statement of stockholders- euit' similar to :.S. 8$$, or preparing a statement of r ecognied income and e9pense So!5E. The statement of So!5E reports the items that +ere charged directl' to euit' such as revaluation surplus and then adds the net income for the period to arrive at total recognied income and e9pense. 5n this situation; additional note disclosure is reuired to provide reconciliations of other euit' items. 2. 6riefl' discuss the implications of the financial financial statement presentation pro@ect for the reporting of stockholders- euit'. 2. 5t is likel' likel' that the statemen statementt of stockholder stockholderss- euit' euit' and its presentati presentation on +ill *e e9amined e9amined closel' in the financial statement presentation pro@ect. The statement of recognied income and e9pense no+ permitted under i8$$, +ill pro*a*l' *e eliminated. 5n addition the options of ho+ to present other comprehensive income under :.S. 8$$, +ill change in an' converged standard in this area. $lso; the F$S6 has *een +orking on a standard that +ill likel' converge to i8$$, in the area of h'*rid financial instruments.
