Deck 17: Accounting for Stockholders Equity

Question 1

When issuing common stock for noncash consideration,how does a company determine the value of the shares issued?

A)management judgment
B)the fair value of the stock issued
C)the fair value of the consideration received
D)all of the above

Answer 1

D

Question 2

Caesar Company issued 1,500 shares of its $1 par value common stock for $5 per share.They will record ________ in the common stock account at par value and ________ as additional paid-in-capital.

A)$1,500; $7,500
B)$7,500; $1,500
C)$1,500; $6,000
D)$2,500; $5,000

Answer 2

C

Question 3

TLR Productions issued 800 shares of its $2 par value common stock for $10 per share.What amount would they record as additional paid-in-capital?

A)$800
B)$1,600
C)$6,400
D)$8,000

Answer 3

C

Question 4

Stockholders' equity represents the interest in a corporation held by the investors.

Question 5

Identify whether the stockholders' equity terminology belongs to U.S.GAAP,IFRS,or both.

Question 6

The number of outstanding shares of common stock may be reduced by shares held in the treasury.

Question 7

C&S Corporation issued 1,000 shares of its $4 par value common stock for $12 per share.What amount would they record as additional paid-in-capital?

A)$1,000
B)$4,000
C)$8,000
D)$12,000

Question 8

________ receive dividend distributions after the company has paid all other providers of capital their return on investment.

A)Contributing shareholders
B)Common shareholders
C)Preferred shareholders
D)Primary shareholders

Question 9

A stock split reduces retained earnings.

Question 10

Stockholders' equity is also called ________.

A)net assets
B)book assets
C)capital assets
D)none of the above

Question 11

Contributed capital includes amounts earned from the operations of a business.

Question 12

A change in stated value does not require shareholder approval and filings with the state.

Question 13

________ represents the amounts that common and preferred shareholders contribute in excess of the stated or par value.

A)Par value
B)Retained earnings
C)Accumulated income
D)Additional paid-in-capital

Question 14

Woods,Inc.issued 100 shares of its $5 par value common stock for $15 per share.They will record ________ in the common stock account at par value and ________ as additional paid-in-capital.

A)$500; $1,000
B)$500; $1,500
C)$1,000; $500
D)$1,500; $500

Question 15

U.S.GAAP and IFRS use the same terminology for stockholders' equity components.

Question 16

Stock issue costs are treated as a(n)________.

A)addition to the common stock account
B)reduction of additional paid-in-capital
C)increase in outstanding shares
D)decrease in treasury stock

Question 17

The total number of shares that a firm can legally issue are called ________.

A)allocated shares
B)authorized shares
C)outstanding shares
D)common shares

Question 18

If a corporation wishes to change the par value on its common stock,it must amend its articles of incorporation.

Question 19

________ is a major component/section of stockholders' equity.

A)Common capital
B)Preferred capital
C)Contributed capital
D)Retained capital

Question 20

________ is the corporation's own shares repurchased by the corporation and held for some future use.

A)Authorized stock
B)Common stock
C)Treasury stock
D)Preferred stock

Question 21

Charmed,Inc.issued 100,000 shares of $4 par value stock.The book value of Charmed,Inc.'s common stockholders' equity is equal to $25 million.Charmed implements a two-for-one stock split.Complete the following table:

Question 22

Leo & Sons,Inc.is authorized to issue 50,000 shares of $2 par value common stock.Prepare the journal entries for the following transactions (omit explanations):
a.Issued 15,000 shares at $30 per share.
b.Issued 250 shares in exchange for legal services valued at $9,000.
c.Issued 5,000 shares at $40 per share,paying an underwriter $500 in stock issuance costs.

Question 23

The two methods of accounting for treasury stock are the cost method and the fair value method.

Question 24

Caesar Cruise Lines,Inc.issues 2,000 shares of its no-par common stock.The issue price of the stock is $18 per share.What is the journal entry required to record the issuance of the shares?

A)
B)
C)
D)

Question 25

S & C Company issues 1,500 shares of common stock with a $2 par value.The issue price of the stock is $13 per share.What is the journal entry required to record the issuance of the shares?

A)
B)
C)
D)

Question 26

Caesar Cruise Lines,Inc.issues 2,000 shares of common stock with a $1 par value.The issue price of the stock is $18 per share.What is the journal entry required to record the issuance of the shares?

A)
B)
C)
D)

Question 27

Hawks,Inc.has 60,000 shares authorized,43,000 issued,and 12,000 shares of treasury stock.________ shares are outstanding,and ________ shares are unissued.

A)31,000; 17,000
B)48,000; 12,000
C)17,000; 31,000
D)12,000; 48,000

Question 28

Danio Fisheries issued 200,000 shares of $2 par value stock.On August 1,Danio Fisheries implements a two-for-one stock split.After the stock split,the total number of shares outstanding is ________ and the total par value is ________.

A)400,000; $400,000
B)100,000; $400,000
C)400,000; $800,000
D)200,000; $800,000

Question 29

The par value method is the most popular method of reporting treasury stock transactions.

Question 30

Woods,Inc.issues common stock in exchange for legal services received.The common stock has a fair value of $3,000 and a par value of $500.What is the journal entry required to record this transaction?

A)
B)
C)
D)

Question 31

S & C Company issues 1,500 shares of common stock with a $2 par value.The issue price of the stock is $13 per share,and the company paid an underwriter $500 in stock issue costs.What is the journal entry required to record the issuance of the shares?

A)
B)
C)
D)

Question 32

Discuss how stock is valued when issued in exchange for noncash consideration.

Question 33

Caesar Cruise Lines,Inc.issues 2,000 shares of common stock with a $1 par value.The issue price of the stock is $18 per share,and the company paid an underwriter $400 in stock issue costs.What is the journal entry required to record the issuance of the shares?

A)
B)
C)
D)

Question 34

TLR Productions hires a consultant for a new project,and issues common stock with a par value of $700 in exchange for consulting services received.The common stock has a fair value of $2,800.What is the journal entry required to record this transaction?

A)
B)
C)
D)

Question 35

Why would a company issue a stock split?

Question 36

Betta Corporation issued 300,000 shares of $2 par value stock.The book value of Betta's common stockholders' equity is equal to $30 million.Betta implements a two-for-one stock split.Complete the following table:

Question 37

S & C Company issues 1,500 shares of its no-par common stock.The issue price of the stock is $13 per share.What is the journal entry required to record the issuance of the shares?

A)
B)
C)
D)

Question 38

Fitzgerald Corporation has 55,000 shares authorized,39,000 issued,and 8,000 shares of treasury stock.________ shares are outstanding,and ________ shares are unissued.

A)47,000; 8,000
B)31,000; 16,000
C)8,000; 47,000
D)16,000; 31,000

Question 39

Danio Fisheries issued 200,000 shares of $2 par value stock.The book value of Danio's common stockholders' equity is equal to $20 million.On August 1,Danio Fisheries implements a two-for-one stock split.After the stock split,the par value per share is ________ and the total book value is ________.

A)$4; $20 million
B)$1; $40 million
C)$2; $10 million
D)$1; $20 million

Question 40

TNT Corporation is authorized to issue 75,000 shares of $1 par value common stock.Prepare the journal entries for the following transactions (omit explanations):
a.Issued 50,000 shares at $25 per share.
b.Issued 500 shares in exchange for consulting services; the estimated fair value is $20 per share.
c.Issued 7,000 shares at $30 per share,paying an underwriter $800 in stock issuance costs.

Question 41

Dante,Inc.reacquired 20,000 shares of its common stock for $18 per share on January 31.On March 1 they sold 7,000 shares for $20 per share.On April 1 they sold 3,000 shares for $15 per share.What is the necessary journal entry for March 1?

A)
B)
C)
D)

Question 42

When treasury shares are retired,the number of shares issued is reduced.

Question 43

Illusions,Inc.reacquired 15,000 shares of its common stock for $15 per share on June 1.On July 1 they sold 5,000 shares for $20 per share.On August 1 they sold 5,000 shares for $12 per share.Assuming no prior balance in the Additional Paid-in Capital From Treasury Stock Transactions account,what is the ending balance in this account following these transactions?

A)$5,000 debit balance
B)$5,000 credit balance
C)$10,000 debit balance
D)$10,000 credit balance

Question 44

Preferred shares are generally voting and pay a fixed dividend.

Question 45

Dante,Inc.reacquired 20,000 shares of its common stock for $18 per share on January 31.On March 1 they sold 7,000 shares for $20 per share.On April 1 they sold 3,000 shares for $15 per share.What is the necessary journal entry for April 1?

A)
B)
C)
D)

Question 46

When a company purchases and sells treasury shares for amounts above and below cost,it reports these "gains" and "losses" on the ________.

A)income statement
B)balance sheet
C)income statement and balance sheet
D)only in a footnote

Question 47

When treasury stock is sold above or below cost-why isn't this reported on the income statement as a gain or loss?

Question 48

Treasury shares are considered to be ________.

A)unauthorized shares
B)retired shares
C)issued shares
D)outstanding shares

Question 49

Veneto Vineyards reacquired 10,000 shares of its common stock for $15 per share.What is the journal entry necessary to record this transaction?

A)No entry required.
B)
C)
D)

Question 50

The Magic Flute Company provides the following information from the Stockholders' Equity section of the balance sheet:
Magic Flute had the following transactions related to treasury shares:
Prepare the necessary journal entries to record all treasury stock transactions.

Question 51

The most popular method of accounting for treasury stock is the ________ method.

A)par value
B)cost
C)fair value
D)A and B are utilized equally

Question 52

Monet's Minions,Inc.reacquired 10,000 shares of its common stock for $9 per share on August 1.On October 31 they sold 4,000 shares for $6 per share.Assuming a zero balance in the Additional Paid-in Capital From Treasury Stock Transactions account,what is the necessary journal entry for the October transaction?

A)
B)
C)
D)

Question 53

Renoir Corporation reacquired 33,000 shares of its common stock for $16 per share on July 1.On August 1 they sold 6,000 shares for $21 per share.What is the necessary journal entry for the August transaction?

A)
B)
C)
D)

Question 54

When issuing preferred shares instead of debt,corporations lose out on a valuable tax deduction.

Question 55

Why would a company repurchase shares of its own common stock?

Question 56

Dali's Dessert Company provides the following information from the Stockholders' Equity Section of the Balance Sheet:
Dali acquired 15,000 shares of common stock in the open market at a price of $12 per share and retired the shares.What is the journal entry to record this transaction?

Question 57

Caesar & Company reacquired 30,000 shares of its common stock for $10 per share on March 1.On April 1 they sold 8,000 shares for $16 per share.On May 1 they sold 6,000 shares for $5 per share.Assuming no prior balance in the Additional Paid-in Capital From Treasury Stock Transactions,what is the ending balance in this account following these transactions?

A)$18,000 debit
B)$30,000 debit
C)$18,000 credit
D)$48,000 credit

Question 58

Coyote Company reacquired 25,000 shares of its common stock for $15 per share on June 1.On July 1 they sold 10,000 shares for $20 per share.On August 1 they sold 5,000 shares for $12 per share.Prepare the necessary journal entries (omit explanations).

Question 59

Treasury shares reduce the number of shares ________.

A)issued
B)authorized
C)outstanding
D)available

Question 60

Pollyanna & Partners reacquired 20,000 shares of its common stock for $10 per share.What is the journal entry needed to record this transaction?

A)
B)
C)
D)No entry required.

Question 61

________ preferred shares contain a provision requiring that preferred shareholders share ratably in distributions with common shareholders.

A)Cumulative
B)Participating
C)Convertible
D)Redeemable

Question 62

On January 1,2014,TNT,Inc.issued 1,500 shares of $50 par value,convertible preferred shares for $150,000.Each preferred share is convertible into one share of $1 par common stock.What is the necessary journal entry to record this transaction?

A)
B)
C)
D)

Question 63

On January 1,2013,Moulin Company issued 1,200 shares of $60 par callable preferred shares for $180,000.According to the preferred share agreement,Moulin can call these preferred shares on January 1,2015,for $150 per share.On January 1,2015,Moulin calls the shares.
a.What is the journal entry to record the issuance of the preferred shares?
b.What is the journal entry when Moulin calls the preferred shares?

Question 64

Small stock dividends are valued at the market price at the date of declaration.

Question 65

Convertible preferred shares are often accounted for as a liability under both GAAP and IFRS.

Question 66

On January 1,2014,TNT,Inc.issued 1,500 shares of $50 par value,convertible preferred shares for $150,000.Each preferred share is convertible into one share of $1 par common stock.On August 1,2015,all preferred shareholders converted their shares into common stock.What is the necessary journal entry to record the August 1st transaction?

A)
B)
C)
D)

Question 67

Bach,Inc.issued 800 shares of 8%,$80 par value,preferred stock for $80,000.The board of directors declared dividends on December 30,to be paid in January.What journal entry is necessary to record the payment of dividends?

A)
B)
C)
D)

Question 68

Mozart & Company issued 1,500 shares of 5%,$50 par value,preferred stock for $150,000.The board of directors declared dividends on December 30,to be paid in January.What journal entry is necessary to record the declaration of dividends?

A)
B)
C)
D)

Question 69

________ are shares for which the issuing entity has the right to "buy back" the shares at a specified price and future date.

A)Convertible preferred shares
B)Callable preferred shares
C)Redeemable preferred shares
D)Cumulative preferred shares

Question 70

Retained earnings are amounts invested by the equity holders of the company.

Question 71

On January 1,2014,Illusions,Inc.issued 800 shares of $80 par value,callable preferred shares for $80,000,with the right to call the shares on January 1,2015 for $100 per share.The company calls all 800 shares on January 1,2015.What is the necessary journal entry to record this transaction for 2015?

A)
B)
C)
D)

Question 72

Under U.S.GAAP,________ preferred shares are classified as a liability.

A)convertible
B)callable
C)mandatorily redeemable
D)non-mandatorily redeemable

Question 73

On January 1,2013,Warhol Company issued 1,000 shares of 10%,$100 par value,cumulative preferred stock for $100,000.On December 30,2015,the Board declared dividends of $20 per share on the preferred stock.What journal entry is necessary for the declaration of dividends?

A)
B)
C)
D)

Question 74

When accounting for non-mandatorily redeemable preferred shares,________ will separate out the debt features and report them as a liability.

A)IFRS
B)U)S.GAAP
C)Both A & B
D)Neither A nor B

Question 75

Purrfect Paws Company issues 1,000 shares of $50 par preferred stock for $250,000.The company is not required to buy back the preferred stock.However,the preferred stock includes a redemption feature that gives the holder the option to redeem the shares for cash at specified dates.This would be classified as ________ under U.S.GAAP and ________ under IFRS.

A)debt; equity
B)debt; debt
C)equity; debt
D)equity; equity

Question 76

Omega Company has issued both common and preferred stock.The preferred stock is convertible into common stock.The following information is provided for Omega Company Stockholders' equity:
What is the necessary journal entry if 5,000 shares of preferred are converted under each independent scenario:
a.Each share of convertible stock is convertible into 1.5 shares of common stock.
b.Each share of convertible stock is convertible into 4 shares of common stock.

Question 77

On January 1,2014,Illusions,Inc.issued 800 shares of $80 par value,callable preferred shares for $80,000.Illusions has the right to call the shares on January 1,2015 for $100 per share.What is the necessary journal entry to record the issuance of the callable shares?

A)
B)
C)
D)

Question 78

Bach Company has issued both common and preferred stock.The preferred stock is convertible into common stock.The following information is provided for Bach Company Stockholders' equity:
What is the necessary journal entry if 5,000 shares of preferred are converted under each independent scenario:
a.Preferred shares are convertible into common stock on a share-for-share basis.
b.Each share of convertible stock is convertible into 1.5 shares of common stock.

Question 79

Corrections to past years' financial statements are called prior-period adjustments.

Question 80

Stinson Corporation has 7% participating preferred shares.In 2015 the company pays common shareholders dividends that are 9% of common par value.What,if any,additional dividend will preferred shareholders receive?

A)2%
B)9%
C)100%
D)none