Question 1

The shareholders' equity of Nick Co. includes the items shown below. The board of directors of Nick declared cash dividends of $4 million, $8 million, and $50 million in each of its first 3 years of operation: 2016, 2017, and 2018, respectively.
Common stock, $1 par, 50,000,000 shares outstanding
Preferred stock, 6%, $100 par, 1,000,000 shares outstanding
Required:
Determine the amount of dividends per share on preferred and common stock for each of the three years. The preferred stock is noncumulative and nonparticipating.

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Question 2

What is comprehensive income and how does it differ from net income? Where is it reported in the balance sheet?

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Question 3

On January 1, 2018, Gerlach Inc. had the following account balances in its shareholders' equity accounts.  During 2018, Gerlach Inc. had several transactions relating to common stock.  Required:
Record the above transactions and events in journal entry format.

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Question 4

Some preferred stock is cumulative while other preferred stock is noncumulative. What does this mean?

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Question 5

The shareholders' equity of Crystal Company includes the items shown below. The board of directors of Crystal declared cash dividends of $3 million, $6 million, and $50 million in each of its first three years of operation: 2016, 2017, and 2018, respectively.
Common stock, $1 par, 50,000,000 shares outstanding
Preferred stock, 6%, $100 par, 1,000,000 shares outstanding
Required:
Determine the amount of dividends per share on preferred and common stock for each of the three years. The preferred stock is cumulative and nonparticipating.

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Question 6

When stock is issued for consideration other than cash, what is the measurement objective?

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Question 7

The costs of legal, promotional, and accounting services necessary to effect the sale of shares are referred to as share issue costs. How are these costs recorded? Compare this approach to the way debt issue costs are recorded.

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Question 8

A new CEO was hired to revive the floundering Heirloom Watch Corporation. The company had endured operating losses for several years, but confidence was emerging that better times were ahead. The board of directors and shareholders approved a quasi-reorganization for the corporation. The reorganization included devaluing inventory for obsolescence by $210 million and increasing land by $10 million. Immediately before the restatement, at December 31, 2018, Heirloom Watch Corporation's balance sheet appeared as follows (in condensed form):  Required:
1. Prepare the journal entries appropriate to record the quasi-reorganization on January 1, 2019.
2. Prepare a balance sheet as it would appear immediately after the restatement.

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Question 9

What is the difference between a stock split and a stock split effected in the form of a stock dividend?

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Question 10

The balance sheet reports the balances of shareholders' equity accounts. What additional information is provided by the statement of shareholders' equity?

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Question 11

ZIP Company owns 40,000 shares of the common stock of PIK Company. ZIP decided to divest itself of this investment by distributing the PIK shares in the form of a property dividend. The dividend ratio is one share of PIK for every four shares of ZIP common held by shareholders. ZIP has 160,000 common shares outstanding. On April 15, 2018, the date of declaration, PIK stock had a par of $5 per share, a book value of $12 per share, and a fair value of $17 per share.
Required:
Prepare any necessary journal entries. The shares were distributed on May 15, 2018, to stockholders of record on May 1, 2018

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Question 12

How do U.S. GAAP and International Financial Reporting Standards (IFRS) differ with respect to debt and equity for preferred stock?

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Question 13

Identify the three common forms of business organization and the primary difference in the way we account for them.

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Question 14

When a corporation acquires its own shares, those shares assume the same status as authorized but unissued shares, as if they never had been issued. Explain how this is reflected in the accounting records if the shares are formally retired.

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Question 15

On October 15, 2018, a 5% stock dividend was declared and distributed. The fair value of the common stock on this date was $32 per share. Fractional share rights represented 100,000 shares. Cash was paid in lieu of issuing fractional share rights. On the date of declaration and payment, the company had 10 million shares of common stock outstanding. The par of the common shares was $5.
Required:
Prepare any necessary journal entries to record the above events.

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Question 16

Fowler Co.'s balance sheet showed the following at December 31, 2018:  A cash dividend is declared on December 31, 2018, and is payable on January 20, 2019, to shareholders of record on January 10, 2019.
Required:
(1.) Prepare all appropriate journal entries, assuming a cash dividend in the amount of $1.00 per share.
(2.) Prepare all appropriate journal entries, assuming a cash dividend in the amount of $5.00 per share.

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Question 17

The prescribed accounting treatment for stock dividends implicitly assumes that shareholders are fooled by "small" stock dividends and benefit by the market value of their additional shares. Explain this statement. Is it logical?

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Question 18

On September 15, 2018, the Scottie Company board of directors declared a 10% stock dividend on common shares. The shares are to be distributed on October 10, 2018, to shareholders of record on October 1, 2018. The market price per share on the date of declaration was $24 while the market price on the date of distribution was $26. The common stock has a par of $5 per share and there were 1,000,000 shares outstanding prior to the declaration of the stock dividend.
Required:
Prepare any necessary journal entries to record the above transactions.

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Question 19

On January 1, 2018, Fascom had the following account balances in its shareholders' equity accounts.  During 2018, Fascom Inc. had several transactions relating to common stock.  Required:
Without preparing journal entries, prepare the shareholders' equity section of Fascom's balance sheet as of December 31, 2018. Assume net income is $500,000 for 2018.

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Quiz 18: Shareholders Equity