Question 1

During May, 2016, Backyard Corporation announced a 4-for-1 stock split. This brought the number of shares outstanding from 25,792,000 shares to _____ shares, and its $1.20 par value to _____ per share.

Accepted Answer

A 4-for-1 stock split simply means that the company distributes three additional shares of stock for each share owned by a current shareholder.
25,792,000 million × 4 = 103,168,000 million shares
Par value = $1.20/4 = $0.30 per share

Question 2

Assume Company X has been paying out consistent dividends over the past 40 years. This fiscal year, the company reports a sharp decline in the dividend it plans to pay out. The most likely reaction of the market will be:

Accepted Answer

Outsiders closely monitor dividend payments. It is generally perceived that the level of dividend payments is related to the expected long term "core earnings." Accordingly, dividend increases are usually accompanied by stock price increases while dividend reductions are most often met with stock price declines.

Question 3

If a company feels that its shares are undervalued and it wants to send a signal to the market, the company may:

Accepted Answer

One reason a company may repurchase shares is if it feels that the market undervalues them. The logic is that the repurchase sends a "signal" to the market and the company is able to realize a subsequent "gain" on resale of the shares. However, these gains are never reflected on the income statement. Instead, the excess of the resale price over the original repurchase price is credited to additional paid-in capital.

Question 4

Sarina Company plans to issue a large stock dividend. In accounting for this transaction, what effects occur to the contributed capital section of stockholders' equity?

Accepted Answer

Common stock increased by: Dividend shares × Par value per share.
Retained earnings is decreased by the same amount.

Question 5

Harvey Company has 30,000 shares of $150 par value, 8% cumulative preferred stock and 160,000 shares of $60 par value common stock. Harvey declares and pays cash dividends amounting to $640,000.
If no arrearage on the preferred stock exits, how much in total dividends is paid to each class of stock?

Accepted Answer

$150 × 30,000 × 8% = $360,000
Balance to common: $640,000 ? $360,000 = $280,000

Question 6

As a preferred stockholder, you are entitled to numerous preferences and privileges over common stockholders. If you are a preferred stockholder of a company that has fallen on economic hardship and is likely to go bankrupt, which preference or privilege of preferred stock is going to be most useful to you?

Accepted Answer

If a company fails, its assets are sold and the proceeds are paid to debt holders and stockholders, in that order. Preferred shareholders receive payment in full before common shareholders.

Question 7

Stone Company reported net income of $2,536 million in 2016. The weighted average number of common shares outstanding during 2016 was 554 million shares. Brook paid $80 million in dividends on preferred stock, which was convertible into 20 million shares of common stock.
How much is basic earnings per share amount for 2016?

Accepted Answer

($2,536 million - $80 million) / 554 million = $4.43

Question 8

Stone Company reported net income of $2,536 million in 2016. The weighted average number of common shares outstanding during 2016 was 554 million shares. Brook paid $80 million in dividends on preferred stock, which was convertible into 20 million shares of common stock.
How much is the diluted earnings per share amount for 2016?

Accepted Answer

$2,536 million / 574 million = $4.42

Question 9

Use the following information to answer questions below
On September 1, 2016, Utah Company's balance sheet indicates there are 1,600,000 shares of $60 par value common shares in the Common Stock account and $9,000,000 in the Additional Paid-in Capital account. There are 4,000,000 shares authorized. On September 2, Utah splits its stock 2 for 1.
-How many of Utah's shares of common stock are issued and outstanding immediately after the stock split?

Accepted Answer

Immediately after the 2 for 1 stock split, the company has 3,200,000 shares of $30 par value common stock [1,600,000 shares F1F1F1S1?F1F1F10 (2/1) = 3,200,000 shares] issued and outstanding.

Question 10

Use the following information to answer questions below
On September 1, 2016, Utah Company's balance sheet indicates there are 1,600,000 shares of $60 par value common shares in the Common Stock account and $9,000,000 in the Additional Paid-in Capital account. There are 4,000,000 shares authorized. On September 2, Utah splits its stock 2 for 1.
-What is the dollar balance of Utah's common stock account immediately after the stock split?

Accepted Answer

The dollar balance in the Common Stock account is unchanged by the stock split; the balance remains at $96,000,000 (3,200,000 shares at the new $30 par value per share).

Question 11

Friendly Company has 20,000 shares of $160 par value, 5% cumulative preferred stock and 140,000 shares of $40 par value common stock. Friendly declares and pays cash dividends amounting to $451,200.
If no arrearage on the preferred stock exits, how much in dividends per share is paid to the common stockholders?

Accepted Answer

Rationale:
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Question 12

During 2016, Cambridge Company had 20,000 shares of $20 par value common stock and 7,000 shares of 8%, $60 par value convertible preferred stock outstanding. Each share of preferred stock may be converted into three shares of common stock. Cambridge Company's 2016 net income was $1,300,000.
A. Compute basic earnings per share for 2016.
B. Compute diluted earnings per share for 2016.

Accepted Answer

The answer of During 2016, Cambridge Company had 20,000 shares...

Question 13

Clockworks Company began business on January 1 and immediately issued 600,000 shares of its $2 par value common stock for $16,000,000. At the end of the year it paid $600,000 in cash dividends. In midyear, the firm bought back some of its own shares. The company reports the following additional information at December 31:
  A. How much is the Additional Paid-in Capital account at the end of the year?
B. Determine the retained earnings amount at the end of the year.
C. How many shares of stock are in the treasury at the end of the year?

Accepted Answer

The answer of Clockworks Company began business on January 1...

Question 14

Use the following consolidated statement of stockholders' equity to show the summary transactions by preparing an entry in journal form with explanation for each item A through C.
  A. Pay cash dividends (item 7)
B. Issue common stock (item 5)
C. Purchase treasury shares (item 3)

Accepted Answer

The answer of Use the following consolidated statement of stockholders'...

Question 15

Ember Company had the following transactions:
Year 1: Ember Company sells 20,000 shares of its no-par common stock for $30.
Year 2: Ember Company buys 2,000 shares of its no-par common stock for $24 per share.
Year 3: Ember Company declares and pays a dividend on its no-par common stock of $6 per share. The company's basic earnings per share were $16 in the third year.
Indicate the effect (increase, decrease, no effect) of each of these stock decisions for each year on the items listed below.

Accepted Answer

The answer of Ember Company had the following transactions:
Year 1:...

Question 16

Schulze has 600,000 shares of $2 par value common stock outstanding. The current market price of the stock is $150 per share. Schulze distributes a small stock dividend of 15% of the outstanding shares of common stock. Record the financial statement effects of the stock dividend in the financial statement template.

Accepted Answer

The answer of Schulze has 600,000 shares of $2 par...

Question 17

Sea Bird Co. announces a large stock dividend of 45% of the 2.2 million outstanding shares of common stock. The current price per share is $15.50. Par value of the stock is $0.02 per share. Illustrate the financial effects of this large stock dividend in the balance sheet template.

Accepted Answer

The answer of Sea Bird Co. announces a large stock...

Question 18

Use the following information to prepare the shareholders' equity section of the balance sheet for Parish Incorporated:
A. Common Stock-$0.30 par value: 60,000 shares authorized, 25,000 shares outstanding as of December 31, 2016
B. Retained Earnings, December 31, 2016-$68,000
C. Treasury Stock-Parish repurchased 3,000 shares at $50 per share
D. Total Shareholders' Equity as of December 31, 2016 is $540,000

Accepted Answer

The answer of Use the following information to prepare the...

Question 19

Callaway Trucking, based in Atlanta, GA, has 250,000 common shares outstanding with a $0.02 par value and $60 current market value. The treasury stock account is reported at $100,000 with an average cost of $5 per share.
How much is the total common stock reported on the balance sheet?

Accepted Answer

The answer of Callaway Trucking, based in Atlanta, GA, has...

Question 20

The August 1, 2016 balance sheet for Hospitality Company reported 24,000 shares of $40 par value common stock that were issued and outstanding:
  On August 2, 2016, the company splits its stock 2-for-1.
A. How many shares of common stock are issued and outstanding immediately after the stock split?
B. What is the dollar balance of common stock immediately after the stock split?

Accepted Answer

The answer of The August 1, 2016 balance sheet for...

Quiz 11: Reporting and Analyzing Stockholders Equity

During May, 2016, Backyard Corporation announced a 4-for-1 stock split. This brought the number of shares outstanding from 25,792,000 shares to _ shares, and its $1.20 par value to _ per share.

Assume Company X has been paying out consistent dividends over the past 40 years. This fiscal year, the company reports a sharp decline in the dividend it plans to pay out. The most likely reaction of the market will be:

If a company feels that its shares are undervalued and it wants to send a signal to the market, the company may:

Sarina Company plans to issue a large stock dividend. In accounting for this transaction, what effects occur to the contributed capital section of stockholders' equity?

Harvey Company has 30,000 shares of $150 par value, 8% cumulative preferred stock and 160,000 shares of $60 par value common stock. Harvey declares and pays cash dividends amounting to $640,000. If no arrearage on the preferred stock exits, how much in total dividends is paid to each class of stock?

Use the following consolidated statement of stockholders' equity to show the summary transactions by preparing an entry in journal form with explanation for each item A through C. A. Pay cash dividends (item 7) B. Issue common stock (item 5) C. Purchase treasury shares (item 3)

Sea Bird Co. announces a large stock dividend of 45% of the 2.2 million outstanding shares of common stock. The current price per share is $15.50. Par value of the stock is $0.02 per share. Illustrate the financial effects of this large stock dividend in the balance sheet template.

Callaway Trucking, based in Atlanta, GA, has 250,000 common shares outstanding with a $0.02 par value and $60 current market value. The treasury stock account is reported at $100,000 with an average cost of $5 per share. How much is the total common stock reported on the balance sheet?