Question 1

On April 30,2018,Marie Claire sold 1,000 shares of her Spectrum Company's common stock to Fountain of the Sun for $16,000.The stock cost Marie Claire $10,000.Spectrum Company's accounting equation:

Accepted Answer

When a company issues stock to the public,the transaction is between the issuing corporation and an investor.After this initial stock issuance,an investor can exchange shares for cash provided by other investors without directly affecting the corporation.These transactions involve only the owners of the company and not the corporation itself.

Question 2

Stock options:

Accepted Answer

To encourage employees to work hard for a corporation,employee pay packages often include a combination of base pay,cash bonuses,and stock options.Stock options give employees the option of acquiring the company's stock at a predetermined price,often equal to the then-current market price.

Question 3

Queen Creek Co.had total assets of $280,000,total liabilities of $168,000 and stockholders' equity of $112,000 before repurchasing 1,000 shares of its $1 par value common stock for $14 per share.After this repurchase,total assets equal ________,total liabilities equal ________ and stockholders' equity equals ________.

Accepted Answer

The purchase of treasury stock would increase Treasury Stock,a contra-equity account,and decrease Cash,an asset.
Assets = Liabilities + Stockholders' Equity
[$280,000 − (1,000 shares × $14 per share)] = $168,000 + [$112,000 − (1,000 shares × $14 per share)]
$266,000 = $168,000 + $98,000

Question 4

Palomino Enterprises purchased 2,000 shares of its own stock at $8 a share.Later,it reissued the 2,000 shares for $20,000.The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n):

Accepted Answer

The stock reissue would be recorded with a debit to Cash for $20,000,a credit to Treasury Stock for $16,000 (or 2,000 shares × cost of $8 per share),and a credit to Additional Paid-in Capital for $4,000 (or $20,000 − $16,000).Total stockholder's equity would increase by $20,000 (or $16,000 + $4,000).

Question 5

Items such as unrealized gains and losses from pensions,foreign currencies or financial investments are reported as:

Accepted Answer

Accumulated Other Comprehensive Income (Loss)reports unrealized gains and losses,which are temporary changes in the value of certain assets and liabilities the company holds.They can relate to pensions,foreign currencies,and financial investments.

Question 6

Cholla Co.issued 20,000 shares of no-par value common stock at $10 per share.Mr.Ivanhoe,the bookkeeper,recorded the transaction with a $200,000 debit to Cash and $200,000 credit to Common Stock.Which of the following statements about this situation is correct?

Accepted Answer

Since this was no-par value common stock,the entry should have included a debit to Cash and a credit to Common Stock for $200,000.The correct entry was recorded.

Question 7

The number of shares issued represents the number of shares:

Accepted Answer

The number of shares issued is the number given by the company to its stockholders in exchange for cash (or other resources)contributed by stockholders to the company.

Question 8

Geronimo Company issued 20,000 shares of $1 par value common stock at $10 per share.Ms.Elgin,the bookkeeper,recorded this transaction with a $200,000 debit to Cash and a $200,000 credit to Common Stock.As a result of this entry:

Accepted Answer

The entry should have included a debit to Cash for $200,000,a credit to Common Stock for $20,000 (or 20,000 shares × par value of $1 per share),and a credit to Additional Paid-In Capital for $180,000 [or 20,000 shares × (issue price of $10 − par value of $1 per share)].As a result of the entry that was recorded,the Common Stock account is overstated and the Additional Paid-In Capital was understated.

Question 9

At the end of the prior year,Atoka Industries reported the following account balances:  The treasury stock arose from a purchase of 10,000 shares of common stock for $78 per share.If the 10,000 treasury shares are issued for $50 per share in the current year,what journal entry must be prepared to record the transaction?

Accepted Answer

Debit Cash for $500,000 (or 10,000 shares × $50 per share),debit Additional Paid-in Capital for $280,000 [or 10,000 shares × (cost of $78 per share − sales price of $50 per share)],and credit Treasury Stock for $780,000 (or 10,000 shares × cost of $78 per share).

Question 10

Treasury stock is reported in the:

Accepted Answer

Treasury stock is a contra-equity account and is reported in the stockholders' equity section of the balance sheet.There is "financing section" on an income statement.

Question 11

The number of shares outstanding equals the number of shares:

Accepted Answer

The number of shares outstanding equals the number of shares issued minus the number of shares bought back by the company.The number of shares authorized is the maximum number of shares the company is allowed to sell.

Question 12

A corporation does not make a journal entry when:

Accepted Answer

When a company issues stock to the public,repurchases its stock,or reissues the purchased shares,the transaction is between the issuing corporation and an investor.However,when an investor exchanges shares for cash provided by other investors,the corporation is not directly affected.These transactions involve only the owners of the company and not the corporation itself.

Question 13

Seasoned new issues are:

Accepted Answer

If a company has issued stock previously,additional issuances of new stock by the company are called seasoned new issues.

Question 14

Stock options are given in order to:

Accepted Answer

To encourage employees to work hard for a corporation,employee pay packages often include a combination of base pay,cash bonuses,and stock options.Stock options give employees the option of acquiring the company's stock at a predetermined price,often equal to the then-current market price.

Question 15

Which of the following is not a reason a company would repurchase stock?

Accepted Answer

A corporation may want to repurchase its stock from existing stockholders to (1)send a signal to investors that the company itself believes its own stock is worth acquiring,(2)obtain shares that can be reissued as payment for purchases of other companies,(3)obtain shares to reissue to employees as part of employee stock purchase plans,and (4)reduce the number of outstanding shares to increase per-share measures of earnings and stock value.

Question 16

Edgewater Co.has the following December 31,2018 equity balances: Common stock of $56,000;Additional paid-in capital of $84,000;and Retained earnings of $140,000.If Edgewater repurchases shares of its stock for $28,000,the total stockholders' equity balance would equal:

Accepted Answer

The purchase of treasury stock would increase Treasury Stock,a contra-equity account,and decrease Cash,an asset.
Stockholders' Equity = Common stock + Additional paid-in capital − Treasury stock + Retained earnings
= $56,000 + $84,000 − $28,000 + $140,000 = $252,000

Question 17

Carla Vista Enterprises buys back 600,000 shares of its stock from investors at $6.50 a share.Two years later,it reissues this stock for $6.00 a share.The stock reissue would be recorded with a debit to Cash for:

Accepted Answer

The stock reissue would be recorded with a debit to Cash for $3.6 million (or 600,000 shares × selling price of $6 per share),a debit to Additional Paid-in Capital for $300,000 [or 600,000 shares × (selling price of $6 per share − cost of $6.50 per share)],and a credit to Treasury Stock for $3.9 million (or 600,000 shares × cost of $6.50 per share).

Question 18

Common stock's par value is:

Accepted Answer

Par value is an insignificant value per share of capital stock specified in the charter.

Question 19

Contributed capital is found in the ________ section of the ________.

Accepted Answer

Contributed capital reports the amount of capital the company received from investors' contributions,in exchange for the company's common stock and preferred stock.For this reason,contributed capital represents paid-in capital.It is reported in the stockholders' equity section of the balance sheet.

Question 20

In an IPO on May 1,2012,Timmy Hilfigure purchased 1,000 shares of Abner Crummie,Inc.for $5,000.On April 30,2018,Timmy Hilfigure sold the 1,000 shares for $8,000 to Ralph Loring.What is the effect of the sale on April 30,2018?

Accepted Answer