Question 1

Prior to May 1, Fortune Company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on May 1 for $5,000. On July 1, it reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on August 2?
A)$5,050.
B)$2,600.
C)$100.
D)$50.
E)$0.

Accepted Answer

The answer of Prior to May 1, Fortune Company has...

Question 2

A dividend preference for preferred stock means that:
A)Preferred stockholders are allocated their dividends before dividends are allocated to common shareholders.
B)Preferred shareholders are guaranteed dividends.
C)Dividends are paid quarterly.
D)Preferred stockholders prefer dividends more than common stockholders.
E)Dividends must be declared on preferred stock.

Accepted Answer

A dividend preference for preferred stock means that preferred stockholders are allocated their dividends before dividends are allocated to common shareholders. It does not guarantee dividends, nor does it specify the frequency of dividend payments. The preference is simply in the order in which dividends are paid out. Dividends must still be declared on preferred stock, but that is a separate requirement.

Question 3

Corporations may buy back their own stock for any of the following reasons except to:
A)Avoid a hostile take-over.
B)Have shares available for a merger or acquisition.
C)Have shares available for employee compensation.
D)Maintain market value for the company stock.
E)Allow management to assume the voting rights.

Accepted Answer

Corporations may buy back their own stock for all of the reasons listed except to allow management to assume the voting rights, as management already has control over the voting rights.

Question 4

Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:
A)$15,000 preferred; $15,000 common.
B)$6,000 preferred; $24,000 common.
C)$30,000 preferred; $0 common.
D)$12,000 preferred; $18,000 common.
E)$0 preferred; $30,000 common.

Accepted Answer

The preferred stockholders receive their dividends before the common stockholders. The preferred stock outstanding is $200,000 which pays a fixed 6% dividend rate. Therefore, the preferred stockholders are entitled to receive $12,000 ($200,000 x 6%) in dividends before the common stockholders can receive any dividend. The remaining $18,000 ($30,000 - $12,000) will be distributed to the common stockholders. Therefore, the dividend should be distributed as follows: 
$12,000 to preferred stockholders and $18,000 to common stockholders. 
Hence, the best choice is (D).

Question 5

The following data were reported by a corporation:  The number of outstanding shares is:
A)12,000.
B)15,000.
C)17,000.
D)20,000.
E)23,000.

Accepted Answer

The answer of The following data were reported by a...

Question 6

Torino Company has 10,000 shares of $5 par value, 4% cumulative and nonparticipating preferred stock and 100,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:
A)$1,000.
B)$2,000.
C)$3,000.
D)$4,000.
E)$0.

Accepted Answer

The answer of Torino Company has 10,000 shares of $5...

Question 7

West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the dividend declaration is:
A)Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
B)Debit Common Dividends Payable $95,000; credit Cash $95,000.
C)Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
D)Debit Common Dividends Payable $90,000; credit Cash $90,000.
E)Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.

Accepted Answer

The answer of West Company declared a $0.50 per share...

Question 8

The following data has been collected about Keller Company's stockholders' equity accounts:  Assuming the treasury shares were all purchased at the same price, the cost per share of the treasury stock is:
A)$1.15.
B)$1.28.
C)$11.50.
D)$10.50.
E)$10.00.

Accepted Answer

The answer of The following data has been collected about...

Question 9

All of the following regarding accounting for Treasury Stock under U.S. GAAP and IRFS is true except:
A)U.S.GAAP applies the principle that companies do not record gains or losses on transactions involving their own stock.
B)Only gains are recognized on retirements of treasury stock under IFRS.
C)IFRS applies the principle that companies do not record gains or losses on transactions involving their own stock.
D)Gains are not recognized on retirements of treasury stock under U.S.GAAP.
E)A company's assets and equity are always reduced by the amount paid for the retiring stock.

Accepted Answer

Under IFRS, only gains are recognized on retirements of treasury stock. All the other answer choices are true statements regarding accounting for treasury stock under U.S. GAAP and IFRS.

Question 10

Treasury stock is classified as:
A)An asset account.
B)A contra asset account.
C)A revenue account.
D)A contra equity account.
E)A liability account.

Accepted Answer

Treasury stock is a contra equity account because it represents the value of the company's own stock that has been repurchased and is no longer outstanding. It reduces the total equity of the company, which is why it is classified as a contra account.

Question 11

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The number of shares to which the dividend applies is:
A)200,000.
B)192,000.
C)190,000.
D)182,000.
E)10,000.

Accepted Answer

The dividend applies to the outstanding shares, which are the issued shares minus the treasury shares. Thus, 190,000 issued shares - 8,000 treasury shares = 182,000 shares.

Question 12

Stock that was reacquired and is still held by the issuing corporation is called:
A)Capital stock.
B)Treasury stock.
C)Redeemed stock.
D)Preferred stock.
E)Callable stock.

Accepted Answer

Stock that is reacquired by the issuing corporation and is not retired or cancelled is called treasury stock. It represents shares that the company has bought back from shareholders and is still held by the company itself. It can be reissued or resold in the future but has no voting rights and does not receive dividends.

Question 13

Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.  The amount of dividends paid to preferred and common shareholders in 2016 is:
A)$200 preferred; $19,800 common.
B)$4,000 preferred; $16,000 common.
C)$17,000 preferred; $3,000 common.
D)$10,000 preferred; $10,000 common.
E)$20,000 preferred; $0 common.

Accepted Answer

The answer of Fargo Company's outstanding stock consists of 400...

Question 14

The following data has been collected about Keller Company's stockholders' equity accounts:  Assuming the treasury shares were all purchased at the same price, the number of shares of treasury stock is:
A)1,150.
B)1,000.
C)575.
D)11,000.
E)21,000.

Accepted Answer

The answer of The following data has been collected about...

Question 15

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the payment of the dividend is:
A)Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
B)Debit Common Dividends Payable $104,500; credit Cash $104,500.
C)Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.
D)Debit Common Dividends Payable $100,100; credit Cash $100,100.
E)Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.

Accepted Answer

The total amount of dividends to be paid is calculated as follows: 
(190,000 - 8,000) shares outstanding x $0.55 per share = $100,100
The journal entry to record the payment of the dividend is to debit Common Dividends Payable for the total amount of the dividend and credit Cash for the same amount. Therefore, the correct option is D) Debit Common Dividends Payable $100,100; credit Cash $100,100.

Question 16

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the dividend declaration is:
A)Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
B)Debit Common Dividends Payable $104,500; credit Cash $104,500.
C)Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.
D)Debit Common Dividends Payable $100,100; credit Cash $100,100.
E)Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.

Accepted Answer

The answer of Fetzer Company declared a $0.55 per share...

Question 17

West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the payment of the dividend is:
A)Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
B)Debit Common Dividends Payable $95,000; credit Cash $95,000.
C)Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
D)Debit Common Dividends Payable $90,000; credit Cash $90,000.
E)Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.

Accepted Answer

The payment of cash dividends involves a debit to the Common Dividends Payable account and a credit to the Cash account. The Common Dividends Payable account should be equal to the amount of dividends declared but not yet paid, which in this case is $90,000 (0.50 x 190,000 shares). The Retained Earnings account is not directly affected by the payment of dividends, but it is reduced by the amount of dividends declared. Since the company has 10,000 shares of treasury stock, these shares are not entitled to receive dividends and should be excluded from the calculation of the total dividend payment. Therefore, the journal entry to record the payment of the dividend is:

Debit Common Dividends Payable $90,000
Credit Cash $90,000

Question 18

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:
A)Participating preferred stock.
B)Callable preferred stock.
C)Cumulative preferred stock.
D)Convertible preferred stock.
E)Noncumulative preferred stock.

Accepted Answer

Noncumulative preferred stock allows the company to skip a dividend payment without owing the missed dividends in the future. This means that if a dividend is not declared in any given year, the shareholders do not accumulate the right to receive it in future years.

Question 19

Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on June 30 for $40 per share. On July 20, it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the balance in the Treasury Stock account on August 2?
A)$5,050.
B)$2,600.
C)$100.
D)$1,200.
E)$0.

Accepted Answer

June 30: Repurchased 100 shares at $40 per share
July 20: Reissued 50 shares at $46 per share
This leaves 50 shares still in the Treasury Stock account.
August 1: Reissued 20 shares at $38 per share
This leaves 30 shares in the Treasury Stock account.
The balance in the Treasury Stock account is the cost of the remaining 30 shares, which is 30 shares x $40 per share = $1,200.
Therefore, the correct answer is D.

Question 20

Alto Company issued 7% preferred stock with a $100 par value. This means that:
A)Preferred shareholders have a guaranteed dividend.
B)The amount of the potential dividend is $7 per year per preferred share.
C)Preferred shareholders are entitled to 7% of the annual income.
D)The market price per share will approximate $100 per share.
E)Only 7% of the total paid-in capital can be preferred stock.

Accepted Answer

The 7% preferred stock with a $100 par value means that the potential annual dividend is $7 per preferred share.

Quiz 11: Reporting and Analyzing Equity

A dividend preference for preferred stock means that:

Corporations may buy back their own stock for any of the following reasons except to:

Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:

The following data were reported by a corporation: The number of outstanding shares is:

West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the dividend declaration is:

The following data has been collected about Keller Company's stockholders' equity accounts: Assuming the treasury shares were all purchased at the same price, the cost per share of the treasury stock is:

All of the following regarding accounting for Treasury Stock under U.S. GAAP and IRFS is true except:

Treasury stock is classified as:

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The number of shares to which the dividend applies is:

Stock that was reacquired and is still held by the issuing corporation is called:

The following data has been collected about Keller Company's stockholders' equity accounts: Assuming the treasury shares were all purchased at the same price, the number of shares of treasury stock is:

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the payment of the dividend is:

Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the dividend declaration is:

West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the payment of the dividend is:

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

Alto Company issued 7% preferred stock with a $100 par value. This means that: