Question 1

When a dividend is declared and paid in stock,

Accepted Answer

When a dividend is declared and paid in stock, the total number of outstanding shares increases, and the amount of retained earnings decreases. However, this does not affect the total stockholders' equity since it is the sum of the company's assets minus its liabilities, and the value of the assets and liabilities are unchanged.

Question 2

How would the declaration of a 20 percent stock dividend by Astros Corporation affect each of the following on Astros' balance sheet? Retained Total Stock-
Earnings holders' Equity

Accepted Answer

A stock dividend redistributes a portion of retained earnings to common stock, decreasing retained earnings but not affecting total stockholders' equity, as it's an internal transaction.

Question 3

6,000 shares of common stock with a par value of $10 per share were issued initially at $12 per share.Subsequently,2,000 of these shares were acquired as treasury stock at $15 per share.Assuming that the par value method of accounting for treasury stock transactions is used,what is the effect of the acquisition of the treasury stock on each of the following? Additional Retained
Paid-In Capital Earnings

Accepted Answer

The acquisition of treasury stock at a price higher than the original issue price (here, acquired at $15 per share vs. issued at $12 per share) results in a decrease in Additional Paid-In Capital (APIC) for the excess over par value ($2 per share originally) and a decrease in Retained Earnings for the excess of the repurchase price over the original issue price, in this case, $3 per share for the 2,000 shares repurchased.

Question 4

When treasury stock is purchased for cash at more than its par value,what is the effect on total stockholders' equity under each of the following methods? Cost Method Par Value Method

Accepted Answer

Under the cost method, purchasing treasury stock reduces total stockholders' equity because the cost of the treasury stock is deducted from equity. Under the par value method, the par value of the treasury stock is deducted from the common stock account, and any excess over par is deducted from additional paid-in capital or retained earnings, also reducing total stockholders' equity.

Question 5

When a property dividend is declared and the market value of the property exceeds its book value,the excess is credited to

Accepted Answer

The excess of the market value over the book value of the property is recognized as a gain, so it is credited to "Gain on Distribution of Property Dividends."

Question 6

A restriction of retained earnings is most likely to be required by

Accepted Answer

Restrictions of retained earnings are often required when a company purchases treasury stock. This is because the repurchase of shares reduces the amount of equity available to be paid out as dividends, and the restriction ensures that the company maintains enough retained earnings to meet its financial obligations and possibly continue its operations without jeopardizing its financial health.

Question 7

Under international accounting requirements,which of the following equity reserves is part of distributable equity?

Accepted Answer

Retained earnings are part of distributable equity, which can be distributed to shareholders as dividends. Capital redemption reserve, asset revaluation reserve, and par value of shares are not part of distributable equity.

Question 8

Select the statement that is incorrect concerning the appropriations of retained earnings.

Accepted Answer

The answer of Select the statement that is incorrect concerning...

Question 9

Stock warrants outstanding should be classified as

Accepted Answer

Stock warrants outstanding are classified as additions to contributed capital because they represent potential future capital that a company can receive if the warrant holders choose to exercise their rights to purchase shares at a predetermined price.

Question 10

On July 31,2013,Rangers Corporation purchased 500,000 shares of Tigers Corporation.On December 31,2014,Rangers distributed 250,000 shares of Tigers stock as a dividend to Rangers' stockholders.This is an example of a

Accepted Answer

This is an example of a property dividend, where a company distributes assets other than cash (in this case, shares of another company) to its shareholders.

Question 11

Treasury stock was acquired for cash at a price in excess of its par value.The treasury stock was subsequently reissued for cash at a price in excess of its acquisition price.Assuming that the cost method of accounting for treasury stock transactions is used,what is the effect on retained earnings? Acquisition of Reissuance of
Treasury Stock Treasury Stock

Accepted Answer

Under the cost method, the acquisition of treasury stock does not affect retained earnings; it is recorded by decreasing cash and equity for the cost of the shares acquired. The reissuance of treasury stock at a price above its acquisition cost also does not affect retained earnings; the excess over cost is credited to additional paid-in capital, not retained earnings.

Question 12

A company issued rights to its existing shareholders to purchase,for $30 per share,unissued shares of $15 par value common stock.When the rights lapse,

Accepted Answer

When the rights lapse, no entry is made because the rights are essentially options given to shareholders that expire if not exercised; there's no financial transaction to record.

Question 13

Unlike a stock split,a stock dividend requires a formal journal entry in the financial accounting records because stock dividends

Accepted Answer

Stock dividends require a formal journal entry because they represent a transfer from Retained Earnings to Capital Stock. This involves moving amounts within the equity section of the balance sheet from retained earnings to paid-in capital, reflecting the issuance of additional shares to existing shareholders.

Question 14

If 35 percent of the recent dividend paid by Yankees Corporation was correctly considered to be a liquidating dividend,how would this distribution affect each of the following accounts? Additional Retained
Paid-In Capital Earnings

Accepted Answer

The answer of If 35 percent of the recent dividend...

Question 15

When a portion of stockholders' original investment is returned in the form of a dividend,it is called a

Accepted Answer

A liquidating dividend is a portion of the stockholders' original investment that is returned to them when a company goes out of business, sells off its assets, or restructures. This is different from a compensating dividend, which is a dividend paid when a company's earnings exceed its expectations, or a property dividend, which is a dividend paid out in the form of company property rather than cash. Equity dividend is not a commonly used term in finance.

Question 16

Undistributed stock dividends should be reported as

Accepted Answer

Undistributed stock dividends should be reported as an addition to capital stock outstanding as they represent a portion of retained earnings that have been capitalized instead of distributed as cash dividends. They do not represent a current liability or a reduction in total stockholders' equity. They should be disclosed in the stockholders' equity section of the balance sheet or in the notes to the financial statements.

Question 17

Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock?

Accepted Answer

Stock rights are issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock. Stock options are contracts giving the holder the right to purchase or sell a stock at a specific price. Stock dividends are payments made to shareholders in the form of additional shares of stock. Stock subscriptions are agreements made between a corporation and an investor to purchase shares of its stock.

Question 18

When treasury stock is purchased for more than its par value,Treasury Stock is debited for the purchase price under which of the following methods? Cost Method Par Value Method

Accepted Answer

When treasury stock is purchased for more than its par value, the excess is recorded in the additional paid-in capital account. Therefore, under the Cost Method, Treasury Stock is debited for the purchase price and Additional Paid-in Capital is credited for the difference between the purchase price and the par value. The Par Value Method is not appropriate in this situation because it only considers the par value of the stock.

Question 19

On February 1,authorized common stock was sold on a subscription basis at a price in excess of par value,and 20 percent of the subscription price was collected.On May 1,the remaining 80 percent of the subscription price was collected.Additional Paid-In Capital would increase on February 1 May 1

Accepted Answer

Additional Paid-In Capital would increase on February 1 because the shares were sold for a price in excess of par value. However, there would be no increase in Additional Paid-In Capital on May 1 because the remaining 80 percent of the subscription price was just a collection of the amount owed and not new money coming in.

Question 20

When a property dividend is declared and the book value of the property exceeds its market value,the dividend is recorded at the

Accepted Answer

When a property dividend is declared and the book value of the property exceeds its market value, the dividend is recorded at the market value of the property at the date of declaration. This approach ensures that the dividend reflects the fair market value of the property being distributed.

Quiz 13: Equity Financing