Question 1

Which of the following statements about earnings per share (EPS) is correct?

Accepted Answer

EPS is calculated by dividing the net income by the number of common shares outstanding. Therefore, the number of common shares outstanding is a key component in the calculation of EPS. Additionally, increased net income typically leads to an increase in EPS, as there is a larger amount of earnings to be divided among the same number of outstanding shares. Issuance of more common shares dilutes the current ownership of shares, and therefore reduces EPS. Lastly, purchasing treasury shares reduces the number of outstanding shares, which would result in an increase in EPS.

Question 2

CBA Company reported total stockholders' equity of $85,000 on its balance sheet dated December 31, 2014. During the year ended December 31, 2015, CBA reported net income of $10,000, declared and paid a cash dividend of $2,000, and issued additional common stock for $20,000. What is total stockholders' equity as of December 31, 2015?

Accepted Answer

The answer of CBA Company reported total stockholders' equity of...

Question 3

Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $50 per share when they were repurchased at a cost of $47 per share and have a $1 par value?

Accepted Answer

The answer of Which of the following entries would be...

Question 4

Which of the following journal entries does not reflect the initial cash sale of shares of common stock? A. Cash 
$\quad$Common stock (no par)
B. Cash
$\quad$Common stock (par value) 
$\quad$Capital in excess of par
C. Cash
$\quad$Common stock (stated value)
D. Cash
$\quad$Common stock (stated value)
$\quad$Gain on sale of stock

Accepted Answer

The gain on sale of stock is not recorded in the initial sale of common stock; it is recorded when stock is sold at a price above its par or stated value.

Question 5

Which of the following journal entries is correct when common stock is initially issued for cash at a price in excess of the stock's stated value? A. Cash
$\quad$Common stock
B. Cash
$\quad$Common stock
$\quad$Capital in excess of stated value
C. Cash
$\quad$Common stock
$\quad$Retained earnings
D. Cash
$\quad$Common stock
$\quad$Gain on sale of stock

Accepted Answer

When common stock is issued for cash at a price above its stated value, the excess amount is credited to "Capital in excess of stated value," not retained earnings or gain on sale.

Question 6

RKJ Company has provided the following: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares were issued for $9 per share
• 65,000 shares are outstanding
Which of the following statements is correct based only on the above facts?

Accepted Answer

Total par value of common stock = 65,000 shares × $5 par value = $325,000
Common stock is reported on the balance sheet at its par value, so it is reported at $325,000.
Additional paid-in capital = Total amount received from issuing stock – Total par value of stock issued
= (70,000 shares × $9 per share) – (70,000 shares × $5 par value)
= $630,000 – $350,000 = $280,000.
Therefore, option C is correct: Common stock is reported at $350,000 on the balance sheet.

Question 7

A company reported the following asset and liability balances at the end of 2013 and 2014: $$\begin{array} { l r r } 
& \underline { 2013 } & \underline { 2014 } \
\text { Total Assets } & \$ 6,800,000 & \$ 7,600,000 \
\text { Total Liabilities } & 3,200,000 & 3,600,000
\end{array}$$ During 2014, cash dividends of $50,000 were declared and paid, and common stock was issued for $100,000. How much was the 2014 net income?

Accepted Answer

The answer of A company reported the following asset and...

Question 8

Which of the following statements is false?

Accepted Answer

The declaration of a cash dividend actually creates a liability on the declaration date, not the date of record. The date of record is simply the date when the company determines who will receive the dividend, but no liability is recorded or changed on this date.

Question 9

RKJ Company has provided the following: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares have been issued
• 65,000 shares are outstanding
Which of the following statements is correct?

Accepted Answer

RKJ has issued 70,000 shares out of the 100,000 authorized, so it can issue an additional 30,000 shares. The difference between issued and outstanding shares (5,000) represents treasury stock, not 30,000 or 35,000.

Question 10

CGJ Company has provided the following: • 200,000 shares of $5 par value common stock are authorized
• 140,000 shares of common stock were issued for $11 per share
• 130,000 shares are outstanding
Which of the following statements is false?

Accepted Answer

Explanation:- A) True, because 140,000 shares issued at $5 par value equals $700,000 (140,000 shares * $5 par value).- B) True, because the shares were issued at $11, which is $6 above par value ($11 - $5 = $6), and for 140,000 shares, this equals $840,000 (140,000 shares * $6).- C) False, because the decrease in stockholders' equity due to treasury stock purchase is not directly provided, and without the cost at which the treasury stock was purchased, we cannot confirm the $110,000 figure.- D) True, because if 140,000 shares were issued and 130,000 are outstanding, 10,000 shares must be treasury stock (140,000 issued - 130,000 outstanding = 10,000 treasury).

Question 11

Which of the following journal entries is correct when no-par common stock is initially issued for cash? A. Cash
$\quad$Common stock
B. Cash
$\quad$Common stock
$\quad$Capital in excess of par
C. Cash
$\quad$Common stock
$\quad$Retained earnings
D. Cash
$\quad$Common stock
$\quad$Gain on sale of stock

Accepted Answer

No-par common stock is recorded at its fair value, which is the amount of cash received.

Question 12

A company purchased 1,000 shares of treasury stock for $38,000 cash. The treasury stock was initially issued for $24,000 and had a $9,000 par value. Which of the following statements incorrectly describes the effect of the treasury stock purchase?

Accepted Answer

Total assets decrease because cash, an asset, is used to purchase the treasury stock.

Question 13

Which of the following statements about earnings per share is correct?

Accepted Answer

Earnings per share is calculated by dividing the net income of a company by the number of common shares of stock outstanding. Choice A is incorrect as an increase in net income would result in higher earnings per share. Choice B is incorrect as issuing more common shares would dilute the earnings per share, resulting in a decrease. Choice C is incorrect as purchasing treasury shares would decrease the number of shares outstanding, thereby increasing the earnings per share.

Question 14

A company purchased treasury stock for $19,000. The treasury stock was initially issued for $12,000 and had a $5,000 par value. Which of the following statements correctly describes the effects of the treasury stock purchase?

Accepted Answer

When a company purchases its own treasury stock, there is a decrease in stockholders' equity because the company is essentially buying back its own shares from investors. In this case, the company paid $19,000 for the treasury stock that was originally issued for $12,000, resulting in a $7,000 decrease in stockholders' equity. Net income is not affected by the purchase of treasury stock.

Question 15

Irish Corporation issued (sold) 10,000 shares of its no-par common stock for $70 per share. The bylaws established a stated value of $10 per share. The transaction would increase the common stock account on the balance sheet by how much?

Accepted Answer

The common stock account is increased by the stated value per share multiplied by the number of shares issued: 10,000 shares x $10 stated value = $100,000.

Question 16

Which of the following statements is correct?

Accepted Answer

When a company buys back its own stock (treasury stock), it will decrease the total number of outstanding shares. This should increase the value of each outstanding share and, potentially, increase the per-share price. However, if the treasury stock is repurchased for less than its original issue cost, it will result in a decrease in total stockholders' equity. This is because the difference between the original issue cost and the repurchase price is considered a loss and is subtracted from total stockholders' equity.

Question 17

Which of the following statements about treasury stock transactions is correct?

Accepted Answer

When treasury stock is purchased, a stockholders' equity account is debited (typically "Treasury Stock") because it represents a reduction in equity. Treasury stock is a contra-equity account because it has a debit balance, which offsets the credit balance of the common stock or preferred stock accounts. The total number of shares issued and authorized do not change when treasury stock is purchased. Gains and losses on treasury stock transactions are reported as a separate component of stockholders' equity, not on the income statement.

Question 18

RKJ Company has provided the following: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares have been issued
• 65,000 shares are outstanding
Which of the following statements is correct?

Accepted Answer

RKJ has issued 70,000 shares, and 65,000 are outstanding, meaning 5,000 shares are held as treasury stock. Therefore, RKJ can resell these 5,000 treasury shares.

Question 19

Which of the following statements incorrectly describes earnings per share?

Accepted Answer

An increase in dividends per share does not result in an increase in earnings per share. Earnings per share is calculated by dividing earnings available to common shareholders by the number of common shares outstanding. Dividends paid are subtracted from earnings available to common shareholders, thus an increase in dividends per share would decrease earnings available to common shareholders and ultimately decrease earnings per share.

Question 20

Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $40 per share when they were repurchased at a cost of $44 per share and have a $1 par value?

Accepted Answer