Question 1

Which of the following is not a reason for a corporation to acquire treasury stock?
A)to reduce the likelihood of being acquired by another company
B)to maintain the market price of the company's stock
C)to reduce the earnings per share
D)to be used in the acquisition of other companies

Accepted Answer

Acquiring treasury stock would not be done to intentionally reduce the earnings per share. The other options - reducing the likelihood of being acquired, maintaining market price, and being used in acquisition of other companies - are all potential reasons for acquiring treasury stock.

Question 2

Which of the following items could appropriately be shown in the contributed capital section of stockholders' equity on the balance sheet?
A)unrealized capital
B)donated capital
C)common stock option warrants
D)none of these

Accepted Answer

The answer of Which of the following items could appropriately...

Question 3

Which one of the following statements concerning treasury stock is true?
A)It carries voting rights.
B)It participates in stock splits.
C)It receives dividend distributions.
D)It retains the preemptive right.

Accepted Answer

Treasury stock refers to shares that were issued and later reacquired by the issuing corporation. While these shares do not carry voting rights, receive dividends, or retain preemptive rights, they are still affected by stock splits. This means if a company declares a stock split, the number of treasury shares will adjust accordingly to maintain the proportional relationship within the total shares.

Question 4

Under the par value method of accounting for treasury stock, the treasury stock is reported on the balance sheet as a deduction from
A)the sum of contributed capital, unrealized capital, and retained earnings
B)retained earnings
C)capital stock
D)contributed capital

Accepted Answer

Under the par value method of accounting for treasury stock, the treasury stock is reported on the balance sheet as a deduction from Capital Stock. This is because, in the par value method, the treasury stock is recorded at cost, and when it is subsequently resold, it is recorded as an increase in capital stock at the par value per share. Therefore, deducting the treasury stock from capital stock is a more accurate representation of the company's actual capital structure.

Question 5

Under the cost method of accounting for treasury stock transactions, when the proceeds from a sale are greater than the cost, the excess over cost is treated as a(n)
A)increase in Other Expenses from Treasury Stock Sales
B)increase in Additional Paid-in Capital from Treasury Stock
C)increase in a contra-stockholders' equity account
D)increase in Additional Paid-in Capital on Common Stock
E)none of these

Accepted Answer

Under the cost method, when treasury stock is sold for more than its cost, the excess is credited to Additional Paid-in Capital from Treasury Stock, reflecting the additional capital contributed by shareholders over the cost of the treasury shares.

Question 6

All of the following would appear in the contributed capital section of stockholders' equity on the balance sheet except
A)additional paid-in capital from stock conversions
B)retained earnings
C)stock warrants and options
D)stock dividends to be distributed

Accepted Answer

Retained earnings are not part of contributed capital, but rather the portion of a company's net earnings that are retained and reinvested in the business. The other options listed (A, C, and D) are all examples of contributed capital.

Question 7

The following information is provided for Murphy Corporation:  What is the amount of contributed capital for Murphy Corporation?
A)$430, 000
B)$433, 000
C)$463, 000
D)$468, 600

Accepted Answer

The answer of The following information is provided for Murphy...

Question 8

McKay Co.has three separate issues of preferred stock outstanding.One issue is callable.One issue is convertible.One issue is cumulative.When declaring dividends, which issue of preferred stock is taken into consideration?
A)none of the preferred stock issues
B)callable
C)convertible
D)cumulative

Accepted Answer

The answer of McKay Co.has three separate issues of preferred...

Question 9

According to APB Opinion No.14, when convertible preferred stock is issued, the conversion provision is
A)given no consideration
B)assigned a value based on the difference between the par value and the fair market value of the stock on the date of issuance
C)assigned a value based on the difference between the stated value of the stock and the market value on the date of issuance
D)assigned a value based on the difference between the fair market value of the stock without the conversion provision and the fair market value of the stock with the conversion provision

Accepted Answer

APB Opinion No. 14 specifies that when convertible preferred stock is issued, the conversion feature is given no consideration in the accounting process. This means that the financial reporting does not assign a separate value to the conversion provision.

Question 10

When callable preferred stock is recalled, if the recall price exceeds the total of the par value in the preferred stock account and the additional paid-in capital associated with the recalled preferred stock, the difference is
A)credited to Retained Earnings
B)credited to Additional Paid-in Capital on Preferred Stock
C)debited to Retained Earnings
D)credited to Loss from Recall of Preferred Stock

Accepted Answer

When callable preferred stock is recalled for a price that exceeds the total of its par value and any additional paid-in capital, the excess is considered a cost to the company. This cost is debited to Retained Earnings, reflecting a reduction in the equity available to shareholders.

Question 11

In regard to cumulative preferred stock
A)shareholders are guaranteed an annual dividend
B)shareholders will receive a dividend if common stockholders are paid
C)dividends in arrears are a current liability
D)dividends in arrears are either a current or long-term liability, depending upon when the corporation last declared a dividend

Accepted Answer

The answer of In regard to cumulative preferred stock
A)shareholders are...

Question 12

If a company does not maintain its treasury stock records on a specific identification basis, which of the following approaches may be used to record a reduction in the treasury stock account when the stock is reissued?
A)FIFO or average costing
B)FIFO or LIFO costing
C)LIFO or average costing
D)none of these

Accepted Answer

FIFO or average costing can be used to record a reduction in the treasury stock account when the stock is reissued if the company does not maintain its treasury stock records on a specific identification basis. These methods assume that the first shares purchased (FIFO) or an average cost of all shares purchased (average costing) are the first shares sold.

Question 13

When a company acquires treasury stock, what effect does this transaction have on earnings per share and legal capital, respectively?
A)increase, decrease
B)increase, increase
C)decrease, decrease
D)increase, none

Accepted Answer

Acquiring treasury stock has no effect on legal capital, but it can increase earnings per share if the company retires the stock, which reduces the number of outstanding shares. Therefore the correct choice is D, increase in earnings per share and none in legal capital.

Question 14

The following information is provided for Spring Company: $\begin{array}{ll}
\text { Retained earnings } & \$ 35,000 \
\text { Preferred stock, } 5 \%, \$ 50 \text { par } & 100,000 \
\text { Organization expense } & 2,500 \
\text { Premium on common stock } & ? \
\text { Additional paid-in capital from recall of preferred stock } & 1,000 \
\text { Premium on bonds payable } & 3,000 \
\text { Common stock, } \$ 10 \text { par } & 300,000
\end{array}$
 If total contributed capital is $406, 000, what is the amount of premium on common stock for Spring Company?
A)$2, 500
B)$3, 500
C)$5, 000
D)$6, 000
E)none of these

Accepted Answer

The TB5176 code indicates that this is a financial statement for a corporation. The given information, 11eac05a_18c7_37ca_a0f2_15834d192149, does not provide any relevant details for this question. However, the total contributed capital of $406,000 is relevant. Contributed capital typically consists of both common stock and any additional paid-in capital or premium on common stock. To determine the premium on common stock, we would need additional information about the par value of the common stock issued. Without this information, it is impossible to determine an exact amount for the premium. However, we can make an educated guess based on typical par values for common stock and the total amount of contributed capital. A common stock par value of $1 with $406,000 of total contributed capital would indicate that 406,000 shares of stock were issued. If we assume a par value of $0.01 per share (a more typical value), this would indicate that 40,600,000 shares were issued, meaning that the premium on common stock would be approximately 5 cents per share. This would result in a total premium of $5,000 (0.05 * 40,600,000 = 2,030,000; 2,030,000 / 2 = $5,000). Therefore, the best answer is (C) $5,000.

Question 15

Wang Corporation issued 8, 000 shares of $50 par preferred stock at $74 a share.A stock warrant attached to each preferred share allows the holder to buy one share of $10 par common stock for $20.Right after issuance, the preferred stock sells ex-rights for $63 per share.The warrants began selling at $7 per warrant.The amount credited to Common Stock Warrants at issuance of the preferred stock is
A)$ 0
B)$ 56, 000
C)$ 59, 200
D)$160, 000

Accepted Answer

The total amount received from issuing 8,000 preferred shares at $74 per share is:
$74 x 8,000 = $592,000

The par value of the preferred shares is:
$50 x 8,000 = $400,000

The excess of the issue price over par is:
$592,000 - $400,000 = $192,000

This amount of $192,000 is credited to the Preferred Stock account.

The common stock warrants accompanying the preferred shares have a value of:
$20 - $7 = $13

Thus, each preferred share comes with a warrant worth $13.

The total value of the warrants is:
$13 x 8,000 = $104,000

Since each warrant allows the holder to buy one share of $10 par common stock, the total number of shares that can be issued through the warrants is:
8,000 x 1 = 8,000

The par value of the common stock to be issued through the warrants is:
$10 x 8,000 = $80,000

The excess of the exercise price over par is:
$20 - $10 = $10
$10 x 8,000 = $80,000

The total amount of additional paid-in capital to be recognized is:
$80,000 - $104,000 = ($24,000)

The negative amount of $24,000 is credited to the Common Stock Warrants account.

Therefore, the amount credited to Common Stock Warrants at issuance of the preferred stock is $59,200 ($104,000 - $24,000).

Question 16

When recording the conversion of preferred stock into common stock, if the total contributed capital eliminated in regard to the preferred stock is less than the common stock par value, the difference is debited to
A)Additional Paid-in Capital on Preferred Stock
B)Additional Paid-in Capital on Common Stock
C)Common Stock
D)Retained Earnings

Accepted Answer

The difference is debited to Retained Earnings when the total contributed capital eliminated for preferred stock is less than the par value of the common stock issued.

Question 17

Wade, Inc.issued 500 shares of $10 par preferred stock at $83 a share.Each share had a warrant attached that allowed the holder to purchase one share of $5 par common stock for $15.Soon after the preferred stock was issued, the preferred stock was selling ex-rights for $64 a share and the warrants for $16 each.The entry to record the issuance of the preferred stock would include a
A)debit to Retained Earnings for $8, 300
B)credit to Additional Paid-in Capital on Preferred Stock for $36, 500
C)credit to Common Stock Warrants for $8, 300
D)credit to Additional Paid-in Capital on Common Stock for $8, 300

Accepted Answer

The entry to record the issuance of the preferred stock would include a credit to Common Stock Warrants for $8,300, which is the value of the warrants (500 shares x $16 per warrant).

Question 18

Mercury Corp.has 10, 000 shares of $10 par, cumulative, 6% preferred stock and 10, 000 shares of common stock outstanding since being organized at the beginning of 2010.It declared its first dividend of $40, 000 at the end of 2012.This means that
A)all of the $40, 000 dividends available are paid to the preferred stockholders
B)all of the $40, 000 dividends available are paid to the common stockholders
C)an equal dollar amount is paid to each class of shareholder
D)3 years' worth of dividends will be paid to preferred stockholders prior to paying anything to common stockholders

Accepted Answer

The preferred stock is cumulative, meaning any unpaid dividends accumulate. For 3 years (2010, 2011, 2012), the preferred stockholders are owed dividends: 10,000 shares x $10 par x 6% x 3 years = $18,000. The $40,000 dividend will first cover the $18,000 owed to preferred stockholders, with the remainder going to common stockholders.

Question 19

When a company reacquires its own stock, the entry to record the reacquisition could include an entry to Additional Paid-in Capital from Treasury Stock under which of the following methods? $\begin{array}{lll}
&\text { Cost Method }&\text { Par Value Method }\
\text { I. } & \text { Yes } & \text { Yes } \
\text { II. } & \text { Yes } & \text { No } \
\text { III. } & \text { No } & \text { No } \
\text { IV } & \text { No } & \text { Yes }
\end{array}$

A)I
B)II
C)III
D)IV

Accepted Answer

The answer of When a company reacquires its own stock,...

Question 20

The preference to dividends that preferred stockholders have is
A)the right to receive the appropriate dividend before common stockholders are paid any dividends when dividends are declared
B)the right to accumulate dividends that have not been declared
C)the right to share dividends equally with common stockholders when dividends are declared
D)the right to be paid a minimum dividend each year

Accepted Answer

Preferred stockholders have the right to receive the appropriate dividend before common stockholders are paid any dividends when dividends are declared. This is the main preference that distinguishes preferred stock from common stock.

Quiz 16: Contributed Capital

Which of the following is not a reason for a corporation to acquire treasury stock?

Which of the following items could appropriately be shown in the contributed capital section of stockholders' equity on the balance sheet?

Which one of the following statements concerning treasury stock is true?

Under the par value method of accounting for treasury stock, the treasury stock is reported on the balance sheet as a deduction from

Under the cost method of accounting for treasury stock transactions, when the proceeds from a sale are greater than the cost, the excess over cost is treated as a(n)

All of the following would appear in the contributed capital section of stockholders' equity on the balance sheet except

The following information is provided for Murphy Corporation: What is the amount of contributed capital for Murphy Corporation?

McKay Co.has three separate issues of preferred stock outstanding.One issue is callable.One issue is convertible.One issue is cumulative.When declaring dividends, which issue of preferred stock is taken into consideration?

According to APB Opinion No.14, when convertible preferred stock is issued, the conversion provision is

When callable preferred stock is recalled, if the recall price exceeds the total of the par value in the preferred stock account and the additional paid-in capital associated with the recalled preferred stock, the difference is

In regard to cumulative preferred stock

If a company does not maintain its treasury stock records on a specific identification basis, which of the following approaches may be used to record a reduction in the treasury stock account when the stock is reissued?

When a company acquires treasury stock, what effect does this transaction have on earnings per share and legal capital, respectively?

When recording the conversion of preferred stock into common stock, if the total contributed capital eliminated in regard to the preferred stock is less than the common stock par value, the difference is debited to

Mercury Corp.has 10, 000 shares of $10 par, cumulative, 6% preferred stock and 10, 000 shares of common stock outstanding since being organized at the beginning of 2010.It declared its first dividend of $40, 000 at the end of 2012.This means that

The preference to dividends that preferred stockholders have is