Question 1

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. $$\begin{array}{l}

\begin{array} { l r r } &\text { Dividend Declared }\
\text { year 1 } & \$ 20,000 \
\text { year 2 } & \$ 6,000 \
\text { year 3 } & \$ 32,000 \
\end{array}
\end{array}$$ The amount of dividends paid to preferred and common shareholders in year 1 is:

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

Question 2

What is a corporation? Identify the key advantages and disadvantages of corporations.

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Question 3

A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per share. The entry to record this transaction would be:

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Question 4

A corporation issued 5,000 shares of its no par common stock that was assigned a $1 stated value per share. The issue price was $10 per share. The entry to record this transaction would be:

Accepted Answer

The entry to record the issuance of no par common stock with a stated value is to debit Cash for the total amount received, credit Common Stock for the stated value per share multiplied by the number of shares issued, and credit Paid-in Capital in Excess of Stated Value, Common Stock for the difference between the issue price and the stated value per share multiplied by the number of shares issued. Therefore, the correct entry is Debit Cash $50,000; credit Paid-in Capital in Excess of Stated Value, Common Stock $45,000; credit Common Stock $5,000.

Question 5

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:

Accepted Answer

The dividend payment is calculated as follows:

$0.50 per share x 190,000 shares outstanding = $95,000

Since the company has 10,000 shares in treasury stock, the actual number of shares that will receive the dividend is 180,000 (190,000 - 10,000).

The journal entry to record the dividend declaration is:

Debit Retained Earnings $90,000 (180,000 x $0.50)
Credit Common Dividends Payable $90,000

Therefore, the best choice is (E) Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.

Question 6

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?

Accepted Answer

When a company repurchases its own shares of stock, it records the transaction in the treasury stock account. The cost of the treasury stock is recorded as a reduction to shareholders' equity in the balance sheet.

On May 1, Fortune Company acquired 100 of its own shares for $5,000. The cost per share is calculated as $5,000/100 = $50 per share.

On July 1, the company reissued 50 shares at $52 per share. The proceeds from the sale of these shares are recorded in the treasury stock account as an increase to shareholders' equity.

The journal entry to record the sale of shares is:

Cash       $2,600
    Treasury stock ($50x50)      $2,500
    Paid-in Capital, Treasury Stock    $100

On August 1, the company reissued the remaining 50 shares at $49 per share. The proceeds from the sale of these shares are also recorded in the treasury stock account as an increase to shareholders' equity.

The journal entry to record the sale of shares is:

Cash       $2,450
    Treasury stock ($50x50)      $2,500
    Paid-in Capital, Treasury Stock    $50

The balance in the Paid-in Capital, Treasury Stock account on August 2 is the difference between the cost of the treasury stock and the proceeds from its sale.

The cost of the 100 shares is $5,000, and the proceeds from the sale of 100 shares are $5,050 ($2,600 + $2,450). Therefore, the balance in the Paid-in Capital, Treasury Stock account on August 2 is $50.

Question 7

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?

Accepted Answer

The balance in the Treasury Stock account on August 2 is calculated as follows:

- On June 30, the company repurchased 100 shares at $40 per share, resulting in a debit of $4,000 to the Treasury Stock account.
- On July 20, the company reissued 50 of these shares at $46 per share, resulting in a credit of $2,300 to the Treasury Stock account (50 shares x $46 per share).
- On August 1, the company reissued 20 of the shares at $38 per share, resulting in a credit of $760 to the Treasury Stock account (20 shares x $38 per share).
- The remaining 30 shares are held in Treasury Stock and have a cost of $1,940 ($4,000 - $2,300 - $760). This amount represents the balance in the Treasury Stock account on August 2.

Therefore, the correct answer is C) $1,200.

Question 8

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:

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Question 9

Explain how to calculate the price-earnings ratio and describe how it is used in analysis of a company's financial condition and performance.

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Question 10

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:

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

Question 11

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

Accepted Answer

The statement "Only gains are recognized on retirements of treasury stock under IFRS" is false. Both gains and losses are recognized under IFRS.

Question 12

What are the rights generally granted to common stockholders?

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Question 13

Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its $1 par 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 journal entry necessary to record the repurchase of stock on June 30?

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The answer of Prior to June 30, a company has...

Question 14

Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its $1 par 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 journal entry necessary to record the reissuance of treasury stock on July 20?

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Question 15

Explain how to compute dividend yield and discuss how it is used in analysis of a company's financial condition.

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Question 16

Sweet Company's outstanding stock consists of 1,000 shares of cumulative 5% preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared
Year 1 $ 2,000
Year 2 $ 6,000
Year 3 $ 32,00
0
The amount of dividends paid to preferred and common shareholders in year 3 is:

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Question 17

Halverstein Company's outstanding stock consists of 7,000 shares of cumulative 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. $$\begin{array}{l}

\begin{array} { l r r } &\text { Dividend Declared }\
\text { year 1 } & \$ 0 \
\text { year 2 } & \$ 6,000 \
\text { year 3 } & \$ 32,000 \
\end{array}
\end{array}$$ The amount of dividends paid to preferred and common shareholders in Year 2 is:

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Question 18

Sweet Company's outstanding stock consists of 1,000 shares of cumulative 5% preferred stock with a $100 par value and 5,000 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends. $$\begin{array}{l}

\begin{array} { l r r } &\text { Dividend Declared }\
\text { year 1 } & \$ 2,000 \
\text { year 2 } & \$ 6,000 \
\text { year 3 } & \$ 32,000 \
\end{array}
\end{array}$$ The total amount of dividends paid to preferred and common shareholders over the three-year period is:

Accepted Answer

The preferred stock dividend is 5% of $100,000 (1,000 shares x $100 par value), which is $5,000 annually. Over three years, $15,000 is owed to preferred shareholders. The remaining dividends go to common shareholders: $2,000 in year 1, $1,000 in year 2, and $25,000 in year 3, totaling $25,000.

Question 19

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:

Accepted Answer