Question 1

________ preferred shares contain a provision requiring that preferred shareholders share ratably in distributions with common shareholders.

Accepted Answer

Participating preferred shares contain a provision requiring that preferred shareholders share ratably in distributions with common shareholders. Cumulative preferred shares have a provision allowing any missed dividends to accumulate and be paid at a later date. Convertible preferred shares allow an investor to convert their preferred shares into common shares at a predetermined ratio. Redeemable preferred shares can be redeemed by the issuer at a set price after a certain date.

Question 2

On January 1,2014,TNT,Inc.issued 1,500 shares of $50 par value,convertible preferred shares for $150,000.Each preferred share is convertible into one share of $1 par common stock.What is the necessary journal entry to record this transaction?

Accepted Answer

The answer of On January 1,2014,TNT,Inc.issued 1,500 shares of $50...

Question 3

On January 1,2013,Moulin Company issued 1,200 shares of $60 par callable preferred shares for $180,000.According to the preferred share agreement,Moulin can call these preferred shares on January 1,2015,for $150 per share.On January 1,2015,Moulin calls the shares.
a.What is the journal entry to record the issuance of the preferred shares?
b.What is the journal entry when Moulin calls the preferred shares?

Accepted Answer

The answer of On January 1,2013,Moulin Company issued 1,200 shares...

Question 4

Small stock dividends are valued at the market price at the date of declaration.

Accepted Answer

The market price at the date of declaration is used to determine the value of small stock dividends. This is because small stock dividends do not result in a significant change in the overall value of the company's stock.

Question 5

Convertible preferred shares are often accounted for as a liability under both GAAP and IFRS.

Accepted Answer

The answer of Convertible preferred shares are often accounted for...

Question 6

On January 1,2014,TNT,Inc.issued 1,500 shares of $50 par value,convertible preferred shares for $150,000.Each preferred share is convertible into one share of $1 par common stock.On August 1,2015,all preferred shareholders converted their shares into common stock.What is the necessary journal entry to record the August 1st transaction?

Accepted Answer

The answer of On January 1,2014,TNT,Inc.issued 1,500 shares of $50...

Question 7

Bach,Inc.issued 800 shares of 8%,$80 par value,preferred stock for $80,000.The board of directors declared dividends on December 30,to be paid in January.What journal entry is necessary to record the payment of dividends?

Accepted Answer

The answer of Bach,Inc.issued 800 shares of 8%,$80 par value,preferred...

Question 8

Mozart & Company issued 1,500 shares of 5%,$50 par value,preferred stock for $150,000.The board of directors declared dividends on December 30,to be paid in January.What journal entry is necessary to record the declaration of dividends?

Accepted Answer

The answer of Mozart & Company issued 1,500 shares of...

Question 9

________ are shares for which the issuing entity has the right to "buy back" the shares at a specified price and future date.

Accepted Answer

The answer of ________ are shares for which the issuing...

Question 10

Retained earnings are amounts invested by the equity holders of the company.

Accepted Answer

The answer of Retained earnings are amounts invested by the...

Question 11

On January 1,2014,Illusions,Inc.issued 800 shares of $80 par value,callable preferred shares for $80,000,with the right to call the shares on January 1,2015 for $100 per share.The company calls all 800 shares on January 1,2015.What is the necessary journal entry to record this transaction for 2015?

Accepted Answer

The answer of On January 1,2014,Illusions,Inc.issued 800 shares of $80...

Question 12

Under U.S.GAAP,________ preferred shares are classified as a liability.

Accepted Answer

Mandatorily redeemable preferred shares have a set date by which they must be redeemed by the issuer, and therefore they are considered a liability under U.S.GAAP. Convertible, callable, and non-mandatorily redeemable preferred shares do not have this mandatory redemption feature and are typically classified as equity.

Question 13

On January 1,2013,Warhol Company issued 1,000 shares of 10%,$100 par value,cumulative preferred stock for $100,000.On December 30,2015,the Board declared dividends of $20 per share on the preferred stock.What journal entry is necessary for the declaration of dividends?

Accepted Answer

The journal entry to record the declaration of preferred dividends is a debit to the preferred dividends account and a credit to the preferred dividends payable account. Option C correctly reflects this with a debit to Preferred Dividends and a credit to Preferred Dividends Payable. Option A is incorrect because it debits Retained Earnings instead of Preferred Dividends. Option B is incorrect because it debits Dividends Payable instead of Preferred Dividends Payable. Option D is incorrect because it debits cash, which is not necessary for the declaration of dividends.

Question 14

When accounting for non-mandatorily redeemable preferred shares,________ will separate out the debt features and report them as a liability.

Accepted Answer

Under IFRS, non-mandatorily redeemable preferred shares with debt features are separated and reported as a liability.

Question 15

Purrfect Paws Company issues 1,000 shares of $50 par preferred stock for $250,000.The company is not required to buy back the preferred stock.However,the preferred stock includes a redemption feature that gives the holder the option to redeem the shares for cash at specified dates.This would be classified as ________ under U.S.GAAP and ________ under IFRS.

Accepted Answer

Under U.S. GAAP, preferred stock with a redemption feature that gives the holder the option to redeem shares for cash at specified dates would be classified as equity. However, under IFRS, it would be classified as debt because the redemption feature gives the holder a contractual right to receive cash, similar to a bond. Therefore, Choice C is the correct answer.

Question 16

Omega Company has issued both common and preferred stock.The preferred stock is convertible into common stock.The following information is provided for Omega Company Stockholders' equity:
  What is the necessary journal entry if 5,000 shares of preferred are converted under each independent scenario:
a.Each share of convertible stock is convertible into 1.5 shares of common stock.
b.Each share of convertible stock is convertible into 4 shares of common stock.

Accepted Answer

The answer of Omega Company has issued both common and...

Question 17

On January 1,2014,Illusions,Inc.issued 800 shares of $80 par value,callable preferred shares for $80,000.Illusions has the right to call the shares on January 1,2015 for $100 per share.What is the necessary journal entry to record the issuance of the callable shares?

Accepted Answer

The answer of On January 1,2014,Illusions,Inc.issued 800 shares of $80...

Question 18

Bach Company has issued both common and preferred stock.The preferred stock is convertible into common stock.The following information is provided for Bach Company Stockholders' equity:
  What is the necessary journal entry if 5,000 shares of preferred are converted under each independent scenario:
a.Preferred shares are convertible into common stock on a share-for-share basis.
b.Each share of convertible stock is convertible into 1.5 shares of common stock.

Accepted Answer

The answer of Bach Company has issued both common and...

Question 19

Corrections to past years' financial statements are called prior-period adjustments.

Accepted Answer

Prior-period adjustments refer to corrections made to financial statements for previous years or periods. This can include errors, omissions, or changes in accounting principles.

Question 20

Stinson Corporation has 7% participating preferred shares.In 2015 the company pays common shareholders dividends that are 9% of common par value.What,if any,additional dividend will preferred shareholders receive?

Accepted Answer

Since the preferred shares are participating, they receive both a fixed dividend and a share of the common dividend. In this case, the common dividend is 9% of par value, so the preferred shareholders are entitled to an additional 2% (9% - 7%) of their par value as their share of the common dividend. Therefore, the additional dividend that the preferred shareholders will receive is 2%.

Quiz 17: Accounting for Stockholders Equity