Question 1

When O'Rourke Corporation sells treasury stock for more than the original cost:

Accepted Answer

Treasury stock is stock that has been bought back by the company and is being held as an asset. When it is sold again, the company will receive a higher price than they originally paid for it, creating a gain on the sale. This gain is recorded in the paid-in capital portion of stockholders' equity because it represents money coming in from outside sources (investors buying the stock) rather than from the company's operations.

Question 2

The payment of wages was debited to Retained Earnings.This error would cause:

Accepted Answer

The payment of wages is an expense and should be debited to the expense account and credited to cash or accounts payable. Debiting it to retained earnings would result in an understatement of the period end stockholders' equity because retained earnings is a component of stockholders' equity.

Question 3

If treasury stock is sold for less than cost,the entry to record the transaction would include a:

Accepted Answer

When treasury stock is sold for less than its cost, the entry includes a credit to Treasury Stock for the cost of the shares. The difference, if sold for less, is typically accounted for by debiting a paid-in capital account or retained earnings, but not by debiting Treasury Stock or Common Stock directly.

Question 4

Appropriations to retained earnings can be:

Accepted Answer

Appropriations to retained earnings are internal decisions by a company to earmark retained earnings for specific purposes, such as future projects or debt repayment. They do not inherently increase or decrease the total retained earnings but rather designate parts of it for specific uses. They are not exclusively contractual.

Question 5

Baxter Corporation has 1,000 shares of $5 par value common stock issued and outstanding.
Journalize the following Baxter transactions for 20XX:
 $\text {Feb.}$  $\quad $ 1$\text {Purchased 2 PU shares of treasury stock at \$6.00.}$
 $\quad $ $\quad $ $\quad $ 20$\text { Declared a $\$ 2.00$ per share cash dividend payable on March 15}$
 $\quad $ $\quad $ $\quad $$\text { to stockholders of record March 1.}$
$\text {Mar. }$ $\quad $15 $\text {Paid the cash dividend.}$
$\text {May}$  $\quad $10$\text { Declared a $10 \%$ stock dividend. The market value of the stock is \$15.00 per share.}$
$\text {May}$  $\quad $30 $\text {Distributed the stock dividend.}$
$\text {Jun}$  $\quad $10$\text { Reissued the treasury stock for $\$ 9.00$.}$

Accepted Answer

The answer of Baxter Corporation has 1,000 shares of $5...

Question 6

Typically,the only credit to the retained earnings account for a corporation is:

Accepted Answer

Retained earnings represent profits that have not been paid out to shareholders in the form of dividends. Therefore, the retained earnings account is increased by the net income earned by the corporation during a given period. Any net losses would decrease the balance of the account. The initial investment of stockholders (choice A) is recorded in the common stock account, and withdrawals by owners (choice D) would decrease a different type of equity account called retained earnings.

Question 7

A corporation sold 20 shares of $20 par value treasury stock for $40 per share.The treasury stock cost $30 per share to acquire.The entry to record the transaction would include a:

Accepted Answer

The answer of A corporation sold 20 shares of $20...

Question 8

Providing services to a credit customer was recorded with a debit to Cash and a credit to Retained Earnings.This error would cause:

Accepted Answer

The answer of Providing services to a credit customer was...

Question 9

Barkley's Resort had 2,000 shares of $20 par value common stock outstanding.On June 1,Barkley's purchased 200 shares of treasury stock for $21 per share and later reissued them for $22 per share.What amount of profit from the re-issuance will be reported on the income statement?

Accepted Answer

The profit from the reissuance of treasury stock is not reported on the income statement. It is recorded in the equity section of the balance sheet, not as income.

Question 10

Treasury stock should usually be recorded at:

Accepted Answer

Treasury stock should be recorded at its cost, which is the price paid to buy back the shares from the market. It is important to note that unlike the other options listed, cost is based on an objective measure rather than subjective valuation. Therefore, B is the best option to record treasury stock.

Question 11

If treasury stock is re-issued at a price less than its cost,the debit entry could include:

Accepted Answer

When treasury stock is re-issued at a price less than its cost, the company incurs a loss. The debit entry in the journal entry would include both the Paid-in Capital in Excess of Par, Treasury and Retained Earnings accounts to account for this loss. Therefore, choice D is the correct answer.

Question 12

An entry to appropriate a portion of retained earnings to finance a future plant expansion would include a debit to:

Accepted Answer

When a company decides to finance a future plant expansion by appropriating a portion of its retained earnings, it makes an accounting entry that includes a debit to Retained Earnings. This reflects the decision to allocate a portion of the earnings that would otherwise be available for dividends to a specific purpose, in this case, plant expansion.

Question 13

Farm and Supply reissued 100 shares of treasury stock at $20 that had been reacquired for $15 per share.What is the entry?

Accepted Answer

The reissued shares were sold for $20 per share which gives a total of $2,000. The treasury stock was initially reacquired for $15 per share which gives a total of $1,500. Therefore, the entry should be a debit to Cash for $2,000, a credit to Treasury Stock-Common for $1,500, and a credit to Paid-In Capital from Treasury Stock for $500.

Question 14

A corporation purchased 35 shares of treasury stock for $40.The entry to record the transaction would include a:

Accepted Answer

A corporation would purchase treasury stock with a debit to Treasury Stock account, not with a debit to Cash account. The amount of $1400 represents the cost of purchasing 35 shares at $40 per share, so the entry would be a debit to Treasury Stock for $1400.

Question 15

A retained earnings appropriation is a restriction of retained earnings by:

Accepted Answer

Retained earnings appropriations are typically set by the board of directors in order to restrict the use of retained earnings for specific purposes. This allows management to plan for and ensure the availability of funds for certain initiatives, such as dividends or capital expenditures.

Question 16

Changes in retained earnings can result from:

Accepted Answer

All of the choices listed can result in changes to retained earnings. Prior period adjustments can impact previous periods' earnings, net income or loss directly affects current period earnings, and dividends being declared reduces current period earnings.

Question 17

Curtis Corporation's balance sheet included the following:
Common Stock,$5 par value,5,000 shares issued
 $\begin{array}{ll}
\text { and outstanding } & \$ 25,000 \
\text { Retained Earnings } & \underline{20,000} \
\quad \text { Total Stockholders' Equity } &\underline{ \$ 45,000}
\end{array}$
 Prepare journal entries for the following transactions:
 $\begin{array}{llll}
  \text { May  } & 3 & \text { Issued 500 shares at $\$ 6$ per share.  }\
&9& \text { Reacquired 100 shares at $\$ 4$ per share. } &\
 &15&\text {  Reissued 50 of the Treasury shares at $\$ 7$ per share } &\
 &17&\text { Reissued 10 of the Treasury shares at $\$ 3$ per share. } &\
\end{array}$

Accepted Answer

The answer of Curtis Corporation's balance sheet included the following:
Common...

Question 18

To explain the change in the amount of retained earnings between successive balance sheet dates,it is customary to prepare a(n):

Accepted Answer

A retained earnings statement shows the beginning balance of retained earnings, any adjustments made to that balance through net income or net loss, and any dividends paid to shareholders, resulting in the ending balance of retained earnings. This is a common way to explain the change in retained earnings between two balance sheet dates.

Question 19

The effect of a retained earnings appropriation is to:

Accepted Answer

Retained earnings appropriation involves dividing the retained earnings into different categories such as dividends, reserves, and other purposes. It does not increase the number of shares of stock available, allow the corporation to use its assets for dividends or increase cash and other assets.

Question 20

Which of the following would not be shown on the statement of retained earnings?

Accepted Answer

The statement of retained earnings typically includes beginning retained earnings, net income or loss, dividends (both stock and cash), and any adjustments such as appropriations. The purchase of treasury stock is a treasury stock transaction, not a retained earnings transaction, and is therefore not shown on the statement of retained earnings.

Quiz 19: Corporations: Stock Values, dividends, treasury Stocks, and Retained Earnings