Question 1

Island Breeze Cafe began business on January 1,2012.The corporate charter authorized issuance of 1,000 shares of no-par value common stock,of which 200 shares were issued,and 4,000 shares of $8 par value,6% cumulative preferred stock,of which none were issued.Island Breeze sold 400 shares of common stock at $8 per share on May 1.The entry to record the issuance of the shares on May 1 will:

Accepted Answer

The entry to record the issuance of 400 shares of no-par value common stock at $8 per share would be to increase Cash by $3,200 (400 shares x $8) and increase Common Stock by $3,200, as there is no par value or additional paid-in capital involved.

Question 2

Pustay Parts Shop began business on January 1,2012.The corporate charter authorized issuance of 10,000 shares of $2 par value common stock and 4,000 shares of $8 par value,6% cumulative preferred stock.Pustay issued 2,400 shares of common stock for cash at $20 per share on January 2,2012.What effect does the entry to record the issuance of stock have on total stockholders' equity?

Accepted Answer

The issuance of 2,400 shares of common stock at $20 per share results in an increase in total stockholders' equity by $48,000 (2,400 shares x $20).

Question 3

Which of the following combinations appropriately reflects the type of accounts represented by the Treasury Stock account and Additional Paid-in Capital--Treasury Stock account? Treasury Stock Additional Paid-Capital - Treasury Stock

Accepted Answer

Treasury Stock account is a contra stockholders' equity account as it represents the reduction in the company's stockholders' equity when it buys back its own stock. Additional Paid-in Capital--Treasury Stock account, on the other hand, reflects the additional amount received by the company above the par value of the treasury stock. This account is also a part of the stockholders' equity section but is a contra account to the Treasury Stock account, making it a contra stockholders' equity account. Therefore, the appropriate combination is A.

Question 4

Manatee Company Manatee Company was incorporated as a new business on January 1,2012.The company is authorized to issue 20,000 shares of $5 par value common stock and 10,000 shares of 6%,$10 par value,cumulative,participating preferred stock.On January 1,2012,the company issued 8,000 shares of common stock for $15 per share and 2,000 shares of preferred stock for $30 per share.Net income for the year ended December 31,2012,was $375,000.
Refer to the information about Manatee Company.
Manatee's total stockholders' equity reported on the balance sheet at December 31,2012,is

Accepted Answer

The total stockholders' equity is calculated by adding the proceeds from the issuance of common and preferred stock to the net income. Common stock proceeds: 8,000 shares * $15 = $120,000. Preferred stock proceeds: 2,000 shares * $30 = $60,000. Net income: $375,000. Total stockholders' equity = $120,000 + $60,000 + $375,000 = $555,000.

Question 5

Museum Corporation acquired a new manufacturing building by issuing 10,000 shares of its $50 par value preferred stock with a $75 per share market price.Similar buildings have recently cost $780,000.What are the effects of this transaction on the accounting equation for Museum?

Accepted Answer

The total value of the preferred stock issued is 10,000 shares x $75 per share = $750,000. Therefore, the building is acquired for $750,000 which is less than the comparable cost of $780,000. 
This leads to the following effects on the accounting equation:
Assets (+) Building: $750,000 
Liabilities (+) Preferred Stock: $500,000 
Equity (+) Additional Paid-in Capital-Preferred: $250,000

Question 6

Rock City Company began business on January 1,2012.The corporate charter authorized issuance of 500 shares of $1 par value common stock and 400 shares of $4 par value,3% cumulative preferred stock.What is the maximum amount that can be reported on the balance sheet for Common Stock and Preferred Stock,respectively,if all of the stock is issued? Common Stock Preferred Stock

Accepted Answer

The maximum amount reported for Common Stock is 500 shares x $1 par value = $500. For Preferred Stock, it's 400 shares x $4 par value = $1,600.

Question 7

Manatee Company Manatee Company was incorporated as a new business on January 1,2012.The company is authorized to issue 20,000 shares of $5 par value common stock and 10,000 shares of 6%,$10 par value,cumulative,participating preferred stock.On January 1,2012,the company issued 8,000 shares of common stock for $15 per share and 2,000 shares of preferred stock for $30 per share.Net income for the year ended December 31,2012,was $375,000.
Refer to the information about Manatee Company.
The number of Manatee's unissued shares of common stock at December 31,2012,is

Accepted Answer

The answer of Manatee Company Manatee Company was incorporated as...

Question 8

How is treasury stock shown on the balance sheet?

Accepted Answer

Treasury stock is shown as a deduction from stockholders' equity, resulting in a decrease in stockholders' equity. It is not considered an asset as it represents shares of a company's own stock that have been repurchased.

Question 9

Roehr Corporation issues 20,000 shares of $0.50 par common stock for $6 per share;the Additional Paid-in Capital--Common account will increase by

Accepted Answer

The answer of Roehr Corporation issues 20,000 shares of $0.50...

Question 10

A company purchased machinery by issuing 2,000 shares of $3 par value common stock.Since the company is new,there is no established market price for its stock.How would the company record the transaction?

Accepted Answer

The company would record the transaction at the fair market value of the machine because when the market price of the stock is not available, the value of the asset received (in this case, machinery) provides the best basis for recording the transaction.

Question 11

Valor Company issued 5,000 shares of $1 par common stock for $30 per share,providing the company with $150,000 in cash.What effect,in addition to the increase in cash,does this transaction have on the accounting equation for Valor?

Accepted Answer

When a company issues common stock, the par value of the stock is credited to Common Stock account, while any additional amounts received above the par value are credited to Additional Paid-in Capital - Common account. In this case, the company issued 5,000 shares of $1 par common stock for $30 per share, so the Common Stock account would be credited $5,000 (5,000 shares x $1 par value), and the Additional Paid-in Capital - Common account would be credited $145,000 ($30 selling price - $1 par value = $29 additional paid-in capital x 5,000 shares). This transaction has no effect on Retained Earnings or Gain on Sale of Common Stock accounts.

Question 12

A company issued 4,000 shares of $5 par common stock for $30 per share.The company purchased 1,200 shares as treasury stock at $32 per share.Later,the company reissued 400 shares of the treasury stock at $34 per share.Which of the following is true?

Accepted Answer

The initial issuance of 4,000 shares resulted in a total inflow of $120,000 (4,000 shares x $30 per share). The par value of the stock is irrelevant to this transaction.

The purchase of 1,200 shares as treasury stock resulted in an outflow of $38,400 (1,200 shares x $32 per share). The Treasury Stock account should be debited for this amount.

The reissuance of 400 shares at $34 per share resulted in an inflow of $13,600 (400 shares x $34 per share). The Treasury Stock account should be credited for the cost of these shares, which is $12,800 (400 shares x $32 per share).

Therefore, the balance in the Treasury Stock account should be $25,600 ($38,400 - $12,800). Choice C is the correct answer.

There is no gain or loss on the reissuance of treasury stock. The difference between the cost of the shares and the proceeds received from the reissuance is simply an increase in shareholders' equity. Neither choice B nor choice D is correct.

Question 13

A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during its first month of business.The lawyer's normal fee is $15,000 for similar work.Which of the following would be recorded if the stock is not currently trading?

Accepted Answer

The company issued 2,000 shares of $5 par common stock, for a total value of $10,000 (2,000 x $5). However, since the lawyer's normal fee is $15,000 and the company only received $10,000 in value for the stock, there is a $5,000 difference that needs to be accounted for. This difference is recorded as Additional Paid-In Capital--Common Stock, so the journal entry would be a debit to Cash (or an asset account, if the lawyer did not receive cash) for $15,000 and a credit to Additional Paid-In Capital--Common Stock for $5,000, with the remaining $10,000 credited to Common Stock.

Question 14

Vegan Company reported the following: Common stock,$5 par,200,000 shares authorized,50,000 shares issued and outstanding
What is the effect of issuing 2,000 shares of common stock in exchange for land with valued by a realtor at $36,000 if the common stock sells for $12 per share and is regularly traded?

Accepted Answer

The answer of Vegan Company reported the following: Common stock,$5...

Question 15

Fairchild Company acquired a building valued at $210,000 for property tax purposes in exchange for 6,000 shares of its $10 par common stock.The stock is widely traded and selling for $31 per share.At what amount should the building be recorded by Fairchild Company?

Accepted Answer

The building should be recorded at its fair market value, which is the value of the stock issued in exchange for it. 6,000 shares of $31 per share common stock come out to be $186,000, so that is the amount at which the building should be recorded.

Question 16

Manatee Company Manatee Company was incorporated as a new business on January 1,2012.The company is authorized to issue 20,000 shares of $5 par value common stock and 10,000 shares of 6%,$10 par value,cumulative,participating preferred stock.On January 1,2012,the company issued 8,000 shares of common stock for $15 per share and 2,000 shares of preferred stock for $30 per share.Net income for the year ended December 31,2012,was $375,000.
Refer to the information about Manatee Company.
The amount of Manatee's total contributed capital at December 31,2012,is

Accepted Answer

To calculate the total contributed capital, we need to add the par value of both common and preferred stock issued during the year to the proceeds received from the issuance.

1. Common stock: 8,000 shares x $5 par value = $40,000
2. Preferred stock: 2,000 shares x $10 par value = $20,000
3. Proceeds from issuance: (8,000 shares x $15) + (2,000 shares x $30) = $140,000

Total contributed capital = $40,000 + $20,000 + $140,000 = $200,000

Therefore, the correct answer is option C, $180,000.

Question 17

Garden Company began business on January 1,2012.The corporate charter authorized issuance of 5,000 shares of $1 par value common stock,and 4,000 shares of $8 par value,6% cumulative preferred stock.None of the preferred shares were issued.On July 1,Garden issued 1,000 shares of common stock in exchange for two years rent on a retail location.The cash rental price is $2,400 per month and the rental period begins on July 1.The correct entry to record the July 1 transaction will

Accepted Answer

The transaction involves issuing 1,000 shares of common stock in exchange for prepaid rent. The value of the rent is two years at $2,400 per month, which is $57,600. Garden receives an asset, prepaid rent, and issues equity, common stock. Therefore, the correct entry would be to increase Prepaid Rent by $57,600, increase Common Stock by $1,000, and increase Additional Paid-in Capital - Common by $56,600. Option A is incorrect because it only records the increase in cash without accounting for the prepaid rent asset. Option B is incorrect because it does not account for the issuance of common stock. Option D is incorrect because it records an unnecessary increase in Common Stock.

Question 18

If a company issues $5 par value common stock,

Accepted Answer

The par value of the common stock represents the minimum amount per share that the company can issue and the amount that will be recorded in the common stock account on the balance sheet. Therefore, $5 per share will be presented in the common stock account on the balance sheet.

Question 19

Vegas Finance Company reported the following: Common stock,$10 par,100,000 shares authorized,80,000 shares issued and outstanding
What is the effect of issuing 1,000 shares of common stock at $15 per share?

Accepted Answer

When a company issues shares above par value, the excess amount over par is recorded in Additional Paid-in Capital. Here, the shares are issued at $15 each, with a par value of $10. The excess ($5 per share) for 1,000 shares equals $5,000, which increases Additional Paid-in Capital.

Question 20

Penny's Cafe began operations on March 1,2012.The corporate charter authorized the issuance of 3,000 shares of $2 par value common stock and 1,000 shares of $3 par value,8% cumulative preferred stock.The company's fiscal year ends on February 28.Penny's sold 500 shares of common stock at $6 per share on April 1.What impact does the entry to record the April 1 transaction have on total stockholders' equity?

Accepted Answer

The sale of 500 shares of common stock at $6 per share results in an increase in total stockholders' equity by $3,000 (500 shares x $6 per share).

Quiz 11: Stockholders Equity