CH 15

CHAPTER 15
STOCKHOLDERS EQUITY
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TRUE)FALSE*Con&e'tua!
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Des&ri'tion
State a corporation incorporates in. Definition of preemptive right. Common stock as residual interest. Earned capital definition. !eporting true no"par stock. $llocating proceeds in lump sum sales. $ccounting for stock issued for noncash consideration. Definition of treasur' stock. !eporting treasur' stock under cost method. Selling treasur' stock *elo+ cost. ,articipating preferred stock. Calla*le preferred stock. !estricting legal capital. Disclosing dividend polic'. $ffect of dividends on total stockholders- e.uit'. ,ropert' dividends definition. $ccounting for small stock dividend. Stock splits and large stock dividends. Computing rate of return on common stock e.uit'. Computing pa'out ratio.
-ULTIPLE CHOICE*Con&e'tua!
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Des&ri'tion
/ature of stockholders0 interest. ,re"emptive right. ,re"emptive right. Definition of legal capital. Definition of residual o+ner. /ature of stockholders0 e.uit'. Sources of stockholders0 e.uit'. Classification of stockholders0 e.uit'. $llocation methods for a lump sum issuance. Capital stock issued in pa'ment of services. Costs of issuing capital stock. Creation of 1secret reserves.1 $uthori2ed shares. ,ar value stock. 3egal restrictions for profit distri*utions. $c.uisition of treasur' shares. Treasur' shares definition.
15 ) 5 c
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 3&. ,urchase of treasur' stock at greater than par value.
-ULTIPLE CHOICE*Con&e'tua! 3&ont(4

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Des&ri'tion
Sale of treasur' stock. !eissued treasur' stock at less than ac.uisition cost. !eissued treasur' stock at greater than ac.uisition cost. Effect of treasur' stock transactions. ,referred stock4de*t features. Cumulative feature of preferred stock. !eporting redeema*le stock. !eporting dividends in arrears. 5ssued vs. outstanding common stock. Timing of entr' to record dividends. Shares entitled to receive a cash dividend. $ccounting for a propert' dividend. Distri*ution of a propert' dividend. 3i.uidating dividend. Entr' to record a li.uidating dividend. Effects of a stock dividend. Effects of a stock dividend. Effect of a large stock dividend. 3arge stock dividend. Small stock dividend. Small stock dividend. Classification of stock dividends distri*uta*le. Effect of stock splits and stock dividends. Effect of a stock split. Disclosures in the *alance sheet. !eturn on common stock e.uit' calculation. ,a'out ratio calculation. 6ook value per share. Computing *ook value per share. Dividends and treasur' stock. /oncumulative preferred stock and dividends in arrears. Disclosure of preferred dividends in arrears.
These .uestions also appear in the ,ro*lem"Solving Survival 8uide. These .uestions also appear in the Stud' 8uide. 7This topic is dealt +ith in an $ppendi9 to the chapter.
-ULTIPLE CHOICE*Co0'utationa!
Ans+er
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Des&ri'tion
Composition of stockholders0 e.uit'. Calculation of total paid"in capital. $llocating proceeds in lump sum sales. $llocating proceeds in lump sum sales. Computing total paid"in capital. $llocating proceeds in lump sum sales.
Stockholders- E.uit' c %%. $llocating proceeds in lump sum sales.
15 ) 6
-ULTIPLE CHOICE*Co0'utationa! 3&ont(4

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Des&ri'tion
Computing paid"in capital from treasur' stock transactions. !ecording purchase of treasur' stock. !eissue treasur' stock4a*ove ac.uisition cost. !eissue treasur' stock4cost method. $dditional paid"in capital +ith treasur' stock transactions. Calculation of additional paid"in capital. Calculation of additional paid"in capital. Total stockholders0 e.uit' +ith treasur' stock transactions. Total stockholders0 e.uit' +ith treasur' stock e9change. Calculate dividends for cumulative preferred shares. Calculate dividends for common shares. Calculate dividends for common shares. !eduction in retained earnings from propert' dividends. !eduction in retained earnings from propert' dividends. !eduction in retained earnings caused *' a propert' dividend. !eduction in retained earnings from propert' dividends. !eduction in retained earnings from propert' dividends. Decrease in retained earnings from cash and stock dividends. Calculation of a large stock dividend. Calculation of a small stock dividend. Calculation of a small stock dividend. Small stock dividend0s effect on retained earnings. 6alance of retained earnings after a small stock dividend. Calculate retained earnings availa*le for dividends. Calculate decrease in retained earnings. Calculate the pa'out ratio. Calculate *ook value per share. :se same descrip. as 1)1. :se same descrip. as 1)2. Calculate rate of return on common stock e.uit'. Calculate price"earnings ratio. Calculate dividends paid to common stockholders. !ate of return on common stock e.uit'. Determine the rate of return on common stock e.uit'. Determine *ook value per share. Computation of pa'out ratio. Computation of *ook value per share. $llocation of cash dividend to common and preferred shares. Cash dividends for cumulative preferred shares. Cash dividends for cumulative participating preferred shares. Cash dividend allocation +ith participating preferred shares. Cash dividend for cumulative preferred shares.
15 ) 8
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
-ULTIPLE CHOICE*CPA A$a'te$

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Des&ri'tion
Capital stock issued in pa'ment of services. ,roceeds from preferred stock in lump sum issue. Determine paid"in capital from treasur' stock. !eissue treasur' stock4cost method. Effect of the reissuance of treasur' stock. Entr' to record propert' dividends declared. Effect of a li.uidating dividend. Effect of a stock dividend. Stock dividend +hen market price e9ceeds par value. 6alance of retained earnings follo+ing stock dividend. $llocation of cash dividend to common and preferred shares.
E7ERCISES
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E1 E1 E1 E1 E1 E1 E1 E1 E1 7E1 7E1 "131 "132 "133 "134 "13 "13# "13% "13& "13( "14) "141
Des&ri'tion
3ump sum issuance of stock. Treasur' stock. Treasur' stock. Treasur' stock. Treasur' stock. Stockholders- e.uit'. Stock dividends. Stock dividends and stock splits. Computation of selected ratios. Dividends on preferred stock. Dividends on preferred stock.
PRO.LE-S
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Des&ri'tion
E.uit' transactions. Treasur' stock transactions. Stock dividends. E.uit' transactions. Dividends on preferred and common stock.
Stockholders- E.uit'
15 ) 5
CHAPTER LEAR,I,9 O.:ECTI;ES

1. 2. 3. 4. . #. %. &. (. 71). Discuss the characteristics of the corporate form of organi2ation. 5dentif' the ke' components of stockholders0 e.uit'. E9plain the accounting procedures for issuing shares of stock. Descri*e the accounting for treasur' stock. E9plain the accounting for and reporting of preferred stock. Descri*e the policies used in distri*uting dividends. 5dentif' the various forms of dividend distri*utions. E9plain the accounting for small and large stock dividends; and for stock splits. 5ndicate ho+ to present and anal'2e stockholders- e.uit'. E9plain the different t'pes of preferred stock dividends and their effect on *ook value per share.
15 ) =
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
SU--ARY OF LEAR,I,9 O.:ECTI;ES .Y QUESTIO,S

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15 ) >
TRUE)FALSE*Con&e'tua!
1. 2. 3. 4. . #. %. &. (. 1). 11. 12. 13. 14. 1 . 1#. 1%. 1&. $ corporation is incorporated in onl' one state regardless of the num*er of states in +hich it operates. The preemptive right allo+s stockholders the right to vote for directors of the compan'. Common stock is the residual corporate interest that *ears the ultimate risks of loss. Earned capital consists of additional paid"in capital and retained earnings. True no"par stock should *e carried in the accounts at issue price +ithout an' additional paid"in capital reported. Companies allocate the proceeds received from a lump"sum sale of securities *ased on the securities- par values. Companies should record stock issued for services or noncash propert' at either the fair value of the stock issued or the fair value of the consideration received. Treasur' stock is a compan'-s o+n stock that has *een reac.uired and retired. The cost method records all transactions in treasur' shares at their cost and reports the treasur' stock as a deduction from capital stock. ?hen a corporation sells treasur' stock *elo+ its cost; it usuall' de*its the difference *et+een cost and selling price to ,aid"in Capital from Treasur' Stock. ,articipating preferred stock re.uires that if a compan' fails to pa' a dividend in an' 'ear; it must make it up in a later 'ear *efore pa'ing an' common dividends. Calla*le preferred stock permits the corporation at its option to redeem the outstanding preferred shares at stipulated prices. The la+s of some states re.uire that corporations restrict their legal capital from distri*ution to stockholders. The SEC re.uires companies to disclose their dividend polic' in their annual report. $ll dividends; e9cept for li.uidating dividends; reduce the total stockholders- e.uit' of a corporation. Dividends pa'a*le in assets of the corporation other than cash are called propert' dividends or dividends in kind. ?hen a stock dividend is less than 2)"2 percent of the common stock outstanding; a compan' is re.uired to transfer the fair value of the stock issued from retained earnings. Stock splits and large stock dividends have the same effect on a compan'-s retained earnings and total stockholders- e.uit'.
15 ) ? 1(. 2).
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition The rate of return on common stock e.uit' is computed *' dividing net income *' the average common stockholders- e.uit'. The pa'out ratio is determined *' dividing cash dividends paid to common stockholders *' net income availa*le to common stockholders.
True)Fa!se Ans+ers*Con&e'tua!
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-ULTIPLE CHOICE*Con&e'tua!
21. The residual interest in a corporation *elongs to the a. management. *. creditors. c. common stockholders. d. preferred stockholders. The pre"emptive right of a common stockholder is the right to a. share proportionatel' in corporate assets upon li.uidation. *. share proportionatel' in an' ne+ issues of stock of the same class. c. receive cash dividends *efore the' are distri*uted to preferred stockholders. d. e9clude preferred stockholders from voting rights. The pre"emptive right ena*les a stockholder to a. share proportionatel' in an' ne+ issues of stock of the same class. *. receive cash dividends *efore other classes of stock +ithout the pre"emptive right. c. sell capital stock *ack to the corporation at the option of the stockholder. d. receive the same amount of dividends on a percentage *asis as the preferred stockholders. 5n a corporate form of *usiness organi2ation; legal capital is *est defined as a. the amount of capital the state of incorporation allo+s the compan' to accumulate over its e9istence. *. the par value of all capital stock issued. c. the amount of capital the federal government allo+s a corporation to generate. d. the total capital raised *' a corporation +ithin the limits set *' the Securities and E9change Commission.
22.
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15 ) @
2 .
Stockholders of a *usiness enterprise are said to *e the residual o+ners. The term residual o+ner means that shareholders a. are entitled to a dividend ever' 'ear in +hich the *usiness earns a profit. *. have the rights to specific assets of the *usiness. c. *ear the ultimate risks and uncertainties and receive the *enefits of enterprise o+nership. d. can negotiate individual contracts on *ehalf of the enterprise. Total stockholders0 e.uit' represents a. a claim to specific assets contri*uted *' the o+ners. *. the ma9imum amount that can *e *orro+ed *' the enterprise. c. a claim against a portion of the total assets of an enterprise. d. onl' the amount of earnings that have *een retained in the *usiness. $ primar' source of stockholders0 e.uit' is a. income retained *' the corporation. *. appropriated retained earnings. c. contri*utions *' stockholders. d. *oth income retained *' the corporation and contri*utions *' stockholders. Stockholders0 e.uit' is generall' classified into t+o ma@or categories= a. contri*uted capital and appropriated capital. *. appropriated capital and retained earnings. c. retained earnings and unappropriated capital. d. earned capital and contri*uted capital. The accounting pro*lem in a lump sum issuance is the allocation of proceeds *et+een the classes of securities. $n accepta*le method of allocation is the a. pro forma method. *. proportional method. c. incremental method. d. either the proportional method or the incremental method. ?hen a corporation issues its capital stock in pa'ment for services; the least appropriate *asis for recording the transaction is the a. market value of the services received. *. par value of the shares issued. c. market value of the shares issued. d. $n' of these provides an appropriate *asis for recording the transaction. Direct costs incurred to sell stock such as under+riting costs should *e accounted for as 1. a reduction of additional paid"in capital. 2. an e9pense of the period in +hich the stock is issued. 3. an intangi*le asset. a. *. c. d. 1 2 3 1 or 3
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15 ) 1B Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 32. $ 1secret reserve1 +ill *e created if a. inade.uate depreciation is charged to income. *. a capital e9penditure is charged to e9pense. c. lia*ilities are understated. d. stockholders0 e.uit' is overstated. ?hich of the follo+ing represents the total num*er of shares that a corporation ma' issue under the terms of its charterA a. authori2ed shares *. issued shares c. unissued shares d. outstanding shares Stock that has a fi9ed per"share amount printed on each stock certificate is called a. stated value stock. *. fi9ed value stock. c. uniform value stock. d. par value stock. ?hich of the follo+ing is not a legal restriction related to profit distri*utions *' a corporationA a. The amount distri*uted to o+ners must *e in compliance +ith the state la+s governing corporations. *. The amount distri*uted in an' one 'ear can never e9ceed the net income reported for that 'ear. c. ,rofit distri*utions must *e formall' approved *' the *oard of directors. d. Dividends must *e in full agreement +ith the capital stock contracts as to preferences and participation. 5n Banuar' 2)1); Finle' Corporation; a ne+l' formed compan'; issued 1);))) shares of its C1) par common stock for C1 per share. Dn Bul' 1; 2)1); Finle' Corporation reac.uired 1;))) shares of its outstanding stock for C12 per share. The ac.uisition of these treasur' shares a. decreased total stockholders0 e.uit'. *. increased total stockholders0 e.uit'. c. did not change total stockholders0 e.uit'. d. decreased the num*er of issued shares. Treasur' shares are a. shares held as an investment *' the treasurer of the corporation. *. shares held as an investment of the corporation. c. issued and outstanding shares. d. issued *ut not outstanding shares. ?hen treasur' stock is purchased for more than the par value of the stock and the cost method is used to account for treasur' stock; +hat accountEsF should *e de*itedA a. Treasur' stock for the par value and paid"in capital in e9cess of par for the e9cess of the purchase price over the par value. *. ,aid"in capital in e9cess of par for the purchase price. c. Treasur' stock for the purchase price. d. Treasur' stock for the par value and retained earnings for the e9cess of the purchase price over the par value.
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Stockholders- E.uit' 3(. G8ains1 on sales of treasur' stock Eusing the cost methodF should *e credited to a. paid"in capital from treasur' stock. *. capital stock. c. retained earnings. d. other income.
15 ) 11
4).
,orter Corp. purchased its o+n par value stock on Banuar' 1; 2)1) for C2);))) and de*ited the treasur' stock account for the purchase price. The stock +as su*se.uentl' sold for C12;))). The C&;))) difference *et+een the cost and sales price should *e recorded as a deduction from a. additional paid"in capital to the e9tent that previous net 1gains1 from sales of the same class of stock are included thereinH other+ise; from retained earnings. *. additional paid"in capital +ithout regard as to +hether or not there have *een previous net 1gains1 from sales of the same class of stock included therein. c. retained earnings. d. net income. Io+ should a 1gain1 from the sale of treasur' stock *e reflected +hen using the cost method of recording treasur' stock transactionsA a. $s ordinar' earnings sho+n on the income statement. *. $s paid"in capital from treasur' stock transactions. c. $s an increase in the amount sho+n for common stock. d. $s an e9traordinar' item sho+n on the income statement. ?hich of the follo+ing *est descri*es a possi*le result of treasur' stock transactions *' a corporationA a. <a' increase *ut not decrease retained earnings. *. <a' increase net income if the cost method is used. c. <a' decrease *ut not increase retained earnings. d. <a' decrease *ut not increase net income. ?hich of the follo+ing features of preferred stock makes the securit' more like de*t than an e.uit' instrumentA a. ,articipating *. Joting c. !edeema*le d. /oncumulative The cumulative feature of preferred stock a. limits the amount of cumulative dividends to the par value of the preferred stock. *. re.uires that dividends not paid in an' 'ear must *e made up in a later 'ear *efore dividends are distri*uted to common shareholders. c. means that the shareholder can accumulate preferred stock until it is e.ual to the par value of common stock at +hich time it can *e converted into common stock. d. ena*les a preferred stockholder to accumulate dividends until the' e.ual the par value of the stock and receive the stock in place of the cash dividends. $ccording to the F$S6; redeema*le preferred stock should *e a. included +ith common stock. *. included as a lia*ilit'. c. e9cluded from the stockholders- e.uit' heading. d. included as a contra item in stockholders0 e.uit'.
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15 ) 15 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition

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Cumulative preferred dividends in arrears should *e sho+n in a corporation0s *alance sheet as a. an increase in current lia*ilities. *. an increase in stockholders0 e.uit'. c. a footnote. d. an increase in current lia*ilities for the current portion and long"term lia*ilities for the long"term portion. $t the date of the financial statements; common stock shares issued +ould e9ceed common stock shares outstanding as a result of the a. declaration of a stock split. *. declaration of a stock dividend. c. purchase of treasur' stock. d. pa'ment in full of su*scri*ed stock. $n entr' is not made on the a. date of declaration. *. date of record. c. date of pa'ment. d. $n entr' is made on all of these dates. Cash dividends are paid on the *asis of the num*er of shares a. authori2ed. *. issued. c. outstanding. d. outstanding less the num*er of treasur' shares. ?hich of the follo+ing statements a*out propert' dividends is not trueA a. $ propert' dividend is usuall' in the form of securities of other companies. *. $ propert' dividend is also called a dividend in kind. c. The accounting for a propert' dividend should *e *ased on the carr'ing value E*ook valueF of the nonmonetar' assets transferred. d. $ll of these statements are true. Iouser Corporation o+ns 4;)));))) shares of stock in 6aha Corporation. Dn Decem*er 31; 2)1); Iouser distri*uted these shares of stock as a dividend to its stockholders. This is an e9ample of a a. propert' dividend. *. stock dividend. c. li.uidating dividend. d. cash dividend. $ dividend +hich is a return to stockholders of a portion of their original investments is a a. li.uidating dividend. *. propert' dividend. c. lia*ilit' dividend. d. participating dividend.
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15 ) 16
$ mining compan' declared a li.uidating dividend. The @ournal entr' to record the declaration must include a de*it to a. !etained Earnings. *. a paid"in capital account. c. $ccumulated Depletion. d. $ccumulated Depreciation. 5f management +ishes to 1capitali2e1 part of the earnings; it ma' issue a a. cash dividend. *. stock dividend. c. propert' dividend. d. li.uidating dividend. ?hich dividends do not reduce stockholders0 e.uit'A a. Cash dividends *. Stock dividends c. ,ropert' dividends d. 3i.uidating dividends The declaration and issuance of a stock dividend larger than 2 K of the shares previousl' outstanding a. increases common stock outstanding and increases total stockholders0 e.uit'. *. decreases retained earnings *ut does not change total stockholders0 e.uit'. c. ma' increase or decrease paid"in capital in e9cess of par *ut does not change total stockholders0 e.uit'. d. increases retained earnings and increases total stockholders0 e.uit'. Luirk Corporation issued a 1))K stock dividend of its common stock +hich had a par value of C1) *efore and after the dividend. $t +hat amount should retained earnings *e capitali2ed for the additional shares issuedA a. There should *e no capitali2ation of retained earnings. *. ,ar value c. <arket value on the declaration date d. <arket value on the pa'ment date The issuer of a K common stock dividend to common stockholders prefera*l' should transfer from retained earnings to contri*uted capital an amount e.ual to the a. market value of the shares issued. *. *ook value of the shares issued. c. minimum legal re.uirements. d. par or stated value of the shares issued. $t the date of declaration of a small common stock dividend; the entr' should not include a. a credit to Common Stock Dividend ,a'a*le. *. a credit to ,aid"in Capital in E9cess of ,ar. c. a de*it to !etained Earnings. d. $ll of these are accepta*le.
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15 ) 18 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition #). The *alance in Common Stock Dividend Distri*uta*le should *e reported as aEnF a. deduction from common stock issued. *. addition to capital stock. c. current lia*ilit'. d. contra current asset. $ feature common to *oth stock splits and stock dividends is a. a transfer to earned capital of a corporation. *. that there is no effect on total stockholders0 e.uit'. c. an increase in total lia*ilities of a corporation. d. a reduction in the contri*uted capital of a corporation. ?hat effect does the issuance of a 2"for"1 stock split have on each of the follo+ingA a. *. c. d. #3. ,ar Jalue per Share /o effect 5ncrease Decrease Decrease !etained Earnings /o effect /o effect /o effect Decrease
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?hich one of the follo+ing disclosures should *e made in the e.uit' section of the *alance sheet; rather than in the notes to the financial statementsA a. Dividend preferences *. 3i.uidation preferences c. Call prices d. Conversion or e9ercise prices The rate of return on common stock e.uit' is calculated *' dividing a. net income less preferred dividends *' average common stockholders- e.uit'. *. net income *' average common stockholders- e.uit'. c. net income less preferred dividends *' ending common stockholders- e.uit'. d. net income *' ending common stockholders- e.uit'. The pa'out ratio can *e calculated *' dividing a. dividends per share *' earnings per share. *. cash dividends *' net income less preferred dividends. c. cash dividends *' market price per share. d. dividends per share *' earnings per share and dividing cash dividends *' net income less preferred dividends. Mounger Compan' has outstanding *oth common stock and nonparticipating; non" cumulative preferred stock. The li.uidation value of the preferred is e.ual to its par value. The *ook value per share of the common stock is unaffected *' a. the declaration of a stock dividend on preferred pa'a*le in preferred stock +hen the market price of the preferred is e.ual to its par value. *. the declaration of a stock dividend on common stock pa'a*le in common stock +hen the market price of the common is e.ual to its par value. c. the pa'ment of a previousl' declared cash dividend on the common stock. d. a 2"for"1 split of the common stock.
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$ssume common stock is the onl' class of stock outstanding in the <anle' Corporation. Total stockholders0 e.uit' divided *' the num*er of common stock shares outstanding is called a. *ook value per share. *. par value per share. c. stated value per share. d. market value per share. Dividends are not paid on a. noncumulative preferred stock. *. nonparticipating preferred stock. c. treasur' common stock. d. Dividends are paid on all of these. /oncumulative preferred dividends in arrears a. are not paid or disclosed. *. must *e paid *efore an' other cash dividends can *e distri*uted. c. are disclosed as a lia*ilit' until paid. d. are paid to preferred stockholders if sufficient funds remain after pa'ment of the current preferred dividend. Io+ should cumulative preferred dividends in arrears *e sho+n in a corporation0s statement of financial positionA a. /ote disclosure *. 5ncrease in stockholders0 e.uit' c. 5ncrease in current lia*ilities d. 5ncrease in current lia*ilities for the amount e9pected to *e declared +ithin the 'ear or operating c'cle; and increase in long"term lia*ilities for the *alance
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15 ) 1= Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
-ULTIPLE CHOICE*Co0'utationa!
:se the follo+ing information for .uestions %1 and %2. ,resented *elo+ is information related to Iale Corporation= Common Stock; C1 par ,aid"in Capital in E9cess of ,ar4Common Stock ,referred & 1N2K Stock; C ) par ,aid"in Capital in E9cess of ,ar4,referred Stock !etained Earnings Treasur' Common Stock Eat costF %1. The total stockholders0 e.uit' of Iale Corporation is a. C&;#));))). *. C&;% );))). c. C%;1));))). d. C%;2 );))). The total paid"in capital Ecash collectedF related to the common stock is a. C4;3));))). *. C4;& );))). c. C ;2 );))). d. C4;%));))). <anning Compan' issued 1);))) shares of its C par value common stock having a market value of C2 per share and 1 ;))) shares of its C1 par value preferred stock having a market value of C2) per share for a lump sum of C4&);))). Io+ much of the proceeds +ould *e allocated to the common stockA a. C );))) *. C21&;1&2 c. C2 );))) d. C2 ;))) /orton Compan' issues 4;))) shares of its C par value common stock having a market value of C2 per share and #;))) shares of its C1 par value preferred stock having a market value of C2) per share for a lump sum of C1(2;))). ?hat amount of the proceeds should *e allocated to the preferred stockA a. C1%2;))) *. C12);))) c. C1)4;%2% d. C();))) 6err' Corporation has );))) shares of C1) par common stock authori2ed. The follo+ing transactions took place during 2)1); the first 'ear of the corporation-s e9istence= Sold ;))) shares of common stock for C1& per share. 5ssued ;))) shares of common stock in e9change for a patent valued at C1));))). $t the end of the 6err'-s first 'ear; total paid"in capital amounted to a. C4);))). *. C();))). c. C1));))). d. C1();))). C4;3));))) );))) 2;)));))) 4));))) 1; ));))) 1 );)))
%2.
%3.
%4.
% .
Stockholders- E.uit' %#.
15 ) 1>
8lavine Compan' issues #;))) shares of its C par value common stock having a market value of C2 per share and (;))) shares of its C1 par value preferred stock having a market value of C2) per share for a lump sum of C2&&;))). The proceeds allocated to the common stock is a. C3);))) *. C13);()( c. C1 );))) d. C1 %;)(1 ?heeler Compan' issued ;))) shares of its C par value common stock having a market value of C2 per share and %; )) shares of its C1 par value preferred stock having a market value of C2) per share for a lump sum of C24);))). The proceeds allocated to the preferred stock is a. C21 ;))) *. C1 );))) c. C13);()( d. C1)(;)(1 ,em*er Corporation started *usiness in 2)) *' issuing 2));))) shares of C2) par common stock for C3# each. 5n 2)1); 2);))) of these shares +ere purchased for C 2 per share *' ,em*er Corporation and held as treasur' stock. Dn Bune 1 ; 2)11; these 2);))) shares +ere e9changed for a piece of propert' that had an assessed value of C&1);))). ,er*er-s stock is activel' traded and had a market price of C#) on Bune 1 ; 2)11. The cost method is used to account for treasur' stock. The amount of paid"in capital from treasur' stock transactions resulting from the a*ove events +ould *e a. C&));))). *. C4&);))). c. C3();))). d. C1#);))). Dn Septem*er 1; 2)1); Jalde2 Compan' reac.uired 12;))) shares of its C1) par value common stock for C1 per share. Jalde2 uses the cost method to account for treasur' stock. The @ournal entr' to record the reac.uisition of the stock should de*it a. Treasur' Stock for C12);))). *. Common Stock for C12);))). c. Common Stock for C12);))) and ,aid"in Capital in E9cess of ,ar for C#);))). d. Treasur' Stock for C1&);))). 8annon Compan' ac.uired #;))) shares of its o+n common stock at C2) per share on Fe*ruar' ; 2)1); and sold 3;))) of these shares at C2% per share on $ugust (; 2)11. The market value of 8annon0s common stock +as C24 per share at Decem*er 31; 2)1); and C2 per share at Decem*er 31; 2)11. The cost method is used to record treasur' stock transactions. ?hat accountEsF should 8annon credit in 2)11 to record the sale of 3;))) sharesA a. Treasur' Stock for C&1;))). *. Treasur' Stock for C#);))) and ,aid"in Capital from Treasur' Stock for C21;))). c. Treasur' Stock for C#);))) and !etained Earnings for C21;))). d. Treasur' Stock for C%2;))) and !etained Earnings for C(;))).
%%.
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15 ) 1? Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition &1. 3ong Co. issued 1));))) shares of C1) par common stock for C1;2));))). 3ong ac.uired &;))) shares of its o+n common stock at C1 per share. Three months later 3ong sold 4;))) of these shares at C1( per share. 5f the cost method is used to record treasur' stock transactions; to record the sale of the 4;))) treasur' shares; 3ong should credit a. Treasur' Stock for C%#;))). *. Treasur' Stock for C4);))) and ,aid"in Capital from Treasur' Stock for C3#;))). c. Treasur' Stock for C#);))) and ,aid"in Capital from Treasur' Stock for C1#;))). d. Treasur' Stock for C#);))) and ,aid"in Capital in E9cess of ,ar for C1#;))). $n anal'sis of stockholders0 e.uit' of Iahn Corporation as of Banuar' 1; 2)1); is as follo+s= Common stock; par value C2)H authori2ed 1));))) sharesH issued and outstanding ();))) shares ,aid"in capital in e9cess of par !etained earnings Total C1;&));))) ());))) %#);))) C3;4#);)))
&2.
Iahn uses the cost method of accounting for treasur' stock and during 2)1) entered into the follo+ing transactions= $c.uired 2; )) shares of its stock for C% ;))). Sold 2;))) treasur' shares at C3 per share. Sold the remaining treasur' shares at C2) per share. $ssuming no other e.uit' transactions occurred during 2)1); +hat should Iahn report at Decem*er 31; 2)1); as total additional paid"in capitalA a. C&( ;))) *. C());))) c. C() ;))) d. C(1 ;))) &3. ,erc' Corporation +as organi2ed on Banuar' 1; 2)1); +ith an authori2ation of 1;2));))) shares of common stock +ith a par value of C# per share. During 2)1); the corporation had the follo+ing capital transactions= Banuar' Bul' 2& Decem*er 31 issued #% ;))) shares O C1) per share purchased ();))) shares O C11 per share sold the ();))) shares held in treasur' O C1& per share
,erc' used the cost method to record the purchase and reissuance of the treasur' shares. ?hat is the total amount of additional paid"in capital as of Decem*er 31; 2)1)A a. C")". *. C2;)%);))). c. C2;%));))). d. C3;33);))). &4. Sosa Co.0s stockholders0 e.uit' at Banuar' 1; 2)1) is as follo+s= Common stock; C1) par valueH authori2ed 3));))) sharesH Dutstanding 22 ;))) shares ,aid"in capital in e9cess of par !etained earnings Total C2;2 );))) ());))) 2;1();))) C ;34);)))
Stockholders- E.uit' During 2)1); Sosa had the follo+ing stock transactions= $c.uired #;))) shares of its stock for C2%);))). Sold 3;#)) treasur' shares at C ) a share. Sold the remaining treasur' shares at C41 per share.
15 ) 1@
/o other stock transactions occurred during 2)1). $ssuming Sosa uses the cost method to record treasur' stock transactions; the total amount of all additional paid"in capital accounts at Decem*er 31; 2)1) is a. C&(1;#)). *. C&%);))). c. C()&;4)). d. C(2%;#)). & . ,resented *elo+ is the stockholders0 e.uit' section of Daks Corporation at Decem*er 31; 2)1)= Common stock; par value C2)H authori2ed % ;))) sharesH issued and outstanding 4 ;))) shares C ());))) ,aid"in capital in e9cess of par value 2 );))) !etained earnings ));))) C1;# );))) During 2)11; the follo+ing transactions occurred relating to stockholders0 e.uit'= 3;))) shares +ere reac.uired at C2& per share. 3;))) shares +ere reac.uired at C3 per share. 1;&)) shares of treasur' stock +ere sold at C3) per share. For the 'ear ended Decem*er 31; 2)11; Daks reported net income of C4 );))). $ssuming Daks accounts for treasur' stock under the cost method; +hat should it report as total stockholders0 e.uit' on its Decem*er 31; 2)11; *alance sheetA a. C1;(# ;))). *. C1;(#1;4)). c. C1;( %;&)). d. C1; 1 ;))). &#. Dn Decem*er 1; 2)1); $*el Corporation e9changed 2);))) shares of its C1) par value common stock held in treasur' for a used machine. The treasur' shares +ere ac.uired *' $*el at a cost of C4) per share; and are accounted for under the cost method. Dn the date of the e9change; the common stock had a market value of C per share Ethe shares +ere originall' issued at C3) per shareF. $s a result of this e9change; $*el0s total stockholders0 e.uit' +ill increase *' a. C2));))). *. C&));))). c. C1;1));))). d. C());))).
15 ) 5B Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition &%. 3uther 5nc.; has 2;))) shares of #K; C ) par value; cumulative preferred stock and 1));))) shares of C1 par value common stock outstanding at Decem*er 31; 2)11; and Decem*er 31; 2)1). The *oard of directors declared and paid a C ;))) dividend in 2)1). 5n 2)11; C24;))) of dividends are declared and paid. ?hat are the dividends received *' the preferred stockholders in 2)11A a. C1%;))) *. C12;))) c. C %;))) d. C #;))) $nders; 5nc.; has ;))) shares of K; C1)) par value; cumulative preferred stock and 2);))) shares of C1 par value common stock outstanding at Decem*er 31; 2)11. There +ere no dividends declared in 2))(. The *oard of directors declares and pa's a C4 ;))) dividend in 2)1) and in 2)11. ?hat is the amount of dividends received *' the common stockholders in 2)11A a. C1 ;))) *. C2 ;))) c. C4 ;))) d. C) Colson 5nc. declared a C1#);))) cash dividend. 5t currentl' has #;))) shares of %K; C1)) par value cumulative preferred stock outstanding. 5t is one 'ear in arrears on its preferred stock. Io+ much cash +ill Colson distri*ute to the common stockholdersA a. C%#;))). *. C&4;))). c. C11&;))). d. /one. ,ierson Corporation o+ned 1);))) shares of Iunter Corporation. These shares +ere purchased in 2))% for C();))). Dn /ovem*er 1 ; 2)11; ,ierson declared a propert' dividend of one share of Iunter for ever' ten shares of ,ierson held *' a stockholder. Dn that date; +hen the market price of Iunter +as C14 per share; there +ere ();))) shares of ,ierson outstanding. ?hat gain and net reduction in retained earnings +ould result from this propert' dividendA 8ain /et !eduction in !etained Earnings a. C) C12#;))) *. C) C &1;))) c. C4 ;))) C &1;))) d. C4 ;))) C 3#;)))
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Stockholders- E.uit' (1.
15 ) 51
Stinson Corporation o+ned 3);))) shares of <atile Corporation. These shares +ere purchased in 2))% for C2%);))). Dn /ovem*er 1 ; 2)11; Stinson declared a propert' dividend of one share of <atile for ever' ten shares of Stinson held *' a stockholder. Dn that date; +hen the market price of <atile +as C14 per share; there +ere 2%);))) shares of Stinson outstanding. ?hat gain and net reduction in retained earnings +ould result from this propert' dividendA 8ain /et !eduction in !etained Earnings a. C) C243;))) *. C) C3%&;))) c. C13 ;))) C1)&;))) d. C13 ;))) C243;))) ?inger Corporation o+ned ());))) shares of Fegan Corporation stock. Dn Decem*er 31; 2)1); +hen ?inger0s account 15nvestment in Common Stock of Fegan Corporation1 had a carr'ing value of C per share; ?inger distri*uted these shares to its stockholders as a dividend. ?inger originall' paid C& for each share. Fegan has 3;)));))) shares issued and outstanding; +hich are traded on a national stock e9change. The .uoted market price for a Fegan share +as C% on the declaration date and C( on the distri*ution date. ?hat +ould *e the reduction in ?inger0s stockholders0 e.uit' as a result of the a*ove transactionsA a. C3;#));))). *. C4; ));))). c. C%;2));))). d. C&;1));))).
(2.
(3.
8i**s Corporation o+ned 2);))) shares of Dliver Corporation-s C par value common stock. These shares +ere purchased in 2))% for C1&);))). Dn Septem*er 1 ; 2)11; 8i**s declared a propert' dividend of one share of Dliver for ever' ten shares of 8i**s held *' a stockholder. Dn that date; +hen the market price of Dliver +as C14 per share; there +ere 1&);))) shares of 8i**s outstanding. ?hat /ET reduction in retained earnings +ould result from this propert' dividendA a. C();))) *. C2 2;))) c. C%2;))) d. C1#2;))) <elvern-s Corporation has an investment in ;))) shares of ?allace Compan' common stock +ith a cost of C21&;))). These shares are used in a propert' dividend to stockholders of <elvern-s. The propert' dividend is declared on <a' 2 and scheduled to *e distri*uted on Bul' 31 to stockholders of record on Bune 1 . The market value per share of ?allace stock is C#3 on <a' 2 ; C## on Bune 1 ; and C#& on Bul' 31. The net effect of this propert' dividend on retained earnings is a reduction of a. C34);))). *. C33);))). c. C31 ;))). d. C21&;))).
(4.
15 ) 55 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition ( . Iernande2 Compan' has 3 );))) shares of C1) par value common stock outstanding. During the 'ear; Iernande2 declared a 1)K stock dividend +hen the market price of the stock +as C3) per share. Four months later Iernande2 declared a C. ) per share cash dividend. $s a result of the dividends declared during the 'ear; retained earnings decreased *' a. C1;242; )). *. C 2 ;))). c. C1(2; )). d. C1% ;))). Dn Bune 3); 2)1); +hen Ermler Co.0s stock +as selling at C# accounts +ere as follo+s= Capital stock Epar value C )H #);))) shares issuedF ,remium on capital stock !etained earnings per share; its capital C3;)));))) #));))) 4;2));)))
(#.
5f a 1))K stock dividend +ere declared and distri*uted; capital stock +ould *e a. C3;)));))). *. C3;#));))). c. C#;)));))). d. C%;&));))). (%. The stockholders0 e.uit' section of 8unkel Corporation as of Decem*er 31; 2)1); +as as follo+s= Common stock; par value C2H authori2ed 2);))) sharesH issued and outstanding 1);))) shares C 2);))) ,aid"in capital in e9cess of par 3);))) !etained earnings % ;))) C12 ;))) Dn <arch 1; 2)11; the *oard of directors declared a 1 K stock dividend; and accordingl' 1; )) additional shares +ere issued. Dn <arch 1; 2)11; the fair market value of the stock +as C# per share. For the t+o months ended Fe*ruar' 2&; 2)11; 8unkel sustained a net loss of C1);))). ?hat amount should 8unkel report as retained earnings as of <arch 1; 2)11A a. C #;))). *. C#2;))). c. C##;))). d. C%2;))).
Stockholders- E.uit' (&. The stockholders0 e.uit' of Io+ell Compan' at Bul' 31; 2)1) is presented *elo+= Common stock; par value C2); authori2ed 4));))) sharesH issued and outstanding 1#);))) shares ,aid"in capital in e9cess of par !etained earnings C3;2));))) 1#);))) # );))) C4;)1);)))
15 ) 56
Dn $ugust 1; 2)1); the *oard of directors of Io+ell declared a 1 K stock dividend on common stock; to *e distri*uted on Septem*er 1 th. The market price of Io+ell0s common stock +as C3 on $ugust 1; 2)1); and C3& on Septem*er 1 ; 2)1). ?hat is the amount of the de*it to retained earnings as a result of the declaration and distri*ution of this stock dividendA a. C&));))). *. C&4);))). c. C(12;))). d. C#));))). ((. Dn Banuar' 1; 2)1); Dodd; 5nc.; declared a 1)K stock dividend on its common stock +hen the market value of the common stock +as C2) per share. Stockholders0 e.uit' *efore the stock dividend +as declared consisted of= Common stock; C1) par value; authori2ed 2));))) sharesH issued and outstanding 12);))) shares $dditional paid"in capital on common stock !etained earnings Total stockholders0 e.uit' C1;2));))) 1 );))) %));))) C2;) );)))
?hat +as the effect on Dodd-s retained earnings as a result of the a*ove transactionA a. C12);))) decrease *. C24);))) decrease c. C4));))) decrease d. C2));))) decrease 1)). Dn Banuar' 1; 2)1); Culver Corporation had 11);))) shares of its C par value common stock outstanding. Dn Bune 1; the corporation ac.uired 1);))) shares of stock to *e held in the treasur'. Dn Decem*er 1; +hen the market price of the stock +as C&; the corporation declared a 1)K stock dividend to *e issued to stockholders of record on Decem*er 1#; 2)1). ?hat +as the impact of the 1)K stock dividend on the *alance of the retained earnings accountA a. C );))) decrease *. C&);))) decrease c. C&&;))) decrease d. /o effect
15 ) 58 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 1)1. $t the *eginning of 2)11; Flahert' Compan' had retained earnings of C2));))). During the 'ear Flahert' reported net income of C1));))); sold treasur' stock at a GgainP of C3#;))); declared a cash dividend of C#);))); and declared and issued a small stock dividend of 3;))) shares EC1) par valueF +hen the market value of the stock +as C2) per share. The amount of retained earnings availa*le for dividends at the end of 2)11 +as a. C1&);))). *. C21);))). c. C21#;))). d. C24#;))). <asterson Compan' has 42);))) shares of C1) par value common stock outstanding. During the 'ear <asterson declared a K stock dividend +hen the market price of the stock +as C3# per share. Three months later <asterson declared a C.#) per share cash dividend. $s a result of the dividends declared during the 'ear; retained earnings decreased *' a. C1;)2);#)) *. C% #;))) c. C2#4;#)) d. C2 2;)))
1)2.
Luestions 1)3 and 1)4 are *ased on the follo+ing information. 3a'ne Corporation had the follo+ing information in its financial statements for the 'ears ended 2)1) and 2)11= Cash dividends for the 'ear 2)11 C &;))) /et income for the 'ear ended 2)11 (3;))) <arket price of stock; 12N31N1) 1) <arket price of stock; 12N31N11 12 Common stockholders- e.uit'; 12N31N1) 1;#));))) Common stockholders- e.uit'; 12N31N11 1;&));))) Dutstanding shares; 12N31N11 1 );))) ,referred dividends for the 'ear ended 2)11 1 ;))) 1)3. ?hat is the pa'out ratio for 3a'ne Corporation for the 'ear ended 2)11A a. 24.%K *. 1#.1K c. 1).3K d. &.#K ?hat is the *ook value per share for 3a'ne Corporation for the 'ear ended 2)11A a. C12.)) *. C11.() c. C11.33 d. C1).#%
1)4.
Stockholders- E.uit' 1) .
15 ) 55
$t the *eginning of 2)11; Iamilton Compan' had retained earnings of C1 );))). During the 'ear Iamilton reported net income of C% ;))); sold treasur' stock at a GgainP of C2%;))); declared a cash dividend of C4 ;))); and declared and issued a small stock dividend of 1; )) shares EC1) par valueF +hen the market value of the stock +as C3) per share. The amount of retained earnings availa*le for dividends at the end of 2)11 +as= a. C1&4; )). *. C1#2;))). c. C1 %; )). d. C13 ;))). <ingen*ack Compan' has #);))) shares of C1) par value common stock outstanding. During the 'ear <ingen*ack declared a K stock dividend +hen the market price of the stock +as C4& per share. T+o months later <ingen*ack declared a C.#) per share cash dividend. $s a result of the dividends declared during the 'ear; retained earnings decreased *'= a. C33#;))). *. C3 2;&)). c. C1;344;))). d. C1;#(#;&)).
1)#.
Luestions 1)% and 1)& are *ased on the follo+ing information. Seal' Corporation had the follo+ing information in its financial statements for the 'ears ended 2)1) and 2)11= Cash dividends for the 'ear 2)11 C ;))) /et income for the 'ear ended 2)11 %2;))) <arket price of stock; 12N31N1) 1) <arket price of stock; 12N31N11 12 Common stockholders- e.uit'; 12N31N1) 1;)));))) Common stockholders- e.uit'; 12N31N11 1;2));))) Dutstanding shares; 12N31N11 1));))) ,referred dividends for the 'ear ended 2)11 1);))) 1)%. ?hat is the rate of return on common stock e.uit' for Seal' Corporation for the 'ear ended 2)11A a. #. K *. #.)K c. .#K d. .2K ?hat is the price"earnings ratio for Seal' Corporation for the 'ear ended 2)11A a. 1#.1 *. 1#.% c. 1(.4 d. 21.1
1)&.
15 ) 5= Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 1)(. <a's; 5nc. had net income for 2)1) of C2;12);))) and earnings per share on common stock of C . 5ncluded in the net income +as C3));))) of *ond interest e9pense related to its long"term de*t. The income ta9 rate for 2)1) +as 3)K. Dividends on preferred stock +ere C4));))). The pa'out ratio on common stock +as 2 K. ?hat +ere the dividends on common stock in 2)1)A a. C43);))). *. C 3);))). c. C4&2; )). d. C#4 ;))). ,resented *elo+ is information related to Drender; 5nc.= Common stock 4K ,referred stock !etained earnings Eincludes net income for current 'earF /et income for 'ear Decem*er 31; 2)11 2)1) C % ;))) C #);))) 3 );))) 3 );))) ();))) % ;))) 3);))) 32;)))
11).
?hat is Drender-s rate of return on common stock e.uit' for 2)11A a. 2).)K *. 1).%K c. 1&.2K d. 21.3K :se the follo+ing information for .uestions 111 and 112. The follo+ing data are provided= 1)K Cumulative preferred stock; C ) par Common stock; C1) par $dditional paid"in capital !etained earnings Eincludes current 'ear net incomeF /et income Decem*er 31; 2)11 2)1) C1));))) C1));))) 12);))) ();))) &);))) # ;))) 24);))) 21 ;))) ();)))
$dditional information= Dn <a' 1; 2)11; 3;))) shares of common stock +ere issued. The preferred dividends +ere not declared during 2)11. The market price of the common stock +as C ) at Decem*er 31; 2)11. 111. The rate of return on common stock e.uit' for 2)11 is a. () Q 4)). *. () Q 44). c. &) Q 4)). d. &) Q 44).
Stockholders- E.uit' 112. The *ook value per share of common stock at 12N31N11 is a. 43) Q 12. *. 2)) Q 12. c. 33) Q 12. d. 44) Q 11.
15 ) 5>
:se the follo+ing information for .uestions 113 and 114. Turner Corporation had the follo+ing information in its financial statements for the 'ear ended 2)1) and 2)11= Cash dividends for the 'ear 2)11 /et income for the 'ear ended 2)11 <arket price of stock; 12N31N11 Common stockholders- e.uit'; 12N31N1) Common stockholders- e.uit'; 12N31N11 Dutstanding shares; 12N31N11 ,referred dividends for the 'ear ended 2)11 113. C 1 ;))) 124;))) 24 2;2));))) 2;4));))) 12);))) 3);)))
?hat is the pa'out ratio for Turner Corporation for the 'ear ended 2)11A a. 12.1K *. 1#.)K c. 3#.3K d. 41.3K ?hat is the *ook value per share for Turner Corporation for the 'ear ended 2)11A a. C1(.1% *. C2).)) c. C1).43 d. C24.))
114.
:se the follo+ing information for .uestions 11 through 11%. ?ritten; 5nc. has outstanding 3));))) shares of C2 par common stock and #);))) shares of no" par &K preferred stock +ith a stated value of C . The preferred stock is cumulative and nonparticipating. Dividends have *een paid in ever' 'ear e9cept the past t+o 'ears and the current 'ear. 711 . $ssuming that C1 );))) +ill *e distri*uted as a dividend in the current 'ear; ho+ much +ill the common stockholders receiveA a. Rero. *. C%&;))). c. C1)2;))). d. C12#;))). 711#. $ssuming that C#3;))) +ill *e distri*uted as a dividend in the current 'ear; ho+ much +ill the preferred stockholders receiveA a. C21;))). *. C24;))). c. C4&;))). d. C#3;))).
15 ) 5? Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 711%. $ssuming that C1&3;))) +ill *e distri*uted; and the preferred stock is also participating; ho+ much +ill the common stockholders receiveA a. C111;))). *. C();))). c. C(3;))). d. C4&;))). 711&. Moder; 5nc. has );))) shares of C1) par value common stock and 2 ;))) shares of C1) par value; #K; cumulative; participating preferred stock outstanding. Dividends on the preferred stock are one 'ear in arrears. $ssuming that Moder +ishes to distri*ute C13 ;))) as dividends; the common stockholders +ill receive a. C3);))). *. C ;))). c. C&);))). d. C1) ;))). 711(. <ann Co. has outstanding );))) shares of &K preferred stock +ith a C1) par value and 12 ;))) shares of C3 par value common stock. Dividends have *een paid ever' 'ear e9cept last 'ear and the current 'ear. 5f the preferred stock is cumulative and nonparticipating and C2 );))) is distri*uted; the common stockholders +ill receive a. C). *. C1%);))). c. C21);))). d. C2 );))).
-u!ti'!e C#oi&e Ans+ers*Co0'utationa!

Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans(
%1. %2. %3. %4. % . %#. %%.
a * * c d * c
%&. %(. &). &1. &2. &3. &4.
d d * c c d c
& . &#. &%. &&. &(. (). (1.
a c c a a c d
(2. (3. (4. ( . (#. (%. (&.
* d d a c a *
((. 1)). 1)1. 1)2. 1)3. 1)4. 1) .
* * a a c a d
1)#. 1)%. 1)&. 1)(. 11). 111. 112.
d c c a * c a
113. 114. 711 711. #. 711 %. 711 &. 711 (.
* * * d * c *
-ULTIPLE CHOICE*CPA A$a'te$

12). $ corporation +as organi2ed in Banuar' 2))% +ith authori2ed capital of C1) par value common stock. Dn Fe*ruar' 1; 2)1); shares +ere issued at par for cash. Dn <arch 1; 2)1); the corporation0s attorne' accepted %;))) shares of common stock in settlement for legal services +ith a fair value of C();))). $dditional paid"in capital +ould increase on Fe*ruar' 1; 2)1) <arch 1; 2)1) a. Mes /o *. Mes Mes c. /o /o d. /o Mes
Stockholders- E.uit' 121.
15 ) 5@
Dn Bul' 1; 2)1); /all Co. issued 2; )) shares of its C1) par common stock and ;))) shares of its C1) par converti*le preferred stock for a lump sum of C12 ;))). $t this date /all0s common stock +as selling for C24 per share and the converti*le preferred stock for C1& per share. The amount of the proceeds allocated to /all0s preferred stock should *e a. C#2; )). *. C% ;))). c. C();))). d. C#&;% ). Iorton Co. +as organi2ed on Banuar' 2; 2)1); +ith ));))) authori2ed shares of C1) par value common stock. During 2)1); Iorton had the follo+ing capital transactions= Banuar' 4issued 3% ;))) shares at C14 per share. Bul' 2%4purchased 2 ;))) shares at C11 per share. /ovem*er 2 4sold 1 ;))) shares of treasur' stock at C13 per share. Iorton used the cost method to record the purchase of the treasur' shares. ?hat +ould *e the *alance in the ,aid"in Capital from Treasur' Stock account at Decem*er 31; 2)1)A a. C). *. C1 ;))). c. C3);))). d. C4 ;))).
122.
123.
5n 2)1); Io**s Corp. ac.uired (;))) shares of its o+n C1 par value common stock at C1& per share. 5n 2)11; Io**s issued 4;))) of these shares at C2 per share. Io**s uses the cost method to account for its treasur' stock transactions. ?hat accounts and +hat amounts should Io**s credit in 2)11 to record the issuance of the 4;))) sharesA Treasur' Stock C%2;))) C%2;))) $dditional ,aid"in Capital C2&;))) C(#;))) C#&;))) !etained Earnings C%);))) C2&;))) Common Stock C4;))) C4;)))
a. *. c. d. 124.
$t its date of incorporation; Sauder; 5nc. issued 1));))) shares of its C1) par common stock at C11 per share. During the current 'ear; Sauder ac.uired 2);))) shares of its common stock at a price of C1# per share and accounted for them *' the cost method. Su*se.uentl'; these shares +ere reissued at a price of C12 per share. There have *een no other issuances or ac.uisitions of its o+n common stock. ?hat effect does the reissuance of the stock have on the follo+ing accountsA a. *. c. d. !etained Earnings Decrease /o effect Decrease /o effect $dditional ,aid"in Capital Decrease Decrease /o effect /o effect
15 ) 6B Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 12 . Farmer Corp. o+ned 2);))) shares of Eaton Corp. purchased in 2))% for C24);))). Dn Decem*er 1 ; 2)1); Farmer declared a propert' dividend of all of its Eaton Corp. shares on the *asis of one share of Eaton for ever' 1) shares of Farmer common stock held *' its stockholders. The propert' dividend +as distri*uted on Banuar' 1 ; 2)11. Dn the declaration date; the aggregate market price of the Eaton shares held *' Farmer +as C4));))). The entr' to record the declaration of the dividend +ould include a de*it to !etained Earnings of a. C). *. C1#);))). c. C24);))). d. C4));))). $ corporation declared a dividend; a portion of +hich +as li.uidating. Io+ +ould this distri*ution affect each of the follo+ingA $dditional ,aid"in Capital Decrease Decrease /o effect /o effect !etained Earnings /o effect Decrease Decrease /o effect
12#.
a. *. c. d. 12%.
Dn <a' 1; 2)1); Riek Corp. declared and issued a 1)K common stock dividend. ,rior to this dividend; Riek had 1));))) shares of C1 par value common stock issued and outstanding. The fair value of Riek 0s common stock +as C2) per share on <a' 1; 2)1). $s a result of this stock dividend; Riek0s total stockholders0 e.uit' a. increased *' C2));))). *. decreased *' C2));))). c. decreased *' C1);))). d. did not change. Io+ +ould the declaration and su*se.uent issuance of a 1)K stock dividend *' the issuer affect each of the follo+ing +hen the market value of the shares e9ceeds the par value of the stockA $dditional Common Stock ,aid"in Capital a. /o effect /o effect *. /o effect 5ncrease c. 5ncrease /o effect d. 5ncrease 5ncrease
12&.
Stockholders- E.uit' 12(.
15 ) 61
Dn Decem*er 31; 2)1); the stockholders0 e.uit' section of $rndt; 5nc.; +as as follo+s= Common stock; par value C1)H authori2ed 3);))) sharesH issued and outstanding (;))) shares $dditional paid"in capital !etained earnings Total stockholders0 e.uit' C ();))) 11#;))) 1%4;))) C3&);)))
Dn <arch 31; 2)11; $rndt declared a 1)K stock dividend; and accordingl' ()) additional shares +ere issued; +hen the fair market value of the stock +as C1& per share. For the three months ended <arch 31; 2)11; $rndt sustained a net loss of C32;))). The *alance of $rndt-s retained earnings as of <arch 31; 2)11; should *e a. C12 ;&)). *. C133;))). c. C134;&)). d. C142;))). 713). $t Decem*er 31; 2)1) and 2)11; ,lank Corp. had outstanding 2;))) shares of C1)) par value &K cumulative preferred stock and 1);))) shares of C1) par value common stock. $t Decem*er 31; 2)1); dividends in arrears on the preferred stock +ere C&;))). Cash dividends declared in 2)11 totaled C3);))). ?hat amounts +ere pa'a*le on each class of stockA a. *. c. d. ,referred Stock C1#;))) C22;))) C24;))) C3);))) Common Stock C14;))) C&;))) C#;))) C)
-u!ti'!e C#oi&e Ans+ers*CPA A$a'te$

Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans(
12). 121.
d *
122. 123.
c *
124. 12 .
c d
12#. 12%.
* d
12&. 12(.
d a
713).
DERI;ATIO,S * Co0'utationa!
,o( Ans+er Deri ation
%1. a C4;3));))) S C4));))) S C > C&;#));))). C4;3));))) S C );))) S C2;)));))) S C1; ));))) T C1 );)))
%2. %3.
* *
);))) > C4;& );))).
E1);))) C2 F S E1 ;))) C2)F > C );))) EC2 );))) Q C );)))F C4&);))) > C21&;1&2. E4;))) C2 F S E#;))) C2)F > C22);))) EC12);))) Q C22);)))F C1(2;))) > C1)4;%2%. E ;))) C1&F S C1));))) > C1();))).
%4.
% .
15 ) 65 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition %#. %%. %&. %(. &). &1. &2. &3. &4. & . &#. &%. &&. * c d d * c c d c a c c a
UE#;))) C2 UE%;
F Q UE#;))) C2 F S E(;))) C2)FV C2&&;))) > C13);()(.
V V
)) C2)F Q UE ;))) C2 F S E%; )) C2)FV C24);))) > C13);()(.
EC#) T C 2F 2);))) > C1#);))). 12;))) C1 > C1&);))). 3;))) C2) > C#);)))H 3;))) C% > C21;))). 4;))) C1 > C#);)))H 4;))) C4 > C1#;))). C());))) S E2;))) C F T E )) C1)F > C() ;))). E#% ;))) C4F S E();))) C%F > C3;33);))). C());))) S E3;#)) C F T E2;4)) C4F > C()&;4)). C1;# );))) T E3;))) C2&F T E3;))) C3 F S E1;&)) C3)F S C4 );))) > C1;(# ;))). 2);))) C > C1;1));))).
2;))) C ) .)# > C#;))) EC#;))) T C ;)))F S C#;))) > C%;))). ;))) C1)) .) > C2 ;))) EC4 ;))) 2F T EC2 ;))) 3F > C1 ;))). #;))) C1)) .)% > C42;))) C1#);))) T EC42;))) 2F > C%#;))). EC();))) Q C1)F C14 > C12#;))) UC14 T EC();))) Q 1);)))FV (;))) > C4 ;))) C12#;))) T C4 ;))) > C&1;))). EC2%);))) Q C1)F C14 > C3%&;))) UC14 T EC2%);))) Q 3);)))FV 2%;))) > C13 ;))) C3%&;))) T C13 ;))) > C243;))). E());))) C%F T UEC% T C F ());)))V > C4; ));))). E1&);))) Q 1)F C14 > C2 2;))) C2 2;))) T UC2 2;))) T E1&);))) 1&N2)FV > C1#2;))). E ;))) C#3F > C31 ;))) C31 ;))) T EC31 ;))) T C21&;)))F > C21&;))).
&(.
().
(1.
(2. (3.
* d
(4.
Stockholders- E.uit' ( . a 3 );))) .1) W C3) > C1;) );))) C1;) );))) S E3 );))) 1.1) C. )F > C1;242; )). E#);))) C )F S C3;)));))) > C#;)));))). C% ;))) T C1);))) T E1; )) C#F > C #;))). 1#);))) .1 C3 > C&4);))). 12);))) .1) C2) > C24);))). 1));))) .1) C& > C&);))). C2));))) S C1));))) T C#);))) T E3;))) C2)F > C1&);))). EC42);))) .) C3#F S EC42);))) 1.) C.#)F > C1;)2);#)). C&;))) Q EC(3;))) T C1 ;)))F > 1).3K. C1;&));))) Q 1 );))) > C12.)). C1 );))) S C% ;))) T C4 ;))) T E1; )) C3)F > C13 ;))). E #);))) .) C4&F S E #);))) 1.) C.#)F > C1;#(#;&)). EC%2;))) T C1);)))F Q UEC1;)));))) S C1;2));)))FV > .#K. EC%2;))) T C1);)))F Q 1));))) > C.#2. C12 Q .#2 > 1(.4. X 44444444444 > .2 ; X > C43);))). EC2;12);))) T C4));)))F $30, 000 ( .04 $350, 000 )
15 ) 66
(#. (%. (&. ((. 1)). 1)1. 1)2. 1)3. 1)4. 1) . 1)#. 1)%. 1)&.
c a * * * a a c a d d c c
1)(.
11).
( $60, 000 + $75, 000 ) + ( $75, 000 + $90, 000 ) 2
> .1)% > 1).%K.
111.
( $120, 000 + $80, 000 + $240, 000 $10, 000 ) + ( $90, 000 + $65, 000 + $215, 000 ) 2
> C&) Q 4)).
$90, 000 ( $100, 000 .10 )
112. 113.
a *
C12);))) S C&);))) S E24);))) T C1);)))F 4444444444444444444 > C43) Q 12. 12;))) C1 ;))) Q EC124;))) T C3);)))F > 1#.)K.
15 ) 68 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 114. 711 . 711#. 711%. * * d * C2;4));))) Q 12);))) > C2).)). C1 );))) T E#);))) C .)& 3F > C%&;))). #);))) C .)& 3 > C%2;))) Y C#3;))). &K C#));))) > C4&;))) %K7 C#));))) > 42;))) C();))) Ecurrent 'earF EparticipatingF Epreferred dividendsF Ecommon current dividendsF
7C3));))) &K 3 > C %2;))) C#));))) &K > 4&;))) C12);))) C1&3;))) T C12);))) 4444444444 > %K. C#));))) S C3));))) 711&. c
Common Stock C ));))) #K > C3);))) Ecurrent 'earF C ));))) 1)K7 > );))) EparticipatingF C&);))) 7C13 ;))) T C3);))) T EC2 );))) #K W 2F > C% ;))) C% ;))) 4444 > 1)K. C% );)))
711(.
C2 );))) T EC ));))) &K W 2F > C1%);))).
DERI;ATIO,S * CPA A$a'te$

,o( Ans+er Deri ation
12). 121. d * Conceptual. EC24 2; ))F S EC1& ;)))F > C1 );))). C();))) 44444 W C12 ;))) > C% ;))). C1 );))) 122. 123. 124. 12 . c * c d 1 ;))) C2 > C3);))). E4;))) C1&F > C%2;)))H E4;))) C%F > C2&;))). Conceptual. C4));))) Emarket valueF.
15 ) 65
12#. 12%. 12&. 12(. 713).
* d d a c
Conceptual. Conceptual. Conceptual. C1%4;))) T C32;))) T E()) C1&F > C12 ;&)). EC2));))) .)&F S C&;))) > C24;))) C3);))) T C24;))) > C#;))).
E7ERCISES
EC( 15)16143ump sum issuance of stock. ,arker Corporation has issued 2;))) shares of common stock and 4)) shares of preferred stock for a lump sum of C%2;))) cash. Instru&tions EaF 8ive the entr' for the issuance assuming the par value of the common +as C and the market value C3); and the par value of the preferred +as C4) and the market value C ). EEach valuation is on a per share *asis and there are read' markets for each stock.F E*F 8ive the entr' for the issuance assuming the same facts as EaF a*ove e9cept the preferred stock has no read' market and the common stock has a market value of C2 per share.
So!ution 15)161 EaF Cash.............................................................................................. Common Stock ................................................................ ,aid"in Capital in E9cess of ,ar4Common...................... ,referred Stock ................................................................ ,aid"in Capital in E9cess of ,ar4,referred .................... Ecommon C3) W 2;))) C#);))) preferred C ) W 4)) 2);))) C&);))) market value #)N&) W C%2;))) > 2)N&) W C%2;))) > C 4;))) common 1&;))) preferred C%2;)))F %2;))) 1);))) 4);))) 1#;))) #;))) %2;))) 1);))) 44;))) 1#;))) 2;)))
E*F Cash.............................................................................................. Common Stock................................................................... ,aid"in Capital in E9cess of ,ar4Common....................... ,referred Stock.................................................................. ,aid"in Capital in E9cess of ,ar4,referred.......................
15 ) 6= Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition EC( 15)1654Treasur' stock. For numerous reasons; a corporation ma' reac.uire shares of its o+n capital stock. ?hen a compan' purchases treasur' stock; it usuall' accounts for the stock using the cost method. Instru&tions E9plain ho+ a compan' +ould account for each of the follo+ing= 1. ,urchase of shares at a price less than par value. 2. Su*se.uent resale of treasur' shares at a price less than purchase price; *ut more than par value. 3. Su*se.uent resale of treasur' shares at a price greater than *oth purchase price and par value. 4. Effect on net income. So!ution 15)165 1. Treasur' stock is de*ited for the purchase price of the shares even though the purchase price is less than par value. 2. Treasur' stock is credited for the original cost Epurchase priceF of the shares; and the e9cess of the original cost Epurchase priceF over the sales price first is de*ited to paid"in capital from treasur' stock from earlier sales of treasur' stock and an' remainder then is de*ited to retained earnings. 3. Treasur' stock is credited for the original cost Epurchase priceF of the shares; and the e9cess of the sales price over the original cost Epurchase priceF is credited to paid"in capital from treasur' stock. 4. There is no effect on net income as a result of treasur' stock transactions. EC( 15)1664Treasur' stock. $gler Corporation0s *alance sheet reported the follo+ing= Capital stock outstanding; ;))) shares; par C3) per share ,aid"in capital in e9cess of par !etained earnings C1 );))) &);))) 1));)))
The follo+ing transactions occurred this 'ear= EaF ,urchased 12) shares of capital stock to *e held as treasur' stock; pa'ing C#) per share. E*F Sold () of the shares of treasur' stock at C# per share. EcF Sold the remaining shares of treasur' stock at C ) per share. Instru&tions ,repare the @ournal entr' for these transactions under the cost method of accounting for treasur' stock.
15 ) 6>
So!ution 15)166 EaF Treasur' Stock................................................................................ Cash....................................................................................... E*F Cash ............................................................................................... Treasur' Stock....................................................................... ,aid"in Capital from Treasur' Stock....................................... EcF Cash................................................................................................ ,aid"in Capital from Treasur' Stock................................................ Treasur' Stock....................................................................... EC( 15)1684Treasur' stock. Ellison Compan'0s *alance sheet sho+s= Common stock; C2) par ,aid"in capital in e9cess of par !etained earnings C3;)));))) 1;) );))) % );))) %;2)) %;2)) ;& ) ;4)) 4 ) 1; )) 3)) 1;&))
Instru&tions !ecord the follo+ing transactions *' the cost method. EaF 6ought ;))) shares of its common stock at C2( a share. E*F Sold 2; )) treasur' shares at C3) a share. EcF Sold 1;))) shares of treasur' stock at C2# a share. So!ution 15)168 EaF E*F Treasur' Stock............................................................................. Cash................................................................................. Cash............................................................................................. Treasur' Stock.................................................................. ,aid"in Capital from Treasur' Stock................................. Cash............................................................................................. ,aid"in Capital from Treasur' Stock............................................. !etained Earnings........................................................................ Treasur' Stock.................................................................. 14 ;))) 14 ;))) % ;))) %2; )) 2; )) 2#;))) 2; )) )) 2(;)))
EcF
15 ) 6? Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
EC( 15)1654Treasur' stock. 5n 2)1); <ordica Co. issued 2));))) of its ));))) authori2ed shares of C1) par value common stock at C3 per share. 5n Banuar'; 2)11; <ordica repurchased 1 ;))) shares at C3) per share. $ssume these are the onl' stock transactions the compan' has ever had. Instru&tions EaF ?hat are the t+o methods of accounting for treasur' stockA E*F ,repare the @ournal entr' to record the purchase of treasur' stock *' the cost method. EcF ;))) shares of treasur' stock are reissued at C33 per share. ,repare the @ournal entr' to record the reissuance *' the cost method. So!ution 15)165 EaF E*F EcF The t+o methods of accounting for treasur' stock are the cost method and the par value method. Treasur' Stock............................................................................. Cash................................................................................. Cash............................................................................................. ,aid"in Capital from Treasur' Stock................................. Treasur' Stock.................................................................. 4 );))) 4 );))) 1# ;))) 1 ;))) 1 );)))
EC( 15)16=4Stockholders- E.uit'. 5ndicate the effect of each of the follo+ing transactions on total stockholders0 e.uit' *' placing an 1X1 in the appropriate column. 5ncrease Decrease /o Effect 1. Treasur' stock is resold at more than cost. 2. Dperating loss for the period. 3. !etirement of *onds pa'a*le at more than *ook value. 4. Declaration of a stock dividend. . $c.uisition of machiner' for common stock. #. Conversion of *onds pa'a*le into common stock. %. /ot declaring a dividend on cumulative preferred stock. &. Declaration of cash dividend. (. ,a'ment of cash dividend. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
15 ) 6@
So!ution 15)16= 5ncrease 1. Treasur' stock is resold at more than cost. 2. Dperating loss for the period. 3. !etirement of *onds pa'a*le at more than *ook value. X X X Decrease /o Effect
4. Declaration of a stock dividend. . $c.uisition of machiner' for common stock. #. Conversion of *onds pa'a*le into common stock. %. /ot declaring a dividend on cumulative preferred stock. &. Declaration of cash dividend. (. ,a'ment of cash dividend. X X X
EC( 15)16>4Stock dividends. Descri*e the @ournal entr' for a stock dividend on common stock E+hich has a par valueF.
So!ution 15)16> $ stock dividend results in the transfer from retained earnings to paid"in capital of an amount e.ual to the fair value of each share; if the dividend is less than 2)"2 K; or par value of each share; if the dividend is greater than 2)"2 K. !etained Earnings is de*ited for the total amount transferred; Common Stock Dividend Distri*uta*le is credited for the total par value of the shares; and; for a small stock dividend; the e9cess of market value over par value is credited to ,aid"in Capital in E9cess of ,ar.
15 ) 8B Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition EC( 15)16?4Stock dividends and stock splits. 5ndicate the principal effects of a stock dividend versus a stock split as the' affect the issuing corporation. !espond in the spaces as follo+s= 1C1 for changeH 1/C1 for no change. Stock Dividend /um*er of Shares Dutstanding ,ar Jalue per Share Total ,ar Dutstanding !etained Earnings Total Stockholders0 E.uit' Composition of Stockholders0 E.uit' ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ Stock Split ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
So!ution 15)16? /um*er of Shares Dutstanding ,ar Jalue per Share Total ,ar Dutstanding !etained Earnings Total Stockholders0 E.uit' Composition of Stockholders0 E.uit' Stock Dividend C /C C C /C C Stock Split C C /C /C /C /C
EC( 15)16@4Computation of selected financial ratios. The follo+ing information pertains to ,arsons Co.= ,referred stock; cumulative= ,ar per share Dividend rate Shares outstanding Dividends in arrears Common stock= ,ar per share Shares issued Dividends paid per share <arket price per share $dditional paid"in capital :nappropriated retained earnings Eafter closingF !etained earnings appropriated for contingencies Common treasur' stock= /um*er of shares Total cost /et income C1)) &K ;))) none C1) #);))) C2.%) C4&.)) C2));))) C13 ;))) C1 );))) ;))) C12 ;))) C3%);)))
Stockholders- E.uit' Instru&tions Compute Eassume no changes in *alances during the past 'earF= EaF Total amount of stockholders- e.uit' in the *alance sheet E*F Earnings per share of common stock EcF 6ook value per share of common stock EdF ,a'out ratio of common stock EeF !eturn on common stock e.uit' So!ution 15)16@ EaF E*F E ;))) W C1))F S E#);))) W C1)F S C2));))) S C13 ;))) S C1 );))) T C12 ;))) > C1;4#);))). UC3%);))) T E ;))) W C1)) W &KFV Q E#);))) T ;)))F > 33);))) Q > C#.)) per share. ;)))
15 ) 81
EcF EC1;4#);))) T C ));)))F Q E#);))) T ;)))F > C(#);))) Q So!ution 15)16@ Econt.F EdF EeF C2.%) Q C# > 4 K or UEC2.%) W
;))) > C1%.4 per share.
;)))F Q EC3%);))) T C4);)))FV.
EC3%);))) T C4);)))F Q EC1;4#);))) T C ));)))F > 34.4K.
AEC( 15)18B4Dividends on preferred stock. The stockholders0 e.uit' section of 3ema' Corporation sho+s the follo+ing on Decem*er 31; 2)11= ,referred stock4#K; C1)) par; 4;))) shares outstanding Common stock4C1) par; #);))) shares outstanding ,aid"in capital in e9cess of par !etained earnings Total stockholders0 e.uit' C 4));))) #));))) 2));))) 114;))) C1;314;)))
Instru&tions $ssuming that all of the compan'0s retained earnings are to *e paid out in dividends on 12N31N11 and that preferred dividends +ere last paid on 12N31N)(; sho+ ho+ much the preferred and common stockholders should receive if the preferred stock is cumulative and full' participating. ASo!ution 15)18B Dividends in arrears E#K of C4));)))F Current 'ear0s dividends ,articipating dividend E3KF UEC3);))) Q C1;)));)))F 9 C4));)))V ,referred C24;))) 24;))) 12;))) C#);))) Common C 4 3#;))) 1&;))) C 4;))) Total C 24;))) #);))) 3);))) C114;)))
15 ) 85 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition AEC( 15)1814Dividends on preferred stock. 5n each of the follo+ing independent cases; it is assumed that the corporation has C4));))) of #K preferred stock and C1;#));))) of common stock outstanding; each having a par value of C1). /o dividends have *een declared for 2))( and 2)1). EaF $s of 12N31N11; it is desired to distri*ute C2 );))) in dividends. Io+ much +ill the preferred stockholders receive if their stock is cumulative and nonparticipatingA E*F $s of 12N31N11; it is desired to distri*ute C4));))) in dividends. Io+ much +ill the preferred stockholders receive if their stock is cumulative and participating up to 11K in totalA EcF Dn 12N31N11; the preferred stockholders received a C12);))) dividend on their stock +hich is cumulative and full' participating. Io+ much mone' +as distri*uted in total for dividends during 2)11A ASo!ution 15)181 EaF C%2;))) EC4));))) 9 .)# 9 3 'rs.F. E*F C(2;))) EC4));))) 9 .)# 9 3 'rs.F S UC4));))) 9 E.11 ".)#FV. EcF C4)&;))) EC2&&;)))7 to common and C12);))) to preferredF. 7 EC1;#));))) 9 .)#F S UEC12);))) " C%2;)))F Q C4));)))F 9 C1;#));)))V.
PRO.LE-S
Pr( 15)1854E.uit' transactions. ,resented *elo+ is information related to ?'rick Compan'= 1. The compan' is granted a charter that authori2es issuance of 1 ;))) shares of C1)) par value preferred stock and 4);))) shares of no"par common stock. 2. &;))) shares of common stock are issued to the founders of the corporation for land valued *' the *oard of directors at C3));))). The *oard esta*lishes a stated value of C a share for the common stock. 3. ;))) shares of preferred stock are sold for cash at C12) per share. 4. The compan' issues 1)) shares of common stock to its attorne's for costs associated +ith starting the compan'. $t that time; the common stock +as selling at C#) per share. Instru&tions ,repare the general @ournal entries necessar' to record these transactions. So!ution 15)185 1. /o entr' necessar'. 2. 3and................................................................................................ Common Stock.................................................................... ,aid"in Capital in E9cess of Stated Jalue............................ 3));))) 4);))) 2#);)))
Stockholders- E.uit' 3. Cash................................................................................................ ,referred Stock.................................................................... ,aid"in Capital in E9cess of ,ar4,referred Stock............... 4. Drgani2ation E9pense..................................................................... Common Stock.................................................................... ,aid"in Capital in E9cess of Stated Jalue............................ #));)))
15 ) 86
));))) 1));))) #;))) )) ; ))
Pr( 15)1864Treasur' stock transactions. The original sale of the C ) par value common shares of 8ra' Compan' +as recorded as follo+s= Cash.......................................................................................... 2();))) Common Stock.............................................................. 2 );))) ,aid"in Capital in E9cess of ,ar..................................... 4);))) Instru&tions !ecord the treasur' stock transactions Egiven *elo+F under the cost method= Transactions= EaF 6ought 3)) shares of common stock as treasur' shares at C#2. E*F Sold &) shares of treasur' stock at C#). EcF Sold 4) treasur' shares at C#&. So!ution 15)186 EaF E*F Treasur' Stock................................................................................... Cash.......................................................................................... Cash................................................................................................... !etained Earnings.............................................................................. Treasur' Stock.......................................................................... Cash................................................................................................... ,aid"in Capital from Treasur' Stock.......................................... Treasur' Stock.......................................................................... 1&;#)) 1&;#)) 4;&)) 1#) 4;(#) 2;%2) 24) 2;4&)
EcF
Pr( 15)1884Stock dividends. The stockholders0 e.uit' section of 6enton Corporation0s *alance sheet as of Decem*er 31; 2)1) is as follo+s= Stockholders0 E.uit' Common stock; C par valueH authori2ed; 2;)));))) sharesH issued; 4));))) shares C2;)));))) ,aid"in capital in e9cess of par & );))) !etained earnings 3;)));))) C ;& );))) The follo+ing events occurred during 2)11=
15 ) 88 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 1. Ban. 2. Ban. 1# 3. Fe*. 1) 4. <arch 1 . $pril 1 #. Bul' 1 %. $ug. 1 1);))) shares of authori2ed and unissued common stock +ere sold for C& per share. Declared a cash dividend of 2) cents per share; pa'a*le Fe*ruar' 1 to stock" holders of record on Fe*ruar' . 2);))) shares of authori2ed and unissued common stock +ere sold for C12 per share. $ 3)K stock dividend +as declared and issued. <arket value per share is currentl' C1 . $ t+o"for"one split +as carried out. The par value of the stock +as to *e reduced to C2. ) per share. <arket value on <arch 31 +as C1& per share. $ 1 K stock dividend +as declared and issued. <arket value is currentl' C1) per share. $ cash dividend of 2) cents per share +as declared; pa'a*le Septem*er 1 to stockholders of record on $ugust 21.
Instru&tions Enter the a*ove events into the follo+ing +ork sheet sho+ing ho+ each event affects the column. Event /o. 1 +ill serve as an e9ample. Common Stock /o. of Total 5tem Shares 5ssued ,ar Jalue 6eginning 6alance41N1N11 4));))) C2;)));))) Event [14Ban. 1);))) );))) 6alance 41);))) C2;) );))) Event [ 24Ban. 1# Eand events 3 through %F ,aid"in Capital 5n E9cess of ,ar !etained Earnings C& );))) C3;)));))) 3);))) ")" C&&);))) C3;)));)))
Stockholders- E.uit' So!ution 15)188
15 ) 85
Event [24Ban. 1# ")" ")" ")" E&2;)))F 4444444444444444444444444444444444444444444 6alance 41);))) C2;) );))) C&&);))) C2;(1&;))) [34Fe*. 1) 2);))) 1));))) 14);))) ")" 4444444444444444444444444444444444444444444 6alance 43);))) C2;1 );))) C1;)2);))) C2;(1&;))) [44<arch 1 12(;))) #4 ;))) ")" E#4 ;)))F 4444444444444444444444444444444444444444444 6alance (;))) C2;%( ;))) C1;)2);))) C2;2%3;))) [ 4$pril 1 (;))) ")" ")" ")" 4444444444444444444444444444444444444444444 6alance 1;11&;))) C2;%( ;))) C1;)2);))) C2;2%3;))) [#4Bul' 1 1#%;%)) 41(;2 ) 1;2 %;% ) E1;#%%;)))F 4444444444444444444444444444444444444444444 6alance 1;2& ;%)) C3;214;2 ) C2;2%%;% ) C (#;))) [%4$ug. 1 ")" ")" ")" E2 %;14)F 4444444444444444444444444444444444444444444 6alance 1;2& ;%)) C3;214;2 ) C2;2%%;% ) C33&;&#)
15 ) 8= Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition Pr( 15)1854E.uit' transactions. Fole' Corporation has the follo+ing capital structure at the *eginning of the 'ear= #K ,referred stock; C ) par value; 2);))) shares authori2ed; #;))) shares issued and outstanding Common stock; C1) par value; #);))) shares authori2ed; 4);))) shares issued and outstanding ,aid"in capital in e9cess of par Total paid"in capital !etained earnings Total stockholders0 e.uit' C 3));))) 4));))) 11);))) &1);))) 44);))) C1;2 );)))
Instru&tions EaF !ecord the follo+ing transactions +hich occurred consecutivel' Esho+ all calculationsF. 1. $ total cash dividend of C();))) +as declared and pa'a*le to stockholders of record. !ecord dividends pa'a*le on common and preferred stock in separate accounts. 2. $ 1)K common stock dividend +as declared. The average market value of the common stock is C1& a share. 3. $ssume that net income for the 'ear +as C1 );))) Erecord the closing entr'F and the *oard of directors appropriated C%);))) of retained earnings for plant e9pansion. E*F Construct the stockholders0 e.uit' section incorporating all the a*ove information. So!ution 15)185 EaF 1. !etained Earnings.................................................................. Dividends ,a'a*le4,referred EC3));))) W .)#F.......... Dividends ,a'a*le4Common...................................... 2. 4);))) shares 1)K 4;))) shares as stock dividend C1& C%2;))) total dividend !etained Earnings.................................................................. Common Stock Dividend Distri*uta*le........................ ,aid"in Capital in E9cess of ,ar.................................. 3. 5ncome Summar'................................................................... !etained Earnings....................................................... !etained Earnings.................................................................. !etained Earnings $ppropriated for ,lant E9pansion. %2;))) 4);))) 32;))) 1 );))) 1 );))) %);))) %);))) ();))) 1&;))) %2;)))
Stockholders- E.uit' So!ution 15)185 Econt.F E*F Stockholders0 e.uit' #K ,referred stock; C ) par value; 2);))) shares authori2ed; #;))) shares issued and outstanding Common stock; C1) par value; #);))) shares authori2ed; 4);))) shares issued and outstanding Common stock dividend distri*uta*le ,aid"in capital in e9cess of par Total paid"in capital !etained earnings4unappropriated7 C3 &;))) $ppropriated for plant e9pansion %);))) Total retained earnings Total stockholders0 e.uit' 7C44);))) T C();))) T C%2;))) S C1 );))) T C%);))) > C3 &;)))
15 ) 8>
C 3));))) 4));))) 4);))) 142;))) &&2;))) 42&;))) C1;31);)))
APr( 15)18=4Dividends on preferred and common stock. !ensing; 5nc.; has C&));))) of &K preferred stock and C1;2));))) of common stock outstanding; each having a par value of C1) per share. /o dividends have *een paid or declared during 2))( and 2)1). $s of Decem*er 31; 2)11; it is desired to distri*ute C4&&;))) in dividends. Instru&tions Io+ much +ill the preferred and common stockholders receive under each of the follo+ing assumptions= EaF The preferred is noncumulative and nonparticipating. E*F The preferred is cumulative and nonparticipating. EcF The preferred is cumulative and full' participating. EdF The preferred is cumulative and participating to 12K total. ASo!ution 15)18= EaF Current 'ear0s dividend E&K of C&));)))F !emainder to common E*F Dividends in arrears; &K of C&));))) for t+o 'ears Current 'ear0s dividend !emainder to common EcF ,referred C #4;))) C #4;))) ,referred C12&;))) #4;))) C1(2;))) ,referred Dividends in arrears; &K of C&));))) for t+o 'ears C12&;))) Current 'ear0s dividend #4;))) ,articipating dividend 1)K EC2));))) Q C2;)));)))F &);))) C2%2;))) Common C 4 424;))) C424;))) Common C 4 4 2(#;))) C2(#;))) Common C 4 (#;))) 12);))) C21#;))) Total C #4;))) 424;))) C4&&;))) Total C12&;))) #4;))) 2(#;))) C4&&;))) Total C12&;))) 1#);))) 2));))) C4&&;)))
15 ) 8? Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition ASo!ution 15)18= Econt.F EdF Dividends in arrears; &K of C&));))) for t+o 'ears Current 'ear0s dividend ,articipating dividend E4KF !emainder to common ,referred C12&;))) #4;))) 32;))) 4 C224;))) Common C 4 (#;))) 4&;))) 12);))) C2#4;))) Total C12&;))) 1#);))) &);))) 12);))) C4&&;)))
15 ) 8@
IFRS QUESTIO,S
TrueDFa!se 1. 5n the :nited States; like man' other countries; *anks are ma@or creditors as +ell as the largest investors. 2. The i8$$, statement of recogni2ed income and e9penses is identical to the :.S. 8$$, statement of retained earnings T *eginning *alance retained earnings; plus net income; less dividends; e.uals ending *alance retained earnings. 3. ?hen the statement of recogni2ed income and e9penses is utili2ed the re.uirement for additional note disclosure is reduced. 4. :nder i8$$, compliance re.uirements the :.S. 8$$, formatted income statement need not *e replaced +ith the i8$$, statement of recogni2ed income and e9penses. . :nder i8$$, compliance re.uirements the revaluation surplus is not considered contri*uted capital. Ans+ers to TrueDFa!seE 1. False 2. False 3. False 4. True . True -u!ti'!e C#oi&e 1. The accounting for treasur' stock retirements under i8$$, a. is to charge the entire amount to paid"in capital. *. ma' have the e9cess charged to paid"in capital; depending on the original transaction related to the issuance of the stock. c. is to charge the e9cess of the cost of treasur' stock over par value to retained earnings. d. is to allocate the difference *et+een paid"in capital and retained earnings. 2. The !evaluation Surplus of i8$$, is a. similar to :.S. 8$$, in that it allo+s *oth increases and decreases in valuation. *. similar to :.S. 8$$, in that it onl' allo+s for the decrease in valuation. c. similar to :.S. 8$$, in that it onl' allo+s for the increase in valuation. d. different than :.S. 8$$, in that it allo+s the increase in valuation.
15 ) 5B Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition 3. The i8$$, statement of recogni2ed income and e9penses a. does not recogni2e charges to e.uit' such as revaluation surplus values. *. is a re.uired report under i8$$, reporting re.uirements. c. reports the items that +ere charged directl' to e.uit' such as revaluation surplus. d. is similar to the :.S. 8$$, income statement in that it onl' reports revenues and e9penses of the period. 4. :nder i8$$, compliance re.uirements the !evaluation Surplus is a. onl' utili2ed to record the changes in deprecia*le items T plant and e.uipment. *. considered as revenue +hen utili2ing the :.S. 8$$, formatted income statement. c. utili2ed to record the changes in propert'; plant; and e.uipment. d. reported as contri*uted capital. . The current pro@ect of the 5$S6 and the F$S6 related to financial statement presentation indicates a. that the i8$$, statement of recogni2ed income and e9penses +ill most likel' *e adopted *' the F$S6 as a :.S. re.uirement in the near future. *. that the i8$$, statement of recogni2ed income and e9penses +ill pro*a*l' *e eliminated. c. that the :.S. 8$$, standard for reporting comprehensive income +ill most likel' *e adopted *' the 5$S6 for i8$$,. d. that h'*rid financial instruments are unaccepta*le. Ans+ers to -u!ti'!e C#oi&eE 1. 2. 3. 4. . * d c c *
S#ort Ans+er 1. 6riefl' descri*e some of the similarities and differences *et+een :.S. 8$$, and i8$$, +ith respect to the accounting for stockholders- e.uit'. 1( KeF si0i!arities *et+een i8$$, and :.S. 8$$, for transactions related to stockholderse.uit' pertain to E1F issuance of shares; E2F purchase of treasur' stock; E3F declaration and pa'ment of dividends; E4F the accounting for start up costs4that is; the' should *e e9pensed as incurred; E F the costs associated +ith issuing stock reduce the proceeds from the issuance and reduce paid in capital; and E#F the accounting for par; no par and no par stock +ith a stated value. -a<or $i%%eren&es relate to terminolog' used; introduction of items such as revaluation surplus; and presentation of stockholder e.uit' information. 5n addition; the accounting for treasur' stock retirements differs *et+een i8$$, and :.S. 8$$,. :nder :.S. 8$$, a compan' has the option of charging the e9cess of the cost of treasur' stock over par value to E1F retained earnings; E2F allocate the difference *et+een paid"in capital and retained earnings; or E3F charge the entire amount to paid"in capital. :nder i8$$,; the e9cess ma' have to *e charged to paid"in capital; depending on the original transaction related to the issuance of the stock. $n i8$$,N:.S. 8$$, difference relates to the account !evaluation
15 ) 51
Surplus. !evaluation surplus arises under i8$$, *ecause companies are permitted to revalue their propert'; plant and e.uipment to fair value under certain circumstances. This account is part of general reserves under i8$$, and is not considered contri*uted capital. ?hile *oth i8$$, and :.S. 8$$, consider the statement of stockholders- e.uit' a primar' financial statement; under i8$$,; a compan' has the option of preparing a statement of stockholders- e.uit' similar to :.S. 8$$, or preparing a statement of recogni2ed income and e9pense ESo!5EF. The statement of So!5E reports the items that +ere charged directl' to e.uit' such as revaluation surplus and then adds the net income for the period to arrive at total recogni2ed income and e9pense. 5n this situation; additional note disclosure is re.uired to provide reconciliations of other e.uit' items. 2. 6riefl' discuss the implications of the financial statement presentation pro@ect for the reporting of stockholders- e.uit'. 2. 5t is likel' that the statement of stockholders- e.uit' and its presentation +ill *e e9amined closel' in the financial statement presentation pro@ect. The statement of recogni2ed income and e9pense no+ permitted under i8$$, +ill pro*a*l' *e eliminated. 5n addition the options of ho+ to present other comprehensive income under :.S. 8$$, +ill change in an' converged standard in this area. $lso; the F$S6 has *een +orking on a standard that +ill likel' converge to i8$$, in the area of h'*rid financial instruments.

CH 15

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CH 15

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CHAPTER 15

-ULTIPLE CHOICE*Con&e'tua! 3&ont(4

Stockholders- E.uit' c %%. $llocating proceeds in lump sum sales.

-ULTIPLE CHOICE*Co0'utationa! 3&ont(4

Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition

-ULTIPLE CHOICE*CPA A$a'te$

CHAPTER LEAR,I,9 O.:ECTI;ES

Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition

SU--ARY OF LEAR,I,9 O.:ECTI;ES .Y QUESTIO,S

Item 2. 2 . 2(. 3). 31.

Item 3. 2#. 32. 33. S 34.

41. 42. %&. %(.

%#. %%. 12). 123. 124. 132. 133.

<C <C <C <C <C E E

121. 131. 142. 134. 13 . 143.

1. 2. 3. (#. (%. (&. ((. 1)). # . ##. 11#. 11%.

<C <C <C <C E E , , <C <C E ,

15 ) 15 Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition

-u!ti'!e C#oi&e Ans+ers*Con&e'tua!

21. 22. 23. 24. 2 . 2#. 2%. 2&.

2(. 3). 31. 32. 33. 34. 3 . 3#.

3%. 3&. 3(. 4). 41. 42. 43. 44.

4 . 4#. 4%. 4&. 4(. ). 1. 2.

#1. #2. #3. #4. # . ##. #%. 7#&.

15 ) 1= Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition

Stockholders- E.uit' %#.

Stockholders- E.uit' (1.

-u!ti'!e C#oi&e Ans+ers*Co0'utationa!

%1. %2. %3. %4. % . %#. %%.

%&. %(. &). &1. &2. &3. &4.

& . &#. &%. &&. &(. (). (1.

(2. (3. (4. ( . (#. (%. (&.

((. 1)). 1)1. 1)2. 1)3. 1)4. 1) .

1)#. 1)%. 1)&. 1)(. 11). 111. 112.

113. 114. 711 711. #. 711 %. 711 &. 711 (.

-ULTIPLE CHOICE*CPA A$a'te$

Stockholders- E.uit' 121.

Stockholders- E.uit' 12(.

-u!ti'!e C#oi&e Ans+ers*CPA A$a'te$

);))) > C4;& );))).

F Q UE#;))) C2 F S E(;))) C2)FV C2&&;))) > C13);()(.

)) C2)F Q UE ;))) C2 F S E%; )) C2)FV C24);))) > C13);()(.

( $60, 000 + $75, 000 ) + ( $75, 000 + $90, 000 ) 2

> .1)% > 1).%K.

$90, 000 ( $100, 000 .10 )

C2 );))) T EC ));))) &K W 2F > C1%);))).

DERI;ATIO,S * CPA A$a'te$

12#. 12%. 12&. 12(. 713).

15 ) 6? Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition

;))) > C1%.4 per share.

;)))F Q EC3%);))) T C4);)))FV.

EC3%);))) T C4);)))F Q EC1;4#);))) T C ));)))F > 34.4K.

));))) 1));))) #;))) )) ; ))

Stockholders- E.uit' So!ution 15)188

C 3));))) 4));))) 4);))) 142;))) &&2;))) 42&;))) C1;31);)))

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