Exam 11: Reporting and Analyzing Stockholders Equity

When a company issues its stock, the equity increase is equal to the number of shares sold multiplied by the market price of the stock on the issue date.

There are never any income statement effects recognized when a purchase or sale of stock or payment of dividends occurs.

Companies must report 'gains and losses' on transactions relating to purchases and sales of their own stock as nonoperating amounts on the income statement.

IFRS allows the repurchase of a company's own stock to be reported as a decrease to the common equity amounts in stockholders' equity.

Net income is generally viewed as a more inclusive measure of performance than comprehensive income.

A re-issuance of treasury stock has the potential to yield a gain or loss on the income statement.

The stockholders' equity section of the Music, Inc.'s 2016 balance sheet follows together with a portion of its statement of cash flows: A. Calculate the net income of Music, Inc. in 2016 using the above information. B. Calculate the average dollar per share received for common stock issued during 2016. C. What is the dividend per share paid in 2016?

Cash dividends reduce both cash and retained earnings by the amount of the dividends paid.

During 2016, Cambridge Company had 20,000 shares of $20 par value common stock and 7,000 shares of 8%, $60 par value convertible preferred stock outstanding. Each share of preferred stock may be converted into three shares of common stock. Cambridge Company's 2016 net income was $1,300,000. A. Compute basic earnings per share for 2016. B. Compute diluted earnings per share for 2016.

Identify the benefits received from being a preferred stockholder compared to a common stock holder. Describe the nature of each privilege or preference of each.

Which is not an item that should be included in the computation of 'other comprehensive income'?

Friendly Company has 20,000 shares of $160 par value, 5% cumulative preferred stock and 140,000 shares of $40 par value common stock. Friendly declares and pays cash dividends amounting to $451,200. If no arrearage on the preferred stock exits, how much in dividends per share is paid to the common stockholders?

One reason a company may repurchase stock is because it wants to send a signal to the market that its shares are overvalued.

Sea Bird Co. announces a large stock dividend of 45% of the 2.2 million outstanding shares of common stock. The current price per share is $15.50. Par value of the stock is $0.02 per share. Illustrate the financial effects of this large stock dividend in the balance sheet template.

Vast Horizons has 20,000 outstanding shares of common stock with par value of $1.50 per share and market price on January 1 of $30. A. Show the financial statement effects of the two independent equity transactions in the template below. 1. January 15: 6% stock dividend paid to common shareholders with current market price at $30 2. June 15: 28% stock dividend paid to common shareholders with current market price at $80 B. How have these two transactions changed the overall valuation of the firm?

All conversion options for convertible securities are reported on the balance sheet.

Clockworks Company began business on January 1 and immediately issued 600,000 shares of its $2 par value common stock for $16,000,000. At the end of the year it paid $600,000 in cash dividends. In midyear, the firm bought back some of its own shares. The company reports the following additional information at December 31: A. How much is the Additional Paid-in Capital account at the end of the year? B. Determine the retained earnings amount at the end of the year. C. How many shares of stock are in the treasury at the end of the year?

For small stock dividends, by what amount are retained earnings reduced?

Stockholders' equity represents the current market value of a company.

Use the following consolidated statement of stockholders' equity to show the summary transactions by preparing an entry in journal form with explanation for each item A through C. A. Pay cash dividends (item 7) B. Issue common stock (item 5) C. Purchase treasury shares (item 3)