Exam 15: Contributed Capital

If a company does not maintain its treasury stock records on a specific identification basis, which of the following approaches may be used to record a reduction in the treasury stock account when the stock is reissued?

Exhibit 15-8 On January 1, 2013, Margarita Company granted share appreciation rights (SARs) to the president, which permitted her to receive cash or stock for the difference between the quoted market price and $50 for 2,000 shares of the company's stock on the exercise date. The service period ends on December 31, 2015, and the rights must be exercised by December 31, 2018. Assume that on December 31, 2016, the president exercises all of her rights and receives cash. Using an options pricing model, the estimated fair values of the SARs were as follows: -Refer to Exhibit 15-8. What is the compensation expense related to the SARs for the year ending December 31, 2013?

On January 1, 2014, Watchtower Corporation granted Emma Freegross, its president, a compensatory stock option plan to purchase 8,000 shares of Watchtower's $10 par common stock. The option price is $25 per share and the option has a fair value of $7 per option, which is exercisable on January 1, 2018, after four years of service. How much compensation expense should Watchtower recognize on December 31, 2014?

The preference to dividends that preferred stockholders have is

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Companies can reacquire their own stock to reduce the likelihood of a hostile takeover.

A corporation's legal capital

Exhibit 15-2 Lawrence, Inc., entered into a subscription contract with several subscribers that calls for the purchase of 2,000 shares of $5 par common stock for $15 a share. The contract calls for a 20% down payment and specifies that any amounts not paid within the contract period will be forfeited in full. -Refer to Exhibit 15-2. Lawrence received final payment (80%) on 1,800 shares and issued those shares. Subscribers defaulted on 200 shares. The entry to record the default on 200 shares would include a

Under the par value method of accounting for treasury stock, the treasury stock is reported on the balance sheet as a deduction from

Which one of the following statements is false?

On January 1, 2015, Asquith Company adopts a performance-based stock option plan with a four-year vesting and service period, a $35 exercise price, and a $6 per option fair value. The plan grants a maximum of 2,000 shares of $5 par common stock to each of the company's 30 executives. The number of shares that vest depends on the increase in sales during the service period, based on the following scale: Asquith estimates that sales will increase by 12% during the service period. The estimate is achieved and all options are exercised on January 1, 2019. Required: Assuming Asquith uses the fair value method to account for its stock option plan, prepare all of the journal entries over the life of Asquith's stock option plan (2015 through 2019).

Current GAAP recommends that the fair value method be used to account for compensatory stock option plans. From a conceptual point of view, this method is an improvement over the intrinsic value method. Required: Explain how the fair value method is an improvement over the intrinsic value method.

On January 1, Maxine Corp. entered into a subscription contract for 100 shares of its $20 par common stock at a price of $50 per share. The contract required on a per share basis an immediate down payment of $10 and two $20 payments on February 1 and March 1 from subscribers. All the down payments were received on January 1 and all the installments due on February 1 were received on February 1. On March 1, the rest of the payments were received except from one subscriber of ten shares, who defaulted. These shares were later sold for $40 per share. An amount necessary to bring the proceeds up to the total subscription price was retained and the balance of the payments received from the defaulted subscriber was returned. Required:

The following information is provided for Miller Corporation: What is the amount of contributed capital for Miller Corporation?

An open corporation does not allow the sale of their stock to the general public only to investment capital brokers.

Exhibit 15-8 On January 1, 2013, Margarita Company granted share appreciation rights (SARs) to the president, which permitted her to receive cash or stock for the difference between the quoted market price and $50 for 2,000 shares of the company's stock on the exercise date. The service period ends on December 31, 2015, and the rights must be exercised by December 31, 2018. Assume that on December 31, 2016, the president exercises all of her rights and receives cash. Using an options pricing model, the estimated fair values of the SARs were as follows: -Refer to Exhibit 15-8. What is the compensation expense related to the SARs for the year ending December 31, 2014?

The following are a list of terms. Required: Match the following definition with the terms listed above.

Exhibit 15-7 On January 1, 2013, 70 executives were granted a performance-based share option plan that would award them each a maximum of 300 shares of $5 par common stock for $12 a share based on the increase in sales over the next three years. The fair value per option on the grant date was $16. The award table is as follows: The company estimates that the sales increase will be 22% and that the annual employee turnover rate will be 2%. -Refer to Exhibit 15-7. The compensation expense for 2013 is (to the nearest dollar)

Wally, Inc. issued 500 shares of $10 par preferred stock at $83 a share. Each share had a warrant attached that allowed the holder to purchase one share of $5 par common stock for $15. Soon after the preferred stock was issued, the preferred stock was selling ex-rights for $64 a share and the warrants for $16 each. The entry to record the issuance of the preferred stock would include a

Martian Magic issued 800 shares of $50 par preferred stock and 1000 shares of $1 par common stock in a "package" sale for $150,000. The preferred stock market value was $88 per share, and the common stock market value was $156 per share. Required: Fill in the lines below to indicate the accounts and amounts credited in the entry to record the issuance of the stock.