Deck 15: Accounting for Stockholders Equity

Question 1

________ is the corporation's own shares repurchased by the corporation and held for some future use.

A) Authorized stock
B) Common stock
C) Treasury stock
D) Preferred stock

Answer 1

C

Question 2

If a corporation wishes to change the par value per share on its common stock, it must amend its articles of incorporation.

Answer 2

True

Question 3

Caesar Company issued 1,600 shares of its $2 par value common stock for $16 per share. They will record ________ in the common stock account at par value and ________ as additional paid-in capital in excess of par-common.

A) $3,200; $25,600
B) $25,600; $3,200
C) $3,200; $22,400
D) $22,400; $25,600

Answer 3

C

Question 4

Stock issue costs are treated as a(n) ________.

A) addition to the common stock account
B) reduction of additional paid-in capital
C) increase in outstanding shares
D) decrease in treasury stock

Question 5

________ is a major component/section of stockholders' equity on the balance sheet.

A) Common stock
B) Preferred stock
C) Contributed capital
D) Retained earnings

Question 6

________ receive dividend distributions after the company has paid all other providers of capital their return on investment.

A) Contributing shareholders
B) Common shareholders
C) Preferred shareholders
D) Primary shareholders

Question 7

C&S Corporation issued 2,000 shares of its $7 par value common stock for $12 per share. What amount would they record as additional paid-in capital in excess of par-common?

A) $2,000
B) $14,000
C) $10,000
D) $24,000

Question 8

The total number of shares that a firm can legally issue are called ________.

A) allocated shares
B) authorized shares
C) outstanding shares
D) common shares

Question 9

TLR Productions issued 800 shares of its $4 par value common stock for $12 per share. What amount would they record as additional paid-in capital in excess of par-common?

A) $800
B) $3,200
C) $6,400
D) $9,600

Question 10

When issuing common stock for noncash consideration, how does a company determine the value of the shares issued?

A) management judgment
B) the fair value of the stock issued
C) the fair value of the consideration received
D) all of the above

Question 11

The number of outstanding shares of common stock may be reduced by shares held in the treasury.

Question 12

Identify whether the stockholders' equity terminology belongs to U.S. GAAP, IFRS, or both.
$\begin{array}{lrr} \underline{\text { Term} }& \underline{\text { GAAP, IFRS, or Both }}\\ \text {Contributed capital } &\\ \text { Share capital} &\\ \text { Retained earnings } &\\ \text { Common stock} &\\\end{array}$

Question 13

Contributed capital includes amounts earned from the operations of a business.

Question 14

________ represents the amounts that common and preferred shareholders contribute in excess of the stated or par value.

A) Par value
B) Retained earnings
C) Accumulated income
D) Additional paid-in capital

Question 15

Stockholders' equity represents the interest in a corporation held by the investors.

Question 16

A stock split reduces retained earnings.

Question 17

Woods, Inc. issued 150 shares of its $8 par value common stock for $19 per share. They will record ________ in the common stock account at par value and ________ as additional paid-in capital in excess of par-common.

A) $1,200; $1,650
B) $1,200; $2,850
C) $1,650; $1,200
D) $2,850; $1,200

Question 18

Stockholders' equity is also called ________.

A) net assets
B) book assets
C) capital assets
D) none of the above

Question 19

U.S. GAAP and IFRS use the same terminology for stockholders' equity components.

Question 20

A change in stated value per share does not require shareholder approval and filings with the state.

Question 21

Woods, Inc. issues common stock in exchange for legal services received. The common stock has a fair value of $9,000 and a par value of $600. What is the journal entry required to record this transaction?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 9,000 & \\\hline \text { Common Stock } & & 600 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 8,400 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Legal Fees Expense } & 9,000 & \\\hline \text { Common Stock } & & 600 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 8,400 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 9,000 & \\\hline \text { Common Stock } & & 8,400 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 600 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Legal Fees Expense } & 9,000 & \\\hline \text { Common Stock } & & 8,400 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 600 \\\hline\end{array}$$

Question 22

Hawks, Inc. has 79,000 shares authorized, 50,000 shares issued, and 13,000 shares of treasury stock. ________ shares are outstanding, and ________ shares are unissued.

A) 37,000; 29,000
B) 66,000; 13,000
C) 29,000; 37,000
D) 13,000; 66,000

Question 23

Betta Corporation issued 300,000 shares of $2 par value stock. The book value of Betta's common stockholders' equity is equal to $30 million. Betta implements a two-for-one stock split. Complete the following table:
$$\begin{array} { | l | c | c | } \hline & \frac { \text { Before the } } { 2 \text {-for-1 split } } & \begin{array} { c } \text { After the } \\\text { 2-for-1 split }\end{array} \\\hline \text { Shares outstanding } & & \\\hline \text { Total par value } & & \\\hline \text { Par value per share } & & \\\hline \text { Total book value } & & \\\hline \text { Book value per share } & & \\\hline\end{array}$$

Question 24

Charmed, Inc. issued 100,000 shares of $4 par value stock. The book value of Charmed, Inc.'s common stockholders' equity is equal to $25 million. Charmed implements a two-for-one stock split. Complete the following table:
$$\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Before the } \\\text { 2-for-1 split }\end{array} & \begin{array} { c } \text { After the } \\\text { 2-for-1 split }\end{array} \\\hline \text { Shares outstanding } & & \\\hline \text { Total par value } & & \\\hline \text { Par value per share } & & \\\hline \text { Total book value } & & \\\hline \text { Book value per share } & & \\\hline\end{array}$$

Question 25

TLR Productions hires a consultant for a new project, and issues common stock with a par value of $900 in exchange for consulting services received. The common stock has a fair value of $3,300. What is the journal entry required to record this transaction?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 3,300 & \\\hline \text { Consulting Fees } & & 3,300 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 3,300 & \\\hline \text { Common Stock } & & 2,400 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 900 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 3,300 & \\\hline \text { Common Stock } & & 900 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 2,400 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Consulting Fees Expense } & 3,300 & \\\hline \text { Common Stock } & & 900 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 2,400 \\\hline\end{array}$$

Question 26

Caesar Cruise Lines, Inc. issues 6,000 shares of common stock with a $1 par value. The issue price of the stock is $20 per share. What is the journal entry required to record the issuance of the shares?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 120,000 & \\\hline \text { Common Stock } - \$ 1 \text { par } & & 6,000 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 114,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 6,000 & \\\hline \text { Common Stock } & & 6,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 20,000 & \\\hline \text { Common Stock } - \$ 1 \text { par } & & 6,000 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 14,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | } \hline \text { Cash } & 120,000 & \\\hline \text { Common Stock } & & 120,000 \\\hline\end{array}$$

Question 27

TNT Corporation is authorized to issue 75,000 shares of $1 par value common stock. Prepare the journal entries for the following transactions (omit explanations):
a. Issued 50,000 shares at $25 per share.
b. Issued 500 shares in exchange for consulting services; the estimated fair value is $20 per share.
c. Issued 7,000 shares at $30 per share, paying an underwriter $800 in stock issuance costs.

Question 28

Leo & Sons, Inc. is authorized to issue 50,000 shares of $2 par value common stock. Prepare the journal entries for the following transactions (omit explanations):
a. Issued 15,000 shares at $30 per share.
b. Issued 250 shares in exchange for legal services valued at $9,000.
c. Issued 5,000 shares at $40 per share, paying an underwriter $500 in stock issuance costs.

Question 29

Caesar Cruise Lines, Inc. issues 8,000 shares of its no-par common stock. The issue price of the stock is $24 per share. What is the journal entry required to record the issuance of the shares?

A) $$\begin{array} { | l | l | l | } \hline \text { Cash } & 192,000 & \\\hline \text { Common Stock -no par } & & 192,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 8,000 & \\\hline \text { Common Stock-nopar } & & 8,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 192,000 & \\\hline \text { Common Stock-nopar } & & 8,000 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 184,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Common Stock } & 8,000 & \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 8,000 \\\hline\end{array}$$

Question 30

The par value method is the most popular method for reporting treasury stock transactions.

Question 31

Caesar Cruise Lines, Inc. issues 7,000 shares of common stock with a $2 par value. The issue price of the stock is $28 per share, and the company paid an underwriter $500 in stock issue costs. What is the journal entry required to record the issuance of the shares?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 196,000 & \\\hline \text { Common Stock } - \$ 2 \text { par } & & 14,000 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 182,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 195,500 & \\\hline \text { Common Stock } - \$ 2 \text { par } & & 13,500 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 182,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 195,500 & \\\hline \text { Common Stock } - \$ 2 \text { par } & & 2,800 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 192,700 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 195,500 & \\\hline \text { Common Stock } - \$ 2 \text { par } & & 14,000 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 181,500 \\\hline\end{array}$$

Question 32

Danio Fisheries issued 420,000 shares of $4 par value stock. On August 1, Danio Fisheries implements a two-for-one stock split. After the stock split, the total number of shares outstanding is ________ and the total par value is ________.

A) 840,000; $1,680,000
B) 210,000; $1,680,000
C) 840,000; $3,360,000
D) 420,000; $3,360,000

Question 33

Fitzgerald Corporation has 58,000 shares authorized, 41,000 shares issued, and 8,000 shares of treasury stock. ________ shares are outstanding, and ________ shares are unissued.

A) 50,000; 8,000
B) 33,000; 17,000
C) 8,000; 50,000
D) 17,000; 33,000

Question 34

Discuss how stock is valued when issued in exchange for noncash consideration.

Question 35

Danio Fisheries issued 320,000 shares of $7 par value stock. The book value of Danio's common stockholders' equity is equal to $60 million. On August 1, Danio Fisheries implements a two-for-one stock split. After the stock split, the par value per share is ________ and the total book value is ________.

A) $14.00; $60 million
B) $3.50; $120 million
C) $7.00; $30 million
D) $3.50; $60 million

Question 36

The two methods of accounting for treasury stock are the cost method and the fair value method.

Question 37

S & C Company issues 2,400 shares of common stock with a $6 par value. The issue price of the stock is $14 per share, and the company paid an underwriter $800 in stock issue costs. What is the journal entry required to record the issuance of the shares?

A) $$\begin{array} { | l | l | l | } \hline \text { Cash } & 33,600 & \\\hline \text { Common Stock - } \$ 6 \text { par } & & 14,400 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 19,200 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | l | } \hline \text { Cash } & 33,600 & \\\hline \text { Common Stock } - \$ 6 \text { par } & & 13,600 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 20,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | l | } \hline \text { Cash } & 32,800 & \\\hline \text { Common Stock } - \$ 6 \text { par } & & 14,400 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 18,400 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | } \hline \text { Cash } & 32,000 & \\\hline \text { Common Stock } - \$ 6 \text { par } & & 13,600 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Common } & & 18,400 \\\hline\end{array}$$

Question 38

S & C Company issues 1,800 shares of common stock with a $2 par value. The issue price of the stock is $15 per share. What is the journal entry required to record the issuance of the shares?

A) $$\begin{array} { l l } \text { Cash } & 3,600 \\\quad \text { Common Stock } && 3,600\end{array}$$
B) $$\begin{array} { l r } \text { Cash } & 27,000 \\\quad \text { Common Stock - } \$ 2 \text { par } && 3,600 \\\text { Addl. Paid-in Capital in Excess of Par-Common } && 23,400\end{array}$$
C) $$\begin{array} { l r } \text { Cash } & 27,000 \\\quad \text { Common Stock - } \$ 2 \text { par } && 1,800 \\\text { Addl. Paid-in Capital in Excess of Par-Common } && 25,200\end{array}$$
D) $$\begin{array} { l l } \text { Cash } &27,000 \\\quad \text { Common Stock } && 27,000\end{array}$$

Question 39

S & C Company issues 1,500 shares of its no-par common stock. The issue price of the stock is $20 per share. What is the journal entry required to record the issuance of the shares?

A) $\begin{array}{lll}\text { Common Stock } & 1,500 \\\text { Addl. Paid-in Capital in Excess of Par-Common } & & 1,500\end{array}$

B) $\begin{array}{lll}\text { Cash } & 1,500 & \\\quad \text { Common Stock - no par } & & 1,500\end{array}$

C) $$\begin{array} { l r } \text { Cash } & 30,000 \\\text { Common Stock - no par } && 1,500 \\\text { Addl. Paid-in Capital in Excess of Par-Common } && 28,500\end{array}$$
D) $$\begin{array} { l l } \text { Cash } & 30,000 \\\quad \text { Common Stock-nopar } && 30,000\end{array}$$

Question 40

Why would a company issue a stock split?

Question 41

When a company purchases and sells treasury shares for amounts above and below cost, it reports these "gains" and "losses" ________.

A) on the income statement
B) on the balance sheet
C) on the income statement and balance sheet
D) only in a footnote

Question 42

Dali's Dessert Company provides the following information from the Stockholders' Equity Section of the Balance Sheet:
$$\begin{array} { | l | r | } \hline \begin{array} { l } \text { Common Stock, } \$ 1 \text { par value, } 100,000 \text { shares issued and } \\\text { putstanding }\end{array} & \$ 100,000 \\\hline \text { Additional Paid-in Capital in Excess of Par-Common } & 900,000 \\\hline \text { Additional Paid-in Capital-Retired Shares } & 15,000 \\\hline \text { Retained Earnings } & 1,125,000 \\\hline \text { Total Stockholders' Equity } & \$ 2,140,000 \\\hline\end{array}$$
Dali acquired 15,000 shares of common stock in the open market at a price of $12 per share and retired the shares. What is the journal entry to record this transaction?

Question 43

Treasury shares are considered to be ________.

A) unauthorized shares
B) retired shares
C) issued shares
D) outstanding shares

Question 44

Treasury shares reduce the number of shares ________.

A) issued
B) authorized
C) outstanding
D) available

Question 45

Coyote Company reacquired 25,000 shares of its $1 par common stock for $15 per share on June 1. On July 1 they sold 10,000 treasury shares for $20 per share. On August 1 they sold 5,000 treasury shares for $12 per share. Prepare the necessary journal entries (omit explanations).

Question 46

Dante, Inc. reacquired 57,000 shares of its $1 par common stock for $19 per share on January 31. On March 1 they sold 9,000 treasury shares for $28 per share. On April 1 they sold 5,000 treasury shares for $15 per share. What is the necessary journal entry for March 1?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 252,000 & \\\hline \text { Treasury Stock } & & 171,000 \\\hline \text { Addl. Paid-in Capital from Treasury Stock } & & \\\text { Transactions. } & & 81,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 252,000 & \\\hline \text { Treasury Stock } & & 252,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 75,000 & \\\hline \text { Treasury Stock } & & 75,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 252,000 & \\\hline \text { Treasury Stock } & & 135,000 \\\hline \text { Addl. Paid-in Capital from Treasury Stock } & & \\\text { Transactions. } & & 117,000 \\\hline\end{array}$$

Question 47

Monet's Minions, Inc. reacquired 10,000 shares of its $1 par common stock for $11 per share on August 1. On October 31 they sold 9,000 treasury shares for $7 per share. Assuming a zero balance in the Additional Paid-in Capital from Treasury Stock Transactions account, what is the necessary journal entry for the October transaction?

A) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 110,000 & \\\hline \text { Treasury Stock } & & 110,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 63,000 & \\\hline \text { Treasury Stock } & & 54,000 \\\hline \text { Addl. Paid-in Capital from Treasury Stock } & & \\\text { Transactions. } & & 9,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 110,000 & \\\hline \text { Treasury Stock } & & 63,000 \\\hline \text { Retained Earnings } & & 47,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 63,000 & \\\hline \text { Retained Earnings } & 36,000 & \\\hline \text { Treasury Stock } & & 99,000 \\\hline\end{array}$$

Question 48

The Magic Flute Company provides the following information from the Stockholders' Equity section of the balance sheet:
$$\begin{array} { | l | r | } \hline \begin{array} { l } \text { Common Stock, } \$ 1 \text { par value, } 200,000 \text { shares issued and } \\\text { putstanding }\end{array} & \$ 200,000 \\\hline \text { Additional Paid-in Capital in Excess of Par-Common } & 1,400,000 \\\hline \text { Retained Earnings } & 1,520,000 \\\hline \text { Total Stockholders' Equity } & \$ 3,120,000 \\\hline\end{array}$$
Magic Flute had the following transactions related to treasury shares:
January 1 Acquired 30,000 shares of its common stock in the open market for $12 per share
March 1 Sold 5,000 treasury shares for $16
April 1 Sold 5,000 treasury shares for $6
May 1 Retired 5,000 treasury shares
Prepare the necessary journal entries to record all treasury stock transactions.

Question 49

Renoir Corporation reacquired 40,000 shares of its $1 par common stock for $19 per share on July 1. On August 1 they sold 10,000 treasury shares for $22 per share. What is the necessary journal entry for the August transaction?

A) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 40,000 & \\\hline \text { Treasury Stock } & & 40,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 760,000 & \\\hline \text { Treasury Stock } & & 540,000 \\\hline \begin{array} { l } \text { Addl. Paid-in Capital from Treasury Stock } \\\text { Transactions. }\end{array} & & 220,000\\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 220,000 & \\\hline \text { Treasury Stock } & & 190,000 \\\hline \text { Addl. Paid-in Capital from Treasury Stock } & & \\\text { Transactions. } & & 30,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 220,000 & \\\hline \text { Retained Earnings } & & 220,000 \\\hline\end{array}$$

Question 50

Dante, Inc. reacquired 30,000 shares of its $1 par common stock for $19 per share on January 31. On March 1 they sold 7,000 treasury shares for $29 per share. On April 1 they sold 6,000 treasury shares for $16 per share. What is the necessary journal entry for April 1?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 570,000 & \\\hline \text { Treasury Stock } & & 480,000 \\\hline \begin{array} { l } \text { Addl. Paid-in Capital from Treasury Stock } \\\text { Transactions. }\end{array} & &90,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 96,000 & \\\hline \text { Addl. Paid-in Capital from Treasury Stock Transactions. } & 18,000 & \\\hline \text { Treasury Stock } & & 114,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Retained Earnings } & 96,000 & \\\hline \text { Treasury Stock } & & 96,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 96,000 & \\\hline \text { Retained Earnings } & 18,000 & \\\hline \text { Treasury Stock } & & 114,000 \\\hline\end{array}$$

Question 51

Caesar & Company reacquired 60,000 shares of its $1 par common stock for $10 per share on March 1. On April 1 they sold 10,000 treasury shares for $15 per share. On May 1 they sold 7,000 treasury shares for $6 per share. Assuming no prior balance in the Additional Paid-in Capital from Treasury Stock Transactions, what is the ending balance in this account following these transactions?

A) $22,000 debit
B) $28,000 debit
C) $22,000 credit
D) $50,000 credit

Question 52

When treasury shares are retired, the number of shares issued is reduced.

Question 53

Illusions, Inc. reacquired 26,000 shares of its common stock for $16 per share on June 1. On July 1 they sold 7,000 treasury shares for $23 per share. On August 1 they sold 9,000 treasury shares for $13 per share. Assuming no prior balance in the Additional Paid-in Capital from Treasury Stock Transactions account, what is the ending balance in this account following these transactions?

A) $7,000 debit balance
B) $9,000 credit balance
C) $22,000 debit balance
D) $22,000 credit balance

Question 54

Preferred shares are generally voting and pay a fixed dividend.

Question 55

The most popular method of accounting for treasury stock is the ________ method.

A) par value
B) cost
C) fair value
D) A and B are utilized equally

Question 56

When treasury stock is sold above or below cost, why isn't this reported on the income statement as a gain or loss?

Question 57

Pollyanna & Partners reacquired 40,000 shares of its $1 par common stock for $25 per share. What is the journal entry needed to record this transaction?

A) $$\begin{array} { | l | r | r | } \hline \text { Treasury Stock } & 1,000,000 & \\\hline \text { Cash } & & 1,000,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 1,000,000 & \\\hline \text { Treasury Stock } & & 1,000,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 40,000 & \\\hline \text { Addl. Paid-in Capital } & & 40,000 \\\hline\end{array}$$
D) No entry required.

Question 58

When issuing preferred shares instead of debt, corporations lose out on a valuable tax deduction.

Question 59

Veneto Vineyards reacquired 18,000 shares of its $1 par common stock for $15 per share. What is the journal entry necessary to record this transaction?

A) No entry required.
B) $$\begin{array} { | l | r | r | } \hline \text { Treasury Stock } & 270,000 & \\\hline \text { Cash } & & 270,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 270,000 & \\\hline \text { Treasury Stock } & & 270,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Treasury Stock } & 18,000 & \\\hline \text { Addl. Paid-in Capital } & & 18,000 \\\hline\end{array}$$

Question 60

Why would a company repurchase shares of its own common stock?

Question 61

Mozart & Company paid cash dividends totaling $160,000 in 2016 and $85,000 in 2017. In 2018, the company will pay cash dividends of $800,000. There were no dividends in arrears as of January 1, 2016. There are 25,000 shares of common stock outstanding and 100,000 shares of 6 percent, $50 par cumulative preferred stock outstanding. What is the amount of cash dividends payable to common stockholders in 2018?

A) $145,000
B) $140,000
C) $355,000
D) $800,000

Question 62

The Magic Flute Company paid cash dividends totaling $260,000 in 2016 and $210,000 in 2017. In 2018, the company will pay cash dividends of $980,000. There were no dividends in arrears as of January 1, 2016. There are 25,000 shares of common stock outstanding and 70,000 shares of 6 percent, $100 par cumulative preferred stock outstanding. What is the amount of cash dividends payable to common stockholders in 2018?

A) $0
B) $190,000
C) $420,000
D) $980,000

Question 63

On January 1, 2018, TNT, Inc. issued 1,500 shares of $80 par value, convertible preferred shares for $200,000. Each preferred share is convertible into one share of $10 par common stock. What is the necessary journal entry to record this transaction?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 200,000 & \\\hline \text { Convertible Preferred Stock } - \$ 80 \text { Par } & & 120,000 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Preferred } & & 80,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 200,000 & \\\hline \text { Preferred Stock-Convertible } & & 200,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 200,000 & \\\hline \text { Preferred Stock - } \$ 80 \text { Par } & & 15,000 \\\hline \text { Addl. Paid-in Capital in Excess of Par-Preferred } & & 185,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | l | } \hline \text { Cash } & 120,000 & \\\hline \text { Preferred Stock-Convertible } & & 120,000 \\\hline\end{array}$$

Question 64

Stinson Corporation has 6% participating preferred shares. In 2018 the company pays common shareholders dividends that are 10% of common par value. What, if any, additional dividend will preferred shareholders receive?

A) 4%
B) 10%
C) 100%
D) none

Question 65

________ are shares for which the issuing entity has the right to "buy back" the shares at a specified price and future date.

A) Convertible preferred shares
B) Callable preferred shares
C) Redeemable preferred shares
D) Cumulative preferred shares

Question 66

When accounting for non-mandatorily redeemable preferred shares, ________ will report them as a liability.

A) IFRS
B) U.S. GAAP
C) Both A & B
D) Neither A nor B

Question 67

Mozart & Company issued 2,500 shares of 5%, $60 par value, preferred stock for $190,000. The board of directors declared preferred dividends for one year on December 30, to be paid in January. What journal entry is necessary to record the declaration of dividends?

A) $$\begin{array} { | l | r | r | } \hline \text { Dividends - Preferred } & 9,500 & \\\hline \text { Cash } & & 9,500 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Dividends } & 9,500 & \\\hline \text { Dividends Payable-Preferred } & & 9,500 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Dividends - Preferred } & 7,500 & \\\hline \text { Cash } & & 7,500 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Dividends - preferred } & 7,500 & \\\hline \text { Dividends payable-preferred } & & 7,500 \\\hline\end{array}$$

Question 68

________ preferred shares contain a provision requiring that preferred shareholders share ratably in distributions with common shareholders.

A) Cumulative
B) Participating
C) Convertible
D) Redeemable

Question 69

On January 1, 2016, Warhol Company issued 1,000 shares of 10%, $200 par value, cumulative preferred stock for $300,000. No preferred dividends were declared in 2016 and 2017. On December 30, 2018, the Board declared $10,000 in dividends. What amount, if any, of preferred dividends are in arrears as of December 31, 2018?

A) $0
B) $50,000
C) $60,000
D) $4,000

Question 70

Bach, Inc. issued 1,600 shares of 8%, $140 par value, preferred stock for $150,000. The board of directors declared preferred dividends for one year on December 30, to be paid in January. What journal entry is necessary to record the payment of dividends?

A) $$\begin{array} { | c | r | r | } \hline \text { Dividends - Preferred } & 17,920 & \\\hline \text { Dividends Payable - Preferred } & & 17,920 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Dividends Payable - Preferred } & 17,920 & \\\hline \text { Cash } & & 17,920 \\\hline\end{array}$$
C) $$\begin{array} { |l | r | r | } \hline \text { Dividends - Preferred } & 12,000 & \\\hline \text { Dividends Payable - Preferred } & & 12,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Dividends Payable - Preferred } & 12,000 & \\\hline \text { Cash } & & 12,000 \\\hline\end{array}$$

Question 71

Where are dividends in arrears reported?

A) notes to the financial statements
B) income statement
C) balance sheet
D) statement of stockholders' equity

Question 72

Under U.S. GAAP, ________ preferred shares are classified as a liability.

A) convertible
B) callable
C) mandatorily redeemable
D) non-mandatorily redeemable

Question 73

________ preferred shares are preferred shares for which redemption is certain at a specified price on a specified date.

A) Convertible
B) Callable
C) Mandatorily redeemable
D) Cumulative

Question 74

Betta Corp. has 65,000 shares of $3 par common stock and 25,000 shares of $20 par 7% cumulative preferred stock. The company declares cash dividends of $80,000 during the current year and there are $8,000 dividends in arrears. What will be the total dividend payment to common stockholders?

A) $37,000
B) $8,000
C) $43,000
D) $80,000

Question 75

________ preferred stock contains a provision that stipulates that, if the board of directors do not declare a dividend, the dividends to preferred accumulate.

A) Convertible
B) Callable
C) Mandatorily redeemable
D) Cumulative

Question 76

Convertible preferred shares are often accounted for as a liability under both GAAP and IFRS.

Question 77

________ preferred stock shares allow the shareholder to convert his shares to common shares at a predetermined rate or exchange ratio.

A) Convertible
B) Callable
C) Mandatorily redeemable
D) Cumulative

Question 78

On January 1, 2016, Warhol Company issued 3,000 shares of 10%, $200 par value, cumulative preferred stock for $700,000. No preferred dividends were declared in 2016 and 2017. On December 30, 2018, the Board declared $3,000 in dividends. How much of the dividend is allocated to preferred and common shareholders?

A) $0 preferred, $3,000 common
B) $1,500 preferred, $1,500 common
C) $3,000 preferred, $0 common
D) $1,200 preferred, $1,800 common

Question 79

Purrfect Paws Company issues 1,000 shares of $50 par preferred stock for $250,000. The company is not required to buy back the preferred stock. However, the preferred stock includes a redemption feature that gives the holder the option to redeem the shares for cash at specified dates. This would be classified as ________ under U.S. GAAP and ________ under IFRS.

A) debt; equity
B) debt; debt
C) equity; debt
D) equity; equity

Question 80

________ preferred shares are shares for which the issuing entity has the right to buy back the shares at a specified price and future date.

A) Convertible
B) Callable
C) Mandatorily redeemable
D) Cumulative