Question 1

Exhibit 15-9
Groundcover, Inc. had never had a treasury stock transaction prior to 2016. It experienced the following treasury stock transactions during 2016:
4/1/2016: Reacquired 1,000 shares of its own $5 par common stock, originally sold at $12 a share, for $10 a share. This was the first time that Groundcover had reacquired its own stock.
4/8/2016: Reissued 400 shares at $8 a share.
5/2/2016: Reissued 500 shares at $13 a share.
5/10/2016: Retired the remaining 100 shares. Assume the cost method is used.
-Refer to Exhibit 15-9. The entry to record the retirement of 100 shares on 5/10/2016 would include a

Accepted Answer

A)  credit to Additional Paid-in Capital from Treasury Stock for $200. 
B)  debit to Treasury Stock for $1,000. 
C)  debit to Additional Paid-in Capital on Common Stock for $1,200. 
D)  debit to Common Stock for $1,200.

Question 2

There are three criteria that must be met in order for a share purchase plan to be considered noncompensatory. If all three criteria are not met then the plan is considered compensatory.

Accepted Answer

A) True 
 B)False

Question 3

For a stock appreciation rights SAR) compensation plan, the measurement date is the date

Accepted Answer

A)  on which the options SARs) are granted to the employees. 
B)  when the employees may first exercise the options SARs). 
C)  on which the options SARs) are exercised. 
D)  of the adoption of the plan.

Question 4

Smith Corp. has both Class A and Class B shares of common stock. The difference between the two classes of stock is most likely related to

Accepted Answer

A)  Class A stock being worth more than Class B stock. 
B)  Class A shareholders having greater voting rights than Class B shareholders. 
C)  Class A shareholders receiving dividends while Class B shareholders do not. 
D)  Class A shareholders having better preemptive rights than Class B shareholders.

Question 5

Which of the following is not part of the shareholders' equity section of the balance sheet?

Accepted Answer

A)  working capital 
B)  contributed capital 
C)  treasury stock 
D)  retained earnings

Question 6

Which one of the following phrases is least desirable when describing an amount received from a sale of stock in excess of the par value of the stock?

Accepted Answer

A)  paid-in capital in excess of par value 
B)  capital surplus 
C)  additional paid-in capital on preferred stock 
D)  contributed capital in excess of par value

Question 7

A corporation issues 50 "packages" of securities for $154 per package. Each package consists of three shares of $5 par common stock and one share of $50 par preferred stock. If the market values of $40 per share for the common stock and $100 per share for preferred stock are known, the journal entry to record the sale would assign a total value to the preferred stock of

Accepted Answer

A)  $3,500. 
B)  $4,200. 
C)  $5,775. 
D)  $6,000.

Question 8

What is a stock subscription?

Accepted Answer

The answer of What is a stock subscription?...

Question 9

Provide the definitions for the following terms: Open corporation
Closed corporation Domestic corporation Foreign corporation

Accepted Answer

The answer of Provide the definitions for the following terms:...

Question 10

Consider each situation for Kathy, Inc. below independently.
· Kathy, Inc. issued 10,000 shares of its $25 par common stock current fair value of common is $35 per share) for a large tract of land. The land was appraised at $400,000. Kathy already had 500,000 shares of common stock outstanding.
· Kathy, Inc. issued 2,000 shares of $10 par Class A common stock at $12 and 100 shares of no-par Class B common stock at $20.
Required:
a. At what amount should land be recorded?
b. What is the total amount that should be recorded for additional paid-in capital from the second situation?

Accepted Answer

The answer of Consider each situation for Kathy, Inc. below...

Question 11

On January 1, 2016, Robertson Company created a fixed compensatory stock option plan for employees to acquire
18,000 shares of $3 par common stock for $22 a share. The options vest after four years of employment, and therefore, they cannot be exercised until January 1, 2020. On the grant date, the fair value of the options was $5 per option. All options were exercised on June 30, 2020. Robertson Company accounts for this plan using the fair value method.
Required:
Record all entries relating to this stock option plan over the life of the plan.

Accepted Answer

The answer of On January 1, 2016, Robertson Company created...

Question 12

Exhibit 15-3
On January 1, 2016, Howard, Inc. granted to a key executive a fixed compensatory share option plan for 1,000 shares of $4 par common stock for $30 a share. The fair value per option on that date was $14. The service period extended through December 31, 2017.
-Refer to Exhibit 15-3. What entry, if any, was required on December 31, 2016?

Accepted Answer

The answer of Exhibit 15-3
On January 1, 2016, Howard, Inc....

Question 13

Budget Leasing issued 500 shares of $20 par value convertible preferred stock at $22 per share. Each preferred share is converted to 7 shares of $4 par value common stock. The entry to record this conversion would include a

Accepted Answer

A)  debit to Additional Paid-in Capital on Preferred Stock for $11,000. 
B)  credit to Common Stock for $11,000. 
C)  debit to Retained Earnings for $3,000. 
D)  credit to Additional Paid-in Capital from Preferred Stock Conversion for $3,000.

Question 14

When callable preferred stock is recalled, if the recall price exceeds the total of the par value in the preferred stock account and the additional paid-in capital associated with the recalled preferred stock, the difference is

Accepted Answer

A)  credited to Retained Earnings. 
B)  credited to Additional Paid-in Capital on Preferred Stock. 
C)  debited to Retained Earnings. 
D)  credited to Loss from Recall of Preferred Stock.

Question 15

When share options are exercised by an employee under a compensatory share option plan, the issuance of the common stock is recorded at the

Accepted Answer

A)  amount of cash received. 
B)  amount of cash received less the previously recorded value of the options received. 
C)  amount of cash received plus the previously recorded value of the options received. 
D)  market price minus the share option price.

Question 16

On January 1, 2016 Howard Corporation issued 1,000 shares of $100 par convertible preferred stock for $125 per share. On January 15, 2018 all shares are converted to common stock.
Required:
1) Record the January 1, 2016 issuance of the preferred stock.
2) Record the January 15, 2018 to convert the preferred stock to common based upon the following stated contract information:
a.) at a price of $155 per share
a.) each share is convertible into 5 shares of $15 par common stock.
b.) at a price of $120 per share
b.) each share is convertible into 11 shares of $15 par common stock.
3) What if the preferred stock was callable instead of convertible. Prepare the journal entries to recall the stock:

Accepted Answer

The answer of On January 1, 2016 Howard Corporation issued...

Question 17

A share option plan will be defined as compensatory if it has which one of the following characteristics?

Accepted Answer

A)  The discount from market price for the stock option is greater than either what would be reasonable in an offer of stock to shareholders or others or the per-share amount of issuance costs avoided by not issuing the stock to the public. 
B)  Employees have 31 days or less from the date the purchase price is set to decide whether or not to enroll in the plan. 
C)  Almost all full-time employees are able to participate in the plan. 
D)  The purchase price is based solely on the market price of the stock on the purchase date.

Question 18

Which of the following should normally be accounted for under the fair value method?

Accepted Answer

A)  share option plan with share appreciation rights 
B)  fixed share option plan 
C)  performance-based share option plan 
D)  All of these answer choices would normally be accounted for under the fair value method.

Question 19

Exhibit 15-7
On January 1, 2016, 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. In 2017 the actual sales increase was determined to be 18%, and the overall turnover rate was exactly 2%. The compensation expense for 2017 is to the nearest dollar)

Accepted Answer

A)  $210,828. 
B)  $140,552. 
C)  $70,276. 
D)  $35,138.

Question 20

Exhibit 15-1
Hanson Co. issued 10,000 shares of its $5 par common stock for $15 a share. In addition, it incurred legal and accounting fees, stock certificate costs, and other related expenses totaling $18,500.
-Refer to Exhibit 15-1. Assume the sale was the initial issuance of stock at incorporation for Hanson Co. The entry to record the sale would include a

Accepted Answer

A)  credit to Cash for $150,000. 
B)  credit to Common Stock for $150,000. 
C)  debit to Organization Expense for $18,500. 
D)  credit to Additional Paid-in Capital on Common Stock for $81,500.

Exam 15: Contributed Capital