Accounting Chapter 10 Problems

When treasury stock is reissued at a price that is greater than their cost, the difference should be credited to the Treasury Stock account. (T/F)

False

On January 1, Jernigan Corporation's Retained Earnings had a credit balance of $480,000. The company's preferred shareholders were paid dividends of $20,000 in October. While preparing financial statements at the end of the year, the accountant noticed an error in calculating interest expense for the year, which would cause interest expense to be understated by $8,000. Assuming that Jernigan pays taxes at 35%, by how much will retained earnings be adjusted?

$0

On January 1, Corneil Landscaping's Retained Earnings had a credit balance of $225,000. The company's preferred shareholders had dividends of $40,000 in arrears. During the year, an accountant noticed that depreciation expense had been overstated by $10,000. Assuming that Corneil pays taxes at 35%, what is the adjusted retained earnings as of January 1?

$225,000 + [$10,000 × (1 - 0.35)] = $231,500

On January 1, Jernigan Corporation's Retained Earnings had a credit balance of $480,000. The company's preferred shareholders were paid dividends of $20,000 in October. While preparing financial statements at the end of the year, the accountant noticed an error in calculating interest expense for the previous year, which caused interest expense to be understated by $8,000. Assuming that Jernigan pays taxes at 35%, by how much will retained earnings be adjusted?

$5,200 debit

Beimesche Corporation is formed on January 2 and is authorized to issue 1,200,000 shares of $1 par value common stock and 100,000 shares of $25 par value preferred stock with a 6% dividend rate. 200,000 common shares were issued at $5 per share and 5,000 preferred shares were issued at $28 per share when the corporation was formed on January 2. What are the total proceeds of the January 2 issuance?

1,140,000 = (200,000 × $5) + (5,000 × $28)

Beimesche Corporation's corporate charter authorizes the business to issue 1,200,000 shares of common stock. 200,000 shares were issued when the corporation was formed. Two years later, 150,000 additional shares were issued. In year 3, the company reacquired 40,000 shares of its own stock. At the beginning of year 5, Beimesche issued 75,000 shares of previously unissued stock. How many shares are authorized as of December 31, year 5?

1,200,000

Beimesche Corporation's corporate charter authorizes the business to issue 1,200,000 shares of common stock. 200,000 shares were issued when the corporation was formed. Two years later, 150,000 additional shares were issued. In year 3, the company reacquired 40,000 shares of its own stock. At the beginning of year 5, Beimesche issued 75,000 shares of previously unissued stock. How many shares are outstanding as of December 31, year 5?

200,000 + 150,000 + 75,000 - 40,000 = 385,000

Beimesche Corporation's corporate charter authorizes the business to issue 1,200,000 shares of common stock. 200,000 shares were issued when the corporation was formed. Two years later, 150,000 additional shares were issued. In year 3, the company reacquired 40,000 shares of its own stock. At the beginning of year 5, Beimesche issued 75,000 shares of previously unissued stock. How many shares are issued as of December 31, year 5?

425,000 = 200,000 + 150,000 + 75,000

Which of the following is an example of other comprehensive income?

An increase in the market value of available-for-sale securities

Which of the following would require a prior period adjustment?

An overstatement of interest expense.

Accumulated other comprehensive income is the total of comprehensive income for all periods. On which of the following statements is it reported?

Balance Sheet

On which of the following financial statements does the stockholders' equity section appear?

Balance Sheet

Alpha-Delta Corporation has issued its $2 par common stock for $15 per share. When the transaction is recorded, Cash is debited. Which of the following accounts is (are) credited?

Common Stock and Additional Paid-In Capital—Common Stock

Stock options are similar to stock warrants in that they grant the right to buy stock at a set price for a certain period of time. Corporations grant these rights to

Employees and executives

The stockholders' equity section of the balance sheet shows all changes in stockholders' equity for the period. (T/F)

False

If a company pays a liquidating dividend, which of the following statements is NOT true?

Paid-in capital is increased.

Beimesche Corporation is formed on January 2 and is authorized to issue 1,200,000 shares of $1 par value common stock and 100,000 shares of $25 par value preferred stock with a 6% dividend rate. 200,000 common shares were issued at $5 per share and 5,000 preferred shares were issued at $28 per share when the corporation was formed on January 2. Which of the following is correct regarding the journal entries on January 2 to record the stock issuance?

Preferred Stock is credited for $125,000.

On August 8, Koch & Dietz Corporation has 3,000,000 shares of its $5 par common shares outstanding. The current market value of the shares is $7.50. Koch & Dietz issued a stock dividend of 900,000 shares. What is the effect on retained earnings?

Retained earnings would decrease $4,500,000. 900,000 shares are 30% of the shares outstanding, which is a large stock dividend. 900,000 × $5.00 = $4,500,000. A small stock dividend (less than 25% of the shares outstanding) capitalizes at the stock's market value before the dividend.

If dividends cannot reduce retained earnings below zero, how can a corporation have a debit balance in Retained Earnings?

The company's total net losses exceed its total net income over the life of the company.

Which of the following is true of shares of stock that are identified as being authorized?

They represent the maximum number of shares the business may issue in a particular class of stock.

When a corporation purchases its own previously issued stock, the stock that it buys back is called treasury stock. What is one reason that a corporation would NOT want to buy treasury stock?

To increase the number of outstanding shares of stock in an attempt to increase earnings per share

A corporate charter is sometimes called the articles of incorporation. (T/F)

True

In general, retained earnings represents accumulated earnings of the corporation less dividends paid. (T/F)

True

Private corporations typically issue their stock to management and employees rather than the general public. (T/F)

True

Restricted earnings are usually disclosed in the footnotes to the financial statements, but may sometimes be disclosed in a reserve account in the equity section of the balance sheet. (T/F)

True

A stock split, like a stock dividend, increases the number of outstanding shares without altering the proportionate ownership of a corporation. In addition, a stock split involves

decreasing the per-share par value of the common stock.

A stock warrant is the right granted by a corporation to purchase a specified number of shares of its common stock at a stated price and within a stated period of time. A corporation would issue stock warrants when

it issues preferred stock or bonds.

Corporations are authorized, or chartered, in accordance with the provisions of state laws that govern the structure and operation of corporations. All states require persons who wish to form a corporation to apply to a prescribed state official for the issuance of the corporate charter. The corporate charter authorizes all of the following EXCEPT the

number of partners allowed.

The stated capital of a corporation is the amount of capital

that, under law, cannot be returned to the corporation's owners unless the corporation is liquidated.