Chapter 15 CPA Questions

Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1. On August 1, Jones declared a 5% stock dividend followed by a two-for-one stock split on September 1. What amount should Jones report as common shares outstanding at December 31?

$105,000 is correct. A 5% stock dividend increases outstanding shares by 5%, and a 2-for-1 split doubles outstanding shares. The number of outstanding shares at year-end therefore is 105,000 = 50,000(1.05)(2). Each subsequent dividend or split compounds the previous change.

The following is the stockholders' equity section of Harbor Co.'s balance sheet on December 31: Common stock $10 par, 100,000 shares authorized, 50,000 shares issued of which 5,000 have been reacquired, and are held in treasury $ 450,000 Additional paid-in capital common stock 1,100,000 Retained earnings 800,000 Subtotal $2,350,000 Less treasury stock (150,000) Total stockholders' equity $2,200,000 Harbor has insignificant amounts of convertible securities, stock warrants, and stock options. What is the book value per share of Harbor's common stock?

$49 is correct. Book value per share, for this basic situation, is total owners' equity divided by the number of shares outstanding: $2,200,000/45,000 = $49 rounded to the nearest dollar. The number of shares outstanding equals the number of shares issued (50,000) less the number in the treasury (5,000).

Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at December 31, 2016. The following events occurred during 2017: January 31 Declared 10% stock dividend June 30 Purchased 100,000 shares August 1 Reissued 50,000 shares November 30 Declared 2-for-1 stock split At December 31, 2017, how many shares of common stock did Rudd have outstanding?

$560,000 is correct. Stock dividends and splits increase the number of shares outstanding on the date of distribution by the percentage effect implied by the dividend (10%) or split (100% or multiply by 2). The number of shares outstanding at 12/31/92 = [300,000(1.10) - 100,000 + 50,000]2 = 560,000. Treasury shares reduce the number of shares outstanding, and reissuance increases the number of shares outstanding. The total number of shares outstanding just before the split (280,000) is doubled in a 2-for-1 split.

Selected information for Irvington Company is as follows: December 31 Year 1 Year 2 Preferred stock, 8%, par $100, nonconvertible, noncumulative $125,000 $125,000 Common stock 300,000 400,000 Retained earnings 75,000 185,000 Dividends paid on preferred stock for year ended 10,000 10,000 Net income for year ended 60,000 120,000 Irvington's return on common stockholders' equity, rounded to the nearest percentage point, for year 2 is

23% is correct. Irvington's return on common stockholders' equity for year 2 is computed by dividing net income available to common stockholders (net income less preferred dividends) by average common stockholders' equity. $120,000 − $10,000 = 23% ($375,000 + $585,000) / 2

Common stock Preferred stock Additional Paid-in capital $5,000 $15,000 $92,500 On September 1, 2017, Hyde Corp., a newly formed company, had the following stock issued and outstanding: • Common stock, no par, $1 stated value, 5,000 shares originally issued at $15 per share. • Preferred stock, $10 par value, 1,500 shares originally issued for $25 per share. Hyde's September 1, 2017 statement of stockholders' equity should report

Common stock: 5,000($1) = $5,000 (only par is recorded in common stock) Preferred stock: 1,500($10) = $15,000 (only par is recorded in preferred stock) Additional paid-in capital: Common: 5,000($15 - $1) = $70,000 Preferred: 1,500($25 - $10) = 22,500 Total additional paid-in capital $92,500

A property dividend should be recorded in retained earnings at the property's

Market value at date of declaration.