Acct 371

A company reported net income available to common stockholders of $2,000,000 for the year ended December 31, year 2. The company had 1,500,000 shares of common stock outstanding as of January 1, year 2, and issued 500,000 additional shares of common stock on May 1, year 2. What amount is the company's basic earnings per share for the year ended December 31, year 2? $1.00 $1.09 $1.20 $1.33

$1.09 1,500,000 + (500,000*8/12) = 1,833,333 $2,000,000/1,833,333 = $1.09

A firm with a net income of $30,000 and weighted average actual shares outstanding of 15,000 for the year also had the following two securities outstanding the entire year: (1) 2,000 options to purchase one share of stock for $12 per share. The average share price during the year was $20, (2) cumulative convertible preferred stock with an annual dividend commitment of $4,500. Total common shares issued on conversion are 2,900. Compute diluted EPS for this firm. $1.70 $1.60 $1.61 $1.55

$1.60 ($30,000 - $4,500 + $4,500)/(15,000 + 800 + 2,900) = $1.60.

East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000 hours of legal services performed. Howe usually bills $160 per hour for legal services. On the date of issuance, the stock was trading on a public exchange at $140 per share. By what amount should the additional paid-in capital account increase as a result of this transaction? $135,000 $140,000 $155,000 $160,000

$135,000 (1,000 × $140), common stock would be credited for the par value of $5,000 (1,000 × $5), and additional paid-in capital would be credited for the difference ($140,000 − $5,000 = $135,000).

Waterway Industries, has 4700 shares of 5%, $50 par value, cumulative preferred stock and 100000 shares of $1 par value common stock outstanding at December 31, 2021, and December 31, 2020. The board of directors declared and paid an $7900 dividend in 2020. In 2021, $36100 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2021? $23500 $31400 $15600 $11750

$15600 4700*$50*0.05 =$11,750 ($11,750 - $7900) + $11,750 = $15,600

On December 1, 2021, Bonita Industries exchanged 47500 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Bonita at a cost of $35 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $50 per share (the shares were originally issued at $25 per share). As a result of this exchange, Bonita's total stockholders' equity will increase by $ 475000. $2375000. $1900000. $1662500.

$2,375,000. 47,500*35 = 1,662,500 47,500 * (50-35) = 712,500 1,662,500+ 712,500 = 1,375,000

Cross Corp. had outstanding 2,000 shares of 11% preferred stock, $50 par. On August 8, 1992, Cross redeemed and retired 25% of these shares for $22,500. On that date, Cross' additional paid-in capital from preferred stock totaled $30,000.To record this transaction, Cross should debit (credit) its capital accounts as follows: Preferred stock Additional paid-in capital Retained earnings $25,000 $7,500 ($10,000) $25,000 - ($2,500) $25,000 ($2,500) - $22,500 - -

$25,000 ($2,500) - The journal entry for retirement: Preferred stock 2,000(.25)($50) 25,000 Additional paid-in capital, preferred stock 30,000(.25) 7,500 Additional paid-in capital from retirement of preferred stock 10,000 Cash 22,500

Sheridan Company has 567000 shares of $10 par value common stock outstanding. During the year, Sheridan declared a 16% stock dividend when the market price of the stock was $31 per share. Four months later Sheridan declared a $0.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by $498960. $1406160. $ 453600. $3141180

$3,141,180 567,000*16% = 90,720 90,720*$31 = 2,812,320 567,000 +(567,000*16%) = 657,720 657,720*.50 = 328,860 2,812,320 + 328,860 = 3,141,180

Doe Corporation owned 1,000 shares of Spun Corporation. These shares were purchased in year 1 for $9,000. On December 15, year 1, Doe declared a property dividend of one share of Spun for every ten shares of Doe held by a stockholder. On that date, when the market price of Spun was $14 per share, there were 9,000 shares of Doe outstanding. What gain and net reduction in retained earnings would result from this property dividend? Gain Net reduction in retained earnings $0 $8,100 $0 $12,600 $4,500 $3,600 $4,500 $8,100

$4,500 $8,100 9,000 shares/10 = 900 900 shares * $14 = $12,600 $9000/1000 = $9 per share 900 shares*$9 = 8,100 $12,600 - $8,100 = $4,500

Peters Corp.'s capital structure was as follows: December 31 Year 1 Year 2 Outstanding shares of stock: Common 110,000 110,000 Convertible preferred 10,000 10,000 During year 2, Peters paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock and are considered common stock equivalents. Net income for year 2 was $850,000. Assume that the income tax rate is 30%. The diluted earnings per share for year 2 is $6.31 $6.54 $7.08 $7.45

$6.54 850,000/110,000 + 20,000 = 6.54

During the current year, Comma Co. had outstanding: 25,000 shares of common stock, 8,000 shares of $20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 30 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%.What amount was Comma's basic earnings per share for the current year? $3.38 $7.36 $7.55 $8.00

$7.36 [200,000-(8000*20*10%)]/25,000 (200,000-16,000)/25,000 =7.36

Marigold Corp. offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 900, $1,000 bonds with the warrants attached was $827000. The market price of the Marigold bonds without the warrants was $727000, and the market price of the warrants without the bonds was $89100. What amount should be allocated to the warrants? $90290 $111600 $107100 $89100

$90290 89100/(727,000 + 89,100)*827,000 =90,290

On January 1, 2021, Sheffield Corp. had 128000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10600 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $14, the corporation declared a 14% stock dividend to be issued to stockholders of record on December 16, 2021. What was the impact of the 14% stock dividend on the balance of the retained earnings account? $230104 decrease No effect $250880 decrease $89600 decrease

117400 x 0.14 x $14 = $230,104

Under the fair-value method of accounting for stock option plans, total compensation recognized Is the difference between market price and option price at the grant date. Is unaffected by the option price. Is based on the value of the option at the grant date, adjusted for forfeitures. Equals the net increase in OE after all relevant journal entries are recorded.

Is based on the value of the option at the grant date, adjusted for forfeitures.

Treasury stock was acquired for cash at more than its par value, and then subsequently sold for cash at more than its acquisition price. Assuming that the cost method of accounting for treasury stock transactions is used, what is the effect on additional paid-in capital from treasury stock transactions? Purchase of treasury stock/ Sale of treasury stock No effect No effect No effect Increase Decrease Increase Decrease No effect

No effect Increase

Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock? Stock dividends. Stock warrants. Stock options. Stock subscriptions.

Stock warrants.

Crane Company acquired 20600 shares of its own common stock at $18 per share on February 5, 2020, and sold 10300 of these shares at $25 per share on August 9, 2021. The fair value of Crane's common stock was $22 per share at December 31, 2020, and $23 per share at December 31, 2021. The cost method is used to record treasury stock transactions. What account(s) should Crane credit in 2021 to record the sale of 10300 shares? Treasury Stock for $257500. Treasury Stock for $226600 and Retained Earnings for $30900. Treasury Stock for $185400 and Paid-in Capital from Treasury Stock for $72100. Treasury Stock for $185400 and Retained Earnings for $72100.

Treasury Stock for $185400 and Paid-in Capital from Treasury Stock for $72100. 10300*$18 = 185,400 10300*$7 = $72,100

In January 2020, Swifty Corporation, a newly formed company, issued 9600 shares of its $12 par common stock for $17 per share. On July 1, 2020, Swifty Corporation reacquired 960 shares of its outstanding stock for $14 per share. The acquisition of these treasury shares increased total stockholders' equity. did not change total stockholders' equity. decreased the number of issued shares. decreased total stockholders' equity.

decreased total stockholders' equity.

The cumulative feature of preferred stock limits the amount of cumulative dividends to the par value of the preferred stock. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

A feature common to both stock splits and stock dividends is an increase in total liabilities of a corporation. that there is no effect on total stockholders' equity. a reduction in the contributed capital of a corporation. a transfer to earned capital of a corporation.

that there is no effect on total stockholders' equity.

Baker Co. issued 100,000 shares of common stock in the current year. On October 1, Baker repurchased 20,000 shares of its common stock on the open market for $50.00 per share. At that date, the stock's par value was $1.00 and the average issue price was $40.00 per share. Baker uses the cost method for treasury stock transactions. On December 1, Baker reissued the stock for $60.00 per share. What amount should Baker report as treasury stock gain at December 31? $0 $200,000 $400,000 $980,000

$0 Note: Gains and losses are never recorded in the income statement for treasury stock transactions.

On January 1, 2021, Swifty Corporation granted Tim Telfer, an employee, an option to buy 4000 shares of Swifty Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $32400. Telfer exercised his option on September 1, 2021, and sold his 4000 shares on December 1, 2021. Quoted market prices of Swifty Co. stock during 2021 were January 1$26 per shareSeptember 1$31 per shareDecember 1$35 per share The service period is for three years beginning January 1, 2021. As a result of the option granted to Telfer, using the fair value method, Swifty should recognize compensation expense for 2021 on its books in the amount of $40000. $10800. $7600. $32400.

$10800. 32,400/3 = 10,800

On January 1, year 1, Rodriguez Corp. granted stock options to corporate executives for the purchase of 10,000 shares of the company's $20 par value common stock at 70% of the market price on the exercise date, December 30, year 1. On January 1, year 1, no market price or estimate could be made for the value of the options. All stock options were exercised on December 30, year 1. The quoted market prices of Rodriguez Corp.'s $20 par value common stock were as follows: January 1, year 1$50 per shareDecember 30, year 1$60 per share As a result of the exercise of the stock options and the issuance of the common stock, Rodriguez should recognize compensation expense in year 1 of $180,000 $200,000 $600,000 $500,000

$180,000 70%*$60 = $42 $60 - $42 = 18*10,000 = 180,000

At December 31, 2020 Vaughn Manufacturing had 209000 shares of common stock and 9700 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2020 or 2021. On February 10, 2022, prior to the issuance of its financial statements for the year ended December 31, 2021, Vaughn declared a 100% stock dividend on its common stock. Net income for 2021 was $955000. In its 2021 financial statements, Vaughn's 2021 earnings per common share should be $2.17. $1.25. $4.38. $4.11.

$2.17. [955,000 - (9700*$100*0.05)]/(209,000*2) = 955,000-48,500/418,000 = 2.17

Coronado Industries had 307000 shares of common stock issued and outstanding at December 31, 2020. During 2021, no additional common stock was issued. On January 1, 2021, Coronado issued 394000 shares of nonconvertible preferred stock. During 2021, Coronado declared and paid $188000 cash dividends on the common stock and $156000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2021, was $957000. What should be Coronado's 2021 earnings per common share, rounded to the nearest penny? $2.00 $2.61 $3.12 $1.06

$2.61 (957,000 - 156,000)/307,000 = 2.61

Oriole Company had net income for 2021 of $603000. The average number of shares outstanding for the period was 201000 shares. The average number of shares under outstanding options, at an option price of $29 per share is 12600 shares. The average market price of the common stock during the year was $36. What should Oriole Company report for diluted earnings per share for the year ended 2021? $2.86 $2.82 $3.00 $2.96

$2.96 201,000 + 12,600(7/36) (36-29=7) 201,000+2450=203,450 603,000/203,450 = 2.96

On April 1, year 1, Hyde Corp., a newly formed company, had the following stock issued and outstanding:1) Common stock, no par, $1 stated value, 20,000 shares originally issued for $30 per share.2) Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share.Hyde's April 1, year 1 statement of stockholders' equity should report Common stock Preferred stock Additional paid-in capital $20,000 $60,000 $820,000 $20,000 $300,000 $580,000 $600,000 $300,000 $0 $600,000 $600,000 $240,000

$20,000 $60,000 $820,000

Bonita Industries on January 1, 2018, granted stock options for 68000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $25 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $624000. The options are exercisable beginning January 1, 2021, provided those key employees are still in Bonita's employ at the time the options are exercised. The options expire on January 1, 2022.The amount of compensation expense Bonita should record for 2020 under the fair value method is $0. $208000. $104000. $312000.

208000 624,000/3 years = 208,000

Of the 125,000 shares of common stock issued by Vey Corp., 25,000 shares were held as treasury stock at December 31, 20X4. During 20X5, transactions involving Vey's common stock were as follows:January 1 through October 31 − 13,000 treasury shares were distributed to officers as part of a stock compensation plan.November 1 - A 3-for-1 stock split took effect.December 1 - Vey purchased 5,000 of its own shares to discourage an unfriendly takeover. These shares were not retired.At December 31, 20X5, how many shares of Vey's common stock were issued and outstanding? Shares Issued Shares Outstanding 375,000 334,000 375,000 324,000 334,000 334,000 324,000 324,000

375,000 334,000 Note: the number of issued shares at the end of the year is three times the number at the beginning of the year: 125,000(3) = 375,000 shares issued at December 31, 20X5. Number of shares outstanding at December 31, 20X5 = (100,000 + 13,000)3 − 5,000 = 334,000.

A firm has basic earnings per share of $1.29. If the tax rate is 30%, which of the following securities would be dilutive? 7% convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock. 6%, $100 par cumulative convertible preferred stock, issued at par, with each preferred share convertible into four shares of common stock. Cumulative 8%, $50 par preferred stock. 10% convertible bonds, issued at par, with each $1,000 bond convertible into 20 shares of common stock.

7% convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock. Note:the effect of assuming conversion of the 7% convertible bond would have the following effects on the numerator and denominator ($70 interest − $21 tax expense)/40 shares = $1.225 to 1 ratio, which would reduce the basic EPS of $1.29

Bal Corp. declared a $25,000 cash dividend on May 8, 20X5, to stockholders of record on May 23, 20X5, payable on June 3, 20X5. As a result of this cash dividend, working capital Was not affected. Decreased on June 3. Decreased on May 23. Decreased on May 8.

Decreased on May 8. Note: It is at declaration that a dividend has its effect on the value of the firm and on working capital. Retained earnings are decreased (or a holding account called Dividends, which is closed to retained earnings, may be recorded), and dividends payable are increased. Dividends payable are a current liability, causing working capital to decrease.

How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet? Increase in current liabilities Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in long-term liabilities for the balance Increase in stockholders' equity Note disclosure

Note disclosure

Compensation expense resulting from a compensatory stock option plan is generally allocated to the periods benefited by the employee's required service. allocated over the periods of the employee's service life to retirement. recognized in the period of exercise. recognized in the period of the grant.

allocated to the periods benefited by the employee's required service.

When computing diluted earnings per share, convertible bonds are: assumed converted only if they are dilutive. assumed converted whether they are dilutive or antidilutive. ignored. assumed converted only if they are antidilutive.

assumed converted only if they are dilutive.

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably equal to the market value of the warrants. zero. based on the relative market values of the two securities involved. calculated by the excess of the proceeds over the face amount of the bonds.

based on the relative market values of the two securities involved.

On May 1, 2021, Coronado Industries issued $1600000 of 6% bonds at 103, which are due on April 30, 2031. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Coronado's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2021, the fair value of Coronado's common stock was $35 per share and of the warrants was $2.On May 1, 2021, Coronado should record the bonds with a premium of $48000. discount of $17920. discount of $64000. discount of $16000.

discount of $17920 1,600,000*96/100 =1,536,000 1,600,000*103/100 =1,648,000 1,600,000-(1536,00/1,600,000)*1,648,000 = 17,920 discount

On May 1, 2021, Marigold Corp. issued $3700000 of 8% bonds at 103, which are due on April 30, 2031. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marigold's common stock, $15 par value, were attached to each $1000 bond. The bonds without the warrants would sell at 96. On May 1, 2021, the fair value of Marigold's common stock was $36 per share and of the warrants was $2.On May 1, 2021, Marigold should record the bonds with a premium of $111000. discount of $148000. discount of $37000. discount of $41440.

discount of $41440. 3,700,000/1000 = 3,700 3,700,000*.96 + 3,700*20*2 = 3,552,000 + 148,000 =3,700,000 3,552,000/3,700,000*(3,700,000*1.03) = 3,658,560 3,700,000-3,658,560 = 41,440

According to the FASB, redeemable preferred stock should be included as a liability. included with common stock. included in stockholders' equity. included as a contra item in stockholders' equity.

included as a liability.

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee is granted the option. exercises the option. has performed all conditions precedent to exercising the option. may first exercise the option.

is granted the option.