FA 10

Coca-Cola reported net income in 20XX equal to $3,969 million. They had 3,492 million shares on average that were issued and average shares held in treasury equal to 1,005 million. Their earnings per share for 20XX equals A) $1.60 B) $1.14 C) $3.95 D) None of the above.

A

When a large stock dividend is declared and issued A) retained earnings is decreased and common stock is increased. B) common stock is decreased and retained earnings is increased. C) the number of shares outstanding increases while the par value of each share decreases. D) the number of shares outstanding decreases while the par value of each share increases. E) None of the above is correct.

A

When a company buys back some of its previously issued stock does stockholders' equity change?

Yes, treasury stock is a contra equity account. It causes stockholders' equity to decrease.

When a company buys back some of its previously issued stock does the number of shares issued change?

no

Legal capital is the permanent amount of capital, defined by state law, which must remain invested in the corporation.

true

Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company.

true

Owners in a sole proprietorship or a partnership can be held personally liable for debts the company has incurred, over and beyond the investment they have made.

true

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity The average sales price of the common stock when issued was $_______ per share.

6.50 per share

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity How much did "additional paid in capital" change when 40% of the treasury stock was sold?

60,000

A stock split will: A) reduce the amount of retained earnings and increase total paid-in capital. B) increase the amount of retained earnings and reduce the amount of paid-in capital. C) increase the number of shares of common stock and reduce par value without changing total paid-in capital or retained earnings. D) reduce the number of shares of common stock and increase par value without changing total paid-in capital or retained earnings.

C

The par value of common stock is the A) average market price of the stock during the period in which it is sold. B) ceiling (maximum) amount above which the stock may not be sold initially. C) floor (minimum) amount below which the stock may not be sold initially. D) selling price of the stock at the date it was issued by the corporation. E) same as the market value for the stock on the date of issue.

C

Hamilton International issues 10,000 shares of its $1 par value common stock to provide funds for further expansion. If the issue price is $15 per share, what is the journal entry to record the share issue

Cash 150,000 Common Stock 10,000 APIC. 140,000

What is included in Paid in capital if the company only has common stock?

Common stock and additional paid in capital

If Lynch Corporation sells and issues 100 shares of its $10 par value common stock at $11 per share, the entry to record the sale will NOT include a A) Increase cash of $1,100. B) Increase additional paid-in capital of $100. C) Increase common stock of $1,000. D) Increase to retained earnings of $100. E) All of the above would be included.

D

If a company has 5 million shares of common stock authorized, they issued 3 million shares of common stock and repurchased 200,000 shares to hold in treasury; therefore, the shares outstanding would be 2 million.

False, 2.8 million (3,000,000 issued - 200,000 treasury shares = 2,800,000) shares would be outstanding.

We call the very first sale of a company's stock to the public a seasoned new issue.

False, it's called an IPO, initial public offering...later, when they issue more stock, it is called a seasoned new issue.

Does treasury stock share in dividends?

No. And they don't have voting rights either.

When a company buys back some of its previously issued stock does the common stock account decrease?

No. Common stock is made up of Par value x number of shares issued. When a company buys back some of its stock (treasury stock) it does not change the number of shares of stock that have been issued, so common stock won't change.

When a company buys back some of its previously issued stock does the number of shares outstanding change?

Yes, outstanding shares equal Issued shares - treasury stock

What does the Stockholders' Equity Section look like after 40% of the treasury stock is sold? Paid in CapitalCommon stock ($0.10 par; authorized 1,000,000 shares, issued ___ shares and ___outstanding $35,000 Additional paid in capital Retained earnings 1,250,000 Treasury stock (_______ shares) (________) Total Stockholders' Equity $__________

issued 350,000 outstanding 320,000 Apic. 2,300,000 Total SE. 3,225,000

Court Casuals has 100,000 shares of common stock outstanding as of the beginning of 20XC and has the following transactions affecting stockholders' equity in 20XC. May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. (Hint: dividends are not paid on treasury stock). July 31 Pays the cash dividend on July 1. August 10 Resells 2,500 shares of treasury stock purchased on May 31 for $46 per share. The beginning balances in the stockholder equity accounts were: Preferred Stock. Common Stock. APIC. RE Treasury Stock. Total SE Beg: $0 $100,000 $950,000 $628,500 $0 $1,678,500 Issuance of stock Net income for the year 16,200 Less: Dividends Purchase of treasury sale of treasury ending balance 20xc Record the affect of the July 31 transaction in the statement of stockholders' equity

o effect on SE; however, Dividends payable (L-) 120,000; Cash (A-) 120,000)

The balance sheet of Warner Company showed the following data about its common stock, par $1: authorized shares, 5,000,000; outstanding shares, 2,300,000; and issued shares 2,500,000. Therefore, the number of treasury stock shares was A) 0. B) 2,700,000. C) 2,500,000. D) 200,000. E) None of the above is correct.

D

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity How much did the treasury stock held cost per share? $_________.

12.00 per share

Is a stock dividend and a stock split the same thing?

No, a stock dividend is a dividend and will cause retained earnings to decrease. A stock split is not a dividend; therefore, retained earnings are NOT affected.

How is the issuance of common stock recorded if it has a par value and the stock is issued for more than par?

Increase cash for the amount of the transaction, increase common stock (par x number of shares issued) and increase any remaining amounts to Additional paid in capital (APIC).

When a company buys back some of its previously issued stock does paid-in capital change?

No

When a company declares a stock split do retained earnings decrease?

No, because a stock split is not a dividend.

Is a stock split a dividend?

No. A stock split is NOT a dividend...Note, a stock split will not cause RE, PIC or SE to change.

What is the difference between preferred stock and common stock in respect to receiving dividends/distributions?

Preferred stock gets a set amount of dividends if dividends are declared. They get preference in distributions. Common stock gets whatever is left over...if the company is doing well, what is leftover is typically more than what was distributed to the preferred stockholders.

Court Casuals has 100,000 shares of common stock outstanding as of the beginning of 20XC and has the following transactions affecting stockholders' equity in 20XC. May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. (Hint: dividends are not paid on treasury stock). July 31 Pays the cash dividend on July 1. August 10 Resells 2,500 shares of treasury stock purchased on May 31 for $46 per share. The beginning balances in the stockholder equity accounts were: Preferred Stock. Common Stock. APIC. RE Treasury Stock. Total SE Beg: $0 $100,000 $950,000 $628,500 $0 $1,678,500 Issuance of stock Net income for the year 16,200 Less: Dividends Purchase of treasury sale of treasury ending balance 20xc Record the affect of the July 1 transaction in the statement of stockholders' equity

There are 120,000 shares outstanding (125,000 issued - 5,000 treasury) at $1 of dividends per share. (Retained earnings (SE-) 120,000; Dividends payable (L+) 120,000)

Court Casuals has 100,000 shares of common stock outstanding as of the beginning of 20XC and has the following transactions affecting stockholders' equity in 20XC. May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. (Hint: dividends are not paid on treasury stock). July 31 Pays the cash dividend on July 1. August 10 Resells 2,500 shares of treasury stock purchased on May 31 for $46 per share. The beginning balances in the stockholder equity accounts were: Preferred Stock. Common Stock. APIC. RE Treasury Stock. Total SE Beg: $0 $100,000 $950,000 $628,500 $0 $1,678,500 Issuance of stock Net income for the year 16,200 Less: Dividends Purchase of treasury sale of treasury ending balance 20xc Determine the ending balances in each account.

0 125,000 1,927,500 524,700 (112500) 2,464,700

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity Total SE is $_________.

2,925,000

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity Assuming that 40% of the treasury stock is sold at $15 per share, determine the decrease in treasury stock $____

240,000

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity The number of shares of common stock outstanding was ________.

300,000

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity The number of shares of common stock issued was _________.

350,000

Which of the following represents the maximum shares of stock issuable to the public? A) Authorized shares B) Issued shares C) Outstanding shares D) Unissued shares E) Treasury shares

A

Which of the following statements is false? A) Stock splits shuffle amounts between retained earnings and paid-in capital accounts. B) Both stock splits and dividends increase the common shares issued and outstanding. C) Both stock splits and dividends have the impact of reducing the market price of the stock. D) All the above are false.

A

What is the difference between a cash dividend and a stock dividend?

A cash dividend creates a liability (dividends payable) and eventually will cause cash to decrease when it is paid. A stock dividend does not create a liability and does not cause cash to decrease; instead it capitalizes earnings...meaning, retained earnings is reduced and is turned into paid in capital (causing it to increase PIC by the dividend amount). Note: both cause retained earnings to decrease.

Briefly define authorized shares, issued shares, outstanding shares, unissued shares, and treasury stock.

Authorized shares are the maximum number of shares the corporation is allowed to issue (sell). Issued shares are the total number of shares the company has sold. Outstanding shares are the shares of stocks currently owned by persons who are not the issuing corporation (outstanding in the hands of investors). Unissued shares are the shares of stock the corporation has never issued. Treasury stock represents the shares of stock that the company previously issued and then bought back; they are no longer outstanding but they ARE still issued.

HN reported the following asset and liability balances at the end of 20XD and 20XE 20XD 20XE Total Assets $ 6,800,000 $7,600,000 Total Liabilities 3,200,000 3,600,000 Cash 750,000 920,000 During 20XE, cash dividends of $80,000 were declared and paid. Additional common stock was issued for $100,000. Therefore, the net income (or net loss) for 20XE was A) $400,000 B) $480,000 C) $380,000 D) $300,000 E) none of the above.

C

On December 15, 20XD, the board of directors of L Corporation declared a cash dividend, payable on January 8, 20XE of $0.80 per share on the 2,000,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 20XD, L Corporation should A) make no journal entry because the event had no effect on the corporation's financial position until 20XE. B) decrease retained earnings $1.6 million and increase paid-in capital $1.6 million. C) decrease retained earnings $1.6 million and increase liabilities by $1.6 million. D) decrease cash $1.6 million and decrease retained earnings $1.6 million. E) increase paid-in capital $1.6 million and decrease liabilities $1.6 million.

C

Court Casuals has 100,000 shares of common stock outstanding as of the beginning of 20XC and has the following transactions affecting stockholders' equity in 20XC. May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. (Hint: dividends are not paid on treasury stock). July 31 Pays the cash dividend on July 1. August 10 Resells 2,500 shares of treasury stock purchased on May 31 for $46 per share. The beginning balances in the stockholder equity accounts were: Preferred Stock. Common Stock. APIC. RE Treasury Stock. Total SE Beg: $0 $100,000 $950,000 $628,500 $0 $1,678,500 Issuance of stock Net income for the year 16,200 Less: Dividends Purchase of treasury sale of treasury ending balance 20xc Record the affect of the May 18 transaction in the statement of stockholders' equity

Cash (A+)1,000,000; CS(SE+) 25,000 and APIC (SE+) 975,000)

Paid in Capital Common stock ($0.10 par; authorized 1,000,000 shares, issued ____ shares and ___outstanding $35,000 Additional paid in capital 2,240,000 Retained earnings 1,250,000 Treasury stock (50,000 shares) (600,000) Total Stockholders' Equity Record the sale of treasury stock:

Cash 300,000 Treasury Stock 240,000 Apic 60,000

The shares issued can be less than those outstanding when the corporation has repurchased some of their shares which are called treasury shares.

False, once shares are issued they are always issued (unless they are retired...and for purposes of our class we will assume no stock is retired). Shares issued can NEVER be less than the shares outstanding. Shares outstanding will be less than shares issued if the company has treasury stock.

Par value has a direct relationship to the market value of the common stock.

False, par value is the legal capital per share of stock that's assigned when the corporation is first established. Par value has no relationship to the market value of the common stock.

Court Casuals has 100,000 shares of common stock outstanding as of the beginning of 20XC and has the following transactions affecting stockholders' equity in 20XC. May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. (Hint: dividends are not paid on treasury stock). July 31 Pays the cash dividend on July 1. August 10 Resells 2,500 shares of treasury stock purchased on May 31 for $46 per share. The beginning balances in the stockholder equity accounts were: Preferred Stock. Common Stock. APIC. RE Treasury Stock. Total SE Beg: $0 $100,000 $950,000 $628,500 $0 $1,678,500 Issuance of stock Net income for the year 16,200 Less: Dividends Purchase of treasury sale of treasury ending balance 20xc Record the affect of the May 31 transaction in the statement of stockholders' equity

Treasury stock (XSE+ SE-) 225,000; Cash (A-) 225,000)

Stock repurchases reduce the number of shares outstanding, thereby increasing earnings per share.

True, EPS is calculated by dividing net income by the weighted average shares outstanding; if the shares outstanding decrease it will cause EPS to increase.

The number of shares outstanding is equal to the number of shares issued minus the number of shares bought back.

True, outstanding shares = issued - treasury stock.

Court Casuals has 100,000 shares of common stock outstanding as of the beginning of 20XC and has the following transactions affecting stockholders' equity in 20XC. May 18 Issues 25,000 additional shares of $1 par value common stock for $40 per share. May 31 Repurchases 5,000 shares of treasury stock for $45 per share July 1 Declares a cash dividend of $1 per share to all stockholders of record on July 15. (Hint: dividends are not paid on treasury stock). July 31 Pays the cash dividend on July 1. August 10 Resells 2,500 shares of treasury stock purchased on May 31 for $46 per share. The beginning balances in the stockholder equity accounts were: Preferred Stock. Common Stock. APIC. RE Treasury Stock. Total SE Beg: $0 $100,000 $950,000 $628,500 $0 $1,678,500 Issuance of stock Net income for the year 16,200 Less: Dividends Purchase of treasury sale of treasury ending balance 20xc Record the affect of the August 10 transaction in the statement of stockholders' equity

When the 2,500 shares are resold the company will get $115,000 of cash (2,500 shares x $46 per share)...the treasury stock will decrease by $112.55 (2,500 shares sold x $45 at cost); the additional amount received goes into Additional paid in capital. (Cash (A+) 115,000; Treasury stock (XSE- SE+) 112,500; APIC (SE+) 2,500).

Paid-in capital is the amount stockholders have invested in the company.

true

To pay a cash dividend, a corporation needs adequate cash, authorization from the board of directors, and adequate retained earnings.

true

Treasury shares are no longer outstanding, but they are still issued.

true

When a corporation issues par value common stock, additional paid in capital should be credited for the issue price minus the par value, while the common stock account should be credited for the par value.

true