Final Chapter 15

Fox Co. issued 1,000 shares of its $5 par common stock to Owl Co. as compensation for 1,000 hours of legal services performed. Owl 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 Legal Service (140x1000) 140,000 Common Stock (5 x 1000) 5,000 APIC 135,000

Selected information from the accounts of Fox Co. follows: Total income since incorporation $420,000 Total cash dividends paid 130,000 Total value of property dividends distributed 30,000 Excess of proceeds over cost of Treasury stock sold, accounted for using the cost method 110,000 What amount is in Fox's retained earnings account?

260,000 420,000 - 130,000 - 30,000 = 260,000 Total income - Cash dividends - property dividends

Fox Co. issued 500,000 shares of common stock in the current year. Fox declared a 15% stock dividend. The market value was $50 per share, the par value was $10, and the average issue price was $30 per share. By what amount will Fox decrease retained earnings for the dividend?

3,750,000 15% x 500,000 x 50 = 3,750,000

Fox Co. was organized January 2, with 30,000 authorized shares of $10 par common stock. During the year the corporation had the following capital transactions: January 5 - Issued 20,000 shares at $15 per share. July 14 - Purchased 5,000 shares at $17 per share. December 27 - Reissued the 3,000 shares held in Treasury at $10 per share. Fox used the more commonly used method to record the purchase and reissuance of the treasury shares. In its December 31 balance sheet, what amount should Fox report in the treasury stock account?

34,000

When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as

Additional paid-in capital when the subscription is received.

Selected information from the accounts of Fox Co. follows: Current RE Balance in the General Ledger $250,000 Total income since incorporation 450,000 Total value of property dividends distributed 40,000 Excess of proceeds over cost of Treasury stock sold, accounted for using the cost method 30,000 What is the total amount of Fox's cash dividends declared since incorporation?

160,000 450,000 - 40,000 - 250,000 = 160,000 Cumulative NI's - Property Divis - RE accounts = Cash dividends

On April 1, Fox Co., a newly formed company, had the following stock issued and outstanding: Common stock, no par, $1 stated value, 20,000 shares originally issued for $30 per share Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share Fox's April 1 statement of stockholders' equity should report

20,000 60,000 820,000

Fox Co. purchased 10,000 shares (2% ownership) of Owl Corp. on February 14. Fox received a stock dividend of 2,000 Owl shares on the following April 30, when the market value per share was $35. Owl paid a cash dividend of $2 per share on December 15, the same year. In its income statement for this year, what amount should Fox report as dividend income?

24,000 10,000 + 2,000 = 12,000. 12,000 x 2 = 24,000

On January 2, Fox Co.'s board of directors declared a cash dividend of $550000 to stockholders of record on January 18, payable on February 10. The dividend is permissible under law in Fox's state of incorporation. Selected data from Fox's prior year December 31 balance sheet are as follows: Accumulated depletion $250,000 Capital stock 500,000 Additional paid-in capital 150,000 Retained earnings 300,000 The $550,000 dividend includes a liquidating dividend of

250,000 550,000 - 300,000 = 250,000 Liquidating Dividend = dividend - RE

Fox Co. issued 500,000 shares of common stock in the current year. Fox declared a 30% stock dividend. The market value was $50 per share, the par value was $10, and the average issue price was $30 per share. By what amount will Fox decrease stockholders' equity for the dividend?

$0

Fox Corp., a calendar-year company, had sufficient retained earnings as a basis for dividends, but was temporarily short of cash. Fox declared a dividend of $100,000 on April 1, 20x7, and issued promissory notes to its stockholders in lieu of cash. The notes, which were dated April 1, 20x7, had a maturity date of March 31, 20x8, and a 10% interest rate. How should Fox account for the scrip dividend and related interest?

Debit retained earnings for $100,000 on April 1, 20x7, and debit interest expense for $7,500 on December 31, 20x7 100,000 x 10% x 9/12 = 7,500

When a company declares a cash dividend, retained earnings is decreased by the amount of the dividend on the date of:

Declaration

Fox Corp. acquired some of its own common shares at a price greater than their par value, their original issue price, and their book value per share. Fox uses the cost method of accounting for treasury stock. What is the impact of this acquisition on the book value per common share and total stockholders' equity? Book value per share Total stockholders' equity

Decrease Decrease

Fox Corp. acquired some of its own common shares at a price greater than both their par value and original issue price but less than their book value per share. Fox uses the cost method of accounting for treasury stock. What is the impact of this acquisition on total stockholders' equity and the book value per common share? Total stockholders' equity Book value per share

Decrease Increase

On May 1, year 1, Fox Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Fox had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Fox's common stock was $30 per share on May 1, year 1. As a result of this stock dividend, Fox's total stockholders' equity

Does not change

One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following?

Financing received in the initial public offering Dividends paid to stockholder

How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position?

Footnote

Fox Co. issued 100,000 shares of common stock in the current year. On October 1, Fox 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. Fox uses the cost method for treasury stock transactions. On December 1, Fox reissued the stock for $60.00 per share. What account will be affected by the excess of the reissue price over the repurchase price?

Additional-paid-in-capital - Treasury stock

A company wishes to raise funds by issuing either bonds or cumulative preferred stock. How will the annual interest or dividend affect annual net earnings available to common stockholders each year?

Annual net earnings available to common stockholders are reduced by annual interest and preferred dividends.

Fox Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Fox reacquired 30,000 of those shares at a cost of $15 per share, and recorded the transaction using the cost method on April 15. Fox reissued the 30,000 shares at $20 per share, and recognized a $150,000 gain on its income statement on May 20. Which of the following statements is correct?

Fox 's comprehensive income for the current year is overstated. Fox's net income for the current year is overstated

Which of the following is not an acceptable option of reporting other comprehensive income and its components? I. In a separate statement of comprehensive income II. In a statement of earnings and comprehensive income III. In a statement of changes in stockholders' equity

III only

Fox Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the cost method of accounting for treasury stock, does the par value method report a greater amount for additional paid-in capital and a greater amount for retained earnings? Additional paid-in-capital Retained earnings

Yes NO

Fox Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the par value method of accounting for treasury stock, does the cost method report a greater amount for retained earnings and a greater amount for additional paid-in capital? Retained earnings Additional paid-in-capital

Yes No

On incorporation, Fox Corp. issued 20,000 shares of $5 par common stock at $10 per share, and at December 31, Fox's retained earnings were $300,000. In March of the following year, Fox reacquired 5,000 shares of its common stock at $20 per share. In June, Fox sold 1,000 of these shares to its corporate officers for $25 per share. Fox uses the cost method to record treasury stock. Net income for Fox's second year was $60,000. At December 31 of its second year, what amount should Fox report as retained earnings?

$360,000

Fox Co. issued 100,000 shares of common stock in the current year. On October 1, Fox 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. Fox uses the cost method for treasury stock transactions. On December 1, Fox reissued the stock for $60.00 per share. What amount should Fox report as treasury stock gain at December 31?

0

Fox Co. issued 500,000 shares of common stock in the current year. Fox declared a 30% stock dividend. The market value was $50 per share, the par value was $10, and the average issue price was $30 per share. By what amount will total stockholders' equity decrease for the dividend?

0

On January 15, of the current year, Fox Co. declared a $2 per share annual cash dividend on common stock for the year ended January 31, during which the number of shares remained unchanged at 100,000 authorized, 75,000 issued, and 70,000 outstanding. All of these dividends were paid on the following February 9, to stockholders of record as of January 28. By what amount should these dividends reduce net income for the current year?

0

Fox Co. issued 1,000 shares of its $5 par common stock to Owl Co. as compensation for 500 hours of legal services performed. Owl's standard billing rate is $250 per hour for legal services, and does not commonly negotiate their rate. Fox is not on a public stock exchange, and they last issued stock two years ago at $110 per share. By what amount should Fox's additional paid-in capital account increase as a result of this transaction?

120,000 Legal Expense (250 x 500) 125,000 Common stock (5 x 1000) 5,000 APIC 120,000

Fox Co. was organized January 2, with 30,000 authorized shares of $10 par common stock. During the year the corporation had the following capital transactions: January 5 - Issued 20,000 shares at $15 per share. July 14 - Purchased 5,000 shares at $17 per share. December 27 - Reissued the 5,000 shares held in Treasury at $20 per share. Fox used the par value method to record the purchase and reissuance of the treasury shares. In its December 31 balance sheet, what amount should Fox report as additional paid-in capital? Cost method

125,000 Cash [$20 x 5,000] 100,000 Treasury stock [$10 par × 5,000] 50,000 APIC [($20 − $10 par) .x 5,000] 50,000 APIC GL amounts: $100,000 − 25,000 + 50,000 = $125,000 APIC GL credit balance 115,000

Fox Corp.'s stockholders' equity at December 31, Year 2, was as follows: 6% noncumulative preferred stock, $100 par (liquidation value $105 per share) $100,000 Common stock, $10 par 300,000 Retained earnings 95,000 At December 31, Year 2, Fox's book value per common share was

13

On incorporation, Fox Corp. issued 20,000 shares of $5 par common stock at $10 per share, and at December 31, Fox's retained earnings were $200,000. In March of the following year, Fox reacquired 5,000 shares of its common stock at $20 per share. In June, Fox sold 1,000 of these shares to its corporate officers for $25 per share. Fox uses the cost method to record treasury stock. In December, Fox declared dividends of $20,000 on net income for Fox's second year of $200,000. At December 31 of its second year, what amount should Fox report as retained earnings?

380,000 Ending RE = Beginning RE + NI - Dividend Declared 200,000 + 200,000 - 20,000 = 380,000

Fox Co. purchased 10,000 shares (2% ownership) of Owl Corp. on February 14. Fox received a stock dividend of 4,000 Owl shares on the following April 30, when the market value per share was $35. Owl declared a cash dividend of $3 per share on December 15 of the same year, which were paid in the following year. In the year that Owl declared these dividends, what is the effect of Fox's dividends on Owl's retained earnings?

42,000 decrease 10,000 + 4,000 = 14,000 14,000 x 3 = 42,000

On April 1, Fox Co. issued 1,000 shares of its $20 par value common stock and 2,000 shares of its $20 par value convertible preferred stock for a total of $80,000. At this date, Fox's common stock was selling for $36 per share and the convertible preferred stock was selling for $27 per share. What amount of the proceeds should be allocated to Fox's convertible preferred stock?

48,000 Common market value: 1,000 x 36 = 36,000 Preferred market value: 2,000 x 27 = 54,000 Total market value of shares issued: 90,000 54,000 / 90,000 = 0.6 80,000 x 0.6 = 48,000

The following changes in Fox Corp.'s account balances occurred during the year: Increase Assets $105,000 Liabilities 30,000 Capital stock 50,000 Additional paid-in capital 5,000 Except for $25,000 of net income for the year and the year's dividend payment, there were no changes in retained earnings. What was Fox's dividends for the year?

5,000 105,000 - 30,000 - 55,000 = 20,000 RE 25,000 NI - Dividends = 20,000 RE 25,000 - 20,000 = 5,000

Fox Inc.'s December 31, unadjusted current assets and stockholders' equity sections are as follows: Current assets: Stockholders' equity: Cash $ 15,000 Common stock $556,000 Investments in MES (including $75,000 of Fox common stock) 100,000 Retained earnings (56,000) Trade accounts receivable 85,000 Total $500,000 Inventories 37,000 Total $237,000 The investments and inventories are reported at their costs, which approximate market values. Fox's total stockholders' equity should be

50,000 - 75,000 = 425,000

The Fox Corporation was incorporated on January 1, year 1, with the following authorized capitalization: 20,000 shares of common stock, no par value, stated value $40 per share. 5,000 shares of 5% cumulative preferred stock, par value $10 per share. During year 1 Fox issued 12,000 shares of common stock for a total of $600,000 and 3,000 shares of preferred stock at $16 per share. In addition, on December 20, year 1, subscriptions for 1,000 shares of preferred stock were taken at a purchase price of $17. These subscribed shares were paid for on January 2, year 2. What should Fox report as total contributed capital on its December 31, year 1 balance sheet?

665,000

The Fox Corporation was incorporated on January 1, year 1, with the following authorized capitalization: 20,000 shares of common stock, no par value, stated value $40 per share. 5,000 shares of 5% cumulative preferred stock, par value $10 per share. During year 1 Fox issued 12,000 shares of common stock for a total of $600,000 and 3,000 shares of preferred stock at $16 per share. In addition, on December 20, year 1, subscriptions for 1,000 shares of preferred stock were taken at a purchase price of $17. These subscribed shares were paid for on January 2, year 2. What should Fox report as total contributed capital on its December 31, year 1 balance sheet?

665,000

On January 15, of the current year, Fox Co. declared its annual cash dividend on common stock for the year ended January 31. The dividend was paid on the following February 9, to stockholders of record as of January 28. On what date should Fox decrease retained earnings by the amount of the dividend?

January 15

Which of the following describes how comprehensive income should be reported?

May be reported in a separate statement, following the income statement, in a combined statement of income and comprehensive income, or in a separate statement of other comprehensive income that begins with net income.

Fox Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the cost method of accounting for treasury stock, does the par value method report a greater amount for additional paid-in capital and a greater amount for retained earnings? Additional paid-in-capital Retained earnings

No No

A company issued rights to its existing shareholders without consideration. The rights allowed the recipients to purchase unissued common stock for an amount in excess of par value. When the rights are issued, which of the following accounts will be increased? Common stock Additional paid-in capital Retained earnings

No No No

A company issued rights to its existing shareholders without consideration. The rights allowed the recipients to purchase unissued common stock for an amount equal to par value. When the rights are exercised and the stock is issued, which of the following accounts will be increased? Additional paid-in capital Retained earnings Common stock

No No Yes

Fox Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the par value method of accounting for treasury stock, does the cost method report a greater amount for retained earnings and a greater amount for additional paid-in capital? Retained earnings Additional paid-in-capital

No Yes

A company issued rights to its existing shareholders without consideration. The rights allowed the recipients to purchase unissued common stock for an amount in excess of par value. When the rights are exercised and the stock is issued, which of the following accounts will be increased? Retained earnings Common stock Additional paid-in capital

No Yes Yes

Fox Co. issued 500,000 shares of common stock in the current year. Fox declared and issued a 150% stock split. The market value was $50 per share, the par value was $9, and the average issue price was $30 per share. Which of the following accounts will show the greatest change as a result of the split?

No accounts will change

What is the purpose of reporting comprehensive income?

To report a measure of overall enterprise performance

Fox Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Fox reacquired 30,000 of those shares at a cost of $15 per share, and recorded the transaction using the cost method on April 15. Fox reissued the 30,000 shares at $20 per share, and recognized a $150,000 gain on its income statement on May 20. Which of the following statements is incorrect?

Treasury stock will appear on Fox's balance sheet at the current year-end, reducing total stockholders' equity.