ch 18 concept

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Which of the following statements about accumulated other comprehensive income is true? It is reported as a liability in the balance sheet. It is reported immediately after net income in the income statement. It is reported as part of stockholders' equity in the balance sheet. It is not reported in the financial statements; instead it is disclosed in the notes to the financial statements.

It is reported as part of stockholders' equity in the balance sheet.

Which of the following statements properly describes a preemptive right? The right to maintain one's percentage share of ownership when new shares are issued The right to share in profits when dividends are declared The right to share in the distribution of assets if the company is liquidated The right to vote on matters that come before the shareholders

The right to maintain one's percentage share of ownership when new shares are issued

Indicate whether each item decreases or increases the balance in the retained earnings account. 1)Buyback of shares 2)Dividends 3)net income 4)net loss

1)Decrease 2)Decrease 3)Increase 4)Decrease

Match the term and the definition. 1)Might Allow Preferred shareholders the option to return their shares for a predetermined price. 2)If the specified dividend is not paid in a given year, the unpaid dividends must be made up in a later dividend year before any dividends are paid on common shares 3)If the specified dividend is not declared in any given year, it need never be paid 4)Preferred shareholders are allowed to receive additional dividends beyond the stated amount 5)Preferred shareholders dividends are limited to the stated amount

1)Redempton privilege 2)Cumulative 3)Noncumulative 4)Participating 5) Nonparticipating

On May 1, Year 3, the board of directors of Boxer Industries declared a property dividend of 4,500 shares of King Corporation common stock that Boxer had purchased as an investment (book value: $58,500). The market value of the 4,500 King shares was $121,500 (or $27 per share) on the date of declaration and $180,000 (or $40 per share) on the date of distribution. What amount will be debited to Retained earnings in the journal entry recorded on the declaration date?

121,500 Decrease in retained earnings = $121,500 as shown below in the journal entries recorded on the declaration date of May 1, Year 3: Account TitleDebitCredit Investment in King Company common stock63,000 Gain on appreciation of investment ($121,500 − $58,500) 63,000 Retained earnings121,500 Property dividends payable 121,500

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding. During October, Year 2, the company's board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $56 per share. In recording this transaction, what amount will be debited to Retained earnings in the journal entry to record the stock dividend?

14,560 This 1% stock dividend is a small stock dividend since it is less than 25%. Thus, the fair value of the additional shares distributed is transferred from retained earnings to paid-in capital. The decrease in retained earnings equals $14,560 as shown in the journal entry to record the stock dividend: Account TitleDebitCredit Retained earnings (26,000 shares × 0.01 × $56 per share)14,560 Common stock (26,000 shares × 0.01 × $1 par per share) 260 Paid-in capital—excess of par (remainder) 14,300

The shareholders' equity of Tru Corporation includes $680,000 of $1 par common stock and $1,280,000 par value of 7% cumulative preferred stock. The company paid $68,000 cash dividends in Year 1 and another $68,000 cash dividends in Year 2. The board of directors of Tru declared cash dividends of $158,000 during Year 3. What is the amount of the cash dividends that will be paid to the common shareholders in Year 3?

25,200 The common shareholders will receive dividends of $25,200 during Year 3. YearPreferredCommonTotal1$ 68,000*$ 0$ 68,0002$ 68,000**$ 0$ 68,0003$ 132,800***$ 25,200$ 158,000 *$89,600 current dividends (or 7% × $1,280,000); thus, $21,600 dividends in arrears. **$89,600 current dividends (or 7% × $1,280,000); thus, another $21,600 dividends in arrears. ***Dividends in arrears of $43,200 (or $21,600 + $21,600) + $89,600 current dividends.

Dab Corporation was organized on January 1, Year 1. During Year 1, Dab had the following transactions relating to shareholders' equity: Issued 28,000 shares of common stock in exchange for cash of $442,400 Reported net income of $98,000 Reported net holding gains on available-for-sale investments in debt securities of $1,000 Paid dividends of $54,000 What is total shareholders' equity at the end of Year 1?

487,400 Total shareholders' equity = Paid-in capital + Retained earnings +/− Accumulated other comprehensive income − Treasury stock Total shareholders' equity = $442,400 + ($98,000 − $54,000) + $1,000 − $0 = $487,400

The Baxter Company has 30,000 shares of $3 par common stock outstanding. The company's board of directors declares a 3-for-1 stock split when the market price is $9 per share. Which of the following statements are correct? Note: You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect. After the stock split, the company will have 10,000 shares, each with an approximate market value of $9. After the stock split, the company will have 90,000 shares, each with an approximate market value of $3. The par amount of the shares becomes $1 per share. No journal entry is recorded.

After the stock split, the company will have 90,000 shares, each with an approximate market value of $3. The par amount of the shares becomes $1 per share. No journal entry is recorded. After a company effects a 3-for-1 stock split on its 30,000 shares, with a per share market price of $9, it then has 90,000 shares (or 30,000 × 3), each with an approximate market value of $3 (or $9 × 1/3). The prescribed accounting treatment for a stock split is to make no journal entry. Since the same common stock account balance (total par) represents three times as many shares in a 3-for-1 stock split, the par per share will be reduced from $3 per share to $1 per share.

Todd Corporation sold 4 million of its $1 par common shares at $6 per share. The company received net proceeds from the public offering of $23,600,000, after deducting legal, promotional, and accounting services necessary to effect the sale. Prepare the appropriate journal entry for the sale of the stock. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Cash23,600,000 Common stock4,000,000 Paid-in capital - excess of par19,600,000 The entry to record the sale includes a debit to Cash for the $23,600,000 net proceeds, a credit to Common stock for $4,000,000 (calculated as 4 million shares times the $1 par per share), and a credit to Paid-in capital—excess of par for the difference of $19,600,000.

During Year 1, Long Beach Corporation completed the treasury stock transactions described below: January 2Reacquired 1,000 shares at $10 per shareFebruary 2Sold 400 shares at $12 per share Prepare the appropriate journal entry to record the sale of the treasury stock on February 2. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Cash4,800 Treasury stock4,000 Paid-in capital - share repurchase800 The entry for the resale includes a debit to Cash for $4,800 (= $12 per share × 400 shares), a credit to Treasury stock for $4,000 (= Original cost of $10 per share × 400 shares), and a credit to Paid-in capital—share repurchase for the difference of $800.

As of the end of Year 1, the shareholders' equity of Philip Corporation consisted of: Common stock, 80,100 shares at $1 par$ 80,100Paid-in capital—excess of par168,210Retained earnings121,000 At the beginning of Year 2, the company repurchased and retired 1,100 shares at $8.10 per share. Prepare the appropriate journal entry for the repurchase and retirement of the shares. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Common stock1,100 Paid-in capital - excess of par2,310 Retained earnings5,500 Cash8,910 The shares were originally issued at $3.10 per share, calculated as ($80,100 + $168,210) ÷ 80,100 shares, which is less than the repurchase price of $8.10 per share. The entry includes the following: A credit to Cash for the amount paid of $8,910 (calculated as $8.10 per share times 1,100 shares) A debit to Common stock for the par amount of those shares of $1,100 (calculated as $1 par × 1,100 shares) A debit to Paid-in capital—excess of par for $2,310, [calculated as (original issue price of $3.10 − $1.00 par) × 1,100 shares] A debit to Retained earnings for the difference of $5,500 to balance the entry (see note below) Note: Ordinarily, since the repurchase price is greater than the original issue price, this entry would include a debit to Paid-in capital—share repurchase account (limited in amount to the existing credit balance in that account). However, the company's shareholders' equity does not include this account. As such, its balance is already zero, so the entire debit to balance the entry is recorded to the Retained earnings account, similar to dividends being paid to shareholders.

On November 1, the board of directors of Castle Industries declares a cash dividend of $1 per share on its 1 million shares, payable to shareholders of record November 15, to be paid December 1. The ex-dividend date is two days before the date of record. On which of the following dates will journal entries be recorded? Note: Select all that apply. November 1 November 13 November 15 December 1

November 13 November 15 November 1Declaration dateEntry recorded to increase liabilities and decrease retained earningsNovember 13Ex-dividend dateNo journal entryNovember 15Date of recordNo journal entryDecember 1Payment dateEntry recorded to decrease both assets and liabilities

Craft declares and distributes a 2-for-1 stock split in the form of a 100% stock dividend and distributes 1,000 shares when the market value of the $1 par common stock is $12 per share. The company chooses not to reclassify earned capital as invested capital with regards to this transaction. Prepare the appropriate journal entry. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Paid-in capital - excess of par1,000 Common stock1,000 The entry includes a debit to Paid-in capital—excess of par and a credit to Common stock for $1,000 (calculated as 1,000 shares times the $1 par per share. The current market value of the stock of $12 per share has no effect on the journal entry.


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