Chapter 15 Group 2

Luther Inc., has 2,000 shares of 6%, $50 par value, cumulative preference shares and 100,000 shares of $1 par value ordinary shares outstanding at December 31, 2011, and December 31, 2010. The board of directors declared and paid a $5,000 dividend in 2010. In 2011, $24,000 of dividends are declared and paid. What are the dividends received by the preference shareholders in 2011? a. $17,000 b. $12,000 c. $ 7,000 d. $ 6,000

$ 7,000

On December 1, 2012, Abel Corporation exchanged 20,000 shares of its $10 par value ordinary shares held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the ordinary shares had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total equity will increase by a. $200,000. b. $800,000. c. $1,100,000. d. $900,000.

$1,100,000

At the beginning of 2011, Hamilton Company had retained earnings of $150,000. During the year Hamilton reported net income of $75,000, sold treasury shares at a "gain" of $27,000, declared a cash dividend of $45,000, and declared and issued a small share dividend of 1,500 shares ($10 par value) when the fair value of the shares was $30 per share. The amount of retained earnings available for dividends at the end of 2011 was: a. $184,500. b. $162,000. c. $157,500. d. $135,000.

$135,000

Masterson Company has 420,000 shares of $10 par value ordinary shares outstanding. During the year Masterson declared a 5% share dividend when the market price of the shares was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a.$1,020,600 b. $756,000 c. $264,600 d. $252,000

$1,020,600

Presented below is the equity section of Oaks Corporation at December 31, 2010: Share capital—ordinary, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $ 900,000 Share premium—ordinary 250,000 Retained earnings 500,000 $1,650,000 During 2011, the following transactions occurred relating to equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury shares were sold at $30 per share. For the year ended December 31, 2011, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury under the cost method, what should it report as total equity on its December 31, 2011, statement of financial position? a. $1,965,000. b. $1,961,400. c. $1,957,800. d. $1,515,000.

$1,965,000.

Norton Company issues 4,000 shares of its $5 par value ordinary shares having a fair value of $25 per share and 6,000 shares of its $15 par value preference shares having a fair value of $20 per share for a lump sum of $192,000. What amount of the proceeds should be allocated to the preference shares? a. $172,000 b. $120,000 c. $104,727 d. $90,000

$104,727

Glavine Company issues 6,000 shares of its $5 par value ordinary shares having a market value of $25 per share and 9,000 shares of its $15 par value preference shares having a fair value of $20 per share for a lump sum of $288,000. The proceeds allocated to the ordinary shares is a. $30,000 b. $130,909 c. $150,000 d. $157,091

$130,909

Wheeler Company issued 5,000 shares of its $5 par value ordinary shares having a market value of $25 per share and 7,500 shares of its $15 par value preference shares having a market value of $20 per share for a lump sum of $240,000. The proceeds allocated to the preference shares is a. $215,000 b. $150,000 c. $130,909 d. $109,091

$130,909

Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were purchased in 2009 for $270,000. On November 15, 2011, Stinson declared a property dividend of one share of Matile for every ten shares of Stinson held by a shareholder. On that date, when the market price of Matile was $14 per share, there were 270,000 shares of Stinson outstanding. What gain and net reduction in retained earnings would result from this property dividend? Gain Net Reduction in Retained Earnings a. $0 $243,000 b. $0 $378,000 c. $135,000 $108,000 d. $135,000 $243,000

$135,000 $243,000

Anders, Inc., has 5,000 shares of 5%, $100 par value, cumulative preference shares and 20,000 shares of $1 par value ordinary shares outstanding at December 31, 2011. There were no dividends declared in 2009. The board of directors declares and pays a $45,000 dividend in 2010 and in 2011. What is the amount of dividends received by the ordinary shareholders in 2011? a. $15,000 b. $25,000 c. $45,000 d. $0

$15,000

Pember Corporation started business in 2005 by issuing 200,000 shares of $20 par ordinary shares for $36 each. In 2010, 20,000 of these shares were purchased for $52 per share by Pember Corporation and held as treasury shares. On June 15, 2011, these 20,000 shares were exchanged for a piece of property that had an assessed value of $810,000. Perber's shares are actively traded and had a fair price of $60 on June 15, 2011. The cost method is used to account for treasury shares. The amount of share premium—treasury resulting from the above events would be a. $800,000. b. $480,000. c. $390,000. d. $160,000.

$160,000.

Gibbs Corporation owned 20,000 shares of Oliver Corporation's $5 par value ordinary shares. These shares were purchased in 2009 for $180,000. On September 15, 2011, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a shareholder. On that date, when the market price of Oliver was $14 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend? a. $90,000 b. $252,000 c. $72,000 d. $162,000

$162,000

At the beginning of 2011, Flaherty Company had retained earnings of $200,000. During the year Flaherty reported net income of $100,000, sold treasury shares at a "gain" of $36,000, declared a cash dividend of $60,000, and declared and issued a small share dividend of 3,000 shares ($10 par value) when the fair value of the shares was $20 per share. The amount of retained earnings available for dividends at the end of 2011 was a. $180,000. b. $210,000. c. $216,000. d. $246,000.

$180,000.

Berry Corporation has 50,000 shares of $10 par ordinary shares authorized. The following transactions took place during 2010, the first year of the corporation's existence: Sold 5,000 ordinary shares for $18 per share. Issued 5,000 ordinary shares in exchange for a patent valued at $100,000. At the end of the Berry's first year, total contributed capital amounted to a. $40,000. b. $90,000. c. $100,000. d. $190,000

$190,000

Melvern's Corporation has an investment in 5,000 shares of Wallace Company ordinary shares with a cost of $218,000. These shares are used in a property dividend to shareholders of Melvern's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to shareholders of record on June 15. The market value per Wallace share is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of a. $340,000. b. $330,000. c. $315,000. d. $218,000

$218,000

Manning Company issued 10,000 shares of its $5 par value ordinary shares having a fair value of $25 per share and 15,000 shares of its $15 par value preference shares having a fair value of $20 per share for a lump sum of $480,000. How much of the proceeds would be allocated to the ordinary shares? a. $50,000 b. $218,182 c. $250,000 d. $255,00

$218,182

On January 1, 2012, Dodd, Inc., declared a 10% ordinary share dividend when the fair value of the ordinary shares was $20 per share. Equity before the share dividend was declared consisted of: Share capital—ordinary, $10 par value, authorized 200,000 shares; issued and outstanding 120,000 shares $1,200,000 Share premium—ordinary 150,000 Retained earnings 700,000 Total equity $2,050,000 What was the effect on Dodd's retained earnings as a result of the above transaction? a. $120,000 decrease b. $240,000 decrease c. $400,000 decrease d. $200,000 decrease

$240,000 decrease

Percy Corporation was organized on January 1, 2012, with an authorization of 1,200,000 ordinary shares with a par value of $6 per share. During 2012, the corporation had the following capital transactions: January 5 issued 675,000 shares @ $10 per share July 28 purchased 90,000 shares @ $11 per share December 31 sold the 90,000 shares held in treasury @ $18 per share Percy used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of share premium as of December 31, 2012? a. $-0-. b. $2,070,000. c. $2,700,000. d. $3,330,000.

$3,330,000.

Pierson Corporation owned 10,000 shares of Hunter Corporation. These shares were purchased in 2009 for $90,000. On November 15, 2011, Pierson declared a property dividend of one share of Hunter for every ten shares of Pierson held by a shareholder. On that date, when the market price of Hunter was $14 per share, there were 90,000 shares of Pierson outstanding. What gain and net reduction in retained earnings would result from this property dividend? Gain Net Reduction in Retained Earnings a. $0 $126,000 b. $0 $ 81,000 c. $45,000 $ 81,000 d. $45,000 $ 36,000

$45,000 $ 81,000

The equity section of Gunkel Corporation as of December 31, 2010, was as follows: Share capital—ordinary, par value $2; authorized 20,000 shares; issued and outstanding 10,000 shares $ 20,000 Share premium—ordinary 30,000 Retained earnings 75,000 $125,000 On March 1, 2011, the board of directors declared a 15% share dividend, and accordingly 1,500 additional shares were issued. On March 1, 2011, the fair value of the share was $6 per share. For the two months ended February 28, 2011, Gunkel sustained a net loss of $10,000. What amount should Gunkel report as retained earnings as of March 1, 2011? a. $56,000. b. $62,000. c. $66,000. d. $72,000.

$56,000.

Colson Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 7%, $100 par value cumulative preference shares outstanding. It is one year in arrears on its preference shares. How much cash will Colson distribute to the ordinary shareholders? a. $76,000. b. $84,000. c. $118,000. d. None.

$76,000.

Presented below is information related to Hale Corporation: Share Capital—Ordinary, $1 par $4,300,000 Share premium—Ordinary 550,000 Share Capital—Preference 8 1/2%, $50 par 2,000,000 Share premium—Preference 400,000 Retained Earnings 1,500,000 Treasury Shares—Ordinary (at cost) 150,000 80. The total equity of Hale Corporation is a. $8,600,000. b. $8,750,000. c. $7,100,000. d. $7,250,000. 81. The total contributed capital related to the ordinary shares is a. $4,300,000. b. $4,850,000. c. $5,250,000. d. $4,700,000.

$8,600,000. $4,850,000.

On January 1, 2012, Culver Corporation had 110,000 shares of its $5 par value ordinary shares outstanding. On June 1, the corporation acquired 10,000 shares to be held in the treasury. On December 1, when the market price of the shares was $8, the corporation declared a 10% share dividend to be issued to shareholders of record on December 16, 2012. What was the impact of the 10% share dividend on the balance of the retained earnings account? a. $50,000 decrease b. $80,000 decrease c. $88,000 decrease d. No effect

$80,000 decrease

The equity of Howell Company at July 31, 2012 is presented below: share capital—ordinary, par value $20, authorized 400,000 shares; issued and outstanding 160,000 shares $3,200,000 Share premium—ordinary 160,000 Retained earnings 650,000 $4,010,000 On August 1, 2012, the board of directors of Howell declared a 15% share dividend on ordinary shares, to be distributed on September 15th. The market price of Howell's ordinary shares was $35 on August 1, 2012, and $38 on September 15, 2012. What is the amount of the debit to retained earnings as a result of the declaration and distribution of this share dividend? a. $800,000. b. $840,000. c. $912,000. d. $600,000.

$840,000.

An analysis of equity of Hahn Corporation as of January 1, 2012, is as follows: Share capital—ordinary, par value $20; authorized 100,000 shares; issued and outstanding 90,000 shares $1,800,000 Share premium—ordinary 900,000 Retained earnings 760,000 Total $3,460,000 Hahn uses the cost method of accounting for treasury shares and during 2010 entered into the following transactions: Acquired 2,500 of its shares for $75,000. Sold 2,000 treasury shares at $35 per share. Sold the remaining treasury shares at $20 per share. Assuming no other equity transactions occurred during 2012, what should Hahn report at December 31, 2012, as total share premium? a. $895,000 b. $900,000 c. $905,000 d. $915,000

$905,000

Sosa Co.'s equity at January 1, 2012 is as follows: Share capital—ordinary, $10 par value; authorized 300,000 shares; Outstanding 225,000 shares $2,250,000 Share premium—ordinary 900,000 Retained earnings 2,190,000 Total $5,340,000 During 2012, Sosa had the following share transactions: Acquired 6,000 shares of its shares for $270,000. Sold 3,600 treasury shares at $50 a share. Sold the remaining treasury shares at $41 per share. No other share transactions occurred during 2012. Assuming Sosa uses the cost method to record treasury share transactions, the total amount of all share premium accounts at December 31, 2012 is a. $891,600. b. $870,000. c. $908,400. d. $927,600.

$908,400.

Hernandez Company has 350,000 shares of $10 par value ordinary shares outstanding. During the year, Hernandez declared a 10% share dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $1,242,500. b. $525,000. c. $192,500. d. $175,000.

1,242,500

Mays, Inc. had net income for 2010 of $2,120,000 and earnings per share on ordinary share of $5. Included in the net income was $300,000 of bond interest expense related to its long-term debt. The income tax rate for 2010 was 30%. Dividends on preference share were $400,000. The payout ratio on ordinary share was 25%. What were the dividends on ordinary share in 2010? a. $430,000. b. $530,000. c. $482,500. d. $645,000.

430,000.

On June 30, 2012, when Ermler Co.'s stock was selling at $65 per share, its equity accounts were as follows: Share capital—ordinary (par value $50; 60,000 shares issued) $3,000,000 Share premium—ordinary 600,000 Retained earnings 4,200,000 If a 100% share dividend were declared and distributed, share capital—ordinary would be a. $3,000,000. b. $3,600,000. c. $6,000,000. d. $7,800,000.

6,000,000

Long Co. issued 100,000 shares of $10 par ordinary shares for $1,200,000. Long acquired 8,000 shares of its own shares at $15 per share. Three months later Long sold 4,000 of these shares at $19 per share. If the cost method is used to record treasury shares transactions, to record the sale of the 4,000 treasury shares, Long should credit a. Treasury Shares for $76,000. b. Treasury Shares for $40,000 and Share Premium—Treasury for $36,000. c. Treasury Shares for $60,000 and Share Premium—Treasury Stock for $16,000. d. Treasury Shares for $60,000 and Share Premium—Ordinary for $16,000.

Treasury Shares for $60,000 and Share Premium—Treasury Stock for $16,000

Winger Corporation owned 900,000 shares of Fegan Corporation. On December 31, 2012, when Winger's account "Investment in Fegan Corporation" had a carrying value of $5 per share, Winger distributed these shares to its shareholders as a dividend. Winger originally paid $8 for each share. Fegan has 3,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Fegan share was $7 on the declaration date and $9 on the distribution date. What would be the reduction in Winger's equity as a result of the above transactions? a. $3,600,000. b. $4,500,000. c. $7,200,000. d. $8,100,000

b. $4,500,000

Gannon Company acquired 6,000 shares of its own ordinary shares at $20 per share on February 5, 2010, and sold 3,000 of these shares at $27 per share on August 9, 2011. The fair value of Gannon's ordinary shares was $24 per share at December 31, 2010, and $25 per share at December 31, 2011. The cost method is used to record treasury shares transactions. What account(s) should Gannon credit in 2011 to record the sale of 3,000 shares? a. Treasury Shares for $81,000. b. Treasury Shares for $60,000 and Share Premium—Treasury for $21,000. c. Treasury Shares for $60,000 and Retained Earnings for $21,000. d. Treasury Shares for $72,000 and Retained Earnings for $9,000.

b. Treasury Shares for $60,000 and Share Premium—Treasury for $21,000.

Mingenback Company has 560,000 shares of $10 par value ordinary shares outstanding. During the year Mingenback declared a 5% share dividend when the market price of the shares was $48 per share. Two months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by: a. $336,000. b. $352,800. c. $1,344,000. d. $1,696,800.

d. $1,696,800.

On September 1, 2012, Valdez Company reacquired 12,000 shares of its $10 par value ordinary shares for $15 per share. Valdez uses the cost method to account for treasury shares. The journal entry to record the reacquisition of the shares should debit a. Treasury Shares for $120,000. b. Share Capital—Ordinary for $120,000. c. Share Capital—Ordinary for $120,000 and Share Premium—Ordinary for $60,000. d. Treasury Shares for $180,000.

d. Treasury Shares for $180,000.