Intermediate Accounting

Colson Inc. declared a $230,000 cash dividend. It currently has 12,000 shares of 5%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders?

$110,000

Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $310,000. The proceeds allocated to the common stock is

$140,909

Presented below is information related to Hale Corporation: Common Stock, $1 par $3,500,000 Paid-in Capital in Excess of Par—Common Stock 550,000 Preferred 8 1/2% Stock, $50 par 2,000,000 Paid-in Capital in Excess of Par—Preferred Stock 400,000 Retained Earnings 1,500,000 Treasury Common Stock (at cost) 150,000 71. The total stockholders' equity of Hale Corporation is 72. The total paid-in capital (cash collected) related to the common stock is

71. $7,800,000. 72. $3,500,000.

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

Authorized shares

The residual interest in a corporation belongs to the

Common stockholders

hat effect does the issuance of a 2-for-1 stock split have on each of the following?

Par Value per Share = decrease Retained Earnings= no effect

On September 1, 2020, Valdez Company reacquired 30,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit

Treasury Stock for $450,000

A "secret reserve" will be created if

a capital expenditure is charged to expense.

Total stockholders' equity represents

a claim against a portion of the total assets of a company.

At the date of declaration of a small common stock dividend, the entry should not include

a credit to Common Stock.

Noncumulative preferred dividends in arrears

are not paid or disclosed

Luther Inc., has 4,000 shares of 5%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2021, and December 31, 2020. The board of directors declared and paid an $8,000 dividend in 2020. In 2021, $40,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2021?

$12,000

Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $253,000. The proceeds allocated to the preferred stock is

$138,000

Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to the common stock?

$236,364

Berry Corporation has 100,000 shares of $10 par common stock authorized. The following transactions took place during 2020, the first year of the corporation's existence: Sold 20,000 shares of common stock for $13.50 per share. Issued 20,000 shares of common stock in exchange for a patent valued at $300,000. At the end of the Berry's first year, total paid-in capital amounted to

$570,000.

On June 30, 2021, when Ermler Co.'s stock was selling at $65 per share, its capital accounts were as follows: Capital stock (par value $50; 60,000 shares issued) $3,000,000 Premium on capital stock 600,000 Retained earnings 4,200,000 If a 100% stock dividend were declared and distributed, capital stock would be

$6,000,000.

Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset.

1

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

As paid-in capital from treasury stock transactions.

Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

Liquidation preferences

Which of the following best describes a possible result of treasury stock transactions by a corporation?

May decrease but not increase retained earnings.

How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet?

Note disclosure

Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

Par value

Which of the following features of preferred stock makes it more like a debt than an equity instrument?

Redeemable

The preemptive right of a common stockholder is the right to

Share proportionately in any new issues of stock of the same class

Which of the following statements about property dividends is not true?

The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

Which of the following is not a legal restriction related to profit distributions by a corporation?

The amount distributed in any one year can never exceed the net income reported for that year.

Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. A year later Long acquired 16,000 shares of its own common stock at $15 per share. Three months later Long sold 8,000 of these shares at $19 per share. If the cost method is used to record treasury

Treasury Stock for $120,000 and Paid-in Capital from Treasury Stock for $32,000

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

Treasury stock for the purchase price.

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

a footnote

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

a paid-in capital account.

The balance in Common Stock Dividend Distributable should be reported as a(n)

addition to capital stock.

Porter Corp. purchased its own par value stock on January 1, 2020 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders

bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called

book value per share.

A primary source of stockholders' equity is

both income retained by the corporation and contributions by stockholders

The payout ratio can be calculated by dividing

cash dividends by net income less preferred dividends.

In January 2020, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2020, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

decreased total stockholders' equity.

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

decreases retained earnings but does not change total stockholders' equity.

Stockholders' equity is generally classified into two major categories:

earned capital and contributed capital.

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is

either the proportional method or the incremental method.

Treasury shares are shares

issued but not outstanding

A dividend which is a return to stockholders of a portion of their original investments is a

liquidating dividend.

The rate of return on common stock equity is calculated by dividing

net income less preferred dividends by average common stockholders' equity.

Cash dividends are paid on the basis of the number of shares

outstanding

"Gains" on sales of treasury stock (using the cost method) should be credited to

paid-in capital from treasury stock.

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

par value of the shares issued.

Stock that has a fixed per-share amount printed on each stock certificate is called

par value stock.

Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2020, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

property dividend.

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

purchase of treasury stock

The cumulative feature of 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.

The preemptive right enables a stockholder to

retain their ownership interest if additional stock is issued.

If management wishes to "capitalize" part of the earnings, it may issue a

stock dividend

Which dividends do not reduce stockholders' equity?

stock dividend

A feature common to both stock splits and stock dividends is

that there is no effect on total stockholders' equity.

Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

the payment of a previously declared cash dividend on the common stock.

Dividends are not paid on

treasury common stock

Melvern's Corporation has an investment in 20,000 shares of Wallace Company common stock with a cost of $872,000. These shares are used in a property dividend to stockholders of Melvern's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The fair value per share of Wallace stock 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

$ 872,000.

Norton Company issues 4,000 shares of its $5 par value common stock having a fair value of $25 per share and 6,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $205,000. What amount of the proceeds should be allocated to the preferred stock?

$111,818

Pember Corporation started business in 2015 by issuing 200,000 shares of $20 par common stock for $27 each. In 2020, 25,000 of these shares were purchased for $39 per share by Pember Corporation and held as treasury stock. On June 15, 2021, these 25,000 shares were exchanged for a piece of property that had an assessed value of $760,000. Pember's stock is actively traded and had a market price of $45 on June 15, 2021. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be

$150,000

Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2020: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $ 900,000 Paid-in capital in excess of par value 350,000 Retained earnings 500,000 $1,750,000 During 2021, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2021, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2021, balance sheet?

$2,065,000.

On December 1, 2021, Abel Corporation exchanged 50,000 shares of its $10 par value common stock 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 common stock 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 stockholders' equity will increase by

$2,750,000.

Hernandez Company has 560,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 15% stock 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

$2,842,000

Percy Corporation was organized on January 1, 2021, with an authorization of 1,200,000 shares of common stock with a par value of $6 per share. During 2021, the corporation had the following capital transactions: January 5 issued 600,000 shares @ $10 per share July 28 purchased 80,000 shares @ $11 per share December 31 sold the 80,000 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 additional paid-in capital as of December 31, 2021?

$2,960,000

Gibbs Corporation owned 20,000 shares of Oliver Corporation's $5 par value common stock. These shares were purchased in 2017 for $225,000. On September 15, 2021, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $35 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend?

$202,500

Pierson Corporation owned 15,000 shares of Hunter Corporation. These shares were purchased in 2017 for $135,000. On November 15, 2021, Pierson declared a property dividend of one share of Hunter for every ten shares of Pierson held by a stockholder. On that date, when the market price of Hunter was $28 per share, there were 135,000 shares of Pierson outstanding. What gain and net reduction in retained earnings would result from this property dividend?

$256,500 $121,500

Winger Corporation owned 900,000 shares of Fegan Corporation stock. On December 31, 2021, when Winger's account "Equity Investments (Fegan Corporation") had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid $8 for each share. Fegan has 5,000,000 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 stockholders' equity as a result of the above transactions?

$4,500,000

Anders, Inc., has 15,000 shares of 4%, $100 par value, cumulative preferred stock and 60,000 shares of $1 par value common stock outstanding at December 31, 2021. There were no dividends declared in 2019. The board of directors declares and pays a $110,000 dividend in 2020 and in 2021. What is the amount of dividends received by the common stockholders in 2021?

$40,000

Stinson Corporation owned 40,000 shares of Matile Corporation. These shares were purchased in 2017 for $360,000. On November 15, 2021, Stinson declared a property dividend of one share of Matile for every ten shares of Stinson held by a stockholder. On that date, when the market price of Matile was $28 per share, there were 360,000 shares of Stinson outstanding. What gain and net reduction in retained earnings would result from this property dividend?

$684,000 $ 324,000

Sosa Co.'s stockholders' equity at January 1, 2021 is as follows: Common stock, $10 par value; authorized 300,000 shares; Outstanding 225,000 shares $2,250,000 Paid-in capital in excess of par 800,000 Retained earnings 2,190,000 Total $5,240,000 During 2021, Sosa had the following stock transactions: Acquired 6,000 shares of its stock for $270,000. Sold 3,600 treasury shares at $50 a share. Sold the remaining treasury shares at $41 per share. No other stock transactions occurred during 2021. Assuming Sosa uses the cost method to record treasury stock transactions, the total amount of all additional paid-in capital accounts at December 31, 2021 is

$808,400.

An analysis of stockholders' equity of Hahn Corporation as of January 1, 2021, is as follows: Common stock, par value $20; authorized 100,000 shares; issued and outstanding 90,000 shares $1,800,000 Paid-in capital in excess of par 900,000 Retained earnings 760,000 Total $3,460,000 Hahn uses the cost method of accounting for treasury stock and during 2021 entered into the following transactions: Acquired 2,500 shares of its stock 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 2021, what should Hahn report at December 31, 2021, as total additional paid-in capital?

$905,000

Gannon Company acquired 20,000 shares of its own common stock at $20 per share on February 5, 2020, and sold 10,000 of these shares at $27 per share on August 9, 2021. The fair value of Gannon's common stock was $24 per share at December 31, 2020, and $25 per share at December 31, 2021. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2021 to record the sale of 10,000 shares?

Treasury Stock for $200,000 and Paid-in Capital from Treasury Stock for $70,000.

An entry is not made on the

date of record

The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the

fair value of the shares issued

According to the FASB, redeemable preferred stock should be

included as a liability

In a corporate form of business organization, legal capital is best defined as

the par value of all capital stock issued.