Orion Accounting Chapter 11 and 13

Pinto Corporation specifies a 4% dividend on its 40,000 outstanding shares of $50 par value non-cummulative preferred stock. Pinto has 100,000 shares of $2 par value common stock outstanding. What amount of dividends will be available to common stockholders at fiscal year-end when Pinto declares $300,000 in total dividends?

$220000 Preferred stockholders receive $80,000 (40,000 shares × $50 × 4%) of the declared dividend, and any remaining dividend ($300,000 - $80,000 = $220,000) will be distributed to the common stockholders.

Karla's Klown Korp. reported the following information for 2017: Net increase in cash $505000 Net income: $540000 Net Cash provided by operating activities $650000 Purchases of land with cash: $165000 Cash proceeds from equipment sales: $100000 Cash sales: $195000 dividends paid: $220000 What is Karla's free cash flow for 2017?

$265000 Free cash flow = Net cash provided by operating activities - cash dividends paid - capital expenditures: $650000 - 220000 - 165000 = 265000

Roberson Corporation was organized on January 1, 2014, with 750,000 authorized shares of $10 par value common stock. During 2014, Roberson issued 30,000 shares at $12 per share, purchased 3,000 shares of treasury stock at $13 per share, and sold 3,000 shares of treasury stock at $14 per share. At the end of the year, what is the amount in the Paid-in Capital from Treasury Stock account?

$3000

Turquoise and Topaz Sisters had Retained Earnings of $10,000 on the balance sheet but disclosed in the footnotes that $2,000 of Retained Earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of Retained Earnings is available for Dividends?

$7000 Retained Earnings of $10,000, minus restrictions for plant expansion $2,000, and bond repayments $1,000 ($10,000 - $2,000 - $1,000 = $7,000) leaves $7,000 available for Dividends.

Fred's Freelance Forecasting Corp. had a free cash flow of $400,000 in 2017. During 2017, Fred paid $300,000 of dividends to its shareholders and purchased $100,000 of new equipment with cash. What should be reported on Fred's 2017 statement of cash flows for net cash provided by operating activities?

$800000

A-Team Corporation issued 1,000 shares of $5 par value common stock for land. The stock is actively traded at $9 per share. The land was advertised for sale at $10,500. The land should be recorded at

$9000 The transaction should be valued at the more readily determinable market value of the land or stock. In this case, the value of the stock is more readily determinable. 1,000 shares actively traded at $9 per share yields $9,000. The advertised price of the land is not determinative of fair or market value.

On January 1, Bennett Corporation had a normal balance in Retained Earnings of $650,000. During the year, Bennett Corporation had the following selected transactions: declared cash dividends of $100,000; earned net income of $400,000; and declared stock dividends of $50,000. The ending balance for Retained Earnings is

$900000 Beginning Retained Earnings was $650,000, with an addition of $400,000 ($650,000 + $400,000 = $1,050,000), and deductions of $100,000 and $50,000 ($1,050,000 - $100,000 - $50,000 = $900,000). Therefore, the ending balance for Retained Earnings is $900,000.

Petunia's Publishing reported the following information for 2017: Net Increase in cash: 85000 Net cash used by operating activities: 50000 capital expenditures: 25000 net income: 40000 cash sales: 65000 dividends paid: 10000 What is petunia's free cash flow for 2017?

(85000) Free cash flow = Net cash provided (used) by operating activities - cash dividends paid - capital

When the financial statements are prepared, changes in the separate accounts comprising stockholders' equity do not have to be disclosed. True or False

False

A shareholder in a company had 200 shares of stock when the company announced a 3-for-1 stock split. After the stock split, how many shares of stock does the shareholder own?

600 3 for 1 stock split would split every share into 3 (200 x 3 = 600), therefore; the shareholder now owns 600 shares of stock.

ABC Corporation issued 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits should be made to

Common Stock for $10,000 and Paid-in Capital in Excess of Par-Common Stock for $2,000. 1,000 shares of $10 par value stock (1,000 x $10 = $10,000), is issued at $12 per share (1,000 x $12 = $12,000). The difference is above the par value ($12,000 - $10,000 = $2,000) so entry is: debit Cash $12,000 (issue price), credit Common Stock $10,000 (par value), credit Paid-in Capital in Excess of Par-Common Stock $2,000 (difference above par value).

Lei Inc.'s $9 par value common stock is actively traded at a market price of $14 per share. Lei issues 5,200 shares to purchase land advertised for sale at $86,500. Journalize the issuance of the stock in acquiring the land. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Debit Land: 72800 (5200 x 14) Credit: Common stock 46800 (5200 x 9) Credit: Paid-in capital excess of par common stock: 26000 (5200 x 5)46800)

What is a major disadvantage of the corporate form of ownership?

Distributions to owners are doubly taxed. Dividends (earnings distributions) that have been taxed as income at the corporate level are taxed at the individual level upon receipt by the investor - double taxation is a disadvantage.

Book value per share is a required disclosure on the income statement. True or False

False

Which of the following is not a major advantage of a corporation? a. Continuous life b. Government regulations c. Transferable ownership rights d. Separate legal existence

Government regulations

Katie Inc. reported net income of $186,000 for the current year and declared dividends of $26,000 on common stock and $60,000 on preferred stock. Common stockholders' equity was $1,200,000 on January 1 and $1,600,000 on December 31. The company's return on common stockholders' equity for the current year was

Net income less preferred stock dividends divided by average common stockholders' equity = return on common stockholders' equity. Numerator: $186,000 - $60,000 = $126,000. Denominator: ($1,200,000 + $1,600,000) / 2 = $1,400,000. Final ratio: $126,000 / $1,400,000 = 9.0%.

What is a major advantage of the corporate form of ownership?

Ownership rights are transferable amongst investors via the stock exchange.

On July 1st, 2017, Mallard Corporation had 100,000 shares of its $2 par value common stock outstanding and declared a 9% stock dividend when the market price of the stock was $5 per share. Journalize the entry on the declaration date of the dividend.

Stock Dividends 45,000 Common Stock Dividends Distributable 18,000 Paid-in Capital in Excess of Par - Common Stock 27,000 There will be 9,000 new shares (100,000 x 9%) because of the stock dividend. The value of the stock dividend is based on the market value (9,000 × $5 = $45,000) on the declaration date. Common Stock Dividends Distributable is credited for the par value of $18,000 (9,000 x $2), with the amount over par credited to the Paid-in Capital in Excess of Par—Common Stock account ($45,000 - $18,000 = $27,000).

When Vivian Inc. declares a 15% stock dividend, which account should be credited?

Stock Dividends Distributable

What happens when common stock with no par value and no stated value is issued for cash?

The entire proceeds are credited to Common Stock.

Candela Company has retained earnings of $500,000, common stock of $400,000, and total stockholders' equity of $1,200,000. It has 200,000 shares of $2 par value common stock outstanding which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its common stock, which of the following will occur?

There will be no effect on total stockholders' equity.

Veronique Inc. purchased 4,000 shares of its own $5 par value common stock for $8 per share, recording it at cost. What is the journal entry for this transaction?

Treasury Stock 32,000 Cash 32,000 Purchasing 4,000 of its own shares at $8 (4,000 x $8 = $32,000) will decrease stockholders' equity by $32,000. Debit Treasury Stock and Credit Cash for $32,000.

What causes the account, Revaluation Surplus, to exist under IFRS? a. Revaluation of property, plant, and equipment occurs. b. Net income exceeds dividends declared. c. Shares of stock are sold for more than par value. d. Stock dividends are declared.

a. Revaluation of property, plant, and equipment occurs.

Treat Corporation issued 38,000 shares of $50 par value preferred stock for cash at $60 per share. Which sections of stockholders' equity are affected by this transaction?

both the capital stock and additional paid-in capital sections

On January 2, 2014, Riley Corporation issued 20,000 shares of 6% cumulative preferred stock at $100 par value. On December 31, 2017, Riley Corporation declared and paid its first dividend. What dividends are the preferred stockholders entitled to receive in 2017 before any distribution is made to common stockholders? a. $360,000 b. $120,000 c. $480,000 d. $0

c. 480,000 20,000 X .06 X $100 = $120,000 annual dividend requirement for the preferred stockholders. $120,000 X 4 years = $480,000 due to preferred stockholders before any distribution is made to common stockholders.

Net cash provided by operating activities fails to take into account that a company must __________ to maintain its current level of operations.

invest in new fixed assets

The date a cash dividend becomes a binding legal obligation to a corporation is the a. record date. b. earnings date. c. declaration date. d. payment date.

c. declaration date

When stock is issued for legal services incurred to incorporate a business, the transaction is recorded by debiting Organization Expense for the a. stated value of the stock. b. par value of the stock. c. fair value of the stock. d. book value of the stock.

c. fair value of the stock

Free cash flow is calculated by subtracting __________ and _____________ from ___________.

cash dividends; capital expenditures; net cash provided by operations

Which of the following statements about a 3-for-1 stock split is true? a. It requires the company to distribute cash. b. It will triple the market price of the stock. c. It will triple the amount of total stockholders' equity. d. It will have no effect on total stockholders' equity.

d. It will have no effect on total stockholders' equity.

In the stockholders' equity section, the cost of treasury stock is deducted from a. Total stockholders' equity. b. Retained earnings. c. Common stock and paid-in capital. d. Total paid-in capital and retained earnings.

d. Total paid-in capital and retained earnings.

Unique Inque purchased 3,000 shares of its own $5 par value common stock for $8 per share, recording it at cost. What is the effect on total stockholders' equity?

decrease by $24,000 Purchasing 3,000 of its own shares at $8 (3,000 x $8 = $24,000) will decrease stockholders' equity by $24,000.

When a corporation purchases treasury stock, the acquisition

decreases the company's total assets and total stockholders' equity.

Subtracting capital expenditures and cash dividends from net cash provided by operating activities yields __________.

free cash flow

If Vivian Corp reported net cash used by operating activities of $500,000, its free cash flow _______ be negative.

must

Calculating free cash flow requires adjustment of ____________ by subtracting cash dividends and capital expenditures.

net cash provided by operating activities

During 2017, Bippity Boppity Boo Corp. paid no cash dividends to its shareholders, had no capital expenditures, and reported a net loss on its income statement. Which of the following statements is true for 2017?

net cash provided by operating activities equals free cash flow

All but one of the following is reported in a retained earnings statement. The exception is a. net income and net loss. b. sales revenue. c. cash and stock dividends. d. prior period adjustments.

sales revenue.

All the information required to calculate free cash flow can be obtained from __________.

the statement of cash flows

Foley Manufacturing Corporation purchased 3,000 shares of its own previously issued $10 par value common stock for $69,000. As a result of this transaction,

total stockholders' equity decreased by $69,000. Purchasing 3,000 of its own shares for $69,000 will decrease stockholders' equity and assets by $69,000.

During its first year of operations, Clayworks Corporation issued 300,000 shares of $5 par value common stock for $26 per share. During that year, the corporation reported net income of $80,000. The year-end balance sheet should report

total stockholders' equity of $7,880,000. Common Stock of $1,500,000. Paid in Capital in Excess of Par - Common Stock of $6,300,000. Retained Earnings of $80,000 from first year net income. Total Stockholders' Equity of $7,880,000.