81
163)
All of the following regarding accounting for Treasury Stock under U.S. GAAP and IFRS is true
except:
A)
U. S. GAAP applies the principle that companies do not record gains or losses on transactions
involving their own stock.
B)
Gains are not recognized on retirements of treasury stock under U. S. GAAP.
C)
A company’s assets and equity are always reduced by the amount paid for the retiring stock.
D)
Only gains are recognized on retirements of treasury stock under IFRS.
E)
IFRS applies the principle that companies do not record gains or losses on transactions
involving their own stock.
164)
Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares
authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record
the dividend declaration is:
A)
Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.
B)
Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.
C)
Debit Common Dividends Payable $104,500; credit Cash $104,500.
D)
Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
E)
Debit Common Dividends Payable $100,100; credit Cash $100,100.
165)
West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued,
and 10,000 shares in treasury stock. The journal entry to record the dividend declaration is:
A)
Debit Common Dividends Payable $90,000; credit Cash $90,000.
B)
Debit Common Dividends Payable $95,000; credit Cash $95,000.
C)
Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.
D)
Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
E)
Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
166)
West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued,
and 10,000 shares in treasury stock. The journal entry to record the payment of the dividend is:
A)
Debit Common Dividends Payable $90,000; credit Cash $90,000.
B)
Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
C)
Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
D)
Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.
E)
Debit Common Dividends Payable $95,000; credit Cash $95,000.
167)
Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares
authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record
the payment of the dividend is:
A)
Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.
B)
Debit Common Dividends Payable $104,500; credit Cash $104,500.
C)
Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.
D)
Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
E)
Debit Common Dividends Payable $100,100; credit Cash $100,100.
168)
Fargo Company’s outstanding stock consists of 400 shares of noncumulative 5% preferred stock with
a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years
of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared
year 1 $ 20,00
0
year 2 $ 6,000
year 3 $ 32,00
0
The amount of dividends paid to preferred and common shareholders in year 1 is:
A)
$4,000 preferred; $16,000 common.
B)
$10,000 preferred; $10,000 common.
C)
$20,000 preferred; $0 common.
D)
$200 preferred; $19,800 common.
E)
$17,000 preferred; $3,000 common.
169)
Sweet Company’s outstanding stock consists of 1,000 shares of cumulative 5% preferred stock with
a $100 par value and 10,000 shares of common stock with a $10 par value. During the first three
years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared 85
Dividend Declared
year 1 $ 2,000
year 2 $ 6,000
year 3 $ 32,00
0
The amount of dividends paid to preferred and common shareholders in year 3 is:
A)
$32,000 preferred; $0 common.
B)
$15,000 preferred; $17,000 common.
C)
$5,000 preferred; $27,000 common.
D)
$7,000 preferred; $25,000 common.
E)
$0 preferred; $32,000 common.
170)
Sweet Company’s outstanding stock consists of 1,000 shares of noncumulative 5% preferred stock
with a $100 par value and 10,000 shares of common stock with a $10 par value. During the first
three years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared
year 1 $ 2,000
year 2 $ 6,000
year 3 $ 32,00
0
The total amount of dividends paid to preferred and common shareholders over the three-year period
is:
A)
$10,000 preferred; $30,000 common.
B)
$12,000 preferred; $28,000 common.
C)
$5,000 preferred; $35,000 common.
D)
$15,000 preferred; $25,000 common.
E)
$11,000 preferred; $29,000 common.
171)
Sweet Company’s outstanding stock consists of 1,000 shares of cumulative 5% preferred stock with
a $100 par value and 5,000 shares of common stock with a $10 par value. During the first three
years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared
Year 1 $ 2,000
Year 2 $ 6,000
Year 3 $ 32,00
0
The total amount of dividends paid to preferred and common shareholders over the three-year period
is:
A)
$12,000 preferred; $28,000 common.
B)
$10,000 preferred; $30,000 common.
C)
$15,000 preferred; $25,000 common.
D)
$5,000 preferred; $35,000 common.
E)
$11,000 preferred; $29,000 common.
89
172)
Halverstein Company’s outstanding stock consists of 7,000 shares of cumulative 5% preferred stock
with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three
years of operation, the corporation declared and paid the following total cash dividends.
Dividend Declared
Year 1 $ 0
Year 2 $ 6,000
Year 3 $ 32,00
0
The amount of dividends paid to preferred and common shareholders in Year 2 is:
A)
$3,000 preferred; $3,000 common.
B)
$3,500 preferred; $2,500 common.
C)
$0 preferred; $6,000 common.
D)
$4,200 preferred; $1,800 common.
E)
$6,000 preferred; $0 common.
173)
Prior to June 30, a company has never had any treasury stock transactions. A company repurchased
100 shares of its $1 par common stock on June 30 for $40 per share. On July 20, it reissued 50 of
these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the
journal entry necessary to record the repurchase of stock on June 30?
A)
Debit Cash $4,000; credit Treasury Stock $4,000.
B)
Debit Common Stock $100; debit Treasury Stock $3,900; credit Cash $4,000.
C)
Debit Common Stock $4,000; credit Cash $4,000.
D)
Debit Treasury Stock $3,900; debit Paid-in Capital, Treasury Stock $100; credit Cash $4,000.
E)
Debit Treasury Stock, Common $4,000; credit Cash $4,000.
174)
Prior to June 30, a company has never had any treasury stock transactions. A company repurchased
100 shares of its $1 par common stock on June 30 for $40 per share. On July 20, it reissued 50 of
these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the
journal entry necessary to record the reissuance of treasury stock on July 20?
A)
Debit Common Stock $20; debit Treasury Stock $2,290; credit Cash $2,300.
B)
Debit Common Stock $2,300; credit Cash $2,300.
C)
Debit Cash $2,300; credit Treasury Stock $2,300.
D)
Debit Cash $2,300; credit Paid-in Capital, Treasury Stock $300; credit Treasury Stock
$2,000.
E)
Debit Common Stock $2,300; credit Treasury Stock $2,000; credit Paid-In Capital, Treasury
Stock $300.
175)
A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per share. The
entry to record this transaction would be:
A)
Debit Cash $27,500; credit Paid-in Capital in Excess of Par Value, Common Stock $2,500;
credit Common Stock $25,000.
B)
Debit Common Stock $27,500; credit Cash $27,500.
C)
Debit Cash $27,500; credit Common Stock $27,500.
D)
Debit Treasury Stock $27,500; credit Cash $27,500.
E)
Debit Treasury Stock $2,500; debit Paid-in Capital in Excess of Par Value, Treasury Stock
$25,000; credit Common Stock $27,500.
176)
A corporation issued 5,000 shares of its no par common stock that was assigned a $1 stated value
per share. The issue price was $10 per share. The entry to record this transaction would be:
A)
Debit Cash $50,000; credit Common Stock $50,000.
B)
Debit Common Stock $50,000; credit Cash $50,000.
C)
Debit Common Stock $25,000; debit Paid-in Capital in Excess of Par Value, Common Stock
$5,000; credit Common Stock $45,000.
D)
Debit Cash $50,000; credit Paid-in Capital in Excess of Stated Value, Common Stock
$45,000; credit Common Stock $5,000.
E)
Debit Treasury Stock $50,000; credit Cash $50,000.
ESSAY QUESTIONS
177)
What is a corporation? Identify the key advantages and disadvantages of corporations.
178)
What are the rights generally granted to common stockholders?
179)
Explain how to calculate the price-earnings ratio and describe how it is used in analysis of a
company’s financial condition and performance.
180)
Explain how to compute dividend yield and discuss how it is used in analysis of a company’s
financial condition.
181)
Explain how to compute book value per common share and discuss how it can be used to analyze
the financial condition of a corporation.
182)
What is a stock split? How is a stock split different from a stock dividend?
183)
Explain the difference between a large stock dividend and a small stock dividend. In addition,
explain how to record these two types of stock dividends.
184)
What is treasury stock? What reasons might a company hold treasury stock?
185)
Boron Company is authorized to issue 50,000 shares of $50 par value, 8%, cumulative, fully
participating preferred stock, and 750,000 shares of $5 par value common stock. Prepare journal
entries to record the following selected transactions that occurred during the company’s first year of
operations:
May 5 Exchanged 2,200 shares of preferred stock for a building with a market
value of $135,000.
July 20 Sold 1,550 shares of preferred stock for $50 cash per share.
Dec. 20 Sold 1,000 shares of preferred stock at $52 cash per share.
186)
A corporation received its charter and began business this year. The company is authorized to issue
500,000 shares of $100 par, 6%, noncumulative, nonparticipating preferred stock, and 1,000,000
shares of no-par common stock. The following selected transactions occurred during this year:
Mar. 5 Issued 250 shares of preferred stock for $102 cash per share.
July 15 Exchanged 750 shares of common stock for $12,000 in legal
services incurred in the organization of the company.
Prepare journal entries to record these transactions.
99
187)
Rhoads Corporation is authorized to issue 250,000 shares of $50 par, 10%, noncumulative,
nonparticipating preferred stock and 5,000,000 shares of no-par common stock. Prepare journal
entries to record the following selected transactions that occurred during this year:
Feb. 1 Issued 10,000 shares of common stock for $30 cash per share.
15 Exchanged 2,000 shares of preferred stock for equipment and
merchandise inventory with market values of $80,000 and $30,000,
respectively.
188)
Given the following information about a corporation’s current year activities, compute the retained
earnings for the current year.
Retained earnings, December 31 (prior year) $280,000
Cost of goods sold $90,000
Other operating expenses $54,000
Cash dividends $31,800
Correction of understatement of net income in prior
period (inventory error) $23,000
Stock dividends $20,000
Net income $36,000
