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Chapter 11: Stockholders' Equity
Matching
Match the terms to the definitions by selecting the letter of the term. Each term may be used more than once or not at all.
a.
cumulative feature
b.
stock dividend
c.
retired stock
d.
retained earnings
e.
callable feature
f.
convertible feature
g.
outstanding shares
h.
treasury stock
i.
participating feature
j.
additional paid-in capital
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-02 - LO: 11-02
FACC.PONO.13.11-04 - LO: 11-04
KEYWORDS:
Bloom's: Remembering
147. The amount received for the issuance of stock in excess of par value.
ANSWER:
j
148. The holders of this stock have the right to dividends in arrears before the current year dividend is distributed.
ANSWER:
a
149. Allows preferred stock to be returned to the corporation in exchange for common stock.
ANSWER:
f
150. Allows the holders of this stock to share in the distribution of dividends above the predetermined per share amount.
ANSWER:
i
151. Shares of stock that are repurchased and then discontinued by removing them from the accounting records.
ANSWER:
c
Chapter 11: Stockholders' Equity
Select the letter of the term each statement best describes.
a.
authorized shares
b.
issued shares
c.
outstanding shares
d.
par value
e.
additional paid-in capital
f.
retained earnings
g.
cumulative feature
h.
participating feature
i.
callable stock
j.
treasury stock
k.
retirement of stock
l.
dividend payout ratio
m.
stock dividend
n.
stock split
o.
market value per share
p.
convertible stock
q.
book value per share
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-02 - LO: 11-02
FACC.PONO.13.11-04 - LO: 11-04
FACC.PONO.13.11-07 - LO: 11-07
FACC.PONO.13.11-09 - LO: 11-09
KEYWORDS:
Bloom's: Remembering
152. Allows preferred stock to be returned to the corporation in exchange for common stock.
ANSWER:
p
153. Stock issued by the firm then repurchased but not retired.
ANSWER:
j
154. Creation of additional shares of stock with a concurrent reduction of the par value of the stock.
ANSWER:
n
155. The number of shares sold or distributed to stockholders.
ANSWER:
b
156. An arbitrary amount stated on the face of the stock certificate that represents the legal capital of the firm.
ANSWER:
d
157. Net income that has been earned by the corporation but not paid out as dividends.
ANSWER:
f
158. Total stockholders’ equity divided by the number of shares of common stock outstanding.
ANSWER:
q
159. The maximum number of shares a corporation may issue as indicated in the corporate charter.
ANSWER:
a
160. The number of shares issued less the number of shares held as treasury stock.
ANSWER:
c
161. The amount received for the issuance of stock in excess of the par value of the stock.
ANSWER:
e
162. Stock that has a provision allowing the stockholders to share in the distribution of an abnormally large dividend on a
percentage basis.
ANSWER:
h
163. Allows the issuing firm to eliminate a class of stock by paying the stockholders a fixed amount.
ANSWER:
i
164. When the stock of a corporation is repurchased with no intention to reissue at a later date.
ANSWER:
k
Select the statement on which each of the items provided below would be reported.
a.
Statement of retained earnings
b.
Statement of stockholders’ equity
c.
Items that may require reporting on either statement
d.
Items not reported on either of the statements
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-08 - LO: 11-08
KEYWORDS:
Bloom's: Remembering
165. Issuance of common stock.
ANSWER:
b
166. Net income for the period.
ANSWER:
c
167. Dividends for the period.
ANSWER:
c
168. Foreign currency translation adjustments.
ANSWER:
b
Chapter 11: Stockholders' Equity
From the following list, identify each item as operating (O), investing (I), financing (F), or not separately reported on the
statement of cash flows (N).
a.
Operating—O
b.
Investing—I
c.
Financing—F
d.
Not separately reported—N
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 - LO: 11-10
KEYWORDS:
Bloom's: Remembering
169. Issuance of common stock for cash
ANSWER:
c
170. Issuance of common stock for equipment
ANSWER:
d
171. Conversion of preferred stock into common stock
ANSWER:
d
172. Repurchase of common stock as treasury stock
ANSWER:
c
173. Payment of cash dividend on preferred stock
ANSWER:
c
174. Declaration of stock split
ANSWER:
d
175. Distribution of stock dividend
ANSWER:
d
176. Reissuance of common stock (held as treasury stock)
ANSWER:
c
Chapter 11: Stockholders' Equity
Carlton Industries has identified the following items and would like you to answer a few questions about their effect on
Stockholders' Equity. (Items are used only once.)
a.
Preferred stock issued by Carlton
b.
Amount received by Carlton in excess of par value when preferred stock was issued
c.
Dividends in arrears on Carlton preferred stock
d.
Cash dividend declared but unpaid on Carlton stock
e.
Stock dividend declared but unissued by Carlton
f.
Treasury stock
g.
Amount received in excess of cost when treasury stock is reissued by MJ
h.
Retained earnings
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
KEYWORDS:
Bloom's: Remembering
177. Which type of stock decreases stockholders' equity?
ANSWER:
f
178. Which item would not be recorded until declared?
ANSWER:
c
179. Which item decreases Retained Earnings and also credits a payable (liability)?
ANSWER:
d
180. Which item results in no change to stockholders' equity?
ANSWER:
e
181. Which item is recorded as Additional Paid-In Capital - Preferred Stock?
ANSWER:
b
182. Which item increases Additional Paid-In Capital - Treasury Stock?
ANSWER:
g
Chapter 11: Stockholders' Equity
Subjective Short Answer
183. Comfort Shoes had the following items included in its accounting records. In the space provided, indicate whether
each of the items listed is included in an account in the stockholders' equity section of the balance sheet.
Item
Included in a Stockholders'
Equity account? (yes or no)
a.
Preferred stock issued by Comfort Shoes.
b.
Cash dividend unpaid that was declared last year.
c.
Earnings accumulated but not distributed by Comfort Shoes.
d.
Amount received in excess of cost when treasury stock is reissued
by Comfort Shoes.
e.
Treasury stock purchased.
f.
Dividends in arrears on Comfort Shoes preferred stock.
g.
Amount received in excess of par value when common stock was
issued by Comfort Shoes.
h.
Stock dividend declared but not yet distributed by Comfort
Shoes.
ANSWER:
Item
Included in a Stockholders'
Equity account? (yes or no)
a.
Preferred stock issued by Comfort
Shoes.
Yes
b.
Cash dividend unpaid that was declared
last year.
No
c.
Earnings accumulated but not
distributed by Comfort Shoes.
Yes
d.
Amount received in excess of cost when
treasury stock is reissued by Comfort
Shoes.
Yes
184. Cloud Co. provided the following information from its 2016 financial statements:
Total Assets
$655,000
Total Liabilities
225,000
In addition, the stockholders' equity section of the balance sheet showed:
Preferred stock, 10%, $2 par value, 10,000 authorized, 8,000 issued and
outstanding, $5 liquidation value
$16,000
Common stock, $4 par value, 20,000 shares authorized, 10,000 issued
and outstanding
40,000
The common stock had a year-end market price of $24.
A)
Calculate the book value per common share at year-end.
B)
Indicate the usefulness of this ratio for Cloud Co..
ANSWER:
A)
Total stockholders' equity = $655,000 – $225,000 = $430,000
Book value = ($430,000 – $40,000)/10,000 = $39
B)
This ratio indicates the amount per share that each common stockholder has
the right to if the corporation were to liquidate.
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-09 - LO: 11-09
KEYWORDS:
Bloom's: Analyzing
185. The Cloud Co. had the following account balances at December 31, 2016:
Retained earnings
$52,000
Treasury stock, 500 common shares at cost
(10,000)
Common stock, $1 par value, 10,000 shares authorized, 4,000 shares outstanding
4,000
Cash dividends payable—common
6,000
Additional paid-in capital—common
1,200
Additional paid-in capital-treasury stock
900
Common stock dividend distributable
6,200
Prepare the stockholders' equity section of the balance sheet for The Cloud Co. at December 31, 2016.
ANSWER:
The Cloud Co.
Stockholders’ Equity Section of the Balance Sheet
at December 31, 2016
Common stock, $1 par value, 10,000 shares authorized,
4,000 shares issued and outstanding
$ 4,000
Common stock dividend distributable
6,200
Additional paid-in capital—common stock
1,200
Additional paid-in capital—treasury stock
900
Retained earnings
52,000
Total contributed capital and retained earnings
$64,300
Treasury stock—500 shares common stock at cost
(10,000)
Total Stockholders’ equity
$54,300
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-03 - LO: 11-03
FACC.PONO.13.11-04 - LO: 11-04
FACC.PONO.13.11-05 - LO: 11-05
FACC.PONO.13.11-06 - LO: 11-06
KEYWORDS:
Bloom's: Analyzing
186. The Stockholders' Equity section of Stallion Tack Shack balance sheet on January 1, 2016, appeared as follows:
Common stock, $5 par, 30,000 shares issued and outstanding
$150,000
Additional paid-in capital—common
120,000
Retained earnings
300,000
Total stockholders' equity
$570,000
On March 1, 2016, Stallion reacquired 3,000 shares of common stock at $8 per share. Answer the following questions:
A)
What amount would be reported on the March 31, 2016, balance sheet for treasury stock?
B)
What is the number of outstanding shares at March 31, 2016?
C)
How much is total stockholders' equity to be reported on the March 31, 2017 balance sheet?
ANSWER:
A)
3,000 shares × $8 = $24,000
B)
30,000 shares – 3,000 shares = 27,000 shares
C)
$570,000 – $24,000 = $546,000
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-04 - LO: 11-04
KEYWORDS:
Bloom's: Analyzing
187. Bradford Parts reported the following information at December 31, 2016:
Preferred stock, 12%, $1 par, 50,000 shares authorized, issued, and outstanding;
cumulative; non-participating; callable at par value
$ 50,000
Common stock, $2 par, 30,000 shares authorized
40,000
Additional paid-in capital—common
50,000
Retained earnings
30,000
Total contributed capital and retained earnings
$170,000
Less: Treasury stock (500 common shares at cost)
(5,000)
Total stockholders' equity
$165,000
Answer the following questions for Bradford Parts by placing the correct response in the space provided.
___________
A) How many shares of common stock are issued?
___________
B) How many shares of preferred stock are issued?
___________
C) How many common shares are outstanding?
___________
D) How many preferred shares are outstanding?
___________
E) How many of the common shares will receive dividends if and when
they are paid?
___________
F) How many of the preferred shares will receive dividends if and when
they are paid?
ANSWER:
A)
20,000 shares
$40,000 (Total) / $2 (Par) = 20,000
B)
50,000 shares
$50,000 (Total) / $1 (Par) = 50,000
C)
19,500 shares
20,000 (Outstanding) – 500 (Treasury shares) = 19,500
D)
50,000 shares
E)
19,500 shares
F)
50,000 shares
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-02 - LO: 11-02
FACC.PONO.13.11-04 - LO: 11-04
KEYWORDS:
Bloom's: Analyzing
188. Overton Supply reported the following information at December 31, 2016:
Common stock, $1 par, 100,000 shares authorized
$ 80,000
Additional paid-in capital—common
60,000
Retained earnings
40,000
Total contributed capital and retained earnings
$180,000
Less: Treasury stock (2,000 common shares at cost)
(20,000)
Total stockholders' equity
$160,000
Answer the following questions for Overton Supply.
1)
Assuming that all shares were sold at the same price, how much did each share of common stock
originally sell for?
2)
What is the total amount of contributed capital at December 31, 2016?
3)
What is the amount of the book value per share at December 31, 2016?
4)
Would the book value per share increase, decrease, or remain the same, if the company declared a
2-for-1 stock split on December 31, 2016? Explain.
ANSWER:
1)
($80,000 + $60,000)/80,000 = $1.75 assuming all shares were sold at the same price
2)
$80,000 + $60,000 = $140,000
3)
$160,000/78,000 = $2.05
4)
Decrease, because more shares would be outstanding.
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-03 - LO: 11-03
FACC.PONO.13.11-07 - LO: 11-07
FACC.PONO.13.11-09 - LO: 11-09
KEYWORDS:
Bloom's: Analyzing
189. The stockholders' equity section of Calabro, Inc. is as follows:
Preferred stock, 7%, $10 par, 1,000 shares authorized, 300 shares issued
$ 3,000
Additional paid-in capital—preferred
9,000
Common stock, $1 par value, authorized 15,000 shares, issued 4,000 shares
4,000
Additional paid-in capital—common
20,000
Retained earnings
50,000
Total contributed capital and retained earnings
$86,000
Less: Treasury stock (1,000 common shares at cost )
(6,000)
Total stockholders' equity
$80,000
The market price of the stock on December 31, 2016, was $8 per share. Answer the following independent questions:
A)
Calculate the average amount at which each share of common stock was initially sold.
B)
What balance will be in the retained earnings account immediately after the declaration of a
2-for-1 stock split?
C)
If a cash dividend of $1 per share was declared to both common and preferred stockholders,
what would be the balance in retained earnings immediately after the declaration?
D)
What balance will be in the retained earnings account immediately after the declaration of a
20% common stock dividend on December 31, 2016?
ANSWER:
A)
($4,000 + $20,000)/4,000 = $6.00
B)
Retained earnings would remain the same; $50,000
C)
$50,000 – [($1 × (300 + 3,000)] = $46,700
D)
$50,000 – (20% × 3,000 × $8) = $45,200
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 - LO: 11-01
FACC.PONO.13.11-05 - LO: 11-05
FACC.PONO.13.11-06 - LO: 11-06
KEYWORDS:
Bloom's: Analyzing
190. Given below are several transactions for Vision Inc. In the space provided, indicate the impact on each of the
stockholders' equity accounts given, by placing the dollar amount and either a plus sign (+) or a minus sign (–) in the box
provided. For each account in which there is no effect, place an X in the box.
Transaction
Common
Stock
Additional
Paid-in
Stock
Retained
Earnings
1.
Vision Inc. received authorization to issue
1,000 shares of $2 par value common stock.
2.
Vision Inc. issued 500 shares of common
stock for cash at $15 per share.
3.
Vision Inc. issued 200 shares in exchange
for a truck worth $3,000.
4.
Vision Inc. issued 100 shares of stock in
exchange for a patent. The patent had an
undeterminable market value. The stock was
selling for $14 per share.
ANSWER:
Transaction
Common
Stock
Additional
Paid-in
Stock
Retained
Earnings
1.
Vision Inc. received authorization to
issue 1,000 shares of $2 par value
common stock.
X
X
X
2.
Vision Inc. issued 500 shares of
common stock for cash at $15 per share.
+$1,000
+$6,500
X
3.
Vision Inc. issued 200 shares in
exchange for a truck worth $3,000.
+$400
+$2,600
X
4.
Vision Inc. issued 100 shares of stock in
exchange for a patent. The patent had an
undeterminable market value. The stock
was selling for $14 per share.
+$200
+$1,200
X
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-03 - LO: 11-03
KEYWORDS:
Bloom's: Analyzing
191. Below are two transactions for Navaho Co.
1. On June 1, Navaho Co. issued 2,000 shares of $5 par common stock for $16 per share.
2. On June 15, Navaho Co. issued 1,200 shares of $5 par preferred stock to acquire a building. The stock is not widely
traded, and the current market value of the stock is not evident. The building has recently been appraised by an
independent firm as having a market value of $15,000.
Required:
For each of these transactions, record the journal entry that Navaho Company would make.
ANSWER:
June 1
Cash
32,000
Common Stock
10,000
Additional Paid-In Capital—Common
22,000
To record the issuance of 2,000 shares of $5
common stock at $16 per share.
Balance Sheet
Income Statement
192. The Stockholders' Equity section of Catanzaro, Inc.'s balance sheet on January 1, 2016, appeared as follows:
Common stock, $2 par, 20,000 shares issued and outstanding
$ 40,000
Additional paid-in capital—common
120,000
Retained earnings
300,000
Total contributed capital and retained earnings
$460,000
Less: Cost of treasury stock (10,000 shares)
(80,000)
Total stockholders' equity
$380,000
A)
On March 1, 2016, Catanzaro resold 800 shares of treasury stock at $25 per share.
What is the effect of the March 1 transaction on the accounting equation?
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
B)
Why is the excess of the sales price of the 800 shares of treasury stock over the cost
not reported on the income statement?
ANSWER:
A) Original cost of treasury stock: $80,000/10,000 = $8/share
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
Cash
20,000
Additional
Paid-in-
Capital-
Treasury
Stock 13,600
Treasury
Stock 6,400
193. Assume that the Stockholders’ Equity section of Cherokee Company’s balance sheet on December 31, 2016, appears
as follows:
Common stock, $10 par value, 1,500 shares issued and outstanding
$15,000
Additional paid-in capital—Common
17,000
Retained earnings
11,000
Total stockholders’ equity
$43,000
1. If on February 1, 2017, Cherokee buys 120 of its shares as treasury stock at $30 per share, what journal entry will the
company record?
2. How with the Stockholders’ Equity section of Cherokee’s balance sheet appear on February 1, 2017, after the purchase
of the treasury stock?
ANSWER:
1.
Feb. 1
Treasury Stock
3,600
Cash
3,600
To record the purchase of 120 shares of
treasury stock.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
Cash
(3,600)
Treasury
Stock
(3,600)
2.
Common stock, $10 par value, 1,500 shares issued, 900
outstanding
$15,000
Additional paid-in capital—Common
17,000
194. Lear Flower Shop presented the stockholders' equity section of its balance sheet on January 1, 2016, as follows:
Common stock, $2 par, 10,000 shares issued and outstanding
$20,000
Additional paid-in capital—common
40,000
Retained earnings
10,000
Total stockholders' equity
$70,000
All common shares were originally sold for $6 each. The following transactions occurred during 2016:
—Reacquired 3,000 shares of common stock at $15 per share on February 16.
—Sold 2,000 shares of treasury stock at $20 per share on June 1.
Part 1.
Show the effects of the transactions on the accounting equation.
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
Part 2.
How many shares of stock are outstanding at June 1, immediately after the
sale of the 2,000 shares of treasury stock?
ANSWER:
Part 1:
(a)
Balance Sheet
Income Statement
Assets
=
Liabilities
+
Stockholders’
Equity
Revenues
–
Expenses
=
Net
Income
195. The Stockholders' Equity section of Saltsburg Company's balance sheet on January 1, 2016, appeared as follows:
Common stock, $2 par, 2,000 shares issued and outstanding
$ 4,000
Additional paid-in capital
1,600
Retained earnings
5,400
Total stockholders' equity
$11,000
On March 1, 2016, Saltsburg Company reacquired 800 shares of common stock at $12 per share. On April 6, Saltsburg
Company resold 600 shares of treasury stock at $20 per share. How many shares of stock are outstanding at March 31,
and April 30, respectively?
ANSWER:
March 31 (shares):
Initial balance
2,000
March 1
(800)
March 31 balance
1,200
April 30 (shares):
March 31 balance
1,200
April 6
+ 600
April 30 balance
1,800
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 - LO: 11-04
KEYWORDS:
Bloom's: Analyzing
196. In the space provided, indicate the effect of the dividend transactions on each account listed by writing the amount
and whether the account would be increased or decreased. The company has 10,000 shares of $1 par value, common stock
authorized, and 8,000 shares issued. In instances where there is no effect on that account, place an X in the box.
Item
Common
Stock
Common
Stock
Dividend
Distributable
Additional
Paid-in
Capital--
Common
Retained
Earnings
a.
May 1, declared cash dividend
totaling $2,000.
b.
May 15, paid the cash dividend
declared on May 1.
c.
May 25, declared a 10% stock
dividend when the market price
of the stock was $8.
d.
May 30, distributed the stock
dividend.
e.
June 15, declared a 2-for-1 stock
split.
ANSWER:
Item
Common
Stock
Common
Stock
Dividend
Distributable
Additional
Paid-in
Capital--
Common
Retained
Earnings
a.
May 1, declared cash
dividend totaling $2,000.
X
X
X
$2,000
decrease
b.
May 15, paid the cash
dividend declared on May 1.
X
X
X
X
c.
May 25, declared a 10%
stock dividend when the
market price of the stock was
$8.
X
$800
increase
$5,600
increase
$6,400
decrease
d.
May 30, distributed the stock
dividend.
$800
increase
$800
decrease
X
X
e.
June 15, declared a 2-for-1
stock split.
X
X
X
X
DIFFICULTY:
Moderate
197. Assume that on December 31, 2016, Ambridge Company has outstanding 8,000 shares of $15 par,
6% noncumulative, preferred stock and 40,000 shares of $5 par common stock. Ambridge was unable to declare a
dividend in 2014 or 2015 but wants to declare a $75,000 dividend for 2016.
Required:
1.How much total cash is distributed to preferred stockholders?
2.How much total cash is distributed to common stockholders?
3.What is the dividend per share to preferred stock?
4.What is the dividend per share to common stock?
ANSWER:
1. 8,000 shares × $15 par × 6% × 1 year = $7,200
2. $75,000 – $7,200 = $67,800
3. $7,200 / 8,000 = $0.90 per share
4. $67,800 / 40,000 = $1.695 per share
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 - LO: 11-05
KEYWORDS:
Bloom's: Analyzing
198. Assume that on December 31, 2016, Ambridge Company has outstanding 8,000 shares of $15 par, 6% cumulative,
preferred stock and 40,000 shares of $5 par common stock. Ambridge was unable to declare a dividend in 2014 or 2015
but wants to declare a $75,000 dividend for 2016.
Required:
1. How much cash is distributed to preferred stockholders?
2. How much cash is distributed to common stockholders?
3. What is the dividend per share to preferred stock?
4. What is the dividend per share to common stock?
ANSWER:
1. 8,000 shares × $15 par × 6% × 3 years = $21,600
2. $75,000 – 21,600 = $53,400
3. $21,600 / 8,000 = $2.70 per share
4. $53,400 / 40,000 = $1.335 per share
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 - LO: 11-05
KEYWORDS:
Bloom's: Analyzing
