46) On May 31, Mason Corporation has the following stockholders’ equity:
Common Stock, $10 par value, 6,000 shares
issued and outstanding $60,000
Retained Earnings 20,000
Total Stockholders’ Equity $80,000
The board of directors declared a 10% stock dividend on June 5 to the stockholders of record on June 15.
The stock is to be distributed on June 30. On the date of declaration, the stock had a market value of $15
per share. Prepare the appropriate journal entries for these transactions.
47) Prepare the following journal entries for Complex Company.
March 15 Declared the stated dividend on 5,000 shares of $10 par, 5% preferred stock.
April 15 Paid the dividend.
48) Prepare the following stock dividend journal entries for Tamera, Inc.
June 19 Declared a 7% stock dividend to common stockholders. The stock has a par value of $13 and a
current market value of $14. There are 60,000 shares of common stock outstanding.
July 2 The stock dividend is issued.
49) Explain some possible reasons a company may declare a stock dividend instead of a cash dividend.
19.3 Learning Objective 19-3
1) Treasury stock was purchased and recorded as an asset. This error would cause:
A) the period end assets to be understated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be overstated.
D) None of the above is correct.
2) When treasury stock was sold below cost, the decrease was debited to Loss on Sale. This error would
cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be overstated.
D) Both A and C are correct.
3) The cash purchase of treasury stock was recorded as a purchase on account. This error would cause:
A) the period end assets to be understated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be overstated.
D) the period’s net income to be overstated.
4) Treasury stock was sold above cost; the excess was credited to Gain on Sale. This error would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the total period end stockholders’ equity to be overstated.
D) the period’s net income to be overstated.
5) Treasury stock is:
A) stock that is issued in a stock dividend.
B) stock that has been reacquired by the corporation.
C) previously issued stock that has been canceled.
D) unissued, but authorized stock.
6) Treasury Stock is what type of account?
A) Stockholders’ equity
B) Liability
C) Asset
D) Contra-stockholders’ equity
7) Which of the following statements is false of treasury stock?
A) It has a right to dividends.
B) It has a right to vote.
C) It is stock that is outstanding.
D) All of the statements are false.
8) To record the purchase of treasury stock:
A) debit Treasury Stock-Common (par value); credit Cash (same).
B) debit Treasury Stock-Common (purchase price); credit Cash (same).
C) debit Treasury Stock-Common (par value); debit any difference to Paid–in Capital; credit Cash
(purchase price).
D) None of these answers are correct.
9) When treasury stock was sold at cost, Cash was debited and Common Stock was credited. This error
would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the total period end stockholders’ equity to be overstated.
D) None of these are correct.
10) When treasury stock is purchased:
A) issued shares increase.
B) outstanding shares decrease.
C) authorized shares decrease.
D) None of these answers are correct.
11) When treasury stock is reissued for more than cost:
A) debit Cash; credit Treasury Stock and Paid–in Capital from Treasury Stock.
B) debit Cash; credit Common Stock and Paid-in Capital from Common Stock.
C) debit Cash; credit Treasury Stock.
D) debit Cash; credit Treasury Stock and Retained Earnings.
12) Farm and Supply reissued 100 shares of treasury stock at $20 that had been reacquired for $15 per
share. What is the entry?
A) Debit Cash $2,000; credit Treasury Stock-Common $1,500, Paid-In Capital from Treasury Stock $500
B) Debit Cash $2,000; credit Treasury Stock-Common $2,000
C) Debit Cash $1,500; Paid-In Capital from Treasury Stock $500, credit Treasury Stock-Common $2,000
D) None of these answers are correct.
13) When O’Rourke Corporation sells treasury stock for more than the original cost:
A) stockholders’ equity increases.
B) paid-in capital increases.
C) retained earnings may increase.
D) retained earnings may decrease.
14) Barkley’s Resort had 2,000 shares of $20 par value common stock outstanding. On June 1, Barkley’s
purchased 200 shares of treasury stock for $21 per share and later reissued them for $22 per share. What
amount of profit from the re-issuance will be reported on the income statement?
A) $400
B) $200
C) $100
D) $0
15) Treasury stock should usually be recorded at:
A) par or stated value.
B) cost.
C) original issue price.
D) net realizable value.
16) If treasury stock is re-issued at a price less than its cost, the debit entry could include:
A) paid-in capital in excess of par, treasury.
B) retained earnings.
C) treasury stock.
D) both A and B.
17) A corporation purchased 35 shares of treasury stock for $40. The entry to record the transaction would
include a:
A) debit to Cash for $1400.
B) credit to Treasury Stock for $1400.
C) debit to Treasury Stock for $1400.
D) None of these answers are correct.
18) A corporation sold 20 shares of $20 par value treasury stock for $40 per share. The treasury stock cost
$30 per share to acquire. The entry to record the transaction would include a:
A) credit to Paid-in Capital-Treasury Stock for $600.
B) debit to Treasury Stock for $800.
C) debit to Paid-in Capital Treasury Stock for $200.
D) debit to Common Stock for $400.
19) If treasury stock is sold for less than cost, the entry to record the transaction would include a:
A) debit to Treasury Stock.
B) credit to Treasury Stock.
C) debit to Common Stock.
D) None of these answers are correct.
20) Curtis Corporation’s balance sheet included the following:
Common Stock, $5 par value, 5,000 shares issued
and outstanding $25,000
Retained Earnings 20,000
Total Stockholders’ Equity $45,000
Prepare journal entries for the following transactions:
May 3 Issued 500 shares at $6 per share.
9 Reacquired 100 shares at $4 per share.
15 Reissued 50 of the Treasury shares at $7 per share.
17 Reissued 10 of the Treasury shares at $3 per share.
21) Baxter Corporation has 1,000 shares of $5 par value common stock issued and outstanding.
Journalize the following Baxter transactions for 20XX:
Feb. 1 Purchased 200 shares of treasury stock at $6.00.
20 Declared a $2.00 per share cash dividend payable on March 15
to stockholders of record March 1.
Mar. 15 Paid the cash dividend.
May 10 Declared a 10% stock dividend. The market value of the stock is $15.00 per share.
May 30 Distributed the stock dividend.
Jun 10 Reissued the treasury stock for $9.00.
19.4 Learning Objective 19-4
1) Providing services to a credit customer was recorded with a debit to Cash and a credit to Retained
Earnings. This error would cause:
A) the period’s net income to be understated.
B) the period end liabilities to be understated.
C) the total period end stockholders’ equity to be understated.
D) the period’s net income to be overstated.
2) The payment of wages was debited to Retained Earnings. This error would cause:
A) the period end assets to be understated.
B) the period end liabilities to be understated.
C) the period end stockholders’ equity to be understated.
D) the period’s net income to be understated.
3) Which of the following would not be shown on the statement of retained earnings?
A) Purchase of treasury stock
B) Appropriations for plant expansion
C) Declaration of a stock dividend
D) Declaration of a cash dividend
4) A retained earnings appropriation is a restriction of retained earnings by:
A) accountants.
B) senior management.
C) stockholders.
D) the board of directors.
5) An entry to appropriate a portion of retained earnings to finance a future plant expansion would
include a debit to:
A) Paid-in Capital in Excess of Par.
B) Cash.
C) Retained Earnings.
D) Unappropriated Retained Earnings.
6) Typically, the only credit to the retained earnings account for a corporation is:
A) the initial investment of stockholders.
B) net income of the period.
C) net loss of the period.
D) any withdrawals by the owners.
7) The effect of a retained earnings appropriation is to:
A) increase the number of shares of stock available.
B) allow the corporation to use its assets for dividends.
C) increase cash and other assets.
D) divide the retained earnings into two categories.
8) To explain the change in the amount of retained earnings between successive balance sheet dates, it is
customary to prepare a(n):
A) income statement.
B) statement of stockholders’ equity.
C) balance sheet.
D) retained earnings statement.
9) Appropriations to retained earnings can be:
A) contractual only.
B) an increase in retained earnings.
C) a decrease in total retained earnings.
D) None of these answers are correct.
10) Changes in retained earnings can result from:
A) effects of prior period adjustments.
B) net income or net loss.
C) dividends being declared.
D) All of these answers are correct.
11) A prior period adjustment would be necessary when:
A) a stock dividend is declared.
B) a stock dividend is paid.
C) amortization expense was understated the prior year.
D) a cash dividend is declared.
12) A prior period adjustment for depreciation would affect what account in the stockholders‘ equity
section?
A) Capital Stock
B) Paid-in Capital in Excess of Par–Common Stock
C) Retained Earnings
D) Appropriations
13) At the end of the accounting cycle, net income will be closed into:
A) Treasury Stock.
B) Paid-in Capital.
C) Cash.
D) Retained Earnings.
14) Appropriations to retained earnings is:
A) recorded as an contra-asset.
B) disclosed in the notes to the financial statements.
C) recorded as a contra-liability.
D) a contra-stockholders’ equity.
15) Rick’s Internet Corporation balance in Retained Earnings is $30,000. The board of directors directs that
$15,000 be appropriated for future business expansion. This will cause total retained earnings to:
A) remain at $30,000.
B) increase by $15,000.
C) decrease by $15,000.
D) increase or decrease $5,000, as determined by the board.
16) Changes in retained earnings result from effects of prior period adjustments, net income or loss, or
dividends declared.
17) Appropriations of retained earnings are voted upon by stockholders.
18) An appropriation to retained earnings reduces total assets.
19) Most companies report restrictions by using a footnote to the Retained Earnings account.
20) A prior period adjustment is corrected to the ending balance of Retained Earnings.
21) Prior period adjustments are included in the statement of retained earnings.
22) In the closing process for corporations, Retained Earnings is used rather than Capital.
23) The statement of retained earnings includes the account Preferred Stock.
Using the following accounts:
[1] Cash
[2] Dividends payable
[3] Preferred stock
[4] Common stock
[5] Dividend distributable
[6] Paid-in capital in excess of par common stock
[7] Paid-in capital in excess of par preferred stock
[8] Paid-in capital from treasury stock
[9] Retained earnings
[10] Appropriation for plant expansion
[11] Treasury stock
[12] Income summary
Indicate the account(s) to be debited and credited to record the following transactions.
24) Sold treasury stock at a price equal to cost.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
25) Sold preferred stock at a price above par.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
26) Sold treasury stock at a price below cost when there was sufficient paid-in capital from treasury stock
to absorb the difference between cost and selling price.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
27) Sold treasury stock at a price below cost when there was not enough paid-in capital from treasury
stock to absorb the difference between cost and selling price.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
28) Sold treasury stock at a price below cost when there was no paid-in capital from treasury stock to
absorb the difference between cost and selling price.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
29) Declared a cash dividend.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
30) Paid a cash dividend.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
31) Declared a stock dividend when the market price was above par.
Debit ________ & ________& ________ Credit ________ & ________ & ________
32) Prepare a statement of retained earnings in proper form for White Corporation for the year ended
December 31, 20xx, from the following:
Retained Earnings, January 1, 20xx $2,000
Dividends paid during the year 800
Net income for the year 3,000
Correction of prior year error. Purchase
of land recorded as rent expense 1,000
33) Prepare a statement of retained earnings in proper form for Gray Corporation for the year ended
December 31, 20XX, from the following:
Retained Earnings, January 1, 20XX $5,700
Dividends declared during the year 400
Net income for the year 12,000
Correction of prior year error, Sales overstated 3,200