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CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. b. The entries to record the stock issuance and subsequent acquisition and
retirement (per share) are as follows:
Issuance
Cash ............................................................................... 25
2. c. A treasury stock account is created when a company reacquires its own
stock as treasury stock. The full purchase price (cost) is debited to Treasury
Stock. When treasury stock is sold, the Treasury Stock account is credited
18–42 Intermediate Accounting, 8/e
CPA Exam Questions (concluded)
3. b. Property dividends are recorded at the fair value of the property distributed
as of the date of declaration, with any gain or loss being recognized in the
4. c. The number of shares issued is less than 20—25%. Therefore, the
transaction is considered a small stock dividend and retained earnings should
5. a. When a company issues a stock dividend, earnings per share decreases as the
6. b.
$100,000
7. c. Both U.S. GAAP and IFRS require that mandatorily redeemable preferred
8. c. Both U.S. GAAP and IFRS require that companies report a statement of
CMA Exam Questions
1. b. Par value represents a stock’s legal capital. It is an arbitrary value assigned
2. c. Common shareholders usually have preemptive rights, which means they
have the right to purchase any new issues of stock in proportion to their
3. b. A stock dividend is a transfer of equity from retained earnings to paid-in
capital. The debit is to retained earnings, and the credits are to common
stock and additional paid-in capital. More shares are outstanding following
PROBLEMS
Problem 18–1
PART A
Jan. 9
($ in millions)
Cash (40 million shares x $20 per share) ....................................... 800
PART B
Jan. 12
($ in millions)
Land ........................................................................................ 2
Revenue—donation of land ............................................... 2
Sept. 1
($ in millions)
Common stock (2 million shares x $1 par) .................................. 2
Dec. 1
($ in millions)
Cash ........................................................................................ 26
Problem 18–2
Requirement 1
a. February 5, 2016
($ in millions)
Retirement Treasury Stock
Common stock (6 million sh. x $1) 6 Treasury stock (6 million sh. x $10) 60
Paid-in capital—excess of par Cash 60
b. July 9, 2016
Cash (2 million sh. x $12) 24 Cash (2 million sh. x $12) 24
c. November 14, 2018
Cash (2 million sh. x $7) 14 Cash (2 million sh. x $7) 14
18–46 Intermediate Accounting, 8/e
Problem 18–2 (concluded)
Requirement 2
Shareholders’ Equity $ in millions
Treasury
Retirement Stock
Paid-in capital:
Common stock, $1 par, .................................................. $ 238 $ 240
* $1,680 – 42 + 22 + 12
** $1,100 – 11
*** $1,100 – 1
or, alternatively:
Paid-in capital:
Common stock, $1 par, .................................................. $ 238 $ 240
Problem 18–3
Requirement 1
February 15, 2016
(a) Retired
Common stock (300,000 shares x $1 par) ......................... 300,000
February 17, 2017
(a) Retired
Common stock (300,000 shares x $1 par) ......................... 300,000
Problem 18–3 (concluded)
November 9, 2018
(a) Retired
Cash (200,000 shares x $7) ............................................... 1,400,000
Common stock (200,000 shares x $1 par) ..................... 200,000
Requirement 2
Shareholders’ Equity
SHARES RETIRED TREASURY STOCK
Paid-in capital:
Common stock, $1 par, ........................................ $ 5,600,000 $ 6,000,000
or, alternatively:
Paid-in capital:
Common stock, $1 par, ........................................ $ 5,600,000 $ 6,000,000
Additional paid-in capital ..................................... 28,350,000 30,000,000
Problem 18–4
2014
Retained earnings ........................................................ 160,500
Income summary ..................................................... 160,500
2015
Income summary ......................................................... 2,240,900
Retained earnings ................................................... 2,240,900
2016
Income summary ......................................................... 3,308,700
Retained earnings ................................................... 3,308,700
Retained earnings (given) ............................................. 242,000
18–50 Intermediate Accounting, 8/e
Problem 18–5
Requirement 1
2016
a. November 1—declaration date
Retained earnings ......................................................... 84,000,000
2017
b. March 1—declaration date
Investment in Warner bonds ........................................ 300,000
March 13– date of record
no entry
April 5– payment date
c. July 12
Retained earnings (5,250,000* x $21 per share) .............. 110,250,000
Common stock ([5,250,000* – 250,000] x $1 par) .... 5,000,000
Problem 18–5 (continued)
d. November 1—declaration date
Retained earnings ........................................................ 88,000,000
Cash dividends payable (110,000,000* x $.80) .............. 88,000,000
* 105,000,000 + 5,000,000 = 110,000,000 shares
2018
e. January 15
Paid-in capital—excess of par** ................................. 55,000,000
Common stock (55,000,000* shares at $1 par) ............. 55,000,000
f. November 1—declaration date
Retained earnings ........................................................ 107,250,000
Cash dividends payable (165,000,000 * x $.65) ............. 107,250,000
Problem 18–5 (concluded)
Requirement 2
BRANCH-RICKIE CORPORATION
Statement of Shareholders’ Equity
For the Years Ended Dec. 31, 2016, 2017, and 2018 ($ in 000s)
Common
Stock
Additional
Paid-in Capital
Retained
Earnings
Total
Shareholders’
Equity
Property
dividends
(1,600)
(1,600)
Common stock
dividend
5,000
100,000
(110,250)
(5,250)
Net income
395,000
395,000
Problem 18–6
Requirement 1
2016 ($ in millions)
Cash ........................................................................................ 480
Preferred stock (1 million shares x $10 par per share) ............... 10
Paid-in capital—excess of par, preferred ........................... 470
Cash ........................................................................................ 70
2017 ($ in millions)
Common stock (3 million shares x $1 par) .................................. 3
Paid-in capital—excess of par (3 million shares x $9*) .............. 27
18–54 Intermediate Accounting, 8/e
Problem 18–6 (continued)
($ in millions)
Retained earnings ................................................................... 1
Cash dividends payable, preferred ................................... 1
Cash dividends payable, preferred ........................................ 1
2018 ($ in millions)
Retained earnings .................................................................. 65
Common stock .................................................................. 6
Paid-in capital—excess of par, common ........................... 59
Problem 18–6 (concluded)
Requirement 2
ANACONDA INTERNATIONAL CORPORATION
Balance Sheets
at December 31
2018 2017
Shareholders’ Equity:
Preferred stock $ 15 $ 15
Problem 18–7
Requirement 1
The statement of shareholders’ equity explains why and how the various
Requirement 2
Cisco accounts for its share repurchases by formally retiring them. The
Requirement 3
The price Cisco paid for the shares repurchased during the period shown was
more than the average price at which Cisco had sold the shares previously. We know
this because the Statement of Equity reports a reduction in retained earnings resulting
Problem 18–7 (continued)
Requirement 4
Comprehensive income is the total nonowner change in equity for a reporting
period. It encompasses all changes in equity other than from transactions with
owners. Transactions between the corporation and its owners primarily include
Requirement 5
The change in Comprehensive income in the period presented was due to (1) net
income ($3,425 million) and other comprehensive income (OCI) ($95 million). OCI
consists of some unreported combination of (1) net unrealized gain/loss on investment
18–58 Intermediate Accounting, 8/e
Problem 18–7 (concluded)
As we noted in Chapter 17, gains and losses, and prior service cost for
pensions and other postretirement benefit plans are not recognized currently
in earnings. Instead, we report them as part of other comprehensive
income.
Problem 18–8
Requirement 1
Cash ($385,000 – 1,500) .......................................................... 383,500
Requirement 2
Retained earnings ................................................................ 60,000
Requirement 3
Cash dividends payable ...................................................... 60,000
Cash ................................................................................ 60,000
Requirement 4
Common stock (10% x $30,000) ............................................. 3,000
18–60 Intermediate Accounting, 8/e
Problem 18–9
Assumption A – noncumulative
Preferred Common
Total $150
Current preference $10 (10% x $100) (10)
Assumption B – cumulative
Preferred Common
Total $150
Dividends in arrears:
-2015 $10 (10% x $100) (10)
