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CHAPTER 15

STOCKHOLDERS EQUITY
IFRS questions are aai!a"!e at t#e en$ o% t#is &#a'ter(
TRUE)FALSE*Con&e'tua!
Ans+er ,o( Des&ri'tion
T 1. State a corporation incorporates in.
F 2. Definition of preemptive right.
T 3. Common stock as residual interest.
F 4. Earned capital definition.
T . !eporting true no"par stock.
F #. $llocating proceeds in lump sum sales.
T %. $ccounting for stock issued for noncash consideration.
F &. Definition of treasur' stock.
F (. !eporting treasur' stock under cost method.
T 1). Selling treasur' stock *elo+ cost.
F 11. ,articipating preferred stock.
T 12. Calla*le preferred stock.
T 13. !estricting legal capital.
F 14. Disclosing dividend polic'.
F 1. $ffect of dividends on total stockholders- e.uit'.
T 1#. ,ropert' dividends definition.
T 1%. $ccounting for small stock dividend.
F 1&. Stock splits and large stock dividends.
F 1(. Computing rate of return on common stock e.uit'.
T 2). Computing pa'out ratio.
-ULTIPLE CHOICE*Con&e'tua!
Ans+er ,o( Des&ri'tion
c 21. /ature of stockholders0 interest.
* 22. ,re"emptive right.
a 23. ,re"emptive right.
*
S
24. Definition of legal capital.
c
S
2. Definition of residual o+ner.
c 2#. /ature of stockholders0 e.uit'.
d 2%. Sources of stockholders0 e.uit'.
d 2&. Classification of stockholders0 e.uit'.
d 2(. $llocation methods for a lump sum issuance.
* 3). Capital stock issued in pa'ment of services.
a 31. Costs of issuing capital stock.
* 32. Creation of 1secret reserves.1
a
,
33. $uthori2ed shares.
d
S
34. ,ar value stock.
*
S
3. 3egal restrictions for profit distri*utions.
a
S
3#. $c.uisition of treasur' shares.
d
,
3%. Treasur' shares definition.
c 3&. ,urchase of treasur' stock at greater than par value.
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
-ULTIPLE CHOICE*Con&e'tua! 3&ont(4
Ans+er ,o( Des&ri'tion
a 3(. Sale of treasur' stock.
a 4). !eissued treasur' stock at less than ac.uisition cost.
* 41. !eissued treasur' stock at greater than ac.uisition cost.
c 42. Effect of treasur' stock transactions.
c 43. ,referred stock4de*t features.
* 44. Cumulative feature of preferred stock.
*
,
4. !eporting redeema*le stock.
c
S
4#. !eporting dividends in arrears.
c 4%. 5ssued vs. outstanding common stock.
* 4&. Timing of entr' to record dividends.
c 4(. Shares entitled to receive a cash dividend.
c ). $ccounting for a propert' dividend.
a 1. Distri*ution of a propert' dividend.
a 2. 3i.uidating dividend.
* 3. Entr' to record a li.uidating dividend.
* 4. Effects of a stock dividend.
* . Effects of a stock dividend.
* #. Effect of a large stock dividend.
* %. 3arge stock dividend.
a &. Small stock dividend.
a (. Small stock dividend.
* #). Classification of stock dividends distri*uta*le.
* #1. Effect of stock splits and stock dividends.
c #2. Effect of a stock split.
* #3. Disclosures in the *alance sheet.
a #4. !eturn on common stock e.uit' calculation.
* #. ,a'out ratio calculation.
c ##. 6ook value per share.
a
,
#%. Computing *ook value per share.
c 7#&. Dividends and treasur' stock.
a 7#(. /oncumulative preferred stock and dividends in arrears.
a 7%). Disclosure of preferred dividends in arrears.
,
These .uestions also appear in the ,ro*lem"Solving Survival 8uide.
S
These .uestions also appear in the Stud' 8uide.
7This topic is dealt +ith in an $ppendi9 to the chapter.
-ULTIPLE CHOICE*Co0'utationa!
Ans+er ,o( Des&ri'tion
a %1. Composition of stockholders0 e.uit'.
* %2. Calculation of total paid"in capital.
* %3. $llocating proceeds in lump sum sales.
c %4. $llocating proceeds in lump sum sales.
d %. Computing total paid"in capital.
* %#. $llocating proceeds in lump sum sales.
c %%. $llocating proceeds in lump sum sales.
15 ) 5
Stockholders- E.uit'
-ULTIPLE CHOICE*Co0'utationa! 3&ont(4
Ans+er ,o( Des&ri'tion
d %&. Computing paid"in capital from treasur' stock transactions.
d %(. !ecording purchase of treasur' stock.
* &). !eissue treasur' stock4a*ove ac.uisition cost.
c &1. !eissue treasur' stock4cost method.
c &2. $dditional paid"in capital +ith treasur' stock transactions.
d &3. Calculation of additional paid"in capital.
c &4. Calculation of additional paid"in capital.
a &. Total stockholders0 e.uit' +ith treasur' stock transactions.
c &#. Total stockholders0 e.uit' +ith treasur' stock e9change.
c &%. Calculate dividends for cumulative preferred shares.
a &&. Calculate dividends for common shares.
a &(. Calculate dividends for common shares.
c (). !eduction in retained earnings from propert' dividends.
d (1. !eduction in retained earnings from propert' dividends.
* (2. !eduction in retained earnings caused *' a propert' dividend.
d (3. !eduction in retained earnings from propert' dividends.
d (4. !eduction in retained earnings from propert' dividends.
a (. Decrease in retained earnings from cash and stock dividends.
c (#. Calculation of a large stock dividend.
a (%. Calculation of a small stock dividend.
* (&. Calculation of a small stock dividend.
* ((. Small stock dividend0s effect on retained earnings.
* 1)). 6alance of retained earnings after a small stock dividend.
a 1)1. Calculate retained earnings availa*le for dividends.
a 1)2. Calculate decrease in retained earnings.
c 1)3. Calculate the pa'out ratio.
a 1)4. Calculate *ook value per share.
d 1). :se same descrip. as 1)1.
d 1)#. :se same descrip. as 1)2.
c 1)%. Calculate rate of return on common stock e.uit'.
c 1)&. Calculate price"earnings ratio.
a 1)(. Calculate dividends paid to common stockholders.
* 11). !ate of return on common stock e.uit'.
c 111. Determine the rate of return on common stock e.uit'.
a 112. Determine *ook value per share.
* 113. Computation of pa'out ratio.
* 114. Computation of *ook value per share.
* 711. $llocation of cash dividend to common and preferred shares.
d 711#. Cash dividends for cumulative preferred shares.
* 711%. Cash dividends for cumulative participating preferred shares.
c 711&. Cash dividend allocation +ith participating preferred shares.
* 711(. Cash dividend for cumulative preferred shares.
15 ) 6
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
-ULTIPLE CHOICE*CPA A$a'te$
Ans+er ,o( Des&ri'tion
d 12). Capital stock issued in pa'ment of services.
* 121. ,roceeds from preferred stock in lump sum issue.
c 122. Determine paid"in capital from treasur' stock.
* 123. !eissue treasur' stock4cost method.
c 124. Effect of the reissuance of treasur' stock.
d 12. Entr' to record propert' dividends declared.
* 12#. Effect of a li.uidating dividend.
d 12%. Effect of a stock dividend.
d 12&. Stock dividend +hen market price e9ceeds par value.
a 12(. 6alance of retained earnings follo+ing stock dividend.
c 713). $llocation of cash dividend to common and preferred shares.
E7ERCISES
Ite0 Des&ri'tion
E1"131 3ump sum issuance of stock.
E1"132 Treasur' stock.
E1"133 Treasur' stock.
E1"134 Treasur' stock.
E1"13 Treasur' stock.
E1"13# Stockholders- e.uit'.
E1"13% Stock dividends.
E1"13& Stock dividends and stock splits.
E1"13( Computation of selected ratios.
7E1"14) Dividends on preferred stock.
7E1"141 Dividends on preferred stock.
PRO.LE-S
Ite0 Des&ri'tion
,1"142 E.uit' transactions.
,1"143 Treasur' stock transactions.
,1"144 Stock dividends.
,1"14 E.uit' transactions.
7,1"14# Dividends on preferred and common stock.
15 ) 8
Stockholders- E.uit'
CHAPTER LEAR,I,9 O.:ECTI;ES
1. Discuss the characteristics of the corporate form of organi2ation.
2. 5dentif' the ke' components of stockholders0 e.uit'.
3. E9plain the accounting procedures for issuing shares of stock.
4. Descri*e the accounting for treasur' stock.
. E9plain the accounting for and reporting of preferred stock.
#. Descri*e the policies used in distri*uting dividends.
%. 5dentif' the various forms of dividend distri*utions.
&. E9plain the accounting for small and large stock dividends; and for stock splits.
(. 5ndicate ho+ to present and anal'2e stockholders- e.uit'.
71). E9plain the different t'pes of preferred stock dividends and their effect on *ook value per
share.
15 ) 5
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
SU--ARY OF LEAR,I,9 O.:ECTI;ES .Y QUESTIO,S
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learnin1 O"<e&tie 1
1. TF 2. TF 3. TF 21. <C 22. <C 23. <C
S
24. <C
Learnin1 O"<e&tie 5
4. TF
S
2. <C 2#. <C 2%. <C 2&. <C
Learnin1 O"<e&tie 6
. TF 2(. <C 32. <C
S
3. <C %3. <C %#. <C 121. <C
#. TF 3). <C
,
33. <C %1. <C %4. <C %%. <C 131. E
%. TF 31. <C
S
34. <C %2. <C %. <C 12). <C 142. ,
Learnin1 O"<e&tie 8
&. TF
,
3%. <C 41. <C &). <C &4. <C 123. <C 134. E
(. TF 3&. <C 42. <C &1. <C &. <C 124. <C 13. E
1). TF 3(. <C %&. <C &2. <C &#. <C 132. E 143. ,
S
3#. <C 4). <C %(. <C &3. <C 122. <C 133. E
Learnin1 O"<e&tie 5
11. TF 43. <C
,
4. <C &%. <C &(. <C
12. TF 44. <C
S
4#. <C &&. <C
Learnin1 O"<e&tie =
13. TF 14. TF
Learnin1 O"<e&tie >
1. TF 4&. <C 1. <C 4. <C (1. <C (4. <C 13#. E
1#. TF 4(. <C 2. <C . <C (2. <C 12. <C 144. ,
4%. <C ). <C 3. <C (). <C (3. <C 12#. <C 14. ,
Learnin1 O"<e&tie ?
1%. TF (. <C (#. <C 1)1. <C 1)#. <C 12(. <C
1&. TF #). <C (%. <C 1)2. <C 1)%. <C 13%. E
#. <C #1. <C (&. <C 1)3. <C 1)&. <C 13&. E
%. <C #2. <C ((. <C 1)4. <C 12%. <C 144. ,
&. <C (. <C 1)). <C 1). <C 12&. <C 14. ,
Learnin1 O"<e&tie @
1(. TF #3. <C #. <C
,
#%. <C 11). <C 112. <C 114. <C
2). TF #4. <C ##. <C 1)(. <C 111. <C 113. <C 13(. E
Learnin1 O"<e&tie A1B
#&. <C %). <C 11#. <C 11&. <C 13). <C 141. E
#(. <C 11. <C 11%. <C 11(. <C 14). E 14#. ,
/ote= TF > True"False
<C > <ultiple Choice
E > E9ercise
, > ,ro*lem
15 ) =
Stockholders- E.uit'
TRUE)FALSE*Con&e'tua!
1. $ corporation is incorporated in onl' one state regardless of the num*er of states in +hich
it operates.
2. The preemptive right allo+s stockholders the right to vote for directors of the compan'.
3. Common stock is the residual corporate interest that *ears the ultimate risks of loss.
4. Earned capital consists of additional paid"in capital and retained earnings.
. True no"par stock should *e carried in the accounts at issue price +ithout an' additional
paid"in capital reported.
#. Companies allocate the proceeds received from a lump"sum sale of securities *ased on
the securities- par values.
%. Companies should record stock issued for services or noncash propert' at either the fair
value of the stock issued or the fair value of the consideration received.
&. Treasur' stock is a compan'-s o+n stock that has *een reac.uired and retired.
(. The cost method records all transactions in treasur' shares at their cost and reports the
treasur' stock as a deduction from capital stock.
1). ?hen a corporation sells treasur' stock *elo+ its cost; it usuall' de*its the difference
*et+een cost and selling price to ,aid"in Capital from Treasur' Stock.
11. ,articipating preferred stock re.uires that if a compan' fails to pa' a dividend in an' 'ear;
it must make it up in a later 'ear *efore pa'ing an' common dividends.
12. Calla*le preferred stock permits the corporation at its option to redeem the outstanding
preferred shares at stipulated prices.
13. The la+s of some states re.uire that corporations restrict their legal capital from
distri*ution to stockholders.
14. The SEC re.uires companies to disclose their dividend polic' in their annual report.
1. $ll dividends; e9cept for li.uidating dividends; reduce the total stockholders- e.uit' of a
corporation.
1#. Dividends pa'a*le in assets of the corporation other than cash are called propert'
dividends or dividends in kind.
1%. ?hen a stock dividend is less than 2)"2 percent of the common stock outstanding; a
compan' is re.uired to transfer the fair value of the stock issued from retained earnings.
1&. Stock splits and large stock dividends have the same effect on a compan'-s retained
earnings and total stockholders- e.uit'.
15 ) >
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
1(. The rate of return on common stock e.uit' is computed *' dividing net income *' the
average common stockholders- e.uit'.
2). The pa'out ratio is determined *' dividing cash dividends paid to common stockholders
*' net income availa*le to common stockholders.
True)Fa!se Ans+ers*Con&e'tua!
Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans(
1. T #. F 11. F 1#. T
2. F %. T 12. T 1%. T
3. T &. F 13. T 1&. F
4. F (. F 14. F 1(. F
. T 1). T 1. F 2). T
-ULTIPLE CHOICE*Con&e'tua!
21. The residual interest in a corporation *elongs to the
a. management.
*. creditors.
&( &o00on sto&/#o!$ers(
d. preferred stockholders.
22. The pre"emptive right of a common stockholder is the right to
a. share proportionatel' in corporate assets upon li.uidation.
"( s#are 'ro'ortionate!C in anC ne+ issues o% sto&/ o% t#e sa0e &!ass(
c. receive cash dividends *efore the' are distri*uted to preferred stockholders.
d. e9clude preferred stockholders from voting rights.
23. The pre"emptive right ena*les a stockholder to
a( s#are 'ro'ortionate!C in anC ne+ issues o% sto&/ o% t#e sa0e &!ass(
*. receive cash dividends *efore other classes of stock +ithout the pre"emptive right.
c. sell capital stock *ack to the corporation at the option of the stockholder.
d. receive the same amount of dividends on a percentage *asis as the preferred
stockholders.
S
24. 5n a corporate form of *usiness organi2ation; legal capital is *est defined as
a. the amount of capital the state of incorporation allo+s the compan' to accumulate
over its e9istence.
"( t#e 'ar a!ue o% a!! &a'ita! sto&/ issue$(
c. the amount of capital the federal government allo+s a corporation to generate.
d. the total capital raised *' a corporation +ithin the limits set *' the Securities and
E9change Commission.
15 ) ?
Stockholders- E.uit'
S
2. Stockholders of a *usiness enterprise are said to *e the residual o+ners. The term
residual o+ner means that shareholders
a. are entitled to a dividend ever' 'ear in +hich the *usiness earns a profit.
*. have the rights to specific assets of the *usiness.
&( "ear t#e u!ti0ate ris/s an$ un&ertainties an$ re&eie t#e "ene%its o% enter'rise
o+ners#i'(
d. can negotiate individual contracts on *ehalf of the enterprise.
2#. Total stockholders0 e.uit' represents
a. a claim to specific assets contri*uted *' the o+ners.
*. the ma9imum amount that can *e *orro+ed *' the enterprise.
&( a &!ai0 a1ainst a 'ortion o% t#e tota! assets o% an enter'rise(
d. onl' the amount of earnings that have *een retained in the *usiness.
2%. $ primar' source of stockholders0 e.uit' is
a. income retained *' the corporation.
*. appropriated retained earnings.
c. contri*utions *' stockholders.
$( "ot# in&o0e retaine$ "C t#e &or'oration and &ontri"utions "C sto&/#o!$ers(
2&. Stockholders0 e.uit' is generall' classified into t+o ma@or categories=
a. contri*uted capital and appropriated capital.
*. appropriated capital and retained earnings.
c. retained earnings and unappropriated capital.
$( earne$ &a'ita! an$ &ontri"ute$ &a'ita!(
2(. The accounting pro*lem in a lump sum issuance is the allocation of proceeds *et+een the
classes of securities. $n accepta*le method of allocation is the
a. pro forma method.
*. proportional method.
c. incremental method.
$( eit#er t#e 'ro'ortiona! 0et#o$ or t#e in&re0enta! 0et#o$(
3). ?hen a corporation issues its capital stock in pa'ment for services; the least appropriate
*asis for recording the transaction is the
a. market value of the services received.
"( 'ar a!ue o% t#e s#ares issue$(
c. market value of the shares issued.
d. $n' of these provides an appropriate *asis for recording the transaction.
31. Direct costs incurred to sell stock such as under+riting costs should *e accounted for as
1. a reduction of additional paid"in capital.
2. an e9pense of the period in +hich the stock is issued.
3. an intangi*le asset.
a( 1
*. 2
c. 3
d. 1 or 3
15 ) @
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
32. $ 1secret reserve1 +ill *e created if
a. inade.uate depreciation is charged to income.
"( a &a'ita! eD'en$iture is &#ar1e$ to eD'ense(
c. lia*ilities are understated.
d. stockholders0 e.uit' is overstated.
,
33. ?hich of the follo+ing represents the total num*er of shares that a corporation ma' issue
under the terms of its charterA
a( aut#oriEe$ s#ares
*. issued shares
c. unissued shares
d. outstanding shares
S
34. Stock that has a fi9ed per"share amount printed on each stock certificate is called
a. stated value stock.
*. fi9ed value stock.
c. uniform value stock.
$( 'ar a!ue sto&/(
S
3. ?hich of the follo+ing is not a legal restriction related to profit distri*utions *' a
corporationA
a. The amount distri*uted to o+ners must *e in compliance +ith the state la+s governing
corporations.
"( T#e a0ount $istri"ute$ in anC one Cear &an neer eD&ee$ t#e net in&o0e
re'orte$ %or t#at Cear(
c. ,rofit distri*utions must *e formall' approved *' the *oard of directors.
d. Dividends must *e in full agreement +ith the capital stock contracts as to preferences
and participation.
S
3#. 5n Banuar' 2)1); Finle' Corporation; a ne+l' formed compan'; issued 1);))) shares of
its C1) par common stock for C1 per share. Dn Bul' 1; 2)1); Finle' Corporation
reac.uired 1;))) shares of its outstanding stock for C12 per share. The ac.uisition of
these treasur' shares
a( $e&rease$ tota! sto&/#o!$ersF equitC(
*. increased total stockholders0 e.uit'.
c. did not change total stockholders0 e.uit'.
d. decreased the num*er of issued shares.
,
3%. Treasur' shares are
a. shares held as an investment *' the treasurer of the corporation.
*. shares held as an investment of the corporation.
c. issued and outstanding shares.
$( issue$ "ut not outstan$in1 s#ares(
3&. ?hen treasur' stock is purchased for more than the par value of the stock and the cost
method is used to account for treasur' stock; +hat accountEsF should *e de*itedA
a. Treasur' stock for the par value and paid"in capital in e9cess of par for the e9cess of
the purchase price over the par value.
*. ,aid"in capital in e9cess of par for the purchase price.
&( TreasurC sto&/ %or t#e 'ur&#ase 'ri&e(
d. Treasur' stock for the par value and retained earnings for the e9cess of the purchase
price over the par value.
15 ) 1B
Stockholders- E.uit'
3(. G8ains1 on sales of treasur' stock Eusing the cost methodF should *e credited to
a( 'ai$)in &a'ita! %ro0 treasurC sto&/(
*. capital stock.
c. retained earnings.
d. other income.
4). ,orter Corp. purchased its o+n par value stock on Banuar' 1; 2)1) for C2);))) and
de*ited the treasur' stock account for the purchase price. The stock +as su*se.uentl'
sold for C12;))). The C&;))) difference *et+een the cost and sales price should *e
recorded as a deduction from
a( a$$itiona! 'ai$)in &a'ita! to t#e eDtent t#at 'reious net G1ainsG %ro0 sa!es o%
t#e sa0e &!ass o% sto&/ are in&!u$e$ t#ereinH ot#er+ise2 %ro0 retaine$ earnin1s(
*. additional paid"in capital +ithout regard as to +hether or not there have *een previous
net 1gains1 from sales of the same class of stock included therein.
c. retained earnings.
d. net income.
41. Ho+ should a 1gain1 from the sale of treasur' stock *e reflected +hen using the cost
method of recording treasur' stock transactionsA
a. $s ordinar' earnings sho+n on the income statement.
"( As 'ai$)in &a'ita! %ro0 treasurC sto&/ transa&tions(
c. $s an increase in the amount sho+n for common stock.
d. $s an e9traordinar' item sho+n on the income statement.
42. ?hich of the follo+ing *est descri*es a possi*le result of treasur' stock transactions *' a
corporationA
a. <a' increase *ut not decrease retained earnings.
*. <a' increase net income if the cost method is used.
&( -aC $e&rease "ut not in&rease retaine$ earnin1s(
d. <a' decrease *ut not increase net income.
43. ?hich of the follo+ing features of preferred stock makes the securit' more like de*t than
an e.uit' instrumentA
a. ,articipating
*. Ioting
&( Re$ee0a"!e
d. /oncumulative
44. The cumulative feature of preferred stock
a. limits the amount of cumulative dividends to the par value of the preferred stock.
"( requires t#at $ii$en$s not 'ai$ in anC Cear 0ust "e 0a$e u' in a !ater Cear
"e%ore $ii$en$s are $istri"ute$ to &o00on s#are#o!$ers(
c. means that the shareholder can accumulate preferred stock until it is e.ual to the par
value of common stock at +hich time it can *e converted into common stock.
d. ena*les a preferred stockholder to accumulate dividends until the' e.ual the par value
of the stock and receive the stock in place of the cash dividends.
,
4. $ccording to the F$S6; redeema*le preferred stock should *e
a. included +ith common stock.
"( in&!u$e$ as a !ia"i!itC(
c. e9cluded from the stockholders- e.uit' heading.
d. included as a contra item in stockholders0 e.uit'.
15 ) 11
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
S
4#. Cumulative preferred dividends in arrears should *e sho+n in a corporation0s *alance
sheet as
a. an increase in current lia*ilities.
*. an increase in stockholders0 e.uit'.
&( a %ootnote(
d. an increase in current lia*ilities for the current portion and long"term lia*ilities for the
long"term portion.
4%. $t the date of the financial statements; common stock shares issued +ould e9ceed
common stock shares outstanding as a result of the
a. declaration of a stock split.
*. declaration of a stock dividend.
&( 'ur&#ase o% treasurC sto&/(
d. pa'ment in full of su*scri*ed stock.
4&. $n entr' is not made on the
a. date of declaration.
"( $ate o% re&or$(
c. date of pa'ment.
d. $n entr' is made on all of these dates.
4(. Cash dividends are paid on the *asis of the num*er of shares
a. authori2ed.
*. issued.
&( outstan$in1(
d. outstanding less the num*er of treasur' shares.
). ?hich of the follo+ing statements a*out propert' dividends is not trueA
a. $ propert' dividend is usuall' in the form of securities of other companies.
*. $ propert' dividend is also called a dividend in kind.
&( T#e a&&ountin1 %or a 'ro'ertC $ii$en$ s#ou!$ "e "ase$ on t#e &arrCin1 a!ue
3"oo/ a!ue4 o% t#e non0onetarC assets trans%erre$(
d. $ll of these statements are true.
1. Houser Corporation o+ns 4;)));))) shares of stock in 6aha Corporation. Dn Decem*er
31; 2)1); Houser distri*uted these shares of stock as a dividend to its stockholders. This
is an e9ample of a
a( 'ro'ertC $ii$en$(
*. stock dividend.
c. li.uidating dividend.
d. cash dividend.
2. $ dividend +hich is a return to stockholders of a portion of their original investments is a
a( !iqui$atin1 $ii$en$(
*. propert' dividend.
c. lia*ilit' dividend.
d. participating dividend.
15 ) 15
Stockholders- E.uit'
3. $ mining compan' declared a li.uidating dividend. The @ournal entr' to record the
declaration must include a de*it to
a. !etained Earnings.
"( a 'ai$)in &a'ita! a&&ount(
c. $ccumulated Depletion.
d. $ccumulated Depreciation.
4. 5f management +ishes to 1capitali2e1 part of the earnings; it ma' issue a
a. cash dividend.
"( sto&/ $ii$en$(
c. propert' dividend.
d. li.uidating dividend.
. ?hich dividends do not reduce stockholders0 e.uit'A
a. Cash dividends
"( Sto&/ $ii$en$s
c. ,ropert' dividends
d. 3i.uidating dividends
#. The declaration and issuance of a stock dividend larger than 2J of the shares previousl'
outstanding
a. increases common stock outstanding and increases total stockholders0 e.uit'.
"( $e&reases retaine$ earnin1s "ut $oes not &#an1e tota! sto&/#o!$ersF equitC(
c. ma' increase or decrease paid"in capital in e9cess of par *ut does not change total
stockholders0 e.uit'.
d. increases retained earnings and increases total stockholders0 e.uit'.
%. Kuirk Corporation issued a 1))J stock dividend of its common stock +hich had a par
value of C1) *efore and after the dividend. $t +hat amount should retained earnings *e
capitali2ed for the additional shares issuedA
a. There should *e no capitali2ation of retained earnings.
"( Par a!ue
c. <arket value on the declaration date
d. <arket value on the pa'ment date
&. The issuer of a J common stock dividend to common stockholders prefera*l' should
transfer from retained earnings to contri*uted capital an amount e.ual to the
a( 0ar/et a!ue o% t#e s#ares issue$(
*. *ook value of the shares issued.
c. minimum legal re.uirements.
d. par or stated value of the shares issued.
(. $t the date of declaration of a small common stock dividend; the entr' should not include
a( a &re$it to Co00on Sto&/ Dii$en$ PaCa"!e(
*. a credit to ,aid"in Capital in E9cess of ,ar.
c. a de*it to !etained Earnings.
d. $ll of these are accepta*le.
15 ) 16
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
#). The *alance in Common Stock Dividend Distri*uta*le should *e reported as aEnF
a. deduction from common stock issued.
"( a$$ition to &a'ita! sto&/(
c. current lia*ilit'.
d. contra current asset.
#1. $ feature common to *oth stock splits and stock dividends is
a. a transfer to earned capital of a corporation.
"( t#at t#ere is no e%%e&t on tota! sto&/#o!$ersF equitC(
c. an increase in total lia*ilities of a corporation.
d. a reduction in the contri*uted capital of a corporation.
#2. ?hat effect does the issuance of a 2"for"1 stock split have on each of the follo+ingA
,ar Ialue per Share !etained Earnings
a. /o effect /o effect
*. 5ncrease /o effect
&( De&rease ,o e%%e&t
d. Decrease Decrease
#3. ?hich one of the follo+ing disclosures should *e made in the e.uit' section of the
*alance sheet; rather than in the notes to the financial statementsA
a. Dividend preferences
"( Liqui$ation 're%eren&es
c. Call prices
d. Conversion or e9ercise prices
#4. The rate of return on common stock e.uit' is calculated *' dividing
a( net in&o0e !ess 're%erre$ $ii$en$s "C aera1e &o00on sto&/#o!$ers equitC(
*. net income *' average common stockholders- e.uit'.
c. net income less preferred dividends *' ending common stockholders- e.uit'.
d. net income *' ending common stockholders- e.uit'.
#. The pa'out ratio can *e calculated *' dividing
a. dividends per share *' earnings per share.
"( &as# $ii$en$s "C net in&o0e !ess 're%erre$ $ii$en$s(
c. cash dividends *' market price per share.
d. dividends per share *' earnings per share and dividing cash dividends *' net income
less preferred dividends.
##. Lounger Compan' has outstanding *oth common stock and nonparticipating; non"
cumulative preferred stock. The li.uidation value of the preferred is e.ual to its par value.
The *ook value per share of the common stock is unaffected *'
a. the declaration of a stock dividend on preferred pa'a*le in preferred stock +hen the
market price of the preferred is e.ual to its par value.
*. the declaration of a stock dividend on common stock pa'a*le in common stock +hen
the market price of the common is e.ual to its par value.
&( t#e 'aC0ent o% a 'reious!C $e&!are$ &as# $ii$en$ on t#e &o00on sto&/(
d. a 2"for"1 split of the common stock.
15 ) 18
Stockholders- E.uit'
,
#%. $ssume common stock is the onl' class of stock outstanding in the <anle' Corporation.
Total stockholders0 e.uit' divided *' the num*er of common stock shares outstanding is
called
a( "oo/ a!ue 'er s#are(
*. par value per share.
c. stated value per share.
d. market value per share.
7#&. Dividends are not paid on
a. noncumulative preferred stock.
*. nonparticipating preferred stock.
&( treasurC &o00on sto&/(
d. Dividends are paid on all of these.
7#(. /oncumulative preferred dividends in arrears
a( are not 'ai$ or $is&!ose$(
*. must *e paid *efore an' other cash dividends can *e distri*uted.
c. are disclosed as a lia*ilit' until paid.
d. are paid to preferred stockholders if sufficient funds remain after pa'ment of the
current preferred dividend.
7%). Ho+ should cumulative preferred dividends in arrears *e sho+n in a corporation0s
statement of financial positionA
a( ,ote $is&!osure
*. 5ncrease in stockholders0 e.uit'
c. 5ncrease in current lia*ilities
d. 5ncrease in current lia*ilities for the amount e9pected to *e declared +ithin the 'ear or
operating c'cle; and increase in long"term lia*ilities for the *alance
-u!ti'!e C#oi&e Ans+ers*Con&e'tua!
Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans(
21. c 2(. d 3%. d 4. * 3. * #1. * 7#(. a
22. * 3). * 3&. c 4#. c 4. * #2. c 7%). a
23. a 31. a 3(. a 4%. c . * #3. *
24. * 32. * 4). a 4&. * #. * #4. a
2. c 33. a 41. * 4(. c %. * #. *
2#. c 34. d 42. c ). c &. a ##. c
2%. d 3. * 43. c 1. a (. a #%. a
2&. d 3#. a 44. * 2. a #). * 7#&. c
15 ) 15
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
-ULTIPLE CHOICE*Co0'utationa!
:se the follo+ing information for .uestions %1 and %2.
,resented *elo+ is information related to Hale Corporation=
Common Stock; C1 par C4;3));)))
,aid"in Capital in E9cess of ,ar4Common Stock );)))
,referred & 1M2J Stock; C) par 2;)));)))
,aid"in Capital in E9cess of ,ar4,referred Stock 4));)))
!etained Earnings 1;));)))
Treasur' Common Stock Eat costF 1);)))
%1. The total stockholders0 e.uit' of Hale Corporation is
a( I?2=BB2BBB(
*. C&;%);))).
c. C%;1));))).
d. C%;2);))).
%2. The total paid"in capital Ecash collectedF related to the common stock is
a. C4;3));))).
"( I82?5B2BBB(
c. C;2);))).
d. C4;%));))).
%3. <anning Compan' issued 1);))) shares of its C par value common stock having a
market value of C2 per share and 1;))) shares of its C1 par value preferred stock
having a market value of C2) per share for a lump sum of C4&);))). Ho+ much of the
proceeds +ould *e allocated to the common stockA
a. C);)))
"( I51?21?5
c. C2);)))
d. C2;)))
%4. /orton Compan' issues 4;))) shares of its C par value common stock having a market
value of C2 per share and #;))) shares of its C1 par value preferred stock having a
market value of C2) per share for a lump sum of C1(2;))). ?hat amount of the proceeds
should *e allocated to the preferred stockA
a. C1%2;)))
*. C12);)))
&( I1B82>5>
d. C();)))
%. 6err' Corporation has );))) shares of C1) par common stock authori2ed. The follo+ing
transactions took place during 2)1); the first 'ear of the corporation-s e9istence=
Sold ;))) shares of common stock for C1& per share.
5ssued ;))) shares of common stock in e9change for a patent valued at C1));))).
$t the end of the 6err'-s first 'ear; total paid"in capital amounted to
a. C4);))).
*. C();))).
c. C1));))).
$( I1@B2BBB(
15 ) 1=
Stockholders- E.uit'
%#. 8lavine Compan' issues #;))) shares of its C par value common stock having a market
value of C2 per share and (;))) shares of its C1 par value preferred stock having a
market value of C2) per share for a lump sum of C2&&;))). The proceeds allocated to the
common stock is
a. C3);)))
"( I16B2@B@
c. C1);)))
d. C1%;)(1
%%. ?heeler Compan' issued ;))) shares of its C par value common stock having a market
value of C2 per share and %;)) shares of its C1 par value preferred stock having a
market value of C2) per share for a lump sum of C24);))). The proceeds allocated to the
preferred stock is
a. C21;)))
*. C1);)))
&( I16B2@B@
d. C1)(;)(1
%&. ,em*er Corporation started *usiness in 2)) *' issuing 2));))) shares of C2) par
common stock for C3# each. 5n 2)1); 2);))) of these shares +ere purchased for C2 per
share *' ,em*er Corporation and held as treasur' stock. Dn Bune 1; 2)11; these 2);)))
shares +ere e9changed for a piece of propert' that had an assessed value of C&1);))).
,er*er-s stock is activel' traded and had a market price of C#) on Bune 1; 2)11. The
cost method is used to account for treasur' stock. The amount of paid"in capital from
treasur' stock transactions resulting from the a*ove events +ould *e
a. C&));))).
*. C4&);))).
c. C3();))).
$( I1=B2BBB(
%(. Dn Septem*er 1; 2)1); Ialde2 Compan' reac.uired 12;))) shares of its C1) par value
common stock for C1 per share. Ialde2 uses the cost method to account for treasur'
stock. The @ournal entr' to record the reac.uisition of the stock should de*it
a. Treasur' Stock for C12);))).
*. Common Stock for C12);))).
c. Common Stock for C12);))) and ,aid"in Capital in E9cess of ,ar for C#);))).
$( TreasurC Sto&/ %or I1?B2BBB(
&). 8annon Compan' ac.uired #;))) shares of its o+n common stock at C2) per share on
Fe*ruar' ; 2)1); and sold 3;))) of these shares at C2% per share on $ugust (; 2)11.
The market value of 8annon0s common stock +as C24 per share at Decem*er 31; 2)1);
and C2 per share at Decem*er 31; 2)11. The cost method is used to record treasur'
stock transactions. ?hat accountEsF should 8annon credit in 2)11 to record the sale of
3;))) sharesA
a. Treasur' Stock for C&1;))).
"( TreasurC Sto&/ %or I=B2BBB an$ Pai$)in Ca'ita! %ro0 TreasurC Sto&/ %or I512BBB(
c. Treasur' Stock for C#);))) and !etained Earnings for C21;))).
d. Treasur' Stock for C%2;))) and !etained Earnings for C(;))).
15 ) 1>
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
&1. 3ong Co. issued 1));))) shares of C1) par common stock for C1;2));))). 3ong ac.uired
&;))) shares of its o+n common stock at C1 per share. Three months later 3ong sold
4;))) of these shares at C1( per share. 5f the cost method is used to record treasur' stock
transactions; to record the sale of the 4;))) treasur' shares; 3ong should credit
a. Treasur' Stock for C%#;))).
*. Treasur' Stock for C4);))) and ,aid"in Capital from Treasur' Stock for C3#;))).
&( TreasurC Sto&/ %or I=B2BBB an$ Pai$)in Ca'ita! %ro0 TreasurC Sto&/ %or I1=2BBB(
d. Treasur' Stock for C#);))) and ,aid"in Capital in E9cess of ,ar for C1#;))).
&2. $n anal'sis of stockholders0 e.uit' of Hahn Corporation as of Banuar' 1; 2)1); is as
follo+s=
Common stock; par value C2)N authori2ed 1));))) sharesN
issued and outstanding ();))) shares C1;&));)))
,aid"in capital in e9cess of par ());)))
!etained earnings %#);)))
Total C3;4#);)))
Hahn uses the cost method of accounting for treasur' stock and during 2)1) entered into
the follo+ing transactions=
$c.uired 2;)) shares of its stock for C%;))).
Sold 2;))) treasur' shares at C3 per share.
Sold the remaining treasur' shares at C2) per share.
$ssuming no other e.uit' transactions occurred during 2)1); +hat should Hahn report at
Decem*er 31; 2)1); as total additional paid"in capitalA
a. C&(;)))
*. C());)))
&( I@B52BBB
d. C(1;)))
&3. ,erc' Corporation +as organi2ed on Banuar' 1; 2)1); +ith an authori2ation of 1;2));)))
shares of common stock +ith a par value of C# per share. During 2)1); the corporation
had the follo+ing capital transactions=
Banuar' issued #%;))) shares O C1) per share
Bul' 2& purchased ();))) shares O C11 per share
Decem*er 31 sold the ();))) shares held in treasur' O C1& per share
,erc' used the cost method to record the purchase and reissuance of the treasur'
shares. ?hat is the total amount of additional paid"in capital as of Decem*er 31; 2)1)A
a. C")".
*. C2;)%);))).
c. C2;%));))).
$( I6266B2BBB(
&4. Sosa Co.0s stockholders0 e.uit' at Banuar' 1; 2)1) is as follo+s=
Common stock; C1) par valueN authori2ed 3));))) sharesN
Dutstanding 22;))) shares C2;2);)))
,aid"in capital in e9cess of par ());)))
!etained earnings 2;1();)))
Total C;34);)))
15 ) 1?
Stockholders- E.uit'
During 2)1); Sosa had the follo+ing stock transactions=
$c.uired #;))) shares of its stock for C2%);))).
Sold 3;#)) treasur' shares at C) a share.
Sold the remaining treasur' shares at C41 per share.
/o other stock transactions occurred during 2)1). $ssuming Sosa uses the cost method
to record treasur' stock transactions; the total amount of all additional paid"in capital
accounts at Decem*er 31; 2)1) is
a. C&(1;#)).
*. C&%);))).
&( I@B?28BB(
d. C(2%;#)).
&. ,resented *elo+ is the stockholders0 e.uit' section of Daks Corporation at Decem*er 31;
2)1)=
Common stock; par value C2)N authori2ed %;))) sharesN
issued and outstanding 4;))) shares C ());)))
,aid"in capital in e9cess of par value 2);)))
!etained earnings ));)))
C1;#);)))
During 2)11; the follo+ing transactions occurred relating to stockholders0 e.uit'=
3;))) shares +ere reac.uired at C2& per share.
3;))) shares +ere reac.uired at C3 per share.
1;&)) shares of treasur' stock +ere sold at C3) per share.
For the 'ear ended Decem*er 31; 2)11; Daks reported net income of C4);))).
$ssuming Daks accounts for treasur' stock under the cost method; +hat should it report
as total stockholders0 e.uit' on its Decem*er 31; 2)11; *alance sheetA
a( I12@=52BBB(
*. C1;(#1;4)).
c. C1;(%;&)).
d. C1;1;))).
&#. Dn Decem*er 1; 2)1); $*el Corporation e9changed 2);))) shares of its C1) par value
common stock held in treasur' for a used machine. The treasur' shares +ere ac.uired *'
$*el at a cost of C4) per share; and are accounted for under the cost method. Dn the date
of the e9change; the common stock had a market value of C per share Ethe shares +ere
originall' issued at C3) per shareF. $s a result of this e9change; $*el0s total stockholders0
e.uit' +ill increase *'
a. C2));))).
*. C&));))).
&( I121BB2BBB(
d. C());))).
15 ) 1@
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
&%. 3uther 5nc.; has 2;))) shares of #J; C) par value; cumulative preferred stock and
1));))) shares of C1 par value common stock outstanding at Decem*er 31; 2)11; and
Decem*er 31; 2)1). The *oard of directors declared and paid a C;))) dividend in 2)1).
5n 2)11; C24;))) of dividends are declared and paid. ?hat are the dividends received *'
the preferred stockholders in 2)11A
a. C1%;)))
*. C12;)))
&( I >2BBB
d. C #;)))
&&. $nders; 5nc.; has ;))) shares of J; C1)) par value; cumulative preferred stock and
2);))) shares of C1 par value common stock outstanding at Decem*er 31; 2)11. There
+ere no dividends declared in 2))(. The *oard of directors declares and pa's a C4;)))
dividend in 2)1) and in 2)11. ?hat is the amount of dividends received *' the common
stockholders in 2)11A
a( I152BBB
*. C2;)))
c. C4;)))
d. C)
&(. Colson 5nc. declared a C1#);))) cash dividend. 5t currentl' has #;))) shares of %J; C1))
par value cumulative preferred stock outstanding. 5t is one 'ear in arrears on its preferred
stock. Ho+ much cash +ill Colson distri*ute to the common stockholdersA
a( I>=2BBB(
*. C&4;))).
c. C11&;))).
d. /one.
(). ,ierson Corporation o+ned 1);))) shares of Hunter Corporation. These shares +ere
purchased in 2))% for C();))). Dn /ovem*er 1; 2)11; ,ierson declared a propert'
dividend of one share of Hunter for ever' ten shares of ,ierson held *' a stockholder. Dn
that date; +hen the market price of Hunter +as C14 per share; there +ere ();))) shares
of ,ierson outstanding. ?hat gain and net reduction in retained earnings +ould result
from this propert' dividendA
8ain /et !eduction in
!etained Earnings
a. C) C12#;)))
*. C) C &1;)))
&( I852BBB I ?12BBB
d. C4;))) C 3#;)))
15 ) 5B
Stockholders- E.uit'
(1. Stinson Corporation o+ned 3);))) shares of <atile Corporation. These shares +ere
purchased in 2))% for C2%);))). Dn /ovem*er 1; 2)11; Stinson declared a propert'
dividend of one share of <atile for ever' ten shares of Stinson held *' a stockholder. Dn
that date; +hen the market price of <atile +as C14 per share; there +ere 2%);))) shares
of Stinson outstanding. ?hat gain and net reduction in retained earnings +ould result from
this propert' dividendA
8ain /et !eduction in
!etained Earnings
a. C) C243;)))
*. C) C3%&;)))
c. C13;))) C1)&;)))
$( I1652BBB I5862BBB
(2. ?inger Corporation o+ned ());))) shares of Fegan Corporation stock. Dn Decem*er 31;
2)1); +hen ?inger0s account 15nvestment in Common Stock of Fegan Corporation1 had a
carr'ing value of C per share; ?inger distri*uted these shares to its stockholders as a
dividend. ?inger originall' paid C& for each share. Fegan has 3;)));))) shares issued
and outstanding; +hich are traded on a national stock e9change. The .uoted market price
for a Fegan share +as C% on the declaration date and C( on the distri*ution date.
?hat +ould *e the reduction in ?inger0s stockholders0 e.uit' as a result of the a*ove
transactionsA
a. C3;#));))).
"( I825BB2BBB(
c. C%;2));))).
d. C&;1));))).
(3. 8i**s Corporation o+ned 2);))) shares of Dliver Corporation-s C par value common
stock. These shares +ere purchased in 2))% for C1&);))). Dn Septem*er 1; 2)11;
8i**s declared a propert' dividend of one share of Dliver for ever' ten shares of 8i**s
held *' a stockholder. Dn that date; +hen the market price of Dliver +as C14 per share;
there +ere 1&);))) shares of 8i**s outstanding. ?hat /ET reduction in retained
earnings +ould result from this propert' dividendA
a. C();)))
*. C22;)))
c. C%2;)))
$( I1=52BBB
(4. <elvern-s Corporation has an investment in ;))) shares of ?allace Compan' common
stock +ith a cost of C21&;))). These shares are used in a propert' dividend to
stockholders of <elvern-s. The propert' dividend is declared on <a' 2 and scheduled to
*e distri*uted on Bul' 31 to stockholders of record on Bune 1. The market value per
share of ?allace stock is C#3 on <a' 2; C## on Bune 1; and C#& on Bul' 31. The net
effect of this propert' dividend on retained earnings is a reduction of
a. C34);))).
*. C33);))).
c. C31;))).
$( I51?2BBB(
15 ) 51
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
(. Hernande2 Compan' has 3);))) shares of C1) par value common stock outstanding.
During the 'ear; Hernande2 declared a 1)J stock dividend +hen the market price of the
stock +as C3) per share. Four months later Hernande2 declared a C.) per share cash
dividend. $s a result of the dividends declared during the 'ear; retained earnings
decreased *'
a( I1258525BB(
*. C2;))).
c. C1(2;)).
d. C1%;))).
(#. Dn Bune 3); 2)1); +hen Ermler Co.0s stock +as selling at C# per share; its capital
accounts +ere as follo+s=
Capital stock Epar value C)N #);))) shares issuedF C3;)));)))
,remium on capital stock #));)))
!etained earnings 4;2));)))
5f a 1))J stock dividend +ere declared and distri*uted; capital stock +ould *e
a. C3;)));))).
*. C3;#));))).
&( I=2BBB2BBB(
d. C%;&));))).
(%. The stockholders0 e.uit' section of 8unkel Corporation as of Decem*er 31; 2)1); +as as
follo+s=
Common stock; par value C2N authori2ed 2);))) sharesN
issued and outstanding 1);))) shares C 2);)))
,aid"in capital in e9cess of par 3);)))
!etained earnings %;)))
C12;)))
Dn <arch 1; 2)11; the *oard of directors declared a 1J stock dividend; and accordingl'
1;)) additional shares +ere issued. Dn <arch 1; 2)11; the fair market value of the stock
+as C# per share. For the t+o months ended Fe*ruar' 2&; 2)11; 8unkel sustained a net
loss of C1);))).
?hat amount should 8unkel report as retained earnings as of <arch 1; 2)11A
a( I5=2BBB(
*. C#2;))).
c. C##;))).
d. C%2;))).
15 ) 55
Stockholders- E.uit'
(&. The stockholders0 e.uit' of Ho+ell Compan' at Bul' 31; 2)1) is presented *elo+=
Common stock; par value C2); authori2ed 4));))) sharesN
issued and outstanding 1#);))) shares C3;2));)))
,aid"in capital in e9cess of par 1#);)))
!etained earnings #);)))
C4;)1);)))
Dn $ugust 1; 2)1); the *oard of directors of Ho+ell declared a 1J stock dividend on
common stock; to *e distri*uted on Septem*er 1th. The market price of Ho+ell0s
common stock +as C3 on $ugust 1; 2)1); and C3& on Septem*er 1; 2)1). ?hat is the
amount of the de*it to retained earnings as a result of the declaration and distri*ution of
this stock dividendA
a. C&));))).
"( I?8B2BBB(
c. C(12;))).
d. C#));))).
((. Dn Banuar' 1; 2)1); Dodd; 5nc.; declared a 1)J stock dividend on its common stock
+hen the market value of the common stock +as C2) per share. Stockholders0 e.uit'
*efore the stock dividend +as declared consisted of=
Common stock; C1) par value; authori2ed 2));))) sharesN
issued and outstanding 12);))) shares C1;2));)))
$dditional paid"in capital on common stock 1);)))
!etained earnings %));)))
Total stockholders0 e.uit' C2;));)))
?hat +as the effect on Dodd-s retained earnings as a result of the a*ove transactionA
a. C12);))) decrease
"( I58B2BBB $e&rease
c. C4));))) decrease
d. C2));))) decrease
1)). Dn Banuar' 1; 2)1); Culver Corporation had 11);))) shares of its C par value common
stock outstanding. Dn Bune 1; the corporation ac.uired 1);))) shares of stock to *e held
in the treasur'. Dn Decem*er 1; +hen the market price of the stock +as C&; the
corporation declared a 1)J stock dividend to *e issued to stockholders of record on
Decem*er 1#; 2)1). ?hat +as the impact of the 1)J stock dividend on the *alance of the
retained earnings accountA
a. C);))) decrease
"( I?B2BBB $e&rease
c. C&&;))) decrease
d. /o effect
15 ) 56
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
1)1. $t the *eginning of 2)11; Flahert' Compan' had retained earnings of C2));))). During
the 'ear Flahert' reported net income of C1));))); sold treasur' stock at a GgainP of
C3#;))); declared a cash dividend of C#);))); and declared and issued a small stock
dividend of 3;))) shares EC1) par valueF +hen the market value of the stock +as C2) per
share. The amount of retained earnings availa*le for dividends at the end of 2)11 +as
a( I1?B2BBB(
*. C21);))).
c. C21#;))).
d. C24#;))).
1)2. <asterson Compan' has 42);))) shares of C1) par value common stock outstanding.
During the 'ear <asterson declared a J stock dividend +hen the market price of the
stock +as C3# per share. Three months later <asterson declared a C.#) per share cash
dividend. $s a result of the dividends declared during the 'ear; retained earnings
decreased *'
a( I12B5B2=BB
*. C%#;)))
c. C2#4;#))
d. C22;)))
Kuestions 1)3 and 1)4 are *ased on the follo+ing information.
3a'ne Corporation had the follo+ing information in its financial statements for the 'ears ended
2)1) and 2)11=
Cash dividends for the 'ear 2)11 C &;)))
/et income for the 'ear ended 2)11 (3;)))
<arket price of stock; 12M31M1) 1)
<arket price of stock; 12M31M11 12
Common stockholders- e.uit'; 12M31M1) 1;#));)))
Common stockholders- e.uit'; 12M31M11 1;&));)))
Dutstanding shares; 12M31M11 1);)))
,referred dividends for the 'ear ended 2)11 1;)))
1)3. ?hat is the pa'out ratio for 3a'ne Corporation for the 'ear ended 2)11A
a. 24.%J
*. 1#.1J
&( 1B(6J
d. &.#J
1)4. ?hat is the *ook value per share for 3a'ne Corporation for the 'ear ended 2)11A
a( I15(BB
*. C11.()
c. C11.33
d. C1).#%
15 ) 58
Stockholders- E.uit'
1). $t the *eginning of 2)11; Hamilton Compan' had retained earnings of C1);))). During
the 'ear Hamilton reported net income of C%;))); sold treasur' stock at a GgainP of
C2%;))); declared a cash dividend of C4;))); and declared and issued a small stock
dividend of 1;)) shares EC1) par valueF +hen the market value of the stock +as C3) per
share. The amount of retained earnings availa*le for dividends at the end of 2)11 +as=
a. C1&4;)).
*. C1#2;))).
c. C1%;)).
$( I1652BBB(
1)#. <ingen*ack Compan' has #);))) shares of C1) par value common stock outstanding.
During the 'ear <ingen*ack declared a J stock dividend +hen the market price of the
stock +as C4& per share. T+o months later <ingen*ack declared a C.#) per share cash
dividend. $s a result of the dividends declared during the 'ear; retained earnings
decreased *'=
a. C33#;))).
*. C32;&)).
c. C1;344;))).
$( I12=@=2?BB(
Kuestions 1)% and 1)& are *ased on the follo+ing information.
Seal' Corporation had the follo+ing information in its financial statements for the 'ears ended
2)1) and 2)11=
Cash dividends for the 'ear 2)11 C ;)))
/et income for the 'ear ended 2)11 %2;)))
<arket price of stock; 12M31M1) 1)
<arket price of stock; 12M31M11 12
Common stockholders- e.uit'; 12M31M1) 1;)));)))
Common stockholders- e.uit'; 12M31M11 1;2));)))
Dutstanding shares; 12M31M11 1));)))
,referred dividends for the 'ear ended 2)11 1);)))
1)%. ?hat is the rate of return on common stock e.uit' for Seal' Corporation for the 'ear
ended 2)11A
a. #.J
*. #.)J
&( 5(=J
d. .2J
1)&. ?hat is the price"earnings ratio for Seal' Corporation for the 'ear ended 2)11A
a. 1#.1
*. 1#.%
&( 1@(8
d. 21.1
15 ) 55
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
1)(. <a's; 5nc. had net income for 2)1) of C2;12);))) and earnings per share on common
stock of C. 5ncluded in the net income +as C3));))) of *ond interest e9pense related to
its long"term de*t. The income ta9 rate for 2)1) +as 3)J. Dividends on preferred stock
+ere C4));))). The pa'out ratio on common stock +as 2J. ?hat +ere the dividends on
common stock in 2)1)A
a( I86B2BBB(
*. C3);))).
c. C4&2;)).
d. C#4;))).
11). ,resented *elo+ is information related to Drender; 5nc.=
Decem*er 31;
2)11 2)1)
Common stock C %;))) C #);)))
4J ,referred stock 3);))) 3);)))
!etained earnings Eincludes net income for current 'earF ();))) %;)))
/et income for 'ear 3);))) 32;)))
?hat is Drender-s rate of return on common stock e.uit' for 2)11A
a. 2).)J
"( 1B(>J
c. 1&.2J
d. 21.3J
:se the follo+ing information for .uestions 111 and 112.
The follo+ing data are provided=
Decem*er 31;
2)11 2)1)
1)J Cumulative preferred stock; C) par C1));))) C1));)))
Common stock; C1) par 12);))) ();)))
$dditional paid"in capital &);))) #;)))
!etained earnings Eincludes current 'ear net incomeF 24);))) 21;)))
/et income ();)))
$dditional information=
Dn <a' 1; 2)11; 3;))) shares of common stock +ere issued. The preferred dividends +ere not
declared during 2)11. The market price of the common stock +as C) at Decem*er 31; 2)11.
111. The rate of return on common stock e.uit' for 2)11 is
a. () Q 4)).
*. () Q 44).
&( ?B K 8BB(
d. &) Q 44).
15 ) 5=
Stockholders- E.uit'
112. The *ook value per share of common stock at 12M31M11 is
a( 86B K 15(
*. 2)) Q 12.
c. 33) Q 12.
d. 44) Q 11.
:se the follo+ing information for .uestions 113 and 114.
Turner Corporation had the follo+ing information in its financial statements for the 'ear ended
2)1) and 2)11=
Cash dividends for the 'ear 2)11 C 1;)))
/et income for the 'ear ended 2)11 124;)))
<arket price of stock; 12M31M11 24
Common stockholders- e.uit'; 12M31M1) 2;2));)))
Common stockholders- e.uit'; 12M31M11 2;4));)))
Dutstanding shares; 12M31M11 12);)))
,referred dividends for the 'ear ended 2)11 3);)))
113. ?hat is the pa'out ratio for Turner Corporation for the 'ear ended 2)11A
a. 12.1J
"( 1=(BJ
c. 3#.3J
d. 41.3J
114. ?hat is the *ook value per share for Turner Corporation for the 'ear ended 2)11A
a. C1(.1%
"( I5B(BB
c. C1).43
d. C24.))
:se the follo+ing information for .uestions 11 through 11%.
?ritten; 5nc. has outstanding 3));))) shares of C2 par common stock and #);))) shares of no"
par &J preferred stock +ith a stated value of C. The preferred stock is cumulative and
nonparticipating. Dividends have *een paid in ever' 'ear e9cept the past t+o 'ears and the
current 'ear.
711. $ssuming that C1);))) +ill *e distri*uted as a dividend in the current 'ear; ho+ much
+ill the common stockholders receiveA
a. Rero.
"( I>?2BBB(
c. C1)2;))).
d. C12#;))).
711#. $ssuming that C#3;))) +ill *e distri*uted as a dividend in the current 'ear; ho+ much +ill
the preferred stockholders receiveA
a. C21;))).
*. C24;))).
c. C4&;))).
$( I=62BBB(
15 ) 5>
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
711%. $ssuming that C1&3;))) +ill *e distri*uted; and the preferred stock is also participating;
ho+ much +ill the common stockholders receiveA
a. C111;))).
"( I@B2BBB(
c. C(3;))).
d. C4&;))).
711&. Loder; 5nc. has );))) shares of C1) par value common stock and 2;))) shares of C1)
par value; #J; cumulative; participating preferred stock outstanding. Dividends on the
preferred stock are one 'ear in arrears. $ssuming that Loder +ishes to distri*ute
C13;))) as dividends; the common stockholders +ill receive
a. C3);))).
*. C;))).
&( I?B2BBB(
d. C1);))).
711(. <ann Co. has outstanding );))) shares of &J preferred stock +ith a C1) par value and
12;))) shares of C3 par value common stock. Dividends have *een paid ever' 'ear
e9cept last 'ear and the current 'ear. 5f the preferred stock is cumulative and
nonparticipating and C2);))) is distri*uted; the common stockholders +ill receive
a. C).
"( I1>B2BBB(
c. C21);))).
d. C2);))).
-u!ti'!e C#oi&e Ans+ers*Co0'utationa!
Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans(
%1. a %&. d &. a (2. * ((. * 1)#. d 113. *
%2. * %(. d &#. c (3. d 1)). * 1)%. c 114. *
%3. * &). * &%. c (4. d 1)1. a 1)&. c 711
.
*
%4. c &1. c &&. a (. a 1)2. a 1)(. a 711#
.
d
%. d &2. c &(. a (#. c 1)3. c 11). * 711%
.
*
%#. * &3. d (). c (%. a 1)4. a 111. c 711&
.
c
%%. c &4. c (1. d (&. * 1). d 112. a 711(
.
*
-ULTIPLE CHOICE*CPA A$a'te$
12). $ corporation +as organi2ed in Banuar' 2))% +ith authori2ed capital of C1) par value
common stock. Dn Fe*ruar' 1; 2)1); shares +ere issued at par for cash. Dn <arch 1;
2)1); the corporation0s attorne' accepted %;))) shares of common stock in settlement for
legal services +ith a fair value of C();))). $dditional paid"in capital +ould increase on
Fe*ruar' 1; 2)1) <arch 1; 2)1)
a. Les /o
*. Les Les
c. /o /o
$( ,o Yes
15 ) 5?
Stockholders- E.uit'
121. Dn Bul' 1; 2)1); /all Co. issued 2;)) shares of its C1) par common stock and ;)))
shares of its C1) par converti*le preferred stock for a lump sum of C12;))). $t this date
/all0s common stock +as selling for C24 per share and the converti*le preferred stock for
C1& per share. The amount of the proceeds allocated to /all0s preferred stock should *e
a. C#2;)).
"( I>52BBB(
c. C();))).
d. C#&;%).
122. Horton Co. +as organi2ed on Banuar' 2; 2)1); +ith ));))) authori2ed shares of C1) par
value common stock. During 2)1); Horton had the follo+ing capital transactions=
Banuar' 4issued 3%;))) shares at C14 per share.
Bul' 2%4purchased 2;))) shares at C11 per share.
/ovem*er 24sold 1;))) shares of treasur' stock at C13 per share.
Horton used the cost method to record the purchase of the treasur' shares. ?hat +ould
*e the *alance in the ,aid"in Capital from Treasur' Stock account at Decem*er 31; 2)1)A
a. C).
*. C1;))).
&( I6B2BBB(
d. C4;))).
123. 5n 2)1); Ho**s Corp. ac.uired (;))) shares of its o+n C1 par value common stock at C1&
per share. 5n 2)11; Ho**s issued 4;))) of these shares at C2 per share. Ho**s uses the
cost method to account for its treasur' stock transactions. ?hat accounts and +hat
amounts should Ho**s credit in 2)11 to record the issuance of the 4;))) sharesA
Treasur' $dditional !etained Common
Stock ,aid"in Capital Earnings Stock
a. C%2;))) C%);)))
"( I>52BBB I5?2BBB
c. C(#;))) C4;)))
d. C#&;))) C2&;))) C4;)))
124. $t its date of incorporation; Sauder; 5nc. issued 1));))) shares of its C1) par common
stock at C11 per share. During the current 'ear; Sauder ac.uired 2);))) shares of its
common stock at a price of C1# per share and accounted for them *' the cost method.
Su*se.uentl'; these shares +ere reissued at a price of C12 per share. There have *een
no other issuances or ac.uisitions of its o+n common stock. ?hat effect does the
reissuance of the stock have on the follo+ing accountsA
!etained Earnings $dditional ,aid"in Capital
a. Decrease Decrease
*. /o effect Decrease
&( De&rease ,o e%%e&t
d. /o effect /o effect
15 ) 5@
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
12. Farmer Corp. o+ned 2);))) shares of Eaton Corp. purchased in 2))% for C24);))). Dn
Decem*er 1; 2)1); Farmer declared a propert' dividend of all of its Eaton Corp. shares
on the *asis of one share of Eaton for ever' 1) shares of Farmer common stock held *'
its stockholders. The propert' dividend +as distri*uted on Banuar' 1; 2)11. Dn the
declaration date; the aggregate market price of the Eaton shares held *' Farmer +as
C4));))). The entr' to record the declaration of the dividend +ould include a de*it to
!etained Earnings of
a. C).
*. C1#);))).
c. C24);))).
$( I8BB2BBB(
12#. $ corporation declared a dividend; a portion of +hich +as li.uidating. Ho+ +ould this
distri*ution affect each of the follo+ingA
$dditional
,aid"in Capital !etained Earnings
a. Decrease /o effect
"( De&rease De&rease
c. /o effect Decrease
d. /o effect /o effect
12%. Dn <a' 1; 2)1); Riek Corp. declared and issued a 1)J common stock dividend. ,rior to
this dividend; Riek had 1));))) shares of C1 par value common stock issued and
outstanding. The fair value of Riek 0s common stock +as C2) per share on <a' 1; 2)1).
$s a result of this stock dividend; Riek0s total stockholders0 e.uit'
a. increased *' C2));))).
*. decreased *' C2));))).
c. decreased *' C1);))).
$( $i$ not &#an1e(
12&. Ho+ +ould the declaration and su*se.uent issuance of a 1)J stock dividend *' the
issuer affect each of the follo+ing +hen the market value of the shares e9ceeds the par
value of the stockA
$dditional
Common Stock ,aid"in Capital
a. /o effect /o effect
*. /o effect 5ncrease
c. 5ncrease /o effect
$( In&rease In&rease
15 ) 6B
Stockholders- E.uit'
12(. Dn Decem*er 31; 2)1); the stockholders0 e.uit' section of $rndt; 5nc.; +as as follo+s=
Common stock; par value C1)N authori2ed 3);))) sharesN
issued and outstanding (;))) shares C ();)))
$dditional paid"in capital 11#;)))
!etained earnings 1%4;)))
Total stockholders0 e.uit' C3&);)))
Dn <arch 31; 2)11; $rndt declared a 1)J stock dividend; and accordingl' ()) additional
shares +ere issued; +hen the fair market value of the stock +as C1& per share. For the
three months ended <arch 31; 2)11; $rndt sustained a net loss of C32;))). The *alance
of $rndt-s retained earnings as of <arch 31; 2)11; should *e
a( I1552?BB(
*. C133;))).
c. C134;&)).
d. C142;))).
713). $t Decem*er 31; 2)1) and 2)11; ,lank Corp. had outstanding 2;))) shares of C1)) par
value &J cumulative preferred stock and 1);))) shares of C1) par value common stock.
$t Decem*er 31; 2)1); dividends in arrears on the preferred stock +ere C&;))). Cash
dividends declared in 2)11 totaled C3);))). ?hat amounts +ere pa'a*le on each class of
stockA
,referred Stock Common Stock
a. C1#;))) C14;)))
*. C22;))) C&;)))
&( I582BBB I=2BBB
d. C3);))) C)
-u!ti'!e C#oi&e Ans+ers*CPA A$a'te$
Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans( Ite0 Ans(
12). d 122. c 124. c 12#. * 12&. d 713). c
121. * 123. * 12. d 12%. d 12(. a
DERI;ATIO,S * Co0'utationa!
,o( Ans+er Deriation
%1. a C4;3));))) S C4));))) S C);))) S C2;)));))) S C1;));))) T C1);)))
> C&;#));))).
%2. * C4;3));))) S C);))) > C4;&);))).
%3. * E1);))) C2F S E1;))) C2)F > C);)))
EC2);))) Q C);)))F C4&);))) > C21&;1&2.
%4. c E4;))) C2F S E#;))) C2)F > C22);)))
EC12);))) Q C22);)))F C1(2;))) > C1)4;%2%.
%. d E;))) C1&F S C1));))) > C1();))).
15 ) 61
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
%#. * UE#;))) C2F Q UE#;))) C2F S E(;))) C2)FVV C2&&;))) > C13);()(.
%%. c UE%;)) C2)F Q UE;))) C2F S E%;)) C2)FVV C24);))) > C13);()(.
%&. d EC#) T C2F 2);))) > C1#);))).
%(. d 12;))) C1 > C1&);))).
&). * 3;))) C2) > C#);)))N 3;))) C% > C21;))).
&1. c 4;))) C1 > C#);)))N 4;))) C4 > C1#;))).
&2. c C());))) S E2;))) CF T E)) C1)F > C();))).
&3. d E#%;))) C4F S E();))) C%F > C3;33);))).
&4. c C());))) S E3;#)) CF T E2;4)) C4F > C()&;4)).
&. a C1;#);))) T E3;))) C2&F T E3;))) C3F S E1;&)) C3)F S C4);))) >
C1;(#;))).
&#. c 2);))) C > C1;1));))).
&%. c 2;))) C) .)# > C#;)))
EC#;))) T C;)))F S C#;))) > C%;))).
&&. a ;))) C1)) .) > C2;)))
EC4;))) 2F T EC2;))) 3F > C1;))).
&(. a #;))) C1)) .)% > C42;)))
C1#);))) T EC42;))) 2F > C%#;))).
(). c EC();))) Q C1)F C14 > C12#;)))
UC14 T EC();))) Q 1);)))FV (;))) > C4;)))
C12#;))) T C4;))) > C&1;))).
(1. d EC2%);))) Q C1)F C14 > C3%&;)))
UC14 T EC2%);))) Q 3);)))FV 2%;))) > C13;)))
C3%&;))) T C13;))) > C243;))).
(2. * E());))) C%F T UEC% T CF ());)))V > C4;));))).
(3. d E1&);))) Q 1)F C14 > C22;)))
C22;))) T UC22;))) T E1&);))) 1&M2)FV > C1#2;))).
(4. d E;))) C#3F > C31;)))
C31;))) T EC31;))) T C21&;)))F > C21&;))).
15 ) 65
Stockholders- E.uit'
(. a 3);))) .1) W C3) > C1;));)))
C1;));))) S E3);))) 1.1) C.)F > C1;242;)).
(#. c E#);))) C)F S C3;)));))) > C#;)));))).
(%. a C%;))) T C1);))) T E1;)) C#F > C#;))).
(&. * 1#);))) .1 C3 > C&4);))).
((. * 12);))) .1) C2) > C24);))).
1)). * 1));))) .1) C& > C&);))).
1)1. a C2));))) S C1));))) T C#);))) T E3;))) C2)F > C1&);))).
1)2. a EC42);))) .) C3#F S EC42);))) 1.) C.#)F > C1;)2);#)).
1)3. c C&;))) Q EC(3;))) T C1;)))F > 1).3J.
1)4. a C1;&));))) Q 1);))) > C12.)).
1). d C1);))) S C%;))) T C4;))) T E1;)) C3)F > C13;))).
1)#. d E#);))) .) C4&F S E#);))) 1.) C.#)F > C1;#(#;&)).
1)%. c EC%2;))) T C1);)))F Q UEC1;)));))) S C1;2));)))FV > .#J.
1)&. c EC%2;))) T C1);)))F Q 1));))) > C.#2.
C12 Q .#2 > 1(.4.
X
1)(. a 44444444444 > .2; X > C43);))).
EC2;12);))) T C4));)))F
11). *
( )
( ) ( )
$30, 000 .04 $350, 000
$60, 000 $75, 000 $75, 000 $90, 000 2

+ + +

> .1)% > 1).%J.
111. c
( )
( ) ( )
$90, 000 $100, 000 .10
$120, 000 $80, 000 $240, 000 $10, 000 $90, 000 $65, 000 $215, 000 2

+ + + + +

> C&) Q 4)).
C12);))) S C&);))) S E24);))) T C1);)))F
112. a 4444444444444444444 > C43) Q 12.
12;)))
113. * C1;))) Q EC124;))) T C3);)))F > 1#.)J.
15 ) 66
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
114. * C2;4));))) Q 12);))) > C2).)).
711. * C1);))) T E#);))) C .)& 3F > C%&;))).
711#. d #);))) C .)& 3 > C%2;))) Y C#3;))).
711%. * &J C#));))) > C4&;))) Ecurrent 'earF
%J7 C#));))) > 42;))) EparticipatingF
C();)))
7C3));))) &J 3 > C %2;))) Epreferred dividendsF
C#));))) &J > 4&;))) Ecommon current dividendsF
C12);)))
C1&3;))) T C12);)))
4444444444 > %J.
C#));))) S C3));)))
711&. c Common Stock
C));))) #J > C3);))) Ecurrent 'earF
C));))) 1)J7 > );))) EparticipatingF
C&);)))
7C13;))) T C3);))) T EC2);))) #J W 2F > C%;)))
C%;)))
4444 > 1)J.
C%);)))
711(. * C2);))) T EC));))) &J W 2F > C1%);))).
DERI;ATIO,S * CPA A$a'te$
,o( Ans+er Deriation
12). d Conceptual.
121. * EC24 2;))F S EC1& ;)))F > C1);))).
C();)))
44444 W C12;))) > C%;))).
C1);)))
122. c 1;))) C2 > C3);))).
123. * E4;))) C1&F > C%2;)))N E4;))) C%F > C2&;))).
124. c Conceptual.
12. d C4));))) Emarket valueF.
15 ) 68
Stockholders- E.uit'
12#. * Conceptual.
12%. d Conceptual.
12&. d Conceptual.
12(. a C1%4;))) T C32;))) T E()) C1&F > C12;&)).
713). c EC2));))) .)&F S C&;))) > C24;)))
C3);))) T C24;))) > C#;))).
E7ERCISES
ED( 15)16143ump sum issuance of stock.
,arker Corporation has issued 2;))) shares of common stock and 4)) shares of preferred stock
for a lump sum of C%2;))) cash.
Instru&tions
EaF 8ive the entr' for the issuance assuming the par value of the common +as C and the market
value C3); and the par value of the preferred +as C4) and the market value C). EEach
valuation is on a per share *asis and there are read' markets for each stock.F
E*F 8ive the entr' for the issuance assuming the same facts as EaF a*ove e9cept the preferred
stock has no read' market and the common stock has a market value of C2 per share.
So!ution 15)161
EaF Cash.............................................................................................. %2;)))
Common Stock ................................................................ 1);)))
,aid"in Capital in E9cess of ,ar4Common...................... 44;)))
,referred Stock ................................................................ 1#;)))
,aid"in Capital in E9cess of ,ar4,referred .................... 2;)))
Ecommon C3) W 2;))) C#);)))
preferred C) W 4)) 2);)))
C&);))) market value
#)M&) W C%2;))) > C4;))) common
2)M&) W C%2;))) > 1&;))) preferred
C%2;)))F
E*F Cash.............................................................................................. %2;)))
Common Stock................................................................... 1);)))
,aid"in Capital in E9cess of ,ar4Common....................... 4);)))
,referred Stock.................................................................. 1#;)))
,aid"in Capital in E9cess of ,ar4,referred....................... #;)))
15 ) 65
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
ED( 15)1654Treasur' stock.
For numerous reasons; a corporation ma' reac.uire shares of its o+n capital stock. ?hen a
compan' purchases treasur' stock; it usuall' accounts for the stock using the cost method.
Instru&tions
E9plain ho+ a compan' +ould account for each of the follo+ing=
1. ,urchase of shares at a price less than par value.
2. Su*se.uent resale of treasur' shares at a price less than purchase price; *ut more than par
value.
3. Su*se.uent resale of treasur' shares at a price greater than *oth purchase price and par
value.
4. Effect on net income.
So!ution 15)165
1. Treasur' stock is de*ited for the purchase price of the shares even though the purchase price
is less than par value.
2. Treasur' stock is credited for the original cost Epurchase priceF of the shares; and the e9cess
of the original cost Epurchase priceF over the sales price first is de*ited to paid"in capital from
treasur' stock from earlier sales of treasur' stock and an' remainder then is de*ited to
retained earnings.
3. Treasur' stock is credited for the original cost Epurchase priceF of the shares; and the e9cess
of the sales price over the original cost Epurchase priceF is credited to paid"in capital from
treasur' stock.
4. There is no effect on net income as a result of treasur' stock transactions.
ED( 15)1664Treasur' stock.
$gler Corporation0s *alance sheet reported the follo+ing=
Capital stock outstanding; ;))) shares; par C3) per share C1);)))
,aid"in capital in e9cess of par &);)))
!etained earnings 1));)))
The follo+ing transactions occurred this 'ear=
EaF ,urchased 12) shares of capital stock to *e held as treasur' stock; pa'ing C#) per share.
E*F Sold () of the shares of treasur' stock at C# per share.
EcF Sold the remaining shares of treasur' stock at C) per share.
Instru&tions
,repare the @ournal entr' for these transactions under the cost method of accounting for treasur'
stock.
15 ) 6=
Stockholders- E.uit'
So!ution 15)166
EaF Treasur' Stock................................................................................ %;2))
Cash....................................................................................... %;2))
E*F Cash ............................................................................................... ;&)
Treasur' Stock........................................................................ ;4))
,aid"in Capital from Treasur' Stock........................................ 4)
EcF Cash................................................................................................ 1;))
,aid"in Capital from Treasur' Stock................................................ 3))
Treasur' Stock........................................................................ 1;&))
ED( 15)1684Treasur' stock.
Ellison Compan'0s *alance sheet sho+s=
Common stock; C2) par C3;)));)))
,aid"in capital in e9cess of par 1;));)))
!etained earnings %);)))
Instru&tions
!ecord the follo+ing transactions *' the cost method.
EaF 6ought ;))) shares of its common stock at C2( a share.
E*F Sold 2;)) treasur' shares at C3) a share.
EcF Sold 1;))) shares of treasur' stock at C2# a share.
So!ution 15)168
EaF Treasur' Stock............................................................................. 14;)))
Cash................................................................................. 14;)))
E*F Cash............................................................................................. %;)))
Treasur' Stock.................................................................. %2;))
,aid"in Capital from Treasur' Stock.................................. 2;))
EcF Cash............................................................................................. 2#;)))
,aid"in Capital from Treasur' Stock............................................. 2;))
!etained Earnings........................................................................ ))
Treasur' Stock.................................................................. 2(;)))
15 ) 6>
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
ED( 15)1654Treasur' stock.
5n 2)1); <ordica Co. issued 2));))) of its ));))) authori2ed shares of C1) par value common
stock at C3 per share. 5n Banuar'; 2)11; <ordica repurchased 1;))) shares at C3) per share.
$ssume these are the onl' stock transactions the compan' has ever had.
Instru&tions
EaF ?hat are the t+o methods of accounting for treasur' stockA
E*F ,repare the @ournal entr' to record the purchase of treasur' stock *' the cost method.
EcF ;))) shares of treasur' stock are reissued at C33 per share. ,repare the @ournal entr' to
record the reissuance *' the cost method.
So!ution 15)165
EaF The t+o methods of accounting for treasur' stock are the cost method and the par value
method.
E*F Treasur' Stock............................................................................. 4);)))
Cash................................................................................. 4);)))
EcF Cash............................................................................................. 1#;)))
,aid"in Capital from Treasur' Stock.................................. 1;)))
Treasur' Stock.................................................................. 1);)))
ED( 15)16=4Stockholders- E.uit'.
5ndicate the effect of each of the follo+ing transactions on total stockholders0 e.uit' *' placing an
1X1 in the appropriate column.
5ncrease Decrease /o Effect
1. Treasur' stock is resold at more than cost. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
2. Dperating loss for the period. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
3. !etirement of *onds pa'a*le at more than
*ook value. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
4. Declaration of a stock dividend. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
. $c.uisition of machiner' for common stock. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
#. Conversion of *onds pa'a*le into common
stock. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
%. /ot declaring a dividend on cumulative
preferred stock. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
&. Declaration of cash dividend. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
(. ,a'ment of cash dividend. ZZZZZZZZZ ZZZZZZZZZ ZZZZZZZZZ
15 ) 6?
Stockholders- E.uit'
So!ution 15)16=
5ncrease Decrease /o Effect
1. Treasur' stock is resold at more than cost. X
2. Dperating loss for the period. X
3. !etirement of *onds pa'a*le at more than
*ook value. X
4. Declaration of a stock dividend. X
. $c.uisition of machiner' for common stock. X
#. Conversion of *onds pa'a*le into common
stock. X
%. /ot declaring a dividend on cumulative
preferred stock. X
&. Declaration of cash dividend. X
(. ,a'ment of cash dividend. X
ED( 15)16>4Stock dividends.
Descri*e the @ournal entr' for a stock dividend on common stock E+hich has a par valueF.
So!ution 15)16>
$ stock dividend results in the transfer from retained earnings to paid"in capital of an amount
e.ual to the fair value of each share; if the dividend is less than 2)"2J; or par value of each
share; if the dividend is greater than 2)"2J. !etained Earnings is de*ited for the total amount
transferred; Common Stock Dividend Distri*uta*le is credited for the total par value of the shares;
and; for a small stock dividend; the e9cess of market value over par value is credited to ,aid"in
Capital in E9cess of ,ar.
15 ) 6@
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
ED( 15)16?4Stock dividends and stock splits.
5ndicate the principal effects of a stock dividend versus a stock split as the' affect the issuing
corporation. !espond in the spaces as follo+s= 1C1 for changeN 1/C1 for no change.
Stock Dividend Stock Split
/um*er of Shares Dutstanding ZZZZZZZZZ ZZZZZZZZZ
,ar Ialue per Share ZZZZZZZZZ ZZZZZZZZZ
Total ,ar Dutstanding ZZZZZZZZZ ZZZZZZZZZ
!etained Earnings ZZZZZZZZZ ZZZZZZZZZ
Total Stockholders0 E.uit' ZZZZZZZZZ ZZZZZZZZZ
Composition of Stockholders0 E.uit' ZZZZZZZZZ ZZZZZZZZZ
So!ution 15)16?
Stock Dividend Stock Split
/um*er of Shares Dutstanding C C
,ar Ialue per Share /C C
Total ,ar Dutstanding C /C
!etained Earnings C /C
Total Stockholders0 E.uit' /C /C
Composition of Stockholders0 E.uit' C /C
ED( 15)16@4Computation of selected financial ratios.
The follo+ing information pertains to ,arsons Co.=
,referred stock; cumulative=
,ar per share C1))
Dividend rate &J
Shares outstanding ;)))
Dividends in arrears none
Common stock=
,ar per share C1)
Shares issued #);)))
Dividends paid per share C2.%)
<arket price per share C4&.))
$dditional paid"in capital C2));)))
:nappropriated retained earnings Eafter closingF C13;)))
!etained earnings appropriated for contingencies C1);)))
Common treasur' stock=
/um*er of shares ;)))
Total cost C12;)))
/et income C3%);)))
15 ) 8B
Stockholders- E.uit'
Instru&tions
Compute Eassume no changes in *alances during the past 'earF=
EaF Total amount of stockholders- e.uit' in the *alance sheet
E*F Earnings per share of common stock
EcF 6ook value per share of common stock
EdF ,a'out ratio of common stock
EeF !eturn on common stock e.uit'
So!ution 15)16@
EaF E;))) W C1))F S E#);))) W C1)F S C2));))) S C13;))) S C1);))) T C12;)))
> C1;4#);))).
E*F UC3%);))) T E;))) W C1)) W &JFV Q E#);))) T ;)))F > 33);))) Q ;)))
> C#.)) per share.
EcF EC1;4#);))) T C));)))F Q E#);))) T ;)))F > C(#);))) Q ;))) > C1%.4 per share.
So!ution 15)16@ Econt.F
EdF C2.%) Q C# > 4J or UEC2.%) W ;)))F Q EC3%);))) T C4);)))FV.
EeF EC3%);))) T C4);)))F Q EC1;4#);))) T C));)))F > 34.4J.
AED( 15)18B4Dividends on preferred stock.
The stockholders0 e.uit' section of 3ema' Corporation sho+s the follo+ing on Decem*er 31;
2)11=
,referred stock4#J; C1)) par; 4;))) shares outstanding C 4));)))
Common stock4C1) par; #);))) shares outstanding #));)))
,aid"in capital in e9cess of par 2));)))
!etained earnings 114;)))
Total stockholders0 e.uit' C1;314;)))
Instru&tions
$ssuming that all of the compan'0s retained earnings are to *e paid out in dividends on 12M31M11
and that preferred dividends +ere last paid on 12M31M)(; sho+ ho+ much the preferred and
common stockholders should receive if the preferred stock is cumulative and full' participating.
ASo!ution 15)18B
,referred Common Total
Dividends in arrears E#J of C4));)))F C24;))) C 4 C 24;)))
Current 'ear0s dividends 24;))) 3#;))) #);)))
,articipating dividend E3JF
UEC3);))) Q C1;)));)))F 9 C4));)))V 12;))) 1&;))) 3);)))
C#);))) C4;))) C114;)))
15 ) 81
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
AED( 15)1814Dividends on preferred stock.
5n each of the follo+ing independent cases; it is assumed that the corporation has C4));))) of
#J preferred stock and C1;#));))) of common stock outstanding; each having a par value of
C1). /o dividends have *een declared for 2))( and 2)1).
EaF $s of 12M31M11; it is desired to distri*ute C2);))) in dividends. Ho+ much +ill the preferred
stockholders receive if their stock is cumulative and nonparticipatingA
E*F $s of 12M31M11; it is desired to distri*ute C4));))) in dividends. Ho+ much +ill the preferred
stockholders receive if their stock is cumulative and participating up to 11J in totalA
EcF Dn 12M31M11; the preferred stockholders received a C12);))) dividend on their stock +hich is
cumulative and full' participating. Ho+ much mone' +as distri*uted in total for dividends
during 2)11A
ASo!ution 15)181
EaF C%2;))) EC4));))) 9 .)# 9 3 'rs.F.
E*F C(2;))) EC4));))) 9 .)# 9 3 'rs.F S UC4));))) 9 E.11 ".)#FV.
EcF C4)&;))) EC2&&;)))7 to common and C12);))) to preferredF.
7 EC1;#));))) 9 .)#F S UEC12);))) " C%2;)))F Q C4));)))F 9 C1;#));)))V.
PRO.LE-S
Pr( 15)1854E.uit' transactions.
,resented *elo+ is information related to ?'rick Compan'=
1. The compan' is granted a charter that authori2es issuance of 1;))) shares of C1)) par
value preferred stock and 4);))) shares of no"par common stock.
2. &;))) shares of common stock are issued to the founders of the corporation for land valued
*' the *oard of directors at C3));))). The *oard esta*lishes a stated value of C a share for
the common stock.
3. ;))) shares of preferred stock are sold for cash at C12) per share.
4. The compan' issues 1)) shares of common stock to its attorne's for costs associated +ith
starting the compan'. $t that time; the common stock +as selling at C#) per share.
Instru&tions
,repare the general @ournal entries necessar' to record these transactions.
So!ution 15)185
1. /o entr' necessar'.
2. 3and................................................................................................ 3));)))
Common Stock.................................................................... 4);)))
,aid"in Capital in E9cess of Stated Ialue............................ 2#);)))
15 ) 85
Stockholders- E.uit'
3. Cash................................................................................................ #));)))
,referred Stock.................................................................... ));)))
,aid"in Capital in E9cess of ,ar4,referred Stock............... 1));)))
4. Drgani2ation E9pense..................................................................... #;)))
Common Stock.................................................................... ))
,aid"in Capital in E9cess of Stated Ialue............................ ;))
Pr( 15)1864Treasur' stock transactions.
The original sale of the C) par value common shares of 8ra' Compan' +as recorded as follo+s=
Cash.......................................................................................... 2();)))
Common Stock.............................................................. 2);)))
,aid"in Capital in E9cess of ,ar..................................... 4);)))
Instru&tions
!ecord the treasur' stock transactions Egiven *elo+F under the cost method=
Transactions=
EaF 6ought 3)) shares of common stock as treasur' shares at C#2.
E*F Sold &) shares of treasur' stock at C#).
EcF Sold 4) treasur' shares at C#&.
So!ution 15)186
EaF Treasur' Stock................................................................................... 1&;#))
Cash.......................................................................................... 1&;#))
E*F Cash................................................................................................... 4;&))
!etained Earnings.............................................................................. 1#)
Treasur' Stock.......................................................................... 4;(#)
EcF Cash................................................................................................... 2;%2)
,aid"in Capital from Treasur' Stock.......................................... 24)
Treasur' Stock.......................................................................... 2;4&)
Pr( 15)1884Stock dividends.
The stockholders0 e.uit' section of 6enton Corporation0s *alance sheet as of Decem*er 31; 2)1)
is as follo+s=
Stockholders0 E.uit'
Common stock; C par valueN authori2ed; 2;)));))) sharesN
issued; 4));))) shares C2;)));)))
,aid"in capital in e9cess of par &);)))
!etained earnings 3;)));)))
C;&);)))
The follo+ing events occurred during 2)11=
15 ) 86
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
1. Ban. 1);))) shares of authori2ed and unissued common stock +ere sold for C& per
share.
2. Ban. 1# Declared a cash dividend of 2) cents per share; pa'a*le Fe*ruar' 1 to stock"
holders of record on Fe*ruar' .
3. Fe*. 1) 2);))) shares of authori2ed and unissued common stock +ere sold for C12 per
share.
4. <arch 1 $ 3)J stock dividend +as declared and issued. <arket value per share is
currentl' C1.
. $pril 1 $ t+o"for"one split +as carried out. The par value of the stock +as to *e reduced
to C2.) per share. <arket value on <arch 31 +as C1& per share.
#. Bul' 1 $ 1J stock dividend +as declared and issued. <arket value is currentl' C1) per
share.
%. $ug. 1 $ cash dividend of 2) cents per share +as declared; pa'a*le Septem*er 1 to
stockholders of record on $ugust 21.
Instru&tions
Enter the a*ove events into the follo+ing +ork sheet sho+ing ho+ each event affects the column.
Event /o. 1 +ill serve as an e9ample.
Common Stock
/o. of Total ,aid"in Capital 5n
5tem Shares 5ssued ,ar Ialue E9cess of ,ar !etained Earnings
6eginning 6alance41M1M11 4));))) C2;)));))) C&);))) C3;)));)))
Event [14Ban. 1);))) );))) 3);))) ")"
6alance 41);))) C2;));))) C&&);))) C3;)));)))

Event [ 24Ban. 1# Eand events 3 through %F
15 ) 88
Stockholders- E.uit'
So!ution 15)188
Event [24Ban. 1# ")" ")" ")" E&2;)))F
4444444444444444444444444444444444444444444
6alance 41);))) C2;));))) C&&);))) C2;(1&;)))
[34Fe*. 1) 2);))) 1));))) 14);))) ")"
4444444444444444444444444444444444444444444
6alance 43);))) C2;1);))) C1;)2);))) C2;(1&;)))
[44<arch 1 12(;))) #4;))) ")" E#4;)))F
4444444444444444444444444444444444444444444
6alance (;))) C2;%(;))) C1;)2);))) C2;2%3;)))
[4$pril 1 (;))) ")" ")" ")"
4444444444444444444444444444444444444444444
6alance 1;11&;))) C2;%(;))) C1;)2);))) C2;2%3;)))
[#4Bul' 1 1#%;%)) 41(;2) 1;2%;%) E1;#%%;)))F
4444444444444444444444444444444444444444444
6alance 1;2&;%)) C3;214;2) C2;2%%;%) C(#;)))
[%4$ug. 1 ")" ")" ")" E2%;14)F
4444444444444444444444444444444444444444444
6alance 1;2&;%)) C3;214;2) C2;2%%;%) C33&;&#)
15 ) 85
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
Pr( 15)1854E.uit' transactions.
Fole' Corporation has the follo+ing capital structure at the *eginning of the 'ear=
#J ,referred stock; C) par value; 2);))) shares authori2ed;
#;))) shares issued and outstanding C 3));)))
Common stock; C1) par value; #);))) shares authori2ed;
4);))) shares issued and outstanding 4));)))
,aid"in capital in e9cess of par 11);)))
Total paid"in capital &1);)))
!etained earnings 44);)))
Total stockholders0 e.uit' C1;2);)))
Instru&tions
EaF !ecord the follo+ing transactions +hich occurred consecutivel' Esho+ all calculationsF.
1. $ total cash dividend of C();))) +as declared and pa'a*le to stockholders of record.
!ecord dividends pa'a*le on common and preferred stock in separate accounts.
2. $ 1)J common stock dividend +as declared. The average market value of the common
stock is C1& a share.
3. $ssume that net income for the 'ear +as C1);))) Erecord the closing entr'F and the
*oard of directors appropriated C%);))) of retained earnings for plant e9pansion.
E*F Construct the stockholders0 e.uit' section incorporating all the a*ove information.
So!ution 15)185
EaF 1. !etained Earnings.................................................................. ();)))
Dividends ,a'a*le4,referred EC3));))) W .)#F.......... 1&;)))
Dividends ,a'a*le4Common...................................... %2;)))
2. 4);))) shares
1)J
4;))) shares as stock dividend
C1&
C%2;))) total dividend
!etained Earnings.................................................................. %2;)))
Common Stock Dividend Distri*uta*le........................ 4);)))
,aid"in Capital in E9cess of ,ar.................................. 32;)))
3. 5ncome Summar'................................................................... 1);)))
!etained Earnings....................................................... 1);)))
!etained Earnings.................................................................. %);)))
!etained Earnings $ppropriated for ,lant E9pansion.. %);)))
15 ) 8=
Stockholders- E.uit'
So!ution 15)185 Econt.F
E*F Stockholders0 e.uit'
#J ,referred stock; C) par value; 2);))) shares authori2ed;
#;))) shares issued and outstanding C 3));)))
Common stock; C1) par value; #);))) shares authori2ed;
4);))) shares issued and outstanding 4));)))
Common stock dividend distri*uta*le 4);)))
,aid"in capital in e9cess of par 142;)))
Total paid"in capital &&2;)))
!etained earnings4unappropriated7 C3&;)))
$ppropriated for plant e9pansion %);)))
Total retained earnings 42&;)))
Total stockholders0 e.uit' C1;31);)))
7C44);))) T C();))) T C%2;))) S C1);))) T C%);))) > C3&;)))
APr( 15)18=4Dividends on preferred and common stock.
!ensing; 5nc.; has C&));))) of &J preferred stock and C1;2));))) of common stock outstanding;
each having a par value of C1) per share. /o dividends have *een paid or declared during 2))(
and 2)1). $s of Decem*er 31; 2)11; it is desired to distri*ute C4&&;))) in dividends.
Instru&tions
Ho+ much +ill the preferred and common stockholders receive under each of the follo+ing
assumptions=
EaF The preferred is noncumulative and nonparticipating.
E*F The preferred is cumulative and nonparticipating.
EcF The preferred is cumulative and full' participating.
EdF The preferred is cumulative and participating to 12J total.
ASo!ution 15)18=
EaF ,referred Common Total
Current 'ear0s dividend E&J of C&));)))F C #4;))) C 4 C #4;)))
!emainder to common 424;))) 424;)))
C #4;))) C424;))) C4&&;)))
E*F ,referred Common Total
Dividends in arrears; &J of C&));))) for t+o 'ears C12&;))) C 4 C12&;)))
Current 'ear0s dividend #4;))) 4 #4;)))
!emainder to common 2(#;))) 2(#;)))
C1(2;))) C2(#;))) C4&&;)))
EcF ,referred Common Total
Dividends in arrears; &J of C&));))) for t+o 'ears C12&;))) C 4 C12&;)))
Current 'ear0s dividend #4;))) (#;))) 1#);)))
,articipating dividend 1)J EC2));))) Q C2;)));)))F &);))) 12);))) 2));)))
C2%2;))) C21#;))) C4&&;)))
15 ) 8>
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
ASo!ution 15)18= Econt.F
EdF ,referred Common Total
Dividends in arrears; &J of C&));))) for t+o 'ears C12&;))) C 4 C12&;)))
Current 'ear0s dividend #4;))) (#;))) 1#);)))
,articipating dividend E4JF 32;))) 4&;))) &);)))
!emainder to common 4 12);))) 12);)))
C224;))) C2#4;))) C4&&;)))
15 ) 8?
Stockholders- E.uit'
IFRS QUESTIO,S
TrueLFa!se
1. 5n the :nited States; like man' other countries; *anks are ma@or creditors as +ell as the
largest investors.
2. The i8$$, statement of recogni2ed income and e9penses is identical to the :.S. 8$$,
statement of retained earnings T *eginning *alance retained earnings; plus net income; less
dividends; e.uals ending *alance retained earnings.
3. ?hen the statement of recogni2ed income and e9penses is utili2ed the re.uirement for
additional note disclosure is reduced.
4. :nder i8$$, compliance re.uirements the :.S. 8$$, formatted income statement need not
*e replaced +ith the i8$$, statement of recogni2ed income and e9penses.
. :nder i8$$, compliance re.uirements the revaluation surplus is not considered contri*uted
capital.
Ans+ers to TrueLFa!seM
1. False
2. False
3. False
4. True
. True
-u!ti'!e C#oi&e
1. The accounting for treasur' stock retirements under i8$$,
a. is to charge the entire amount to paid"in capital.
*. ma' have the e9cess charged to paid"in capital; depending on the original transaction
related to the issuance of the stock.
c. is to charge the e9cess of the cost of treasur' stock over par value to retained earnings.
d. is to allocate the difference *et+een paid"in capital and retained earnings.
2. The !evaluation Surplus of i8$$, is
a. similar to :.S. 8$$, in that it allo+s *oth increases and decreases in valuation.
*. similar to :.S. 8$$, in that it onl' allo+s for the decrease in valuation.
c. similar to :.S. 8$$, in that it onl' allo+s for the increase in valuation.
d. different than :.S. 8$$, in that it allo+s the increase in valuation.
15 ) 8@
Test .an/ %or Inter0e$iate A&&ountin12 T#irteent# E$ition
3. The i8$$, statement of recogni2ed income and e9penses
a. does not recogni2e charges to e.uit' such as revaluation surplus values.
*. is a re.uired report under i8$$, reporting re.uirements.
c. reports the items that +ere charged directl' to e.uit' such as revaluation surplus.
d. is similar to the :.S. 8$$, income statement in that it onl' reports revenues and
e9penses of the period.
4. :nder i8$$, compliance re.uirements the !evaluation Surplus is
a. onl' utili2ed to record the changes in deprecia*le items T plant and e.uipment.
*. considered as revenue +hen utili2ing the :.S. 8$$, formatted income statement.
c. utili2ed to record the changes in propert'; plant; and e.uipment.
d. reported as contri*uted capital.
. The current pro@ect of the 5$S6 and the F$S6 related to financial statement presentation
indicates
a. that the i8$$, statement of recogni2ed income and e9penses +ill most likel' *e adopted
*' the F$S6 as a :.S. re.uirement in the near future.
*. that the i8$$, statement of recogni2ed income and e9penses +ill pro*a*l' *e eliminated.
c. that the :.S. 8$$, standard for reporting comprehensive income +ill most likel' *e
adopted *' the 5$S6 for i8$$,.
d. that h'*rid financial instruments are unaccepta*le.
Ans+ers to -u!ti'!e C#oi&eM
1. *
2. d
3. c
4. c
. *
S#ort Ans+er
1. 6riefl' descri*e some of the similarities and differences *et+een :.S. 8$$, and i8$$, +ith
respect to the accounting for stockholders- e.uit'.
1( KeC si0i!arities *et+een i8$$, and :.S. 8$$, for transactions related to stockholders-
e.uit' pertain to E1F issuance of shares; E2F purchase of treasur' stock; E3F declaration and
pa'ment of dividends; E4F the accounting for start up costs4that is; the' should *e e9pensed
as incurred; EF the costs associated +ith issuing stock reduce the proceeds from the
issuance and reduce paid in capital; and E#F the accounting for par; no par and no par stock
+ith a stated value.
-a<or $i%%eren&es relate to terminolog' used; introduction of items such as revaluation
surplus; and presentation of stockholder e.uit' information. 5n addition; the accounting for
treasur' stock retirements differs *et+een i8$$, and :.S. 8$$,. :nder :.S. 8$$, a
compan' has the option of charging the e9cess of the cost of treasur' stock over par value to
E1F retained earnings; E2F allocate the difference *et+een paid"in capital and retained
earnings; or E3F charge the entire amount to paid"in capital. :nder i8$$,; the e9cess ma'
have to *e charged to paid"in capital; depending on the original transaction related to the
issuance of the stock. $n i8$$,M:.S. 8$$, difference relates to the account !evaluation
15 ) 5B
Stockholders- E.uit'
Surplus. !evaluation surplus arises under i8$$, *ecause companies are permitted to
revalue their propert'; plant and e.uipment to fair value under certain circumstances. This
account is part of general reserves under i8$$, and is not considered contri*uted capital.
?hile *oth i8$$, and :.S. 8$$, consider the statement of stockholders- e.uit' a primar'
financial statement; under i8$$,; a compan' has the option of preparing a statement of
stockholders- e.uit' similar to :.S. 8$$, or preparing a statement of recogni2ed income and
e9pense ESo!5EF. The statement of So!5E reports the items that +ere charged directl' to
e.uit' such as revaluation surplus and then adds the net income for the period to arrive at
total recogni2ed income and e9pense. 5n this situation; additional note disclosure is re.uired
to provide reconciliations of other e.uit' items.
2. 6riefl' discuss the implications of the financial statement presentation pro@ect for the reporting
of stockholders- e.uit'.
2. 5t is likel' that the statement of stockholders- e.uit' and its presentation +ill *e e9amined
closel' in the financial statement presentation pro@ect. The statement of recogni2ed income
and e9pense no+ permitted under i8$$, +ill pro*a*l' *e eliminated. 5n addition the options
of ho+ to present other comprehensive income under :.S. 8$$, +ill change in an'
converged standard in this area. $lso; the F$S6 has *een +orking on a standard that +ill
likel' converge to i8$$, in the area of h'*rid financial instruments.
15 ) 51