Practice Review Stockholders Equity Chapter
Use the following information to answer questions 1-3. When Sample Corporation was formed on January 1, the corporate charter provided for 50,000 shares of $20 par value stock. The following transactions were among those engaged in by the corporation during the first month of operation. What are the following entries? 1. The corporation issued 200 shares to its lawyer in full payment of the $5,000 bill for drawing up the articles of incorporation. 2. The company issued 8,000 shares of stock at a price of $25 per share. 3. The company issued 7,000 shares in exchange for equipment that had a fair market value of $160,000.
Use the following information to answer questions 4-5. Sample Corporation has 60,000 shares of $10 par value common stock outstanding. What are the following entries? 4. On March 17 declared a 10% stock dividend to stockholders of record March 20. The market value of the stock was $13 on March 17. 5. On March 30 distributed the stock dividend.
6. What type of account is Stock dividends distributable? 7. What type of account is Cash dividends payable? 8. On May 1 Sample Corporation had 100,000 shares of $100 par value common stock outstanding with a market value of $160 per share. On May 2, Sample Corporation announced a 4 for 1 stock split. After the split, what were the par value, market value, and number of shares outstanding? What entry was made on May 2?
Use the following information to answer questions 9-12. On January 1, Sample Corporation had 50,000 shares of $10 par value common stock issued and outstanding. All 50,000 shares had been issued in a prior period for $15 per share. On February 1, Sample Corporation purchased 2,000 shares of its own stock for $18 per share. On March 2 Sample Corporation sold 1,000 shares of this stock for $20 per share. On April 1 it sold 500 shares of this stock for $15 per share. On May 1 Sample Corporation retired the remaining shares. 9. What is the entry on February 1? 10. What is the entry on March 2? 11. What is the entry on April 1? 12. What is the entry on May 1?
13. Calculate the number of shares outstanding if: 80,000 shares are authorized; 30,000 shares are unissued; and 5,000 shares are in the treasury. 14. When a cash dividend is declared, three different dates are usually involved. Assume a $5,000 cash dividend. List the three dates and the journal entries made on them.
15. On December 31, Sample Corporation reported the following balances on its balance sheet. Prepare the Stockholders Equity section of the balance sheet with all proper disclosures. Cash $22,000; Treasury stock ($8 per share, at cost) ($16,000); Retained Earnings $130,000; Common stock, $5 par (authorized 100,000 shares, issued? shares of which? shares are held as treasury stock) $400,000; Paid in Capital in excess of par $?; and Total Contributed Capital $540,000.
16. Which of the following is not true about a 30% stock dividend? a. Retained earnings decreases. b. Contributed capital increases. c. Par value per share remains the same. d. The market value of the stock is needed to record the stock dividend. 17. At the beginning of the year, Sample Corporation had 30,000 shares of $10 par value common stock issued and outstanding. During January the corporation declared and distributed a 10 percent stock dividend. The market value of the stock was $24 throughout the month of January. As a result of this stock dividend, total stockholders equity should increase (decrease) by a. 0 b. $30,000 c. $42,000 d. ($72,000)
18. On June 1 Sample Corporation had 200,000 shares of $4 par value common stock outstanding with a market value of $160 per share. On June 2 the corporation declared a 4 for 1 stock split. After the split, what were the par value, market value, and number of shares outstanding?
19. Sample Corporation has 60,000 shares of $10 par value common stock outstanding. On March 17 a 10% stock dividend was declared to stockholders of record on March 20, and to be distributed on March 30. The market value of the stock on March 17 was $13 per share. a. What is the entry on March 17? b. What is the entry on March 20? c. What is the entry on March 30?
20. According to generally accepted accounting principles, treasury stock should be recorded at: a. par or stated value b. cost c. original issue cost d. net realizable value 21. On the balance sheet, treasury stock owned by the company is classified properly as a. current assets b. investments c. a note to the financial statements d. contra-stockholders equity
22. Compute the missing numbers from the following information: Par value per common share $10 Common stock account balance $150,000 Number of shares authorized 20,000 shares Number of shares issued and outstanding shares Paid in Capital in excess of Par balance $ Retained Earnings account balance $80,000 Total Contributed Capital $ Total Stockholders Equity $300,000
23. Comprehensive Stockholders' Equity Transactions and Financial Ratios Sample Corporation was chartered in the state of Massachusetts. The company was authorized to issue 10,000 shares of $100 par value, 6 percent preferred stock and 50,000 shares of no-par common stock. The common stock has a $2 stated value. The stock-related transactions for the quarter ended October 31, 2010, were as follows: Required Record transactions for the quarter ended October 31, 2010, in T accounts. Aug. 3 Issued 10,000 shares of common stock at $22 per share. 15 Issued 8,000 shares of common stock for land. Asking price for the land was $100,000. Common stock's market value was $12 per share. 22 Issued 5,000 shares of preferred stock for $500,000. Oct. 4 Issued 5,000 shares of common stock for $60,000. 10 Purchased 2,500 shares of common stock for the treasury for $6,500. 15 Declared a quarterly cash dividend on the outstanding preferred stock and $.10 per share on common stock outstanding, payable on October 31 to stockholders of record on October 25. 25 Date of record for cash dividends. 31 Paid cash dividends.
23. Comprehensive Stockholders' Equity Transactions and Financial Ratios 2. Prepare the stockholders' equity section of the balance sheet as of October 31, 2010. Net income for the quarter was $23,000.
24. Treasury Stock: Record the treasury stock transactions in T accounts. Sample Corporation had the following treasury stock transactions during 2011: 1. Purchased 80,000 shares of its $1 par value common stock on the market for $2.50 per share. 2. Purchased 16,000 shares of its $1 par value common stock on the market for $2.80 per share. 3. Sold 44,000 shares purchased in a for $131,000. 4. Sold the other 36,000 shares purchased in a for $72,000. 5. Sold 6,000 of the remaining shares of treasury stock for $1.60 per share. 6. Retired all the remaining shares of treasury stock. All shares originally were issued at $1.50 per share. What is the reasoning behind treating the purchase of treasury stock as a reduction in stockholders' equity as opposed to treating it as an investment asset?