Ch. 18 Stockholders Equity

Issued stock refers to the number of shares: 

A. Outstanding plus treasury shares. 

B. Shares issued for cash. 

C. In the hands of shareholders. 

D. That may be issued under state law.

A. Outstanding plus treasury shares. 

As of December 31, 2022, Warner Corporation reported the following: 

Dividends payable 20,000
Treasury stock	600,000
Paid-in capital - share repurchase	20,000
Other paid-in capital accounts	4,000,000
Retained earnings	3,000,000

During 2023, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $1,500,000; and stock dividends declared were $500,000. 

What would shareholders' equity be as of December 31, 2023? (does multi look familiar?)

A. Amount is not shown.  

B. $5,760,000.  

C. $5,820,000.  

D. $6,760,000.

B. $5,760,000.  

Paid-in  Other Paid  Capital  in  Share  Capital          Retained    Treasury              (Dr) Cr                                        Repurchase        Accounts      Earnings          Stock               Total
12/31/2022	$20,000	$4,000,000	$3,000,000	$(600,000)	$6,420,000
Sale of  Treasury Stock	(20,000)		(40,000)	300,000	240,000
Net Income			600,000		600,000
Cash Dividends			(1,500,000)		(1,500,000)
Stock Dividends	_________	500,000	(500,000)	________	________
12/31/2023	$0	$4,500,000	$1,560,000	$(300,000)	$5,760,000

Accumulated other comprehensive income: 

A) Is an asset. 

B) Might include gains and losses on certain investments.

C) Includes accumulated net income. 

D) Is reported between assets and liabilities.

B) Might include gains and losses on certain investments.

The par value of common stock represents:  

A. The arbitrary dollar amount assigned to a share of stock. B. The liquidation value of a share. 

C. The book value of a share of stock. 

D. The amount received when the stock was issued.

C. The book value of a share of stock. 

When stock traded on an active exchange is issued for a machine: 

A. No entry is recorded until restrictions are lifted. 

B. An asset is recorded for the fair value of the stock. 

C. An asset is recorded for the appraised value of the machine.

D. Paid-in capital is increased by the appraised value of the machine.

B. An asset is recorded for the fair value of the stock. 

The 12/31/2024 balance sheet of Despot Inc. included the following: 

Common stock, 25 million shares at $20   par$500 million
Paid-in capital—excess of par	3,000 million
Retained earnings	980 million

In January 2024, Despot recorded a transaction with this journal entry: 

Cash 150 million
Common stock		100 million
Paid-in capital—excess of par		50 million

The transaction was for the:  

A. Issue of 2 million shares of common stock at par value.  

B. Issue of common stock for $150 million in cash.  

C. Receipt of $20 per share for a new stock issue.  

D. All of these answer choices are correct. 

B. Issue of common stock for $150 million in cash.  

The shareholders' equity of Green Corporation includes $200,000 of $1 par common stock  and $400,000 par value of 6% cumulative preferred stock. The board of directors of Green declared  cash dividends of $50,000 in 2024 after paying $20,000 cash dividends in each of 2022 and 2023.  What is the amount of dividends common shareholders will receive in 2024?  

A. $18,000.  

B. $26,000.  

C. $28,000.  

D. $32,000.

A. $18,000.  

Green's common shareholders will receive dividends of $18,000 as a result of the 2024 distribution. 

Preferred Common
2022	$20,000*	0
2023	20,000**	0
2024	32,000***	$18,000 (remainder)

$24,000 current preference (6% × $400,000), thus $4,000 dividends in arrears. *$24,000 current preference (6% × $400,000), thus another $4,000 dividends in arrears. ***$8,000 dividends in arrears plus the $24,000 current preference. 

Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2024.  In October 2024, Rick Co.'s Board of Directors declared and distributed a 1% common  stock dividend when the market value of its common stock was $60 per share. In  recording this transaction, Rick would:  

A. Debit retained earnings for $18 million.  

B. Credit paid-in capital—excess of par for $18 million.  

C. Credit common stock for $18 million.  

D. None of these answer choices correct. 

A. Debit retained earnings for $18 million.  

Which of the following transactions decreases retained earnings? 

A. A property dividend. 

B. A stock dividend. 

C. A cash dividend. 

D. All of these answer choices are correct.

D. All of these answer choices are correct.

Coy, Inc., initially issued 200,000 shares of $1 par value stock for $1,000,000 in 2022. In 2023,  the company repurchased 20,000 shares for $200,000. In 2024, 10,000 of the repurchased  shares were resold for $160,000. In its balance sheet dated December 31, 2024, Coy, Inc.'s  treasury stock account shows a balance of:  

A. $0.  

B. $40,000.  

C. $100,000.  

D. $200,000.

C. $100,000.  

A treasury stock account is created when a company reacquires its own stock as treasury  stock. The full purchase price (cost) is debited to Treasury Stock. When treasury stock is  sold, the Treasury Stock account is credited for the cost per share, with an additional  credit to Paid-in Capital, Treasury Stock (or Paid-in Capital—Repurchased Shares), if the  sale price exceeds the reacquisition price.  

The 2023 repurchase is accounted for with a debit to Treasury Stock for $200,000. When  half of the treasury stock is resold, $100,000 is credited to Treasury Stock and $60,000 is  credited to Paid-In Capital, Treasury Stock. The balance in the Treasury Stock account is  $200,000 - $100,000 = $100,000.

The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its  $1 par common stock. On the date of declaration, there were 50,000 shares authorized,  20,000 shares issued, and 5,000 shares held as treasury stock. What is the entry for the  dividend declaration?  

A. 

Retained earnings 9,000
Dividends payable		9,000

B. 

Retained earnings 9,000
Cash		9,000

C. 

Retained earnings 10,000
Dividends payable		10,000

D. 

Retained earnings 10,000
Cash		10,000

A. 

Retained earnings 9,000
Dividends payable		9,000