13 Equity

Question 1

Do treasury stock transactions affect the income statement?

Answer 1

No, the transactions are recorded through paid in capital

Question 2

A company with depletable resources, ex a mine, will pay dividends up to the sum of retained earnings and accumulated depletion. A distribution in excess of retained earnings is considered a return of capital to the shareholders. The amount in excess of retained earnings is considered?

Answer 2

liquidating dividends

Question 3

Under the cost method, when treasury stock is reissued for an amount greater than it’s acquisition cost the excess should be credited to?

Answer 3

Additional paid in capital

Question 4

When a liquidating dividend is issued what is the affect on retained earnings?

Answer 4

A liquidating dividend is a dividend in excess or retained earnings, retained earnings is debited and the amount of excess of retained earnings is debited to additional paid-in capital to the extent available before other contributed capital accounts are charged.

Question 5

At what amount are stock dividends recorded in retained earnings?

Answer 5

When the % of outstanding stock is fewer than 20 to 25% of the outstanding shares = the stock dividends are recorded at fair value

When the % of outstanding stock is greater than 20 to 25% of the outstanding shares = the stock dividends are recorded at par value