1.4 Statement of Changes in Equity and Equity Transactions Flashcards
Purpose of the statement of changes in equity
The statement of changes in equity reconciles the beginning balance and ending balance for each component of equity for a given reporting period.
Unless the shares are specifically restricted, a holder of common stock with a preemptive right may share proportionately in all of the following except
A. Corporate assets upon liquidation
B. The vote for directors
C. New issues of stock of the same class
D. Cumulative dividends
D. Cumulative dividends
Common stock does not have the right to accumulate unpaid dividends. This right is often attached to preferred stock
McGlinchy Company had 100,000 shares of $4 per value common stock outstanding on June 12 of the current year. On this date, McGlinchy accquired 1,000 of its own shares as treasury stock at a cost of $12 per share. The acquisition was accounted for by the cost method. As a result of this treasury stock purchase
A. Total assets, retained earnings, and total equity decreased
B. Total assets were unaffected, but retained earnings decreased
C. Total assets and total equity decreased
D. Total assets and total equity were unaffected.
C. Total assets and total equity decreased
Under the cost method, the acquisition of treasury stock is recorded to treasury stock and cash equal to the amount of the purchase price. This transaction results in a decrease in both total assets and total equity.
On December 1, a corporation’s board of directors declared a property dividend, payable in stock held in a company. The dividend was payable on January 5. The investment in the company had an original cost of $100,000 when acquired 2 years ago. The market value of this investment was $150,000 on December 1, $175,000 on December 31, and $160,000 on January 5. The amount to be shown on the corporation’s statement of financial position at December 31 as property dividends payable would be
$150,000
When a property dividend is declared, the property is measured at its fair value as of the declaration date. This amount is then reclassified from retained earnings to property dividends payable.
The purchase of treasury stock is recorded on the statement of financial position as
A. Increase in assets
B. Decrease in liabilities
C. Increase in shareholder’s equity
D. Decrease in shareholder’s equity
D. Decrease in shareholder’s equity
The purchase of treasury stock is recorded on the statement of financial position as a decrease in shareholders’ equity.
Which one of the following statements regarding dividends is correct?
A. The declaration and payment of a 10% stock dividend will result in a reduction of retained earnings at the fair market value of the stock
B. A stock dividend of 15% of the outstanding common shares results in a debit to retained earnings at the par value of the stock distributed
C. At the declaration date of 30% stock dividend, the carrying value of retained earnings will be reduced by the fair value of the stock distributed
D. The declaration of a cash dividend will have no effect on book value per share.
A. The declaration and payment of a 10% stock dividend will result in a reduction of retained earnings at the fair market value of the stock
When a small stock dividend is declared (less than 20% to 25% of the previously outstanding common shares), retained earnings is debited for the fair value of the stock.
When a large stock dividend is declared (more than 20% to 25% of the previously outstanding common shares), retained earnings is debited for the par value of the stock.
When a cash dividend is declared, a portion of retained earnings is reclassified as a current liability
The statement of shareholder’s equity shows a
A. Reconciliation of the beginning and ending balances in shareholders’ equity accounts.
B. Listing of all shareholders’ equity accounts and their corresponding dollar amounts.
C. Computation of the number of shares outstanding used for earnings per share calculations.
D. Reconciliation of net income to net operating cash flow
A. Reconciliation of the beginning and ending balances in shareholders’ equity accounts
A corporation has 10,000,000 shares of $10 par-value stock authorized, of which 2,000,000 shares are issued and outstanding. The Board of Directors declared a 2-for-1 stock split on November 30 to be issued on December 30. The stock was selling for $30 per share on the date of declaration. In addition, the Board has amended the articles of incorporation to allow for a proportional increase in the number of authorized shares. The par-value information appearing in the shareholder’s equity section of the statement of financial position at December 31 will be
A. $5
B. $10
C. $15
D. $30
A. $5
As a result of the 2-for-1 stock split, the par value of Grand’s shares is halved to $5.
On February 1, Hyde Corp., a newly formed company, had the following stock issued and outstanding:
* Common stock, no par, $1 stated value, 10,000 shares originally issued for $15 per share
* Preferred stock, $10 par value, 3,000 shares originally issued for $25 per share
Hyde’s February 1 statement of equity should report
- Common stock: 10,000 / 150,000
- Preferred stock: 75,000 / 30,000
- Additional Paid-in Capital: 0 / 140,000 / 185.,000 / 45,000
- Common stock: $10,000
- Preferred stock: $30,000
- Additional Paid-in Capital: $185,000
The common stock was issued for a total of $150,000. Of this amount, $10,000 (10,000 shares x $1 stated value) should be allocated to the common stock, with the remaining $140,000 ($150,000 - $10,000) credited to additional paid-in capital. The preferred stock was issued for $75,000 (3,000 shares x $25), of which $30,000 (3,000 shares x $10 par value) should be allocated to the preferred stock and $45,000 ($75,000 - $30,000) should be allocated to additional paid-in capital. In the statement of equity, Hyde therefore should report $10,000 in the common stock account, $30,000 in the preferred stock account, and $185,000 ($140,000 + $45,000) as additional paid in capital.
