58 SURGENT MCQs Flashcards
In its December 31, 20X1, financial statements, what amount should Row report as retained earnings?
$854,000
$1,486,000
$565,000
$770,000
Question #302101
$770,000
Retained earnings on December 31, 20X1, would be computed as follows:
Total income since incorporation $1,570,000
Less cash dividends $(716,000)
Stock dividends (84,000) (800,000)
Retained earnings on December 31, 20X1 $ 770,000
Note: The excess of cost of treasury stock sold over cash received would be debited to Additional Paid-in Capital—Treasury Stock because the balance in that account is larger than the amount of the difference between the cost of the treasury stock sold and the cash received from its sale. The balance in Additional Paid-in Capital—Treasury Stock does not affect the retained earnings balance.
Relevant Terms
Additional Paid-in Capital
Retained Earnings
Stock Dividend
Reference
2114.01
2114.02
The following trial balance of Mint Corp. on December 31, 20X1, has been adjusted, except for income tax expense.
The following trial balance for Mint
In Mint’s December 31, 20X1, balance sheet, what amount should be reported as total retained earnings?
$1,950,000
$2,400,000
$2,560,000
$2,110,000
Question #300114
$2,110,000
Relevant Terms
Long-Term Contracts
Retained Earnings
Reference
2114.01
2114.02
In which of the financial statements can a user find details regarding items that caused retained earnings to increase and decrease during the fiscal year?
Income statement
Statement of cash flows
Balance sheet
Statement of changes in stockholders’ equity
Question #302060
Statement of changes in stockholders’ equity
The details showing the increases and decreases to the Retained Earnings account are reported in the statement of changes in stockholders’ equity. Retained Earnings is also reported in the balance sheet, but the details of the items causing the changes to the beginning balance are only found in the statement of changes in stockholders’ equity.
Relevant Terms
Financial Statements
Retained Earnings
Reference
2114.01
2114.02
LLA, Inc. was capitalized through the issuance of 10,000 shares of $30 par common stock that was sold at $50 per share. LLA had net income as follows:
Year 1 $100,000
Year 2 200,000
If, during year 2, LLA paid dividends to its shareholders at $2.50 per share, what amount was LLA’s retained earnings balance and shareholders’ equity balance at the end of year 2?
Retained earnings $50,000; Shareholders’ equity $550,000
Retained earnings $50,000; Shareholders’ equity $775,000
Retained earnings $275,000; Shareholders’ equity $550,000
Retained earnings $275,000; Shareholders’ equity $775,000
Question #302661
Retained earnings $275,000; Shareholders’ equity $775,000
Shareholder’s equity recognizes equity (e.g., common stock and of preferred stock) and the accumulated earnings of the business. Retained earnings, a component of stockholders’ equity, is increased through net income and decreased through dividends and net losses.
Retained earnings in this example would be increased through year 1 and year 2 net income, $300,000, and decreased by the $2.50 per share dividend payment of $25,000, for an ending balance of $275,000 ($300,000 − $25,000).
Stockholders’ equity would have been initially recorded at the stock issuance value of $500,000 ($50* price per share × 10,000) shares. At the end of year 2 it would include the initial value and retained earnings, for a total balance of $775,000 ($500,000 common stock and additional paid-in capital + $275,000 retained earnings).
- On issuance, the $50 per share price would be split between common stock ($30 par value) and additional paid-in capital ($20 difference between par and fair value).
Relevant Terms
Dividends
Net Income
Retained Earnings
Reference
2114.01
2114.02
On December 30, 20X1, Hale Corp. paid $400,000 cash and issued 80,000 shares of its $1 par value common stock to its unsecured creditors on a pro rata basis pursuant to a reorganization plan under Chapter 11 of the bankruptcy statutes. Hale owed these unsecured creditors a total of $1,200,000. Hale’s common stock was trading at $1.25 per share on December 30, 20X1. As a result of this transaction, Hale’s total stockholder’s equity had a net increase of:
$80,000.
$1,200,000.
$100,000.
$800,000.
Question #300535
$800,000.
When debts are paid with stock and property, the difference of the fair value of the stock and property and the carrying value of the debt (if less than the carrying amount of the debt) is gain. Gain is added to retained earnings, increasing equity, and the stock issued adds to equity as well.
Amount owed to unsecured creditors $1,200,000
Less cash paid $400,000
Common stock issued at fair value*
(80,000 shares x $1.25) 100,000 500,000
Gain on restructuring $ 700,000
=========
* Common stock would be increased by $80,000 (80,000 shares × $1 par). Additional Paid-in Capital would be increased by $20,000 (80,000 shares × ($1.25 − $1)).
The net increase in Hale Corp.’s stockholders’ equity is $800,000, the sum of the $700,000 gain on restructuring plus the $100,000 increase in stockholders’ equity resulting from issuance of the additional shares.
Relevant Terms
Bankruptcy Reform Act
Fair Value
Restructuring
Unsecured Party
Reference
2114.01
Authorities
FASB ASC 470-60-35-4
Selected information from the accounts of Row Co. on December 31, 20X1, follows:
Total income since incorporation $420,000
Total cash dividends paid 130,000
Total value of property dividends
distributed 30,000
Excess of proceeds over cost of
treasury stock sold, accounted
for using cost method 110,000
In its December 31, 20X1, financial statements, what amount should Row report as retained earnings?
$370,000
$400,000
$290,000
$260,000
Question #300534
$260,000
Retained earnings on December 31, 20X1, would be computed:
Total income since incorporation $420,000
Less cash dividends $130,000
Property dividends 30,000 160,000
Retained earnings on December 31, 20X1 $260,000
Note: The excess of proceeds over cost of treasury stock sold would be credited to “additional paid-in capital” under the cost method.
Term: Treasury Stock
Treasury stock is shares of the issuing corporation’s own stock (common or preferred) that were issued and were later reacquired in the open market by the issuing corporation and are still held by the issuing corporation. Treasury stock is considered issued but not outstanding. It may be obtained through purchase, settlement of an obligation, or donation, and it may be retired or resold. Treasury stock does not carry voting, dividend, preemptive, or liquidation rights.
Treasury stock may be accounted for under the par value or the cost method of accounting. Both methods are considered GAAP. Treasury stock is not an asset and does not affect income. It is a contra (negative) element of stockholders’ equity—it decreases total equity. Treasury stock may increase or decrease contributed capital and may also decrease (but rarely increases) retained earnings.
FASB ASC 505-30
Term: Treasury Stock Method
The treasury stock method is a computation applied to equity contracts to determine the number of common stock equivalents (CSEs) to use in computing EPS. It is a method of recognizing the use of proceeds that would be obtained upon exercise of options and warrants in computing earnings per share and assumes that all proceeds would be used to purchase common stock (treasury stock) at current market prices, up to 20% of total outstanding shares, with the balance applied first to reduce short-term, then long-term, debt and then to invest in U.S. government securities. It is the net increase in shares (the number of shares which would be issued if all equity contracts were exercised minus the number of shares of treasury stock which could be purchased according to this method) is added to the weighted-average number of common shares in the denominator of diluted EPS.
It automatically excludes antidilutive equity contracts.
See the glossary for additional terms
Relevant Terms
Additional Paid-in Capital
Treasury Stock
Treasury Stock Method
Reference
2114.01
Selected information from the accounts of Row Co. on December 31, 20X1, follows:
Total net income since incorporation $1,570,000
Total cash dividends paid since
incorporation 716,000
Total value of stock dividends
distributed 84,000
Excess of cost of treasury stock sold
over proceeds received, accounted
for using cost method 205,000
Balance in Additional Paid-in Capital
–-Treasury Stock account $208,500 (credit)
In its December 31, 20X1, financial statements, what amount should Row report as retained earnings?
$565,000
$1,486,000
$854,000
$770,000
Question #302101
$770,000
Retained earnings on December 31, 20X1, would be computed as follows:
Total income since incorporation $1,570,000
Less cash dividends $(716,000)
and Stock dividends (84,000)
Retained earnings on December 31, 20X1 $ 770,000
Note: The excess of cost of treasury stock sold over cash received would be debited to Additional Paid-in Capital—Treasury Stock because the balance in that account is larger than the amount of the difference between the cost of the treasury stock sold and the cash received from its sale. The balance in Additional Paid-in Capital—Treasury Stock does not affect the retained earnings balance.
Relevant Terms
Additional Paid-in Capital
Retained Earnings
Stock Dividend
Reference
2114.01
2114.02
The following trial balance of Mint Corp. on December 31, 20X1, has been adjusted, except for income tax expense.
SEE PHOTO
Other financial data for the year ending December 31, 20X1:
Mint uses the same method to account for long-term construction contracts for financial statement and income purposes. All receivables on these contracts are considered to be collectible within 12 months.
During 20X1, estimated tax payments of $450,000 were charged to prepaid taxes. Mint has not recorded income tax expense. There were no temporary or permanent differences. Mint’s tax rate is 30%.
In Mint’s December 31, 20X1, balance sheet, what amount should be reported as total retained earnings?
$1,950,000
$2,560,000
$2,400,000
$2,110,000
Question #300114
$2,110,000
Total retained earnings on December 31, 20X1:
Retained earnings (unappropriated) $900,000
Retained earnings (restricted for note payable) $160,000
Earnings for 20X1:
Earnings from LT contracts $6,680,000
Less costs and expenses 5,180,000
Earnings before taxes 1,500,000
Less income taxes (30% x 1,500,000) 450,000
Total earnings for 20X1 1,050,000
Total retained earnings (December 31, 20X1) $2,110,000
==========
Term: Long-Term Contracts
A long-term contract is a contract for the construction of a specific project over an extended period of time (more than one accounting period), such as ships, airplanes, bridges, roads, and buildings. Accounting issues include revenue/profit recognition and valuation of construction-in-process. There are two alternative GAAP methods available: completed-contract and percentage-of-completion.
FASB ASC 605-35-05-5
Term: Retained Earnings
Retained earnings are an increase in net assets from results of operations, retained by the corporation for use in the enterprise. They are internally generated financing or the corporation’s undistributed earnings. They are accumulated earnings, less accumulated losses and dividends paid, from inception. Retained earnings are a major source of owners’ equity and can be viewed as additional investments by the owners as foregone dividends.
Negative balance is called a deficit.
Retained earnings may also be decreased by purchase of treasury stock at a price higher than the amount originally received for the stock.
Retained earnings may be appropriated (i.e., restricted as to use) by:
- contractual specification (e.g., bond covenants),
- legal requirement (e.g., by state law), or
- management discretion (e.g., for future expansion).
Retained earnings are increased by net income, prior-period adjustments, and quasi-reorganization. Retained earnings are decreased by net loss, prior-period adjustments, cash, property, scrip, stock dividends, and treasury stock and stock retirement transactions.
Universe Co. issued 500,000 shares of common stock in the current year. Universe declared a 30% stock dividend. The market value was $50 per share, the par value was $10, and the average issue price was $30 per share. By what amount will Universe decrease stockholders’ equity for the dividend?
$7,500,000
$4,500,000
$1,500,000
$0
Question #300536
$0
Stock dividends are accounted for by reclassifying a portion of retained earnings as contributed capital. They do not reduce assets or increase liabilities. Therefore, total stockholders’ equity is not changed.
Term: Stock Dividend
Stock dividends are distributions of the corporation’s own stock (treasury or newly issued shares) to stockholders in proportion to the number of outstanding shares held. They do not change the par value per share or the shareholder’s proportional interest in the corporation, but they do increase the number of shares issued and outstanding. A stock dividend does not change assets, liabilities, or total stockholders’ equity. It merely transfers amounts between equity accounts. Accounting for dividends represents a disbursement (credit) to the capital stock account(s) and a reduction (debit) to Retained Earnings. Stock dividends are revocable up until the date of issuance (distribution) and may involve some special accounting issues.
FASB ASC 505-20-20
Stock dividends are used in calculating the weighted-average number of shares outstanding for EPS (earnings per share) computations and are given retroactive treatment “as if” the shares had been outstanding for the entire period.
Stock dividends represent return on investment to shareholders.
Relevant Terms
Stock Dividend
Stockholders’ Equity
Reference
2252.47
2294.17
Authorities
FASB ASC 505-20-25-3
Which of the following is included on a statement of changes in equity?
Column headings identify individual stockholders’ equity accounts.
Events changing stockholders’ equity accounts are listed chronologically to the left.
The impact of the transactions on the number of shares of stock, if any, is presented in the descriptions to the left.
All of the items listed are included on a statement of changes in equity.
Question #300112
All of the items listed are included on a statement of changes in equity.
A statement of changes in stockholders’ equity includes the following:
- Column headings that identify individual stockholders’ equity accounts
- Events changing stockholders’ equity accounts
- The body of the statement presented in terms of the dollar impact of various transactions and events
- The impact of the transactions on the number of shares of stock, if any
- Ending balances that tie to the items presented in the stockholders’ equity section of the balance sheet on the same dates
Relevant Terms
Financial Statements
Stockholders’ Equity
Reference
2114.01
2114.02
Authorities
FASB ASC 215-10-05
FASB ASC 215-10-50
Zinc Co.’s adjusted pre-closing trial balance on December 31, 20X1, includes the following account balances:
Common stock ($3 par) $600,000
Additional paid-in capital 800,000
Treasury stock (at cost) 50,000
Net unrealized loss on available-for sale
debt securities 20,000
Net unrealized loss on investment in equity
securities 15,000
Retained earnings appropriated
for uninsured earthquake losses 150,000
Retained earnings (unappropriated) 200,000
What amount should Zinc report as total stockholders’ equity in its December 31, 20X1, balance sheet?
$1,780,000
$1,650,000
$1,685,000
$1,665,000
Question #300113
$1,665,000
Only the unrealized loss from the debt securities classified as available-for-sale is included in shareholder’s equity as a component of accumulated comprehensive income. The net unrealized loss on investment in equity securities is included in net income and therefore would be closed to retained earnings.
CONTRIBUTED CAPITAL:
Common stock $ 600,000
Additional paid-in capital 800,000
Total contributed capital $1,400,000
Retained earnings (including $15,000 loss) 335,000
Subtotal $1,735,000
Less accumulated comprehensive income
(unrealized loss on available-for-sale
debt securities) $20,000
Less Treasury stock at cost 50,000 70,000
Total stockholders’ equity $1,665,000
==========
Relevant Terms
Additional Paid-in Capital
Common Stock
Contributed Capital
Holding Gain or Loss
Retained Earnings
Stockholders’ Equity
Reference
2114.01
2114.02
Authorities
FASB ASC 220-10-55-2
FASB ASC 320-10-45-8A
