Concepts CH 14

Question 1

Rights issued no consideration

Answer 1

memo only

Question 2

Stock Split

Answer 2

Par value reduced

Does not impair ability to pay dividends

Question 3

Cash dividend reduces retained earnings

Answer 3

at date of declaration

Question 4

Stock Dividend

Answer 4

Is not a liability it is a reclass of retained earnings
at FMV of stock
Affect ability to pay dividends

Question 5

TStock Cost Method

Answer 5

Treasury Stock is debited and cash credited for purchase price of stock

Question 6

Property dividend

Answer 6

property revalued at fv as of declaration date

Question 7

At date of declaration

Answer 7

Retained earnings is debited

Dividends payable is credited

Question 8

In accounting for a stock dividend

Answer 8

The FV of additional shares is reclassified from retainted earnings to capital stock at par value and the difference is to additional PiC

Question 9

Dividends in excess of retained earnings

Answer 9

is considered a liquidation and return of capital to shareholders

Question 10

A stock split up effected in form of stock dividend

Answer 10

Requires a debit to retained earnings at least equal to the legal aggregate amount debited to retained earnings (usually par val of shares)

Question 11

If there is no additional PiC from treasury stock the difference of reissue of TStock below acquisition cost

Answer 11

Is a debit to retained earnings for the difference if accounted for under cost method

Question 12

Under par-value method

Answer 12

Treasury stock is debited at par value, and the amount is reported as a reduction of common stock. The corresponding PiC for that stock is also allocated. If reacquisition price is in excess of PiC the difference is debited to retained earnings

Question 13

When stock is issued for property or services

Answer 13

The transaction should be recorded at fair value of stock or property or services received, whichever is more clearly determinable

Question 14

Appropriating Retained Earnings

Answer 14

Is a formal way of marking a portion of retained earnings for other uses. When appropriation is no longer necessary the entry is reversed even if full appropriation not needed

Question 15

Appropriation of Retained Earnings is permitted if

Answer 15

It is displayed in equity section and clearly identifiable

Question 16

A property dividend decreases

Answer 16

Retained earnings for the carrying amount of property

Question 17

Dividends Paid by Sub

Answer 17

Total Dividends paid - Dividends to parent eliminated = Dividends paid by sub

Question 18

All entities in which the parent has controlling interest regardless

Answer 18

Of whether that interest is direct or indirect

Question 19

A warrant is a certificate representing

Answer 19

a right to purchase shares at a specified price within a specified period. Thus, it is an equity security. Warrants are usually attached to other securities.

Question 20

In a rights offering, each shareholder is issued a warrant that is

Answer 20

an option to buy a certain number of shares at a fixed price.

Question 21

When rights are issued for no consideration

Answer 21

the issuer makes only a memorandum entry.

Question 22

If the rights are exercised and stock is issued, the issuer will reflect the proceeds received as a

Answer 22

credit to (an increase in) common (preferred) stock at par value, with any remainder credited to additional paid-in capital.