Day 2 - Stockholders Equity

Question 1

Under the legal/par method what amount is debited for losses?

Answer 1

APIC - TS

When it doesn’t have enough, Retained Earnings absorbs the remaining losses

MCQ-00738

Question 2

What are the two methods for accounting for Treasury Stock?

Answer 2

1. Cost Method (Gain or Loss IMMEDIATELY calculated upon REISSUE)
2. Legal (or Par / State Value) Method (Gain or Loss IMMEDIATELY calculated upon REPURCHASE)

Note: Gains or Losses are recorded as an adjustment to SH Equity NOT included in Net Income

TBS-732900

Question 3

ABC declared a property dividend, the carrying value was $60k and the Fair Value was $78k. What is the net effect of RE after all nominal amounts are closed?

Answer 3

$60k decrease

Note: nominal accounts closed = income and expenses closed, so the $18k gain offsets RE

MCQ-01521

Question 4

What is a liquidating dividend?

Answer 4

The amount in excess of Retained Earnings

Note: ONLY ALLOWED in some states

MCQ-01031

Question 5

How are Stock Dividends recorded on the books of the recipient?

Answer 5

They are NOT recorded

MCQ-01043

Question 6

What is the Gain/Loss of a disposal of an asset?

Answer 6

The difference between Book Value and Fair Market Value of the property dividend

MCQ-01545

Question 7

How would a 5% stock dividend affect: assets, SH Equity, and RE?

Answer 7

No effect
No effect
Decrease - RE

Rule: a stock dividend (less than 20-25% of the outstanding stock) transfers the FMV of the stock dividend at the declaration date from Retained Earnings to Capital Stock and paid-in Capital

MCQ-04501