F1 M4

Question 1

stock issued at par

Answer 1

Dr. Cash
Cr. C/S or P/S

Question 2

stock issued above par

Answer 2

Dr. Cash
Cr. C/S or P/S
Cr. APIC

Question 3

stock issued below par

Answer 3

Dr. APIC
Cr. C/S or P/S

Question 4

cash dividends

Answer 4

-cash distributed to common or preferred shareholders
-paid out of retained earnings
-not paid on T/S

Question 5

property dividends

Answer 5

-distribute noncash assets to shareholders (ex. inventory, investments etc.)
-on date of declaration, property restated to fair value and any gain or loss recognized in income

Question 6

scrip dividends

Answer 6

-form of notes payable committing to paying a dividend at a later date
-used when there is a cash shortage
-Dr. RE and CR. Notes payable
-some scrip dividends bear interest

Question 7

liquidating dividends

Answer 7

-when dividends exceed retained earnings
-Dr. APIC and CR. C/S or P/S
-liquidating dividends reduce total paid-in capital

Question 8

stock dividends

Answer 8

-distribute additional shares to shareholders

Question 9

small stock dividend

Answer 9

<20 to 25% of shares previously outstanding
-FMV of stock dividend on date of declaration transferred from RE to capital stock and APIC
-no effect on shareholder’s equity as APIC substituted for RE

Question 10

large stock dividend

Answer 10

> 20 to 25% of shares previously outstanding
-expected to reduce market price of stock
-par value of stock dividend transferred from RE to capital stock for legal requirements
-if no legal requirements, add stock dividend distribution by changing number of shares outstanding and par value per share

Question 11

JE for small stock dividend

Answer 11

Dr. RE
Cr. C/S
Cr. Paid-in capital

Question 12

JE for declaring large stock dividend at par

Answer 12

Dr. RE
Cr. C/S distributable

Question 13

JE for stock dividend distribution at par

Answer 13

Dr. C/S distributable
Cr. Capital stock, par common

Question 14

stock dividends/splits on T/S

Answer 14

generally not distributed from T/S, but exception when:

1) company is maintaining a ratio of T/S to shares outstanding in order to meet stock option or other contractual obligations

2) state law requires T/S be protected from dilution

Question 15

does a stock split require a journal entry?

Answer 15

No, only a memo entry to acknowledge split

Question 16

reverse stock splits

Answer 16

reduces number of shares outstanding and increases par value proportionately

Question 17

what are stock subscriptions?

Answer 17

a contractual agreement to sell a specified number of shares at agreed price
-on full payment of subscription, a stock certificate evidencing ownership in corporation issued

Question 18

JE for sale of subscriptions

Answer 18

Dr. Subscription receivable
Cr. C/S subscribed
Cr. APIC

Question 19

what do you do with subscriptions not paid for at YE?

Answer 19

-treated as contra-equity, which offsets amt of par value and APIC related to subscriptions not paid for at YE

Question 20

JE for collection of subscriptions

Answer 20

Dr. Cash
Cr. Subscription receivable

Question 21

JE for issuance of stock previously subscribed

Answer 21

Dr. C/S subscribed
Cr. C/S issued

Question 22

default/forfeiture of subscription

Answer 22

-reverse portion of original entry not collected and either
1) issue stock in proportion to amt paid
2) refund partial amt
Or
3) retain partial payment (as liquidated damages for breach of contract) by a credit to APIC

Question 23

what is a stock right?

Answer 23

-provides an existing shareholder an ability to buy more shares
-right carries a price below stock’s market price on date rights are granted
-requires a memo entry only
-stock can be redeemed by company (bought back)

Question 24

exercise of stock rights JE

Answer 24

Dr. Cash
Cr. C/S
Cr. APIC

Question 25

stock issued for outside services

Answer 25

-recorded at fair value of stock
-stock issued in a basket sale with other securities allocated a portion of the sales proceeds based on relative fair market values of different securities