Intermeddiate Final

Question 1

In absence of restrictive provisions what are inherent rights stock carry?

Answer 1

1. Right to share proportionally in election of directors
2. Right to share proportionally in profit and losses
3. Right to share proportionally in corporate assets upon liquidation
4. Share proportionally in new issues of same stock (preemptive right)

The following is NOT included : right to share proportionally in the selection of management

Question 2

Common features of preferred stock?

Answer 2

Voting- No
Cumulative- Yes
Participating- No
Convertible- No

Question 3

Stock issued in a non cash transactions e.g) sell stock and receive land,building,patent, inventory, etc

Answer 3

Use fair value of the stock or the property whichever is more clearly determinable

Question 4

Cost of issuing stock

E.g) attorneys fees, accountants fees, underwriters fee, Sec filing expenses, mailing cost

Answer 4

Record as a reduction of Paid in Capital PIC (not expense)

Question 5

What effect does the issuance of a 2-for-1 stock split have in each of the following?

Answer 5

Retained earnings- No effect
Total stockholders equity- No effect
Par value per share- Decreases it

Question 6

How would preferred stock be classified on the balance sheet?

Answer 6

Preferred stock convertible into common stock: (Equity-Contributed Capital)
Preferred stock with a fixed redemption rate: (Liability)
Participating preferred stock: (Equity- Contributed Capital)

Question 7

Cost method to account for purchase of treasury stock is?

Answer 7

Treasury stock: XX
Cash: XX

(Include brokers fee in cost of treasury stock!)

Question 8

Cost method to sell treasury stock for more than originally paid?

Answer 8

Cash XX (sales price-brokers fee if any)
Treasury stock    XX (cost of treasury cost)
PIC                        XX (gain booked as PIC)

Debit cash and credit TS and PIC

Question 9

Sell Treasury stock for less than originally paid using cost method?

Answer 9

Cash  XX (sales price-brokers fee)
Treasury stock (TS) (cost of ts = original purchase price divided by number of shares multiplied by shares sold)!!
PIC (PIC-TS) Loss booked as reduction but don’t reduce below 0!!

(Debit cash and Pic and credit TS)
“If” loss exceeds preexisting PIC-TS then same as above and also reduce PIC to zero and record remainder of loss as reduction in retained earnings!

Question 10

Date of payment: of dividends to be paid

Answer 10

Dividend Payable XX

Cash XX