Owner's Equity

Question 1

Assume 2,000 shares of $3 par common stock are issued for $12 per share

Answer 1

Cash 24,000

• —-Common Stock 6,000
• —-APIC 18,000

Question 2

Assume 2,000 shares of $3 par common stock are issued for $12 per share and incurs $1,000 of stocks issue costs

Answer 2

Cash 23,000(24-1)

• —-Common Stock 6,000
• —-APIC 17,000

Cash and APIC are reduced

Question 3

Firm issues 2,000 shares of $2 par common stock in exchange for land appraised at $32,000. Market price for each share is $15

Answer 3

Land 30,000(2,000*15)

• —-Common Stock 4,000
• —-APIC 26,000

Question 4

An issue of preferred stock at $100 par, with preferred dividend of 7%, and 1,000 shares of outstanding is called for 101. Dividends of this year have not been paid, dividends of prior years have

Answer 4

Dividends 7,000 [(1,000 * 100) * 7%]
—–Cash 7,000

Preferred Stock 100,000
Retained Earnings 1,000
———-Cash 101,000

Question 5

An issue of preferred stock at $100 par, with preferred dividend of 7%, and 1,000 shares outstanding is converted to $1 par common stock at a rate of 4 shares of common per share of preferred. Preferred stock was issued for 102
Dividends have not been paid this year, previous years have been paid

Answer 5

Dividends 7,000 [(1,000 * 100) * 7%]
—–Cash 7,000

Preferred Par 100,000
Preferred Apic 2,000
———-Common Stock 4,000 (1,000 * 4 * 1)
———-Common APIC 98,000

Question 6

Cash Dividend Journal entry at declaration

Answer 6

Dividends Declared or R/E

—–Dividends Payable

Question 7

Cash Dividend Journal entry at payment

Answer 7

Dividend Payable

———-Cash

Question 8

• Firm declares property dividend in the form of shares of stock held as investment
• Shares were purchased for $400,000
• At date of declaration they were worth $430,000
• Journal entry at declaration

Answer 8

Investment in Stock 30,000
———-Gain on Investment 30,000

Dividends Declared or R/E 430,000
—–Property Dividends Payable 430,000

Question 9

• Firm declares property dividend in the form of shares of stock held as investment
• Shares were purchased for $400,000
• At date of declaration they were worth $430,000
• Journal entry at payment

Answer 9

Property Dividend Payable 430,000

———-Investment in Stock 430,000

Question 10

What is a script dividend

Answer 10

When a company declares a dividend but doesn’t have the cash to pay it

Question 11

• Dick declares a dividend of $.40 per share and has 10,000 outstanding.
• Dick doesn’t have the cash to pay the dividends
• Promises to pay dividends in 6 months with 10% interest
• Journal Entry at declaration

Answer 11

Dividends Declared/Retained Earnings 4,000

———Script Dividends Payable 4,000

Question 12

• Dick declares a dividend of $.40 per share and has 10,000 outstanding.
• Dick doesn’t have the cash to pay the dividends
• Promises to pay dividends in 6 months with 10% interest
• Journal Entry at payment

Answer 12

Script Dividends Payable 4,000
Interest Expense 200 (4,00010%half year)
———–Cash 4,200

Question 13

• Mining corp has a net income of $50,000 which reflects $10,000 of depletion
• Dividend up to $60,000 can be paid because depletion can be ignored
• Assume $56,000 dividends are declared
• Liquidating dividends

Answer 13

Dividends Declared 50,000
APIC 6,000
—–Dividends Payable 56,000

Question 14

Large Dividend >25% Journal Entry

Answer 14

Retained Earnings
———-Common Stock

Use PAR Value

Question 15

Dividend Allocation - Fully Participating

Answer 15

• Find Total Par Value Proportions
• If there is enough dividends remaining after preferred & common are initially paid then use par proportions to disperse the remaining dividends
• Just go in priority order

Question 16

Dividend Allocation - Partially Participating

Answer 16

• Find total par value proportions
• If there is enough give preferred its partial % of par value and the rest to common
• If there isn’t enough then allocate based on par proportions

Question 17

Stock Right Notes(warrants)

Answer 17

Treated like Issuance of Stock so doesn’t effect Retained earnings

Question 18

Equity and unrealized losses & gains of AFS

Answer 18

Reduces or increases equity because they are included in other comprehensive income which is included in equity

Question 19

Book Value Per Share Formulas

Answer 19

[Owner’s Equity minus Preferred Stock Claims] divided by Ending # of common shares outstanding

or

Common Shareholder’s Equity divided by Ending # of common shares outstanding

Question 20

Treasury Stock - Purchasing Treasury Stock at Cost Journal Entry

Answer 20

Treasury Stock

———-Cash

Question 21

Treasury Stock - Issuing Treasury Stock at Cost Journal Entry

Answer 21

Cash(Issue Price)

• ——–Treasury Stock(previous purchase price)
• ——–APIC - Treasury

If Reissued for less then APIC is debited

Question 22

Treasury Stock - Purchasing Treasury Stock at Par Journal Entry

Answer 22

Treasury Stock(original par)
APIC - Common(original issue diff)
———-APIC - Treasury(Purchase difference with issue)
———-Cash(cost)

Question 23

Treasury Stock - Issuing Treasury Stock at Par Journal Entry

Answer 23

Cash(Issue price)

• —-Treasury Stock(original par)
• —-APIC - Common(issue minus par)

Question 24

When Treasury Stock in Canceled

Answer 24

Common Stock Account is reduced by the Par value of common stock canceled

Question 25

Retirement of Stock

Answer 25

Common Stock(PAR)
APIC(Issue)
R/E if needed
———Cash(cost)

Question 26

Stock Option FV

Answer 26

• Find the difference between FV of shares whether gain or loss
• Add FV of option at the end of the year and subtract FV of option at beginning of year

This shit might change if there is a loss in FV of shares

Question 27

Question asking about income when you have equity method and are given the equity earnings, dividends, and accounting errors

Answer 27

Since its equity method the earnings are already included, but the dividends need to be deducted from income and +/- errors