Stockholders Equity

Question 1

What kind of capital is retained earnings?

Answer 1

It is a capital that is earned over the life of a company and is not distributed.

Question 2

What kind of capital is APIC

Answer 2

It is contributed capital

Question 3

What is cumulative preferred dividend

Answer 3

It is a dividend that accumulated if not paid. Whenever common stock dividend is declared, first cumulative dividends need to be paid, the current preferred dividends and if any RE left, common dividends are paid.

Question 4

What is legal capital?

Answer 4

It is the amount of capital that must be retained by the corporation for the protection of creditors. The par or sated value of both preferred and common stock is legal capital and frequently referred to as “Capital Stock”

Question 5

Are preferred and common stock are always issued at par?

Answer 5

Generally, preferred stock is issued with a par value, but common stock may be issued with or withoud a par value. No-Par Common Stock may be issued as true no-par stock with stated value

Question 6

What is APIC - Common

Answer 6

Any excess amount received over par is APIC-common stock.

Question 7

What is “Authorized Capital Stock”

Answer 7

A corporation’s charter contains

Question 8

If a company reissued the treasury stock and recognized the gain what would be the impact

Answer 8

The Net Income would be Overstated.
The APIC (equity will be Understated as well because the APIC - TS in not increased.

Question 9

What is impact of APIC when the common share are acquired and retired?

Answer 9

1-The APIC is decreased

2-Common Stock is also decreased

Question 10

When Dividends in arrears are received which year are reported.

Answer 10

Current Year.

Question 11

If the Treasury stock are donated what impact would it have on equity

Answer 11

None. Both account used are equity acccount

Donated Treasury Stock
       APIC
When reissued
Cash
 APIC 
       Donated Treasury Stock

Question 12

When treasury stock reissued would have no impact on RE

Answer 12

In questions, if the treasury stock is reissued at higher price than purchased price, there is no impact on RE

Question 13

When there treasury stock reissued would have impact on RE

Answer 13

In questions, if the treasury stock is reissued at a lower price than the purchased price, and there is no APIC -TS. There will not be any impact on RE. Any loss will be taken from RE.

Question 14

What happens to common when you buy back treasury stock and then reissue it

Answer 14

When you buy back the treasury stock or reissue it, the common stock account does get affected. They account that may get affected are
1- Treasury Stock
2- APIC - CS
3- APIC - TS
4- RE

Question 15

In a question that ask for the impact of APIC in treasury stock transaction, would you treat APIC - CS and APIC - TS as separate or same

Answer 15

Treat them same and think it is just one account.

Question 16

How much profit on installment sale is recognized when sold on installment

Answer 16

100% of the profit is recognized unless there is some uncertainty on collection.

Question 17

What impact has a treasury stock bought back by cost method at a price that is more than the par value and original issue price, would have on Total Equity and Book Value of share

Answer 17

Equity will decrease

BV will increase

Question 18

If you sell the treasury stock at a price less than cost, will Equity decrease or increases

Answer 18

It decreases.