COMPREHENSIVE EXAMINATION D
PART 4
(Chapters 15-17)
Problem Topic D-I Treasury Stock. D-II *Cash Dividends. D-III Stock Dividends and Stock Splits. D-IV Earnings Per Share Concepts. D-V Earnings Per Share Computations. D-VI Basic and Diluted Earnings Per Share. D-VII Available-for-Sale Equity Securities. D-VIII Trading Securities.
*Part of this topic is dealt with in an Appendix to the chapter.
Approximate Time
20 min. 10 min. 10 min. 10 min. 10 min. 20 min. 15 min. 30 min. 125 min. D - 2 Test Bank for Intermediate Accounting, Fifteenth Edition
Problem D-I — Treasury Stock
The stockholders' equity section of Carey Co.'s balance sheet at December 31, 2014, was as follows: Common stock--$10 par (authorized 1,000,000 shares, issued and outstanding 600,000 shares) $ 6,000,000 Paid-in capital in excess of par 1,500,000 Retained earnings 3,250,000 $10,750,000
Instructions
Prepare journal entries (1, 2, and 4) and show proper disclosure (3) to reflect the following treasury stock transactions showing how each is accounted for under the cost method. (Show computations.)
1. On January 4, 2015, having idle cash, Carey Co. repurchased 25,000 shares of its out-standing stock for $500,000.
2. On March 4, Carey sold 5,000 of these reacquired shares at $24 per share.
3. Show the proper disclosures in the stockholders' equity section of the balance sheet issued at
the end of the first quarter, March 31, 2015. Assume net income of $100,000 during the first quarter.
4. On June 30, 2015 the firm sold 10,000 of the reacquired shares for $17 per share.
*Problem D-II — Cash Dividends
Bell Company has stock outstanding as follows: Common, $10 par value per share, 140,000 shares; Preferred, 4%; $100 par value per share, 8,000 shares. The Preferred is cumulative and participating up to an additional 3% of par; two years are in arrears (not including the current year); and the total amount of cash dividends declared for both classes of stock is $192,000.
Instructions
Prepare the entry for the dividend declaration, separating the dividend into the common and preferred portions.
Comprehensive Examination D
Problem D-III — Stock Dividends and Stock Splits
D - 3
Stock dividends and stock splits are common forms of corporate stock distribution to stockholders.
Consider each of the numbered statements. You are to decide whether it:
A. Applies to both stock dividends and stock splits. B. Applies to neither.
C. Applies to stock splits only. D. Applies to stock dividends only.
E. Applies to stock splits effected in the form of a dividend only.
F. Applies to both stock splits effected in the form of a dividend and a stock dividend.
(In each instance, the issuing company has only one class of stock.)
Instructions
Print next to the number of each statement below, the single capital letter of the description which applies to the statement.
Statements
____ 1. The distribution is a multiple as contrasted to a fraction of the number of shares
previously outstanding.
____ 2. The total number of shares outstanding is increased.
____ 3. The individual stockholder's share of net assets is increased.
____ 4. There is no transfer between retained earnings and capital stock accounts, other than
to the extent occasioned by legal requirements.
____ 5. There is no change in the total stockholders' equity of the issuing corporation.
____ 6. The retained earnings available for dividends are increased.
____ 7. Retained earnings in the amount of the distribution are transferred to capital stock, in
some instances in an amount in excess of that required by the laws of the state of incorporation.
____ 8. Subsequent per-share earnings, if any, are decreased.
____ 9. The par (or stated value) of the stock is unchanged.