F7_T2_lecture - F7 T2 TURE F Financial Instruments Stockholders Equitv and Cash Flows(Topic 2 HrNI «i iration 32.3 3 CPA-000R Seiected information

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Unformatted text preview: F7 T2 TURE F? : Financial Instruments, Stockholders' Equitv, and Cash Flows (Topic 2 HrNI «i iration 32.3. 3. CPA-000R Seiected information from the accounts of Row Co. at December 31, Year 5, follows: Total income since incorporation $420,000 Total cash dividends paid 130,000 if: Total value or property dividends distributed 30,000 Excess of proceeds over cost of treasury stock sold, accounted for using the cost method 110,000 in its December 31, Year 5, financiai statements, what amount shouid Row report as retained earnings? "gig—J a. $260,000 UM, ti. $200,000 05,4? d. $400,000 “3:25 1*. Class Question Answer 01:30 _ 03:55 ‘ W 3? CLASS QUESTION eNSWER til 00:13 01:10 o3:3s 3. CPA-009?4 Choice "a" is correct. Look at each item given and decide how it affects retained earnings: income since incorporation equals unadjusted ending retained earnings (RE), that is, current year income is included; “me cash dividends is a direct deduction from RE on the date of declaration; propertyr dividends are deducted from RE at market value on the date ofdeclaretion: the excess proceeds from the sale of treasury stock it 3E“? considered additional paid-in capital. Thus, ending RE = unadj. RE - cash dividends - property dividends :maining = $420,000 - $130,000 - $30,000 = $260,000. s PM Choice “b” is incorrect. This amount does not include the effect of the propertv dividends. Prooertv II'bI'.’ VIHHI IIhH’H u-II VHIIHHIJ hr I v1.11- I rII-ul val-runw- HHIIIVIII—vu uluulvv HI I‘ll-I1.- F1." 1-H." III III-urn HIHHIII ear 1, the corporation had the following oaoital transactions: 5 - Issued 20,000 shares at $15 per share. - Purohased 5,000 shares at $1? per share. er 2? ~ Reissued the 5,000 shares held in treasury at $20 per share. 1 the US. GAAP par 1iralue method to record the purohase and reissuanoe of the treasmy shares. :emoer 31, Year 1, balance sheet, what amount should Asp report as additional paid-in capital? '.000 1*. Class Question Answer 3? CLASS QUESTION aNSWER 4. CPA-00982 Choice “Is” is oorreot. Jan. 5 ISSUED 20,000 sh, $10 par at $15 DR Cash 300,000 [$15rsh x 20,000] CR Common stool: 200,000 CR APIC 100,000 [$5f5h 2-: 20,000 Sh] Jul}:r 14 PURCHASE OF TREASURY STOCK 5,000 shares at $1? = $35,000 DR Treasury stock 50,000 llfi-Ifi .n.... .l' flfifi 4|...1 05,1) Microsoft PowerPoint . .. 9 Download Microsoft . .. E 2:10 PM Jr "J |..I |.'J |..I |.'J III III III III III III III III III III 1': |.'.| |..| |.'.| |..| |.'.| :3: CLASS QUESTION RNSWER 4. CPA-00932 Choice "0“ is ccrrect. Jan. 5 ESSUED 20,000 sh, $10 par at $15 DR Cash [$151sh x 20,000] CR Common stock CR APIC [$515h x 20,000 5h] Juiy 14 PURCHASE OF TREASURY STOCK 5,000 shares at $1? = $05,000 300,000 DR Treasury stuck 50,000 [$10 par 1: 5,000 sh] DR APIC [$5 crig APICJsh 5,000 sh] DR Retained earnings 10,000 [$85,000 — 50,000 — 25,000] CR Cash Dec 2? TREASURY STOCK REISSUANCE 5,000 sh at $20 = $100,000 DR Cash CR Treasury sicck [$11] par x 5,001: sh] ca APIC [5,000 sh x ($20:’sh — $10 parj] APIC: $100,000 — 25,000 + 50,000 : $125,000 25,000 100,000 Chcice “a” is incorrect. APIC frcrn the issuance cf stcck cn Jan. 5 equals $100,000. [fill-alga “A” in inanppnpd ill-III" at IIHI 1-H. nnn annu-unu.nl.. ind-sludge." ‘hn Ant-uh at lib-Ill"! nnn Ln pnlninnd 200,000 100,000 05, 000 50 , 000 50 ,000 TURE F? : Financial Instruments, Stockholders' Equity, and Cash Flows (Topic 2 My”. d Jration 3:3. 5. CPA-009m Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on February 14, Year 1. Flack received a stock dividend of 2,000 shares on April 30, Year 1, when the market value per share was $35. Ty paid a cash dividend of $2 per share on December 15, Year 1. In its Year 1 income statement, what amount should Plack report as dividend income? if" a. $20,000 27.", b. $24,000 90 000 1‘. Class Question Answer 3? CLASS QUESTION ANSWER fl 3:? 5. CPA—009m Choice "b" is correct. Dividend Income = No. of shares >< dividend per share 212,000 3-: $2 __I:!._1_=_I_s__l = $24100” “335 Receipt of a stock dividend is not revenue. It increases the number of shares held and decreases the cost basis per share. Choice “a” is incorrect. This amount incorrectly excludes the dividend on the 2,000 shares issued in the Time stock dividend on April 30, Year 1. Mil? Choices "c" and "d" are incorrect. These answers incorrectly included the market value of the stock :l'l'lall'lll'lg dividend ($2,000 shares 3:: $35 = $30,000). A stock dividend increases the number of shares owned, but is not recorded as dividend income. o PM TURE F? : Financial Instruments, Stockholders' Equity, and Cash Flows (Topic 2 Hymn «i Jration 1.3. 6. CPA-01033 On January 2 of the current year: Kine Co. granted Morgan, its president, compensatory SID-2k options to buy 1.000 shares of Kine's $10 par common stock. The options call for a price of $20 per share and are exercisable for 3 years following the grant date. Morgan exercised the options on December 31 of the current year. The market price of the stock was $45 on January 2 and $7’0 on December 31. Using an acceptable options pricing modeL Morgan determined that the fair yalue ofthe options granted was $30000. By what net amount should stockholders' equity increase as a result of the grant and exercise of the options? iii: a. swoon .I'. '21 o. ssoiooo :2: c. $501000 d. $70000 1*. Class Question Answer :3: 3”} CLASS QUESTION fitNSWER - 6. CPA-01033 "Frill-3 ---------------- "a. Compensation cost should be charged to expense over the senrice period. In this problem. since the os:ss _ . . . . . - - -- options are exercised In the same penod as the grant date, the total compensation cost must be charge to expense in Year 1. _ Jan 2, Year1 {when options granted] “"‘E Effect on o3 : 3 s Stockholders' :maining E E Compensation expense' 30.000 {30,000} n on Paid-in nanital-stnnk-nntinns-nlItstanriinn so one so can TURE F? : Financial Instruments, Stockholders' Equity, and Cash Flows (Topic 2 My”. « Jration .3: 3. 6. CPA-01033 On January 2 of the current year: Kine Co. granted Morgan, its president, compensatory stock options to J‘- Elass Question Answer 3? CLASS QUESTION ANSWER flclose ie.‘ 6. C Pin-01033 Compensation cost should be charged to expense over the senrice period. In this problem. since the options are exercised in the same period as the grant date, the total compensation cost must be charged to expense in Year 1. Jan 2, Year1 {when options granted] Effect on Stockholders' a a? sane Compensation expense‘ 30,000 {30,000} g Paid-in capital-stock-options-outstanding 30,000 30,000 Dec 31. Year 1 [when options exercised] Cash ($20 x moo} some Paid-in capitaI-stock-options-outstanding 30.000 (30,000] Common stock at par [$10 x 1.000) 10,000 10,000 “ma Paid in capital in excess of par (squeeze) 40,000 M [.335 Net effect on stockholders' equity m :maining Choice “a” is correct. $20000 increase in stockholders' equity. n W * Note: A charge to expense lowers retained earnings. ...
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This note was uploaded on 05/31/2011 for the course ACCT 593 taught by Professor Karylfriedman during the Spring '11 term at Keller Graduate School of Management.

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