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Exam 18: Shareholders Equity

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Question 31

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Lucid Company declared a property dividend of 20,000 shares of $1 par Polk Company common stock. The Polk stock was purchased for $5 per share. Market value was $10 per share on the declaration date and $11 per share on the distribution date. What is the amount of the dividend?

A) $100,000.
B) $200,000.
C) $220,000.
D) $300,000.20,000 $10 = $200,000

E) B) and D)
F) B) and C)

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Question 32

Multiple Choice

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What was the average price (rounded to the nearest dollar) of the additional shares issued by Levi in 2009?

A) $5 per share
B) $26 per share
C) $39 per share
D) Cannot be determined from the given information.Proceeds = Increase in common stock + increase in additional paid-in capital = $30 million + $128 million = $158 million
Average issue price = Proceeds/Number of shares issued
= $158 million/6 million shares = $26.33/share, rounded to $26 per share

E) A) and D)
F) A) and B)

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Question 33

Multiple Choice

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Any dividend that is considered to be a liquidating dividend will:

Investors should be wary of buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth.

Details of each class of stock must be reported:

Restrictions on retained earnings must be disclosed in the body of the balance sheet.

When treasury stock is purchased for an amount greater than its par value, what is the effect on total shareholders' equity?

Two of the three primary account classifications within shareholders' equity are:

The December 31, 2009 balance sheet of MBI Company included the following: MBI completed the following transactions in 2009 relating to treasury stock: March 17: Reacquired 2 million shares at $10. May 17: Reacquired 2 million shares at $9. August 10: Issued 3 million shares at $12. Required: Assuming MBI uses the cost method, prepare journal entries to record the foregoing transactions on a weighted average basis. $\begin{array}{lr}\text { Common stock, } 20 \text { million shares outstanding at } \$ 1 \text { par } & \$ 20,000,000 \\\text { Paid-in capital - excess of par } & 100,000,000 \\\text { Retained earnings } & 115,000,000\end{array}$

On June 1, 2009, Blue Co. distributed to its common stockholders 200,000 outstanding common shares of its investment in Red, Inc., an unrelated party. The carrying amount on Blue's books of Red's $1 par common stock was $2 per share. Immediately after the declaration, the market price of Red's stock was $2.50 per share. In its income statement for the year ended June 30, 2009, what amount should Blue report as gain before income taxes on disposal of the stock?

During the current year JET Industries issued 5 million of its $1 par common shares to its underwriters for $25,000,000 less promotional and accounting services of $500,000 to effect the issue. Required: Prepare the journal entry to record the issuance of the shares.

Treasury shares are most often reported as:

F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, a shareholder with 110 shares likely would receive:

Issued stock refers to the number of shares:

The 2010 sale of half of the treasury stock would:

The December 31, 2009, balance sheet of Springer Company included the following: Springer completed the following transactions in 2009 relating to treasury stock: March 17: Reacquired 5 million shares at $10. May 17: Reacquired 3 million shares at $9. August 10: Sold 6 million shares at $12. Required: Assuming Springer uses the cost method, prepare journal entries to record the foregoing transactions on a FIFO basis. $\begin{array}{lr}\text { Common stock, } 20 \text { million shares outstanding at } \$ 1 \text { par } & \$ 20,000,000 \\\text { Paid-in capital }- \text { excess of par } & 100,000,000 \\\text { Retained earnings } & 115,000,000\end{array}$

In 2009, Poe's Products completed the treasury stock transactions described below. January 2: Reacquired 10 million shares at $16 per share. February 15: Sold 3 million shares at $20 per share. September 20: Sold 3 million treasury shares at $15 per share. Poe had issued 50 million shares of its $1 par common stock for $18 several years ago. Required: Record the above transactions, assuming that Poe's Products uses the cost method. ($ in millions, except per share amounts)

What was the amount of net income earned by Levi during 2009?

On September 15, 2009, the Scottie Company board of directors declared a 10% stock dividend on common shares. The shares are to be distributed on October 10, 2009, to shareholders of record on October 1, 2009. The market price per share on the date of declaration was $24 while the market price on the date of distribution was $26. The common stock has a par value of $5 per share and there were 1,000,000 shares outstanding prior to the declaration of the stock dividend. Required: Prepare any necessary journal entries to record the above transactions.

In 2007, Winn, Inc. issued $1 par value common stock for $35 per share. No other common stock transactions occurred until July 31, 2009, when Winn acquired some of the issued shares for $30 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?