Question 1

Which statement about a "reverse stock split" is correct?

Accepted Answer

A) The economic position of the investors is diluted after a stock split. 
B) The economic position of the investors is increased after a stock split. 
C) The economic position of the investors is decreased after a stock split. 
D) The economic position of the investors is unaffected after a stock split. 
A) The economic position of the investors is diluted after a stock split. 
B) The economic position of the investors is increased after a stock split. 
C) The economic position of the investors is decreased after a stock split. 
D) The economic position of the investors is unaffected after a stock split.

Question 2

If a company issues 2,000 shares for $55 and then repurchases 50 shares at $55, how much is the contributed capital?

Accepted Answer

A) $0 
B) $2,750 
C) $107,250 
D) $110,000 
A) $0 
B) $2,750 
C) $107,250 
D) $110,000

Question 3

How should subscriptions receivable be reported on the balance sheet and why?

Accepted Answer

Logically it makes sense to report subsc

Question 4

What does "priority" mean?

Accepted Answer

A) Higher priority confers preferential payout before lower priority claimants. 
B) Refers to the amount of payment that will be made upon bankruptcy. 
C) Lower priority confers preferential payout before higher priority claimants. 
D) Debtors will be paid after the equity holders if there is a bankruptcy. 
A) Higher priority confers preferential payout before lower priority claimants. 
B) Refers to the amount of payment that will be made upon bankruptcy. 
C) Lower priority confers preferential payout before higher priority claimants. 
D) Debtors will be paid after the equity holders if there is a bankruptcy.

Question 5

Which statement about "share buyback" is correct?

Accepted Answer

A) If the repurchase price is below the issue price, an accounting "gain" results. 
B) If the repurchase price is below the issue price, the difference goes to "common shares." 
C) If the repurchase price is below the issue price, the difference goes to "contributed surplus." 
D) If the repurchase price is below the issue price, an accounting "loss" results. 
A) If the repurchase price is below the issue price, an accounting "gain" results. 
B) If the repurchase price is below the issue price, the difference goes to "common shares." 
C) If the repurchase price is below the issue price, the difference goes to "contributed surplus." 
D) If the repurchase price is below the issue price, an accounting "loss" results.

Question 6

Assume that a company issued 10,000 shares for $30 and a par value of $1/share. What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?

Accepted Answer

A) Debit to common shares for $28,000. 
B) Debit to common shares for $1,000. 
C) Credit to contributed surplus for $29,000. 
D) Credit to contributed surplus for $1,000. 
A) Debit to common shares for $28,000. 
B) Debit to common shares for $1,000. 
C) Credit to contributed surplus for $29,000. 
D) Credit to contributed surplus for $1,000.

Question 7

Who uses information about "equity" and what information about equity is useful to financial statement users?

Accepted Answer

As equity has legal priority below that

Question 8

The following is an extract from the balance sheet as at December 31, 2020: $\begin{array}{lr}
\text { Preferred shares, } \$ 4 \text { per share non-cumulative dividend, redeemable } & \$ 125,000 \
\text { at } \$ 6 \text { per share, } 250,000 \text { authorized, } 25,000 \text { issued and outstanding } & \
\text { Common stock, } 60,000,000 \text { authorized, } 6,000,000 \text { issued and outstanding } & 6,019,233 \
\text { Contributed surplus - preferred shares from repurchase and resales } & 50,000 \
\text { Retained earnings } & 9,281,092 \
\text { Total shareholders' equity } & \$ 15,475,325
\end{array}$ The company did not declare dividends on preferred shares in 2019. Transactions in 2020 include the following:
i. March 15: Hewitt purchased 15,000 preferred shares on the stock exchange for $5.25 per share and held these in treasury.
ii. March 28: The company redeemed 5,000 preferred shares directly from shareholders.
iii. July 1: The market price of common shares shot up to $5 per share, so Hewitt decided to split the common shares two to one.
iv. August 1: Hewitt cancelled 14,000 preferred shares that were held in treasury.
v. December 31: The company declared dividends of $0.40 per common share.
Required:
Prepare the journal entries to record the above transactions. The company uses the single-transaction method to account for treasury shares.

Accepted Answer

@#IMG-DLM& Note that it is implied that

Question 9

If 10,000 shares with par value of $15/share are issued for $20/share, how much will be presented as "common shares" for financial statement purposes?

Accepted Answer

A) $10,000 
B) $50,000 
C) $150,000 
D) $200,000 
A) $10,000 
B) $50,000 
C) $150,000 
D) $200,000

Question 10

Which statement best explains the "single transaction method" for treasury shares?

Accepted Answer

A) This method treats the reacquisition as the end of the initial share issuance transaction. 
B) This method treats the subsequent sale as the start of another transaction. 
C) This method treats the reacquisition and subsequent sale separately for accounting. 
D) This method treats the reacquisition and subsequent sale as two parts of the same transaction. 
A) This method treats the reacquisition as the end of the initial share issuance transaction. 
B) This method treats the subsequent sale as the start of another transaction. 
C) This method treats the reacquisition and subsequent sale separately for accounting. 
D) This method treats the reacquisition and subsequent sale as two parts of the same transaction.

Question 11

Which statement is correct about the "single transaction method" for treasury shares?

Accepted Answer

A) This method has the same effect on contributed surplus to that of the two transaction method. 
B) This method uses a separate "treasury shares" account upon repurchase. 
C) This method treats the reacquisition and subsequent sale separately for accounting. 
D) This method decreases contributed surplus at the time of repurchase. 
A) This method has the same effect on contributed surplus to that of the two transaction method. 
B) This method uses a separate "treasury shares" account upon repurchase. 
C) This method treats the reacquisition and subsequent sale separately for accounting. 
D) This method decreases contributed surplus at the time of repurchase.

Question 12

Mountip Inc. was incorporated under provincial legislation with a December 31 year-end. The company has a single class of shares. As at December 31, 2019, it had 150,000 shares issued and outstanding. These shares had a book value of $5,700,000 on the balance sheet. During 2020, Mountip repurchased 5% of the issued shares from one of the minority shareholders at a cost of $48 per share. The company held these in treasury and later found a buyer for half of these shares at $52. The other half were sold at $46 to another investor.
Required:
Record the share transactions using the alternative two-transaction method for treasury stock.

Accepted Answer

Two-transaction method:
Note that the ba

Question 13

Which statement about dividends is correct?

Accepted Answer

A) Dividends on cumulative preferred shares are not discretionary payments. 
B) Dividends are mandatory payments required for both common and preferred shares. 
C) Dividends are discretionary payments that can be made for common and preferred shares. 
D) Dividends must be paid on common shares before dividends can be paid on preferred shares. 
A) Dividends on cumulative preferred shares are not discretionary payments. 
B) Dividends are mandatory payments required for both common and preferred shares. 
C) Dividends are discretionary payments that can be made for common and preferred shares. 
D) Dividends must be paid on common shares before dividends can be paid on preferred shares.

Question 14

What is the meaning of "contributed capital"?

Accepted Answer

A) This is the amount received from the debt holders of the company. 
B) This is the repayment of capital to owners of the company. 
C) This is the dividends received from the owners of the company. 
D) This is the amount received from the equity holders of the company. 
A) This is the amount received from the debt holders of the company. 
B) This is the repayment of capital to owners of the company. 
C) This is the dividends received from the owners of the company. 
D) This is the amount received from the equity holders of the company.

Question 15

If a company issues 2,000 shares for $55 and then repurchases 50 shares at $50 and subsequently purchases another 50 shares at $60 each, how much is in the account "contributed surplus on retirement of shares"?

Accepted Answer

A) $250 
B) $0 
C) $107,250 
D) $110,000 
A) $250 
B) $0 
C) $107,250 
D) $110,000

Question 16

Which statement is correct about the "two transaction method" for treasury shares resold for greater than their repurchase cost?

Accepted Answer

A) This method decreases the contributed surplus when the repurchased shares are later resold. 
B) This method has the same effect on contributed surplus to that of the two transaction method. 
C) This method treats the reacquisition and subsequent sale as one cycle for accounting. 
D) This method increases contributed surplus at the time of repurchase. 
A) This method decreases the contributed surplus when the repurchased shares are later resold. 
B) This method has the same effect on contributed surplus to that of the two transaction method. 
C) This method treats the reacquisition and subsequent sale as one cycle for accounting. 
D) This method increases contributed surplus at the time of repurchase.

Question 17

Which statement about "stock dividends" is correct?

Accepted Answer

A) Only a memo entry is needed for this transaction. 
B) No entry is needed in the accounting records. 
C) A journal entry is needed for this transaction. 
D) This is the same as a stock split for accounting purposes. 
A) Only a memo entry is needed for this transaction. 
B) No entry is needed in the accounting records. 
C) A journal entry is needed for this transaction. 
D) This is the same as a stock split for accounting purposes.

Question 18

Which statement is correct respecting a company's repurchase of its own shares?

Accepted Answer

A) It provides a tax disadvantage to the shareholder. 
B) It enables the company to acquire stock for distribution as compensation to employees. 
C) It provides a negative signal to the market. 
D) It causes earnings per share to decrease. 
A) It provides a tax disadvantage to the shareholder. 
B) It enables the company to acquire stock for distribution as compensation to employees. 
C) It provides a negative signal to the market. 
D) It causes earnings per share to decrease.

Question 19

Which statement is correct regarding dividend entitlement?

Accepted Answer

A) Cumulative preferred shares do not have any rights to missed dividend payments. 
B) Non-cumulative preferred shares must be paid all missed dividend payments when dividends are declared. 
C) A corporation need only pay dividends when it declares them to be payable. 
D) A company can avoid paying dividends in arrears on cumulative preferred shares if it is to pay dividends on common shares. 
A) Cumulative preferred shares do not have any rights to missed dividend payments. 
B) Non-cumulative preferred shares must be paid all missed dividend payments when dividends are declared. 
C) A corporation need only pay dividends when it declares them to be payable. 
D) A company can avoid paying dividends in arrears on cumulative preferred shares if it is to pay dividends on common shares.

Question 20

When a corporation engages in a capital transaction (those relating to its contributed capital), the journal entry may involve either a debit or a credit to contributed surplus. While not permitted by accounting standards, if these debits or credits were to be recognized through income, a debit would be called a "loss" and a credit would be called a "gain."
Consider the following sequence of transactions:
• Jan. 1, 2019: Company issues 1,500,000 no par common shares at $14 each.
• Jan. 1, 2021: Company reacquires 150,000 common shares in the open market at $9 each, and cancels them immediately.
There were no other capital transactions and the company had not paid any dividends.
Required:
a. Prepare the journal entries for the two transactions.
b. Review the journal entry for January 1, 2021. How much was credited other than cash? Does this credit reflect good or bad management? As a shareholder, would you be happy or unhappy about this credit entry?
c. What would have been the journal entry for January 1, 2021 had the repurchase price been $24?
d. In the journal entry for part (c), explain why the debit goes to reduce retained earnings. How would a shareholder interpret the reduction in retained earnings?

Accepted Answer

@#IMG-DLM& d. The debit is charged against retaine

Which statement about a "reverse stock split" is correct?

If a company issues 2,000 shares for $55 and then repurchases 50 shares at $55, how much is the contributed capital?

How should subscriptions receivable be reported on the balance sheet and why?

What does "priority" mean?

Which statement about "share buyback" is correct?

Assume that a company issued 10,000 shares for $30 and a par value of $1/share. What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?

Who uses information about "equity" and what information about equity is useful to financial statement users?

If 10,000 shares with par value of $15/share are issued for $20/share, how much will be presented as "common shares" for financial statement purposes?

Which statement best explains the "single transaction method" for treasury shares?

Which statement is correct about the "single transaction method" for treasury shares?

Which statement about dividends is correct?

What is the meaning of "contributed capital"?

If a company issues 2,000 shares for $55 and then repurchases 50 shares at $50 and subsequently purchases another 50 shares at $60 each, how much is in the account "contributed surplus on retirement of shares"?

Which statement is correct about the "two transaction method" for treasury shares resold for greater than their repurchase cost?

Which statement about "stock dividends" is correct?

Which statement is correct respecting a company's repurchase of its own shares?

Which statement is correct regarding dividend entitlement?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Leases

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters

Exam 3: Equities

Which statement about a "reverse stock split" is correct?

If a company issues 2,000 shares for $55 and then repurchases 50 shares at $55, how much is the contributed capital?

How should subscriptions receivable be reported on the balance sheet and why?

What does "priority" mean?

Which statement about "share buyback" is correct?

Assume that a company issued 10,000 shares for $30 and a par value of $1/share. What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?

Who uses information about "equity" and what information about equity is useful to financial statement users?

If 10,000 shares with par value of $15/share are issued for $20/share, how much will be presented as "common shares" for financial statement purposes?

Which statement best explains the "single transaction method" for treasury shares?

Which statement is correct about the "single transaction method" for treasury shares?

Which statement about dividends is correct?

What is the meaning of "contributed capital"?

If a company issues 2,000 shares for $55 and then repurchases 50 shares at $50 and subsequently purchases another 50 shares at $60 each, how much is in the account "contributed surplus on retirement of shares"?

Which statement is correct about the "two transaction method" for treasury shares resold for greater than their repurchase cost?

Which statement about "stock dividends" is correct?

Which statement is correct respecting a company's repurchase of its own shares?

Which statement is correct regarding dividend entitlement?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Leases

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters