Exam 13: Equity Financing

Island Company has 1,000,000 shares of common stock authorized with a par value of $3 per share of which 600,000 shares are outstanding.Island authorized a stock dividend when the market value was $8 per share,entitling its stockholders to one additional share for each share held.The par value of the stock was not changed.Assuming the declaration is not recorded separately,what entry,if any,should Island make to record distribution of the stock dividend?

Weaver Corporation was organized on January 1,2013,at which date it issued 100,000 shares of $10 par common stock at $15 per share.During the period January 1,2013,through December 31,2015,Weaver reported net income of $450,000 and paid cash dividends of $230,000.On January 10,2015,Weaver purchased 6,000 shares of its common stock at $12 per share.On December 31,2015,Weaver sold 4,000 treasury shares at $8 per share.Weaver uses the cost method of accounting for treasury shares.What is Weaver's total stockholders' equity on December 31,2015?

Palm Beach Corporation has a stock option plan for its continuing employees that provides that each qualified employee may receive an option for a specified number of shares of the company's $1 par value stock.Employees must continue working for the company for three years to earn the grants,which may be exercised any time after the three years,at an option price of $10 per share.On January 1,2014,employees were granted options for 3,000 shares when the market price was $16 per share.The fair value of the options was $24 each.The expected annual forfeiture rate is 5%.The accounting period ends December 31.Palm Beach uses SFAS No.123R in accounting for these options.Assume that the estimated and actual forfeiture rates are equal. Required: 1.Prepare the entry required for these options at December 31,2014.Ignore income tax effects. 2.Prepare the entry required to reflect the exercise of one-half of the options on December 31,2017,when the market price was $30 per share.Ignore income tax effects.

How would the declaration of a 20 percent stock dividend by a corporation affect each of the following on its books?

Which of the following is most likely to be found in state laws regarding payment of dividends?

On July 1,Riverwalk Corporation issued 2,000 shares of its $10 par common and 4,000 shares of its $10 par preferred stock for a lump sum of $80,000.At this date,Riverwalk's common stock was selling for $18 per share and the preferred stock for $13.50 per share.The amount of proceeds allocated to Riverwalk's preferred stock should be

The data below are from the December 31,2014,balance sheet of the Sunshine Corporation: During 2015,the following transactions affecting corporate capital were recorded: Assuming the cost method is used for treasury stock and that retained earnings are to be reduced minimally in stock reacquisition transactions,provide the entries required to record the above transactions.

On January 2,2014 the board of directors of Moorehaven Mining Corporation declared a cash dividend of $1,200,000 to stockholders of record on January 18,2014,and payable on February 10,2014.The dividend is permissible by law in Moorehaven's state of incorporation.Selected data from Moorehaven's December 31,2013,balance sheet follow: The $1,200,000 dividend includes a liquidating dividend of

Which of the following is least likely to affect the retained earnings balance?

On June 1,2014,Revere Corporation declared a stock dividend entitling its stockholders to one additional share for each share held.At the time the dividend was declared,the market value of the stock was $10 per share and the par value was $5 per share.On this date Revere had 1,000,000 shares of common stock authorized of which 500,000 shares were outstanding.Assuming the par value of the stock was NOT changed,what entry should Revere make to record this transaction?

At the date of the financial statements,common stock shares issued would exceed common stock shares outstanding as a result of the

Under international accounting requirements,which of the following equity reserves is part of distributable equity?

A major conclusion of the FASB's standard on accounting for stock options is that fixed option plans for which the option price is equal to the market price of the stock at the date of grant will result in compensation cost.Under APB Opinion No.25,such plans generated no such compensation cost if the exercise price was greater than or equal to the market price at the grant date.Under the FASB standard,compensation expense would be measured by the value of the option rather than the spread between the option price and the market price of the stock at the grant date. One means of measuring the value of the option itself is the use of a mathematical model,such as the Black-Scholes option pricing model.This model considers both the minimum value and volatility values in measuring the fair value of an option.The minimum value is the current price of the stock minus both the present value of the exercise price and the present value of expected dividends on the stock during the term of the option,both discounted at the risk-free rate of return.The volatility value is a measure of the amount by which the price of the stock has fluctuated or is expected to fluctuate during a period.Volatility is measured by the standard deviation of a probability distribution.The larger the standard deviation in relation to average price level,the more variable the price. Identify the objections that might be raised to the use of the Black-Scholes mathematical option pricing model in valuing options issued as part of a stock compensation plan.

When treasury stock is purchased for more than its par value,Treasury Stock is debited for the purchase price under which of the following methods?

On July 31,2013,Rangers Corporation purchased 500,000 shares of Tigers Corporation.On December 31,2014,Rangers distributed 250,000 shares of Tigers stock as a dividend to Rangers' stockholders.This is an example of a

On July 1,Crimson Corporation had 200,000 shares of $10 par common stock outstanding.The market price of the stock was $12 per share.On the same date,Crimson declared a 1-for-2 reverse stock split.The par value of the stock was increased from $10 to $20,and one new $20 par share was issued for each two $10 par shares outstanding.Immediately before the 1-for-2 reverse stock split,Crimson's additional paid-in capital was $650,000.What should be the balance in Crimson's additional paid-in capital account immediately after the reverse stock split?

If 35 percent of the recent dividend paid by Yankees Corporation was correctly considered to be a liquidating dividend,how would this distribution affect each of the following accounts?

Treasury stock was acquired for cash at a price in excess of its par value.The treasury stock was subsequently reissued for cash at a price in excess of its acquisition price.Assuming that the cost method of accounting for treasury stock transactions is used,what is the effect on retained earnings?

How would a stock split affect each of the following?

Lexan Company reported the following for the year ended December 31,2014 (all items are net of income taxes): Comprehensive income (loss)for the year ended December 31,2014,would be