Exam 13: Equity Financing

The FASB has been struggling with the issue of determining the difference between debt and equity financing for nearly twenty years.The Board is concerned that many provisions of U.S.GAAP conflict with the definition of a liability given in the Conceptual Framework.As a result,the Board is considering a new approach,called the basic ownership approach,to distinguishing between debt and equity financing. As part of this new approach,the FASB has suggested that all share-based compensation instruments should be classified as liabilities. Required: Explain the FASB's rationale for classifying share-based compensation instruments as liabilities.

A restriction of retained earnings is most likely to be required by

On August 10,Bushmills Corporation reacquired 8,000 shares of its $100 par value common stock at $134.The stock was originally issued at $110.The shares were resold on November 21 at $145. Provide the entries required to record the reacquisition and the subsequent resale of the stock using the: (1)Par value method of accounting for treasury stock. (2)Cost method of accounting for treasury stock.

The exercise price and market price of stock under a fixed compensatory stock option plan are equal on the grant date.The fair value of the options is greater than the option price.Under the fair value method,

Adam Corporation owns 1,000 shares of common stock of Rosen,Inc.,a large publicly traded company listed on a major stock exchange.If Rosen issues a 20 percent stock dividend when the par value is $10 per share and the market value is $70 per share,how much and what type of income should Adam report?

The use of equity reserves under international accounting standards

The FASB has been struggling with the issue of determining the difference between debt and equity financing for nearly twenty years.The Board is concerned that many provisions of U.S.GAAP conflict with the definition of a liability given in the Conceptual Framework.As a result,the Board is considering a new approach to distinguishing between debt and equity financing. The method currently favored by the FASB is called the "basic ownership approach." Required: Explain the basic ownership approach and identify what effects,if any,this approach would have on financial accounting and reporting.

How would retained earnings be affected by the declaration of each of the following?

When a property dividend is declared and the book value of the property exceeds its market value,the dividend is recorded at the

The following amounts were taken from the income statement of Tarpon Springs Company for the year ending December 31, 2014: Income from discontinued operations: In addition, Tarpon Springs reported the following items (all items are before taxes): The tax rate on all items is 40%. -Prepare a statement of comprehensive income in a two-statement format.

On September 20,2014,Shunt Corporation declared the distribution of the following dividend to its stockholders of record as of September 30,2014: •Investment in 100,000 shares of Ramen Corporation stock,carrying value $600,000; fair market value on September 20,$1,450,000; fair market value on September 30,$1,575,000. The entry to record the declaration of the property dividend would include a debit to Retained Earnings of

The par value of common stock represents the

The data below are from the December 31,2014,balance sheet of the Handy Mart 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 June 1,Continental Company issued 8,000 shares of its $10 par common stock to Divide for a tract of land.The stock had a fair market value of $18 per share on this date.On Divide's last property tax bill,the land was assessed at $96,000.Continental should record an increase in Additional Paid-In Capital of

Which of the following is an appropriate presentation of treasury stock?

Which of the following is NOT a component of comprehensive income?

A company declared a cash dividend on its common stock in December 2013,payable in January 2014.Retained Earnings would

In 2014,Climber Corporation issued for $110 per share,18,000 shares of $100 par value convertible preferred stock.One share of preferred stock may be converted into three shares of Climber's $30 par value common stock at the option of the preferred shareholder.On December 31,2015,all of the preferred stock was converted into common stock.The market value of the common stock at the conversion date was $40 per share.What amount should be credited to the common stock account on December 31,2015?

On June 30,2014,Lynch Co.declared and issued a 15 percent stock dividend.Prior to this dividend,Lynch had 50,000 shares of $10 par value common stock issued and outstanding.The market value of Lynch Co.'s common stock on June 30,2014,was $24 per share.As a result of this stock dividend,by what amount would Lynch's total stockholders' equity increase (decrease)?

Indigo Co.was organized on January 2,2014,with the following capital structure: Indigo's net income for the year ended December 31,2014,was $750,000,but no dividends were declared.Indigo's balance sheet would report Dividends Payable at December 31,2014,of