ACC 3003 Key Revision for Test 1

202110

Question (1) MCQ

1. The common stock account in a company's balance sheet is measured as:

a) The number of common shares outstanding multiplied by the stock's current market
price per share
b) The number of common shares issued multiplied by the stock's par per share
c) The number of common shares outstanding multiplied by the stock's par per share
d) The number of authorized multiplied by the stock's current market price per share

2. All of these increase the shareholder’s equity except

a) Contributed capital
b) Retained earnings
c) Capital in excess of par- Repurchase
d) Treasury shares

3. The net assets of a corporation are equal to:

a) Contributed capital
b) Retained earnings
c) Shareholders' equity
d) Additional paid in capital
4. When treasury stocks are sold at a price above cost:
a) Paid-in capital is increased
b) Paid in capital decreased
c) Retained earnings is increased
d) Retained earnings is decreased
5. Retained earnings represent a company's:

a) Undistributed net income.

b) Undistributed net assets.
c) Extra paid-in capital.
d) Undistributed cash.

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6. Borner Communications’ articles of incorporation authorized the issuance of 10 million, $1

par common shares. During 2019, its first year of operations, Borner had the following
transactions:

January 1 Sold 8 million shares at $15 per share

June 3 Purchased 2 million shares of treasury stock at $16 per share
December 28 Sold the 2 million shares of treasury stock at $22 per share
What amount should Borner report as additional paid-in capital in its December 31, 2019,
balance sheet?

a) $112 million
b) $124 million
c) $100 million
d) $120 million

7. Accumulated other comprehensive income is reported:

a) In the balance sheet as an asset.
b) In the balance sheet as a liability.
c) In the balance sheet as a component of shareholders' equity.
d) In the statement of comprehensive income.

8. Which of the following is not an advantage of corporate form of organization?

a) Owners are not personally liable for debts of a corporation
b) Corporation sell ownership interest in the form of shares of stock
c) Liability of the shareholders are limited to the extent of their investment
d) Corporation pay tax on their earnings and the shareholders pay tax on dividend.

Given below is the information taken from the balance sheet of Zeal Inc.
Authorized common stock at par $5, 20 million; Shares issued $45 million; Treasury common
stock 3million shares.

9. How many of Zeal’s common shares were issued?

a) 9 million
b) 6 million
c) 15 million
d) 3 million

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10. How many of Zeal’s common shares were outstanding?

a) 9 million
b) 6 million
c) 15 million
d) 3 million

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Question 2: Issuance of shares and Dividends

Part l: Share issue

Nella Corporation is authorized to issue 8 million common shares, $1 par value per share and 2
million preferred shares, $50 par per share.
The following transactions took place during 2020:
April 3, 2020 Sold 3 million common shares, for $8 per share. The cost relating to this
transaction was $20,000.
April 10, 2020 Issued 4,000 preferred shares for a total of $260,000.
April 16, 2020 Issued 2,000 preferred shares to attorneys in exchange for legal services
valued at $ 120,000
April 24, 2020 Sold 90,000 of its common shares and 5,000 preferred shares for a total
of $975,000.
August 9,2020 Issued 380,000 of its common shares in exchange for equipment for
which the cash price was known to be $3,688,000.

Required: Record the above transactions

Dr Cr

Cash (3m ×$8)=24,000,000-20,000

Common share (3×1) 23,980,000 3,000,000
April 3, 2020 PIC excess of par-common 20,980,000

Cash
Preferred share (4,000×$50) 260,000 200,000
April 10, 2020 PIC excess pare-preferred 60,000

Legal Services expenses 120,000

Preferred share (2,000×50) 100,000
April 16, 2020 PIC-Excess par 20,000

Cash 975,000
Common share (90,000×$1) 90,000
PIC excess of par-common (90,000 $7) 630,000
Preferred share (5,000×$50) 250,000
April 24, 2020 PIC excess of par-Preferred 5,000

August Property, plant, and equipment(cash value) 3,688,000

9,2020 Common stock (380,000 x $1) 380,000
Paid-in capital—excess of par (diff) 3,308,000

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Part lI: Dividends

The shareholders' equity of Sun Light Inc. includes the items shown below. The board of
directors declared cash dividends of $4 million, $5 million, and $15 million in each of its first 3
years of operation:
2017, 2018, and 2019, respectively.
Preferred stock, 5%, at a total value of $100,000,000

Required:

Determine the amount of dividends given to preferred and common shareholders during each
of the three years. The preferred stock is cumulative and nonparticipating.

Cash Dividends paid Preferred shares Common shares

2017 4 million 4 million 0

2018 5 million 5 million 0
2019 15 million 6 million 9 million

Question 3: Share buyback & Equity presentation

Part l: Retired shares & Treasury stock

Amman Corporation's equity section has the following amounts at the end of 2018:
Common Shares, 200,000 issued and outstanding, $ 2,000,000
Paid in Capital excess par (Common Stock) $ 3,000,000
Retained Earnings $ 700,000

In 2019, Amman Corporation completed the transactions listed below.

Jan.10 Reacquired and retired 70,000 shares at $30.

Feb 3 Sold 20,000 retired shares at $36 per share
Mar. 15 Reacquired 10,000 shares as treasury stock at $20 per
share.
Oct 10 Sold 2,000 treasury shares at $22 per share.

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Nov 5 Sold 3,000 treasury shares at $16 per share.

Par value= 2,000,000/200,000= $10

PIC excess = 3,000,000/200,000= $15
Required:
Prepare the journal entries to record the above transactions, using the cost method.

Dr Cr
Common Stock (70,000×$10) 700,000
Jan. 10, PIC excess of par-common (70,000×$15) 1,050,000
2018 Retained Earnings (difference) 350,000
Cash (70,000 x 30) 2,100,000
Cash (20,000 x 36) 720,000
Common Stock (20,000 x 10) 200,000
PIC excess of par-common (20,000×$26) 520,000

Treasury stock (10,000 x 20) 200,000

Cash 200,000
Cash (2000 x 22) 44,000
PIC- share repurchase 4,000
Treasury Stock (2000 x 20) 40,000
Cash (3000 x 16) 48,000
PIC- share repurchase (available) 4,000
Retained Earnings (diff) 8,000
Treasury Stock (3000 x 20) 60,000

Part lI: Shareholders’ equity section

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Common Stock:

Issued shares 23mn

Issue price $8
Par value $1

Preferred Stock
Issued shares 10mn
Issue price $7
Par value $5
Treasury stock (at cost) 32
Retained Earnings $15mn

ANS 2
Shareholders’ Equity $ in millions
Prepare the shareholders’ equity section of Shana Inc. balance sheet at December 31, 2020
from the following information

Common stock, $1 par, (23m x 1)................................................ $ 23

Paid-in capital—excess of par-CS (23m x 7)................................. 161
Paid-in capital—share repurchase............................................... 0
Preferred stock, $5 par (10m x 5) 50
Paid-in capital—excess of par-PS (10m x 2) 20
Retained earnings........................................................................ 15
Less: Treasury stock, 2 million shares (at cost).......................... (32)
Total shareholders’ equity........................................................... $237

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