Book 1 - Chapter 30

Multiple Choice

1.	c	A corporation wants to reissue treasury stock at a higher price than it paid. In this way, a greater amount of capital can be obtained than was returned to the stockholders when the treasury stock was purchased.
2.	b
3.	a	A stock split increases all issued shares. This means both outstanding shares and shares held by the company as treasury stock. ( Note: Total authorized shares do not change.)
4.	d	Issued shares means both outstanding shares and shares held in treasury, so this total will not change because as outstanding shares decrease, treasury shares increase. Legal capital is a fixed amount determined at the time stock is issued. Total stockholders’ equity is reduced because cash is paid out to some of the stockholders who decide to sell their shares back to the company.
5.	d	Choice (b) is an example of selling treasury stock at a price greater than the purchase price. Choice (a) can happen if treasury stock is sold below cost.
6.	b
7.	a	A stock dividend has no effect on total stockholders’ equity and no effect on the par value per share.
8.	d
9.	d	Two effects are occurring. First, 500 shares at a cost of $20 per share are being removed from a contra account that reduces stockholders’ equity. This is an increase in stockholders’ equity of 500 × $20 = $10,000. Second, the stock is being sold for $4 above the purchase price. This is an additional increase in stockholders’ equity of 500 × $4 = $2,000. A faster calculation is 500 × $24 = $12,000.
10.	c
11.	d
12.	b
13.	a
14.	d	A stock split reduces the par value per share, but the total par value is unchanged because the number of shares increases.
15.	b	Par value per share: ($.15 × 2/3) = $.10. Total shares: (90,000 × 3/2) = 135,000.
16.	c
17.	c	A stock split reduces the par value per share. A cash dividend reduces stockholders’ equity. A liquidating dividend is a cash dividend that decreases both retained earnings and paid-in capital.
18.	d	Because this is a small stock dividend (less than 20–25% of outstanding shares) GAAP requires that market value be used to value the transaction. Therefore, retained earnings decreases by (100,000 × .10 × $20) = $200,000. Paid-in Capital in Excess of Par will increase by the excess of market value above the par value which is ($20 – $1) × 10,000 = $190,000. (The Common Stock account also increases by $10,000.)
19.	b
20.	a	This is a large stock dividend, so the entire amount is recorded at par value.
21.	c
22.	c	A split has no effect on the total dollar amount of any stockholders’ equity accounts.
23.	d

Learning Goal 30

SOLUTIONS

Learning Goal 30: More Paid-in Capital and Retained Earnings Transactions

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