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intermediate accounting volume 2

Questions and Answers of Intermediate Accounting Volume 2

Distinguish between par and no-par stock. Distinguish between common and preferred stock.
Under what conditions is preferred stock reported as a liability?
Distinguish between callable and redeemable preferred stock.
How are assets valued when shares of stock are given in payment to acquire these assets?
Briefly describe the accounting for stock issue costs.
Define treasury stock.
What is the effect on the amounts of assets, liabilities, and stockholders' equity of (a) the purchase of treasury stock and (b) the sale of treasury stock?
Total stockholders' equity is not affected by the use of the cost method of accounting for treasury stock, yet some components of stockholders' equity are affected. Is this statement correct? Explain.
Why may states limit purchases of treasury stock to the amount reported as retained earnings?
In recording treasury stock transactions, explain why "gains" are recorded in additional paid-in capital account, whereas "losses" may involve a debit to retained earnings.
How is treasury stock reported on the balance sheet under the cost method?
When treasury stock is formally retired, retained earnings may be affected. Explain how this situation may occur.
What are the principal sources and uses of retained earnings?
Explain the significance of the declaration date, record date, and payment date related to dividends.
Distinguish between cash dividends and property dividends.
What is a liquidating dividend? What is the proper accounting treatment for such dividends?
What is the difference between a cash or property dividend and a stock dividend?
Explain this statement: When property dividends are declared and paid, a loss or gain often must be reported.
Contrast the effects of a stock dividend (declared and issued) versus a cash dividend (declared and paid) on assets, liabilities, and total stockholders' equity.
Contrast the effects of a typical small stock dividend (declared and issued and ignoring fractional shares) versus a typical cash dividend (declared and paid) on the components of stockholders'
Explain why the amount of retained earnings reported on the balance sheet is often not the net amount of all accumulated earnings (and losses) less all accumulated cash and property dividends.
Distinguish between a stock split effected in the form of a dividend and a stock split.
What are the primary reasons for appropriating and for restricting retained earnings?
On December 31, 2020, Polar Inc. had the following account balances.Prepare the stockholders' equity section of the balance sheet for Polar Inc. at December 31, 2020. Ignore disclosure of number of
From the following information, determine (1) the number of common shares issued, (2) the number of common shares outstanding, and (3) the number of common shares unissued. Common stock, $2 par
Match each of the items \(a\) through \(n\) with its proper classification 1 through 7. Stockholders' Equity Component 1. Capital stock 2. Additional paid-in capital 3. Retained earnings 4.
On June 30, 2020, Ebae Inc. issued 120 shares of \(\$ 1\) par value common stock for \(\$ 12\) per share. Prepare Ebae's journal entry,
On June 30, 2020, Ebae Inc. issued 120 shares of no-par common stock for \(\$ 15\) per share.a. Prepare Ebae's journal entry.b. Prepare Ebae's journal entry assuming instead that the company
Amazing Inc. issued 1,000 shares of common stock ( \(\$ 1\) par) and 1,000 shares of preferred stock ( \(\$ 10\) par) at a price of \(\$ 150,000\) on April 1,2020 . At the time of issuance, the
Ranier Corp. authorized the issuance of 400,000 shares of no-par common stock. The state of incorporation requires a minimum stated value of \(\$ 4\) per share of common stock issued. On February 1,
On January 1,2020 , Vera Clothing Inc. issued 5,000 shares of common stock, \(\$ 5\) par for \(\$ 100,000\). Related to this issuance, the company incurred legal and accounting fees of \(\$ 2,500\)
Refer to the information in Brief Exercise 20-38. On June 30, 2020, Vera Clothing Inc. reacquired 500 shares of common stock at \(\$ 21\) per share and immediately retired the shares. Prepare the
On June 30, 2020, Pier5 Inc. issued 500 shares of \(\$ 1\) common stock for \(\$ 15\) per share. On June 30, 2020, Pier5 Inc. reacquired 50 shares of common stock at \(\$ 12\) per share and
Harlee Inc. has 60,000 shares of \(\$ 5\) par common stock outstanding at the beginning of the year 2020. Prepare entries for the following transactions affecting. stockholders' equity. Assume
Charter Inc. has 600,000 shares of \(\$ 1\) par common stock outstanding at the beginning of the year 2020. Prepare entries for the following transactions affecting stockholders' equity. Assume
Regency Inc. issued 800 shares of \(\$ 20\) par value, \(8 \%\), cumulative preferred stock for \(\$ 48,000\) on June 30, 2020. Prepare Regency's journal entry on June 30, 2020.
Urban Inc. had the following capital outstanding. In 2020, Urban Inc. distributes \(\$ 80,000\) in cash dividends to shareholders.a. If the preferred stock is cumulative and dividends are in arrears
On September 1, 2020, Fox Corporation declared a cash dividend of \(\$ 1\) per share on its 800,000 outstanding shares of common stock (\$1 par). The dividend is payable on October 15, 2020, to
Zerizon Inc. holds 6,000 shares of Cable Co. common stock, which it acquired for \(\$ 25\) per share in May of 2020 . On June 1, 2020, Zerizon Inc. declares a property dividend of 500 shares of Cable
Wellington Corp. declared a dividend on common stock of \(\$ 250,000\) on May 18,2020 . Wellington announced to shareholders that \(\$ 175,000\) of the dividend amount was a return of capital.
Landry Inc. has 10,000 shares of common stock, \$1 par outstanding. On September 30, 2020, Landry declares a \(10 \%\) stock dividend when the fair value of its common stock is \(\$ 30\) per share.
Landry Inc. has 10,000 shares of common stock, \$1 par outstanding. On September 30, 2020, Landry declares a stock split effected in the form of a \(100 \%\) stock dividend when the fair value of its
Refer to the information in Brief Exercise 20-49. Instead Landry announces a 2-for-1 stock split not effected through a stock dividend.a. Prepare the journal entry for the declaration of the stock
Fastco Corp. reports net income of \(\$ 20,000\), and other comprehensive income of \(\$ 5,000\) (net of tax) for the year ended December 31, 2020. The December 31, 2019, balance in accumulated other
Identify whether the following items \(a\) through \(j\) are part of (1) net income or (2) other comprehensive income. \( \qquad \)a. Sales revenueb. Bad debt expensec. Loss from foreign current
Bucky's Apparel Inc. is considering paying a dividend on December 31, 2020. A loan covenant stipulates that the payout ratio must be less than or equal to \(10 \%\). If the company has no preferred
The following information is provided for the Coca-Cola Company ( \(\$\) millions).Compute the following ratios for 2017, assuming total number of 2017 common shares outstanding of 4.259 billion.a.
The following data are from the accounts of Mitar Corporation at December 31, 2020 ( \(\$\) thousands).Requireda. Determine the value of the following items.1. Total retained earnings at end of
On December 31, 2020, Nakoma Inc. had the following account balances.Prepare the stockholders' equity section of the balance sheet for Nakoma Inc. on December 31, 2020. State the par value per share,
Record journal entries for the following separate transactions.a. Max Inc. issued 5,000 shares of \(\$ 1\) par value common stock for \(\$ 20\) per share on January \(1,2020\).b. Max Inc. issued
Tridint Corporation is authorized to issue 100,000 shares of \(\$ 5\) par value common stock. The shares of stock are not publicly traded. During 2020 , the company completed the following
In May of 2012, Facebook raised over \(\$ 16\) billion in its initial public offering. Approximately 421.2 million shares of Class A common stock, \(\$ 0.000006\) par value were sold for \(\$ 38\) a
Gilmore Company has 20,000 authorized shares of common stock, \(\$ 2\) par, and 20,000 authorized shares of preferred stock, \(\$ 10\) par. On April 10, 2020, Gilmore sold 600 shares of common stock
Stellar Inc. issues 20,000 shares of common stock, \(\$ 0.01\) par value, for \(\$ 28\) per share on March 28, 2020. Related to this transaction, Stellar incurred legal and administrative costs
Laser Inc. has the following account balances on December 31, 2019.Required Prepare journal entries for the following three separate scenarios.a. On January 15, 2020, Laser Inc. acquires and
M4 Inc. issued 50,000 shares of \(\$ 0.01\) par value common stock for \(\$ 15\) per share on January 1,2020 , the day of its initial stock offering.Requireda. Record entries for the following
On January 2, 2020, Liberty Corporation was authorized to issue 100,000 shares of \(\$ 5\) par value common stock. Liberty issued 20,000 shares of common stock on January 15,2020 , at \(\$ 15\) per
On January 2, 2020, Zeviae Corporation was authorized to issue 200,000 shares of \(\$ 1\) par value common stock. Zeviae issued 50,000 shares of common stock on January 8,2020 , at \(\$ 10\) per
On January 1,2020 , M. Jordan Corporation issued 20,000 shares of \(\$ 1\) par value common stock at \(\$ 50\) per share. On January 15, 2020, M. Jordan purchased 50 shares of its own common stock at
On December 31, 2020, the records for Lakers Inc. provided the following data on stockholders' equity.The stockholders vote to retire all of the treasury stock immediately and to purchase for direct
Lakers Inc. reacquired a number of its own shares in one transaction in December of 2020. (Assume no previous reacquisitions of stock.) Lakers Inc. could account for the reacquisition transaction
In our review of the accounting records of Crew Corp., we discover that during 2020, stockholders' equity transactions were all recorded in the common stock account. Our first step is to recreate the
Cedar Corporation is authorized to issue 10,000 shares of \(6 \%, \$ 10\) par, cumulative preferred stock. During 2020 , it sold 2,000 shares of preferred stock for \(\$ 25\) per share.Requireda.
Gilmore Company has 20,000 authorized shares of common stock, \$2 par, and also 20,000 authorized shares of preferred stock, \(\$ 10\) par.Required Record journal entries for the following separate
On December 31; 2020, Costko Corporation had 50,000 shares of \(6 \%, \$ 10\) par, cumulative preferred stock.Required Indicate where the preferred stock is reported in the balance sheet for each
Following are four separate dividend scenarios.a. On April 1, 2020, Meriter Corporation declared a cash dividend of \(\$ 5.00\) per share on its 32,000 outstanding shares of common stock (\$1 par).
Olivia Inc. had 30,000 outstanding shares of common stock, \(\$ 0.01\) par, and 8,000 outstanding shares of \(7 \%\), cumulative preferred stock, \(\$ 50\) par throughout its initial four years of
Following is an excerpt from a recent Form 10-K of Pandora Media Inc. on its redeemable preferred stock.In June 2017, we entered into an agreement with Sirius XM Radio, Inc. ("Sirius XM") to sell
On November 1, 2020, Toni Corp. declared a cash dividend of \(\$ 3.00\) per share on its 20,000 outstanding shares of common stock ( \(\$ 1\) par, originally sold at \(\$ 10\) per share). The
The records of Dixie Corporation showed the following balances on November 1, 2020. The fair value of its stock is \(\$ 18\) per share.Required Prepare journal entries for the following six separate
Tech Inc. issues a 5\% common stock dividend on 50,000 shares of \(\$ 1\) par common stock issued and outstanding on August 1,2020 . The market price of its common stock is \(\$ 20\) per share. The
Fourteen equity transactions are included in the following table.Required Indicate how each transaction affects each financial statement category: increase, decrease, or remain unchanged.
Starbucks Corporation disclosed the following on a recent stock split in its annual Form 10-K report for the year ended September 27, 2015.Stock Split (excerpt from Note 1)-On April 9, 2015, we
The following information is provided for Fey Corp. for the year ended December 31, 2020.Required Assuming a \(25 \%\) statutory tax rate, calculate the ending balance in retained earnings for the
What is the difference between a restricted stock award plan and a restricted stock unit plan?
Explain how a company classifies share-based compensation plans for employees as either noncompensatory or compensatory.
What are the required disclosures for share-based compensation plans?
What are some factors used in the estimation of fair value in the accounting for stock option plans using a pricing model?
What is the fundamental difference in EPS computations and reporting between a simple capital structure and a complex capital structure?
Is the undeclared annual dividend on cumulative convertible preferred stock outstanding all year subtracted from net income in computing basic EPS? Why or why not?
Explain the treasury stock method as it is applied to stock options.
Is the treasury stock method's use of average market price consistent with the overall objective of EPS reporting? Explain.
Briefly, how are stock dividends and splits reflected in the calculation of basic EPS if the dividend or split occurs (a) before the balance sheet date or (b) after the balance sheet date but before
Why are dividends from dilutive convertible preferred stock added back to the numerator of basic EPS without tax effect, while interest recognized on dilutive convertible bonds is added back to the
A company split its common stock two-for-one on June 30 of its accounting year ended December 31. Before the split, there were 4,000 shares of common stock outstanding. How many shares of common
Explain why nonconvertible securities do not cause a complex capital structure, whereas convertible securities do cause a complex capital structure.
Explain why and when dividends on nonconvertible preferred stock must be subtracted from income to compute EPS in both simple and complex capital structures.
Suppose a company has a convertible bond outstanding among other dilutive securities. What calculations must be made to establish an impact on EPS?
Why are potentially dilutive securities ranked (in cases of multiple security holdings), and why is it useful?
What are contingent shares, and do they need to be considered in computing EPS?
A dilutive convertible bond was issued at a premium. Explain how to compute the numerator effect for such a bond when computing dilutive EPS.
Explain in general how to handle actual conversions of convertible dilutive securities for basic and diluted EPS purposes (denominator effect only).
Shares of a parent corporation will be issued in the future based on the number of retail outlets opened by a recently acquired subsidiary. The subsidiary predicts that 10 new outlets will be opened
Would antidilutive securities be included in the calculation of diluted earnings per share?
Are the following items required to be disclosed on the face of the financial statements, or either on the face or in the notes to the financial statements?1. Income (loss) from continuing
Aguilera Co. established a defined contribution plan in which the company contributes \(3 \%\) of full-time employees' salaries to a traditional \(401(\mathrm{k})\) plan for each completed year of
Michael (age 35) commenced employment at Larkin Supplies Inc. on January 1, 2020. Larkin sponsors a defined benefit plan where employees vest \(5 \%\) after year one, an additional \(10 \%\) after
Sharks Company implemented a defined benefit pension plan for its employees. The following data are provided for 2021 and 2020. Determine the benefit payments to retirees in 2021, assuming no PSC
Gaap Company sponsors a defined benefit plan covering all employees. Benefits are based on years of service and compensation levels at the time of retirement. Gaap determined that as of December 31,
Alpha Company sponsors a defined benefit plan covering all employees. Benefits are based on years of service and compensation levels at the time of retirement. Alpha's December 31, 2020, trial

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