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Exam 3: Equities

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Question 1

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Below are details relating to balances for the equity accounts of Isha Company,and changes to those balances. Note that AOCI is accumulated other comprehensive income. Requirement: Prepare a statement of changes in equity for the years ended December 31,2011.

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Question 2

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What does "priority" mean?

A) Higher priority means preferential payout before lower priority claimants.
B) Refers to the amount of payment that will be made upon bankruptcy.
C) Lower priority means preferential payout before higher priority claimants.
D) Debtors will be paid after the equity holders if there is a bankruptcy.

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Question 3

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Which statement is correct about the "single transaction method" for treasury shares?

Below are details relating to balances for the equity accounts of Paras Company,and changes to those balances. Note that AOCI is accumulated other comprehensive income. Requirement: Prepare a statement of changes in equity for the years ended December 31,2012.

Explain the meaning of "contributed capital" and "common share." What distinguishes a common share from a preferred share?

Explain the meaning of "par value," "contributed surplus," and "preferred shares."

Who uses information about "equity" and what information about equity is useful to financial statement users?

If 10,000 shares with par value of $15/share are issued for $20/share,how much will be presented as "contributed capital" for financial statement purposes?

Assume that a company issued 10,000 shares for $30/share. What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?

When a corporation engages in a capital transaction (those relating to its contributed capital),the journal entry may involve either a debit or a credit to contributed surplus. While not permitted by accounting standards,if these debits or credits were to be recognized through income,a debit would be called a "loss" and a credit would be called a "gain." Consider the following sequence of transactions: • Jan. 1,2007: Company issues 1,500,000 no par common shares at $14 each. • Jan. 1,2013: Company reacquires 150,000 common shares in the open market at $9 each,and cancels them immediately. There were no other capital transactions and the company had not paid any dividends. Required: a. Prepare the journal entries for the two transactions. b. Review the journal entry for January 1,2013. How much was credited other than cash? Does this credit reflect good or bad management? As a shareholder,would you be happy or unhappy about this credit entry? c. What would have been the journal entry for January 1,2013 had the repurchase price been $24? d. In the journal entry for part (c),explain why the debit goes to reduce retained earnings. How would a shareholder interpret the reduction in retained earnings?

The following is an extract from the balance sheet as at December 31,1011: The company did not declare dividends on preferred shares in 2011. Transactions in 2012 include the following: i. March 15: Hewitt purchased 15,000 preferred shares on the stock exchange for $15.25 per share and held these in treasury. ii. March 28: The company redeemed 5,000 preferred shares directly from shareholders. iii. July 1: The market price of common shares shot up to $5 per share,so Hewitt decided to split the common shares two to one. iv. August 1: Hewitt cancelled 14,000 preferred shares that were held in treasury. v. December 31: The company declared dividends of $0.50 per common share. Requirement: Prepare the journal entries to record the above transactions. The company uses the single-transaction method to account for treasury shares.

Assume that a company issued 10,000 shares for $30 and a par value of $2/share. What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?

Which statement is correct?

Which statement about dividends is correct?

Which statement about "common shares" is correct?

Which is an example of "contributed capital"?

Burlington Corp. has a single class of shares. As at its year ended December 31,2012,the company had 5,000,000 shares issued and outstanding. On the stock exchange,these shares were trading at around $7. In the company's accounts,these shares had a value of $50,000,000. The equity accounts also show $650,000 of contributed surplus from previous repurchases of shares. On January 15,2013,Burlington repurchased and cancelled 250,000 shares at a cost of $7 per share. Later in the year,on August 20,the company repurchased and cancelled a further 475,000 shares at a cost of $14 per share. Requirement: Record the journal entries for the two share transactions in 2013.

What is the meaning of "shares authorized," "shares issued," and "shares outstanding"?

The following is an extract from the balance sheet as at December 31,1011: at $6 per share,250,000 authorized,25,000 issued and outstanding The company did not declare dividends on preferred shares in 2011. Transactions in 2012 include the following: i. March 15: Hewitt purchased 15,000 preferred shares on the stock exchange for $5.25 per share and held these in treasury. ii. March 28: The company redeemed 5,000 preferred shares directly from shareholders. iii. July 1: The market price of common shares shot up to $5 per share,so Hewitt decided to split the common shares two to one. iv. August 1: Hewitt cancelled 14,000 preferred shares that were held in treasury. v. December 31: The company declared dividends of $0.40 per common share. Requirement: Prepare the journal entries to record the above transactions. The company uses the single-transaction method to account for treasury shares.

Which statement about shares is not correct?