ACCT 1A Lecture Notes - Lecture 15: Reverse Stock Split, Stock Split, Issued Shares

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rosebuffalo981

16 Jul 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

seilo

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Document Summary

Dividends on preferred shares are expressed as an annual dollar figure or as a percentage of the share"s stated value. When a company has issued both preferred and common shares, the preferred shareholders receive their dividends first. The common shareholders receive dividends only if the total declared dividend is large enough to pay the preferred shareholders in full. The allocation of dividends may be complex if the preferred shares are cumulative. Corporations sometimes fail to pay a dividend to preferred shareholders. This is called passing the dividend, and any passed dividends on cumulative preferred shares are said to be in arrears. The owners of cumulative preferred shares must receive all dividends in arrears plus the current year"s dividend before the corporation can pay dividends to the common shareholders. Companies typically split their stock when they think their share price has become too expensive or if the stock is trading too far above similar companies" stock.

Related Questions

Helifex , Inc. began operations in 2010 and has the following Capital Stock:
	Helifex , Inc. Capital Stock:
	Preferred Stock:	# Shares	Stated Dividend Rate	Par value
	Authorized shares of cumulative, non-participatory preferred stock	80,000	6%	$10
	Issued shares of prefered stock	60,000
	Outstanding shares of preferred stock	30,000

	Common Stock:	# Shares
	Authorized shares of $1 par value common stock	50,000
	Issued shares of common stock	40,000
	Outstanding shares of common stock	10,000

Required:
a)	Compute the amount of Preferred Stock dividends.



b)	On January 1, 2017, the Board of Directors declared dividends of	$ 35,000

	Prepare the journal entry for the declaration of the dividends.





c)	On March 31, 2017, the dividends are disbursed to stockholders of record. Determine the allocation of dividends to Preferred and Common Stockholders.




d)	The Board of directors did not declare dividends during 2018. Determine the allocation of dividends to Preferred and Common Stockholders.

	Total dividends for Preferred Stockholders
	Total dividends for Common Stockholders

e)	On June 8, 2019 the Board of Directors declared dividends of	$110,000
	Determine the allocation of dividends to Preferred and Common Stockholders.










f)	The following year, on November 30, 2020, the board declared dividends of	$100,000
	Determine the allocation of dividends to Preferred and Common stockholders.










g)	Explain the advantages and disadvantages of investing in preferred stock.

redcoyote294

1. The effect of a stock dividend is to

Question 17 options:

change the composition of stockholders' equity.

increase the book value per share of common stock.

decrease total assets and stockholders' equity.

decrease total assets and total liabilities

2. Regular dividends are declared out of:

	Common Stock.
	Treasury Stock.
	Retained Earnings.
	Paid-in Capital in Excess of Par.

3. Solaris, Inc. has 2,000 shares of 5%, $10 par value,cumulative preferred stock and 50,000 shares of $1 par value commonstock outstanding at December 31, 2014. What is the annual dividendon the preferred stock?

Question 20 options:

$5 per share

$10,000 in total

$1,000 in total

$.05 per share

4. Corporations generally issue stock dividends in order to

Question 21 options:

decrease the amount of capital in the corporation.

increase the market price per share.

exceed stockholders' dividend expectations.

increase the marketability of the stock.

5. A stockholder who receives a stock dividend would

Question 22 options:

expect the par value of the stock to change.

own more shares of stock.

expect retained earnings to increase.

expect the market price per share to increase.

6. When stock dividends are distributed,

Question 23 options:

	Retained Earnings is decreased.
	Common Stock Dividends Distributable is decreased.
	no entry is necessary if it is a large stock dividend.
	Paid-in Capital in Excess of Par is debited if it is a smallstock dividend.

Identify the effect the declaration and distribution of a stockdividend has on the par value per share.

Question 24 options:

No effect

Increase or decrease

Increase

Decrease

A stock split

Question 25 options:

will have no effect on the par value per share of stock.

will increase the total par value of the stock.

will increase total paid-in capital.

may occur in the absence of retained earnings.

On January 1, Sly Corporation had 120,000 shares of $10 parvalue common stock outstanding. On March 17, the company declared a15% stock dividend to stockholders of record on March 20. Marketvalue of the stock was $13 on March 17. The entry to record thetransaction of March 17 would include a

Question 26 options:

debit to Common Stock Dividends Distributable for $180,000.

credit to Cash for $234,000.

credit to Stock Dividends for $54,000.

credit to Common Stock Dividends Distributable for $180,000.

Bento, Inc. had 500,000 shares of common stock outstandingbefore a stock split occurred, and 1,500,000 shares outstandingafter the stock split. The stock split was

Question 27 options:

1-for-5.

2-for-5.

5-for-1.

3-for-1.

In the stockholders' equity section of the balance sheet,

Question 28 options:

Dividends in arrears will appear as a restriction of RetainedEarnings.

Common Stock Dividends Distributable will appear in its ownsubsection of the stock- holders' equity.

Common Stock Dividends Distributable will be classified as partof additional paid-in capital.

Additional Paid-in Capital appears under the subsection Paid-inCapital.

During 2014 Miami Inc. had sales revenue $1,328,000, grossprofit $728,000, operating expenses $398,000, cash dividends$90,000, other expenses and losses $40,000. Its corporate tax rateis 30%. What was Miami's income tax expense for the year?

Question 29 options:

$87,000

$398,400

$180,000

$60,000

Paiva Corporation splits its common stock 2 for 1, when themarket value is $80 per share. Prior to the split, Paiva had100,000 shares of $10 par value common stock issued andoutstanding. After the split, the par value of the stock

Question 30 options:

	remains the same.
	is reduced to $5 per share.
	is reduced to $2 per share.
	is reduced to $20 per share.

periwinklejellyfish203

QUESTION 1

Which of the following is not an equity security?

a. Common stock

b.Warrants

c. Call options

d. Redeemable preferred stock with a mandatory redemptionperiod

QUESTION 2

On January 1, 2005, N Inc. purchased 10-year bonds issued by BCompany. The bonds have a face value of $500,000 and pay interestannually at 8 percent on each December 31. N purchased the bondsfor $550,000. Nï¿½s accounting year ends on December 31. Nï¿½smanagement has chosen to treat the bonds purchased as anavailable-for-sale security. There are no other securities in theavailable-for-sale portfolio. Assume that on December 31, 2005, thefair market value of the bonds was $510,000. The company uses thestraight-line method of amortization. What is the amount ofinterest income to be reported on the 2005 incomestatement?

a.$35,000

b. $40,000

c. $44,000

d. $45,000

QUESTION 3

At December 31, 2005 and 2006, C Corp. had outstanding 4,000shares of $100 par value, 6 percent cumulative preferred stock and20,000 shares of $10 par value common stock. At December 31, 2005,dividends in arrears on the preferred stock were $12,000. Cashdividends declared in 2006 totaled $44,000. Of the $44,000, whatamounts were payable on each class of stock?

Preferred Stock	Common Stock
a. $44,000	$0
b. $36,000	$8,000
c. $32,000	$12,000
d. $24,000	$20,000

QUESTION 4

A liability for a cash dividend exists atthe

a. end of each year

b. date of declaration

c. date of record

d. date of payment

QUESTION 5

Coe Corp. issued 20,000 shares of $5 par common stock at $10 pershare. On December 31, 2005, Coe's retained earnings were $300,000.In March 2006, Coe reacquired 5,000 shares of its common stock at$20 per share. In June 2006, Coe sold 1,000 of these shares to itscorporate officers for $25 per share. Coe uses the cost method toaccount for its treasury stock. Net income for the year endedDecember 31, 2006, was $60,000. At December 31, 2006, what amountshould Coe report as retained earnings?

a. $360,000

b. $365,000

c.$375,000

d. $380,000

QUESTION 6

William Corp. issued 10,000 shares of its $1 par value commonstock for a building. The building was listed for sale at $500,000.Williamï¿½s common stock is currently selling for $45 per share.William Corp. should record the buildingat

a.$10,000

b. $440,000

c. $450,000

d. $500,000

QUESTION 7

Assume that S Company makes sales of $400,000 during 2004 andreports the amount as sales revenue on its income statement. Alsoassume that the company wishes to delay the reporting of a portionof that amount for tax purposes and uses the installment salesmethod for tax purposes. Assume that $100,000 of collectionsoccurred during 2004, $150,000 occurred in 2005, and the remainderwill occur in 2006. Assuming a tax rate of 40 percent, what is theamount of the entry into the Deferred Tax account at the end of theyear 2004?

a. $40,000

b.$60,000

c.$120,000

d. $160,000

QUESTION 8

The Company purchases an asset on January 1, 2005, for $200,000.The straight-line method of depreciation is used for book purposes,resulting in depreciation of $50,000 per year. An acceleratedmethod is used for tax purposes, resulting in depreciation of$80,000, $60,000, $40,000, and $20,000 for the years 2005, 2006,2007, and 2008, respectively. Assume that the tax rate is 40percent for all years and that depreciation is the only temporarydifference between book and tax purposes. The 2005 journal entrywould include a

a. debit to Deferred Tax Liability of$12,000

b. debit to Deferred Tax Liability of $4,000

c. credit to Deferred Tax Asset of$4,000

d. credit to Deferred Tax Liability of $12,000

QUESTION 9

Which of the following has no effect on comprehensiveincome?

a. Unrealized gains and losses on held-to-maturityinvestments

b. Unrealized gains and losses on available-for-saleinvestments

c. Unrealized gains and losses on tradingsecurities

d. Realized gains and losses on available-for-sale securitiesthat were held in previous periods

QUESTION 10

Assume that Grandzol Company believes that $120,000 of a$600,000 deduction will not be utilized in future periods and thatthe tax rate is 40 percent for all periods. What is the amount ofthe valuation allowance?

a.$48,000

b. $120,000

c. $192,000

d. $240,000

QUESTION 11

Information regarding Silly Co.ï¿½s portfolio ofavailable-for-sale securities is as follows:

a. Aggregate cost as of 12/31/05 $170,000

b. Unrealized gains as of 12/31/05 4,000

c. Unrealized losses as of 12/31/05 26,000

d. Net realized gains during 2005 30,000

At December 31, 2004, Silly reported an unrealized holding lossfrom available-for-sale securities of $1,500 on the statement ofstockholdersï¿½ equity. Assuming the application of SFAS No. 115,ï¿½Accounting for Certain Investments in Debt and Equity Securities,ï¿½what amount should Silly report on its December 31, 2005, balancesheet as an unrealized holding loss?

a.$26,000

b. $22,000

c.$20,500

d. $0

QUESTION 12

Treasury stock is a(n)

a. asset account

b. contra-asset account

c. equityaccount

d. contra-equity account

QUESTION 13

On March 1, 2004, LeoCorp. was formed by issuing 100,000 shares of $1 par value commonstock at $5 per share and 20,000 shares of $100 par value preferredstock at $101 per share. If Leo earned $35,000 in its first year ofoperations, total stockholdersï¿½ equity at year end would be

a. $335,000

b. $735,000

c. $2,135,000.

d. $2,555,000

QUESTION 14

Interest received from available-for-sale debt securities shouldbe reportedas

a. an unrealized holdinggainï¿½income

b. an unrealized holding gainï¿½equity

c. other revenue on the income statement

d. a reclassification adjustment on the statement ofcomprehensive income

QUESTION 15

During 2005, Bob Co. issued 5,000 shares of $100 par convertiblepreferred stock for $110 per share. One share of preferred stockcan be converted into three shares of Bob's $25 par common stock atthe option of the preferred shareholder. On December 31, 2006, whenthe market value of the common stock was $40 per share, all of thepreferred stock was converted. What amount should Bob credit toCommon Stock and to Additional Paid-in Capital as a result of theconversion?

Common Stock	Additional Paid-in-Capital
a. $375,000	$175,000
b. $375,000	$225,000
c. $500,000	$50,000
d. $600,000	$0

QUESTION 16

If a company reissued at $20 per share 100 shares of treasurystock that it had previously acquired for $28 per share and therewasnï¿½t any Paid-in Capital from Treasury Stock, it would debit

a. Loss on Sale of Treasury Stock for $800

b. Paid-in Capital from Common Stock for $800

c. Retained Earnings for $800

d. Treasury Stock for $800

QUESTION 17

B Corp. issued 200,000 shares of common stock when it beganoperations in 2004 and issued an additional 100,000 shares in 2005.B also issued preferred stock convertible into 100,000 shares ofcommon stock. In 2006, B purchased 75,000 shares of its commonstock and held it in the treasury. At December 31, 2006, how manyshares of B's common stock were outstanding?

a. 400,000

b.325,000

c.300,000

d. 225,000

QUESTION 18

Assume that Bad Company makes sales of $200,000 during 2004 andreports the amount as sales revenue on its income statement. Alsoassume that the company wishes to delay the reporting of a portionof that amount for tax purposes and uses the installment salesmethod for tax purposes. Assume that $60,000 of collectionsoccurred during 2004 and the remainder will occur in 2005. What isthe amount of the temporary difference at the end of the year2004?

a.$200,000

b.$140,000

c.$60,000

d. $0

QUESTION 19

Rent income received in advance that is included for taxpurposes when received, but recorded for book purposes when earnedresults in

a. expense items and deductions being taken for tax purposesbefore bookpurposes

b. expense items and deductions being recorded for book purposesbefore tax purposes

c. purposes income being included for tax purposes beforebook

d. income being recorded for book purposes before taxpurposes.

QUESTION 20

Debt securities that are classified as available-for-salesecurities are reported on the balance sheet at

a. fair value

b. historical cost

c. amortized cost

d. lower of amortized cost or fair value

QUESTION 21

Dividends are a(n)

a.expense

b. distribution to owners

c. asset

d. increase in equity

QUESTION 22

Which of the following does not use the Adjustment andUnrealized Holding Gain (Loss) accounts?

a. Held-to-maturitysecurities

b. Tradingsecurities

c. Available-for-salesecurities

d. Both held-to-maturity and trading securities

QUESTION 23

Other comprehensive income includes changes in the fair valueof

a. held-to-maturity securities

b. tradingsecurities

c. available-for-sale securities

d. investments accounted for under the equity method

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ACCT 1A Lecture Notes - Lecture 15: Reverse Stock Split, Stock Split, Issued Shares

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