Page 544 - Accounting Principles (A Business Perspective)

This book is licensed under a Creative Commons Attribution 3.0 License

Stock split A distribution of 100 per cent or more of additional shares of the issuing corporation's stock,
accompanied by a corresponding reduction in the par value per share. The purpose of a stock split is to cause
a large reduction in the market price per share of the outstanding stock.
Treasury stock Shares of capital stock issued and reacquired by the issuing corporation; they have not been
formally canceled and are available for reissuance.
Self-test
True-false
Indicate whether each of the following statements is true or false.

The retained earnings balance of a corporation is part of its paid-in capital.
The purchase of treasury stock does not affect stockholders' equity.
Dividends are expenses since they decrease stockholders' equity.
A stock dividend reduces the retained earnings balance and permanently capitalizes the reduced portion of the
retained earnings.
A retained earnings appropriation reduces the total stockholders' equity shown on the balance sheet.
Heavy frost damage suffered by a Florida citrus grower's orange trees would probably be reported as an

extraordinary item.
Multiple-choice
Select the best answer for each of the following questions.
Which of the following is not included in paid-in capital?
a. Common Stock.
b. Paid-In Capital—Donations.
c. Stock Dividend Distributable.
d. Appropriation per Loan Agreement.
Bevins Company issued 10,000 shares of USD 20 par value common stock at USD 24 per share. Bevins

reacquired 1,000 shares of its own stock at a cost of USD 30 per share. The entry to record the reacquisition is:
a. Premium on Treasury Stock (-SE) 10,000
Treasury stock (-SE) 20,000
Cash (-A) 30,000

b. Premium on Treasury Stock (-SE) 6,000
Treasury stock (-SE) 24,000
Cash (-A) 30,000
c. Treasury Stock (-SE) 30,000
Cash (-A) 30,000
d. Treasury stock (-SE) 20,000
Paid-In Capital – Treasury Stock
Transactions (-SE) 10,000
Cash (-A) 30,000
If the company reissues 500 shares of the treasury stock in (2) for USD 36 per share, the entry is:
a. Cash (+A) 18,000
Treasury Stock (+SE) 15,000
Paid-In Capital – Treasury
Stock Transactions (+SE) 3,000

b. Cash (+A) 18,000
Treasury stock (+SE) 18,000
c. Cash (+A) 18,000
Treasury stock (+SE) 15,000
Retained earnings (+SE) 3,000

Accounting Principles: A Business Perspective 545 A Global Text