Page 545 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

d. Cash (+A) 18,000
Treasury stock (+SE) 10,000
Retained earnings (+SE) 8,000
Treasury stock should be shown on the balance sheet as a:
a. Reduction of the corporation's stockholders' equity.
b. Current asset.
c. Current liability.
d. Investment asset.
An individual stockholder is entitled to receive any dividends declared on stock owned, provided the stock is

held on the:
a. Date of declaration.
b. Date of record.
c. Date of payment.
d. Last day of a fiscal year.
ABC Corporation declared the regular quarterly dividend of USD 2 per share. ABC had issued 12,000 shares and
subsequently reacquired 2,000 shares as treasury stock. What would be the total amount of the dividend?

a. USD 24,000.
b. USD 28,000.
c. USD 20,000.
d. USD 4,000.
Which item is not reported as a separate line item below income from continuing operations, net of tax effects,
in the income statement?
a. Extraordinary items.
b. Prior period adjustments.
c. Discontinued operations.

d. Changes in accounting principle.
Now turn to “Answers to self-test” at the end of the chapter to check your answers.
Questions

➢ What are the two main elements of stockholders' equity in a corporation? Explain the difference
between them.
➢ Name several sources of paid-in capital. Would it suffice to maintain one account called Paid-In
Capital for all sources of paid-in capital? Why or why not?
➢ Does accounting for treasury stock resemble accounting for an asset? Is treasury stock an asset? If
not, where is it properly shown on a balance sheet?

➢ What are some possible reasons for a corporation to reacquire its own capital stock as treasury stock?
➢ What is the purpose underlying the statutes that provide for restriction of retained earnings in the
amount of the cost of treasury stock? Are such statutes for the benefit of stockholders, management,
or creditors?

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