Treasury stock.

Agler Corporation's balance sheet reported the following:

Capital stock outstanding, 5,000 shares, par $30 per share $150,000
Paid-in capital in excess of par 80,000
Retained earnings 100,000
The following transactions occurred this year:
(a) Purchased 200 shares of capital stock to be held as treasury stock, paying $60 per share.
(b) Sold 150 of the shares of treasury stock at $65 per share.
(c) Sold the remaining shares of treasury stock at $50 per share.
Instructions
Prepare the journal entry for these transactions under the cost method of accounting for treasury
stock.
Solution 15-133
(a) Treasury Stock................................................................................... 12000
Cash........................................................................................... 12000
(b) Cash ................................................................................................... 9750
Treasury Stock.......................................................................... 9000
Paid-in Capital from Treasury Stock......................................... 750
(c) Cash.................................................................................................... 2,500
Paid-in Capital from Treasury Stock.................................................. 500
Treasury Stock.......................................................................... 3000
Lump sum issuance of stock.
22. Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock
for a lump sum of $74,000 cash.
Instructions
(a) Give the entry for the issuance assuming the par value of the common was $5 and the market
value $30, and the par value of the preferred was $40 and the market value $50. (Each valuation
is on a per share basis and there are ready markets for each stock.)

(b) Give the entry for the issuance assuming the same facts as (a) above except the preferred stock
has no ready market and the common stock has a market value of $25 per share.
Solution 15-131
(a) Cash.................................................................................................. 74,000
Common Stock ................................................................... 10,000
Paid-in Capital in Excess of Par—Common....................... 45,500
Preferred Stock ................................................................... 16,000
Paid-in Capital in Excess of Par—Preferred ...................... 2,500
(common $30 × 2,000 $60,000
preferred $50 × 400 20,000
$80,000 market value
60/80 × $74,000 = $55,500 common
20/80 × $74,000 = 18,500 preferred
$74,000)

(b) Cash.................................................................................................. 74,000

Common Stock..................................................................... 10,000
Paid-in Capital in Excess of Par—Common........................ 38,000
Preferred Stock..................................................................... 16,000
 Paid-in Capital in Excess of Par—Preferred........................ 10,000

23. Basic and diluted EPS.

Assume that the following data relative to Kane Company for 2010 is available:
Net Income $2,100,000

Transactions in Common Shares Change Cumulative

Jan. 1, 2010, Beginning number 700,000
Mar. 1, 2010, Purchase of treasury shares (60,000) 640,000
June 1, 2010, Stock split 2-1 640,000 1,280,000
Nov. 1, 2010, Issuance of shares 120,000 1,400,000

8% Cumulative Convertible Preferred Stock

Sold at par, convertible into 200,000 shares of common
(adjusted for split). $1,000,000

Stock Options
Exercisable at the option price of $25 per share. Average
market price in 2010, $30 (market price and option price
adjusted for split). 60,000 shares

Instructions
(a) Compute the basic earnings per share for 2010. (Round to the nearest penny.)
(b) Compute the diluted earnings per share for 2010. (Round to the nearest penny.)

Solution 16-146
Computation of weighted average shares outstanding during the year:
January 1 Outstanding 700,000
March 1 Repurchase (5/6 × 60,000) (50,000)
650,000

June 1 2-for-1 split 1,300,000

November 1 Issued (1/6 × 120,000) 20,000
1,320,000

Additional shares for purposes of diluted earnings per share:

Potentially dilutive securities
8% convertible preferred stock 200,000
Stock options
Proceeds from exercise of 60,000 options (60,000 × $25) $1,500,000
Shares issued upon exercise of options 60,000
Less: treasury stock purchasable with proceeds
($1,500,000 ÷ $30) 50,000 10,000
Dilutive securities—additional shares 210,000

$2,100,000 – $80,000
(a) Basic earnings per share: —————————— = $1.53
1,320,000

$2,100,000
(b) Diluted earnings per share: ———–—————— = $1.37
1,320,000 + 210,000
24. Garr Co. issued $5,000,000 of 12%, 5-year convertible bonds on December 1, 2010 for
$5,020,800 plus accrued interest. The bonds were dated April 1, 2010 with interest payable
April 1 and October 1. Bond premium is amortized each interest period on a straight-line basis. Garr
Co. has a fiscal year end of September 30.

On October 1, 2011, $2,500,000 of these bonds were converted into 35,000 shares of $15 par
common stock. Accrued interest was paid in cash at the time of conversion.

Instructions
(a) Prepare the entry to record the interest expense at April 1, 2011. Assume that interest payable
was credited when the bonds were issued (round to nearest dollar).

(b) Prepare the entry to record the conversion on October 1, 2011. Assume that the entry to record
amortization of the bond premium and interest payment has been made.

Solution 16-135
(a) Interest Payable............................................................................... 100,000
Interest Expense.............................................................................. 198,400
Premium on Bonds Payable............................................................ 1,600
Cash..................................................................................... 300,000

Calculations:
Issuance price $5,020,800
Par value 5,000,000
Total premium $ 20,800

Months remaining 52
Premium per month $400
Premium amortized (4 × $400) $1,600

(b) Bonds Payable................................................................................. 2,500,000

Premium on Bonds Payable............................................................ 8,400
Common Stock (35,000 × $15)........................................... 525,000
Paid-in Capital in Excess of Par.......................................... 1,983,400

Calculations:
Premium related to 1/2 of the bonds $10,400 ($20,800 ÷ 2)
Less premium amortized 2,000 [($10,400 ÷ 52) × 10]
Premium remaining $ 8,400

Multiple Choices:
1. Stockholders' equity is generally classified into two major categories:
a. contributed capital and appropriated capital.
b. appropriated capital and retained earnings.
c. retained earnings and unappropriated capital.
d. earned capital and contributed capital.
122. Horton Co. was organized on January 2, 2010, with 500,000 authorized shares of $10 par
value common stock. During 2010, Horton had the following capital transactions:
January 5—issued 375,000 shares at $14 per share.
July 27—purchased 25,000 shares at $11 per share.
November 25—sold 15,000 shares of treasury stock at $13 per share.
Horton used the cost method to record the purchase of the treasury shares. What would be the
balance in the Paid-in Capital from Treasury Stock account at December 31, 2010?
a. $0.
b. $15,000.
c. $30,000.
d. $45,000.
35.Which of the following is not a legal restriction related to profit distributions by a corporation?
a. The amount distributed to owners must be in compliance with the state laws governing
corporations.
b. The amount distributed in any one year can never exceed the net income reported
for that year.
c. Profit distributions must be formally approved by the board of directors.
d. Dividends must be in full agreement with the capital stock contracts as to preferences and
participation.
Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25
per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share
for a lump sum of $530,000. How much of the proceeds would be allocated to the common stock?
a. $250,000
b. $240,909
c. $289,091
d. $281,563
(10,000 X $25) + (15,000 X $20) = $550,000
($250,000 梅 $550,000) X $530,000 = $240,909.
45.According to the FASB, redeemable preferred stock should be
a. included with common stock.
b. included as a liability.
c. excluded from the stockholders’ equity heading.
d. included as a contra item in stockholders' equity.
Which of the following features of preferred stock makes the security more like debt than an equity
instrument?
a. Participating
b. Voting
c. Redeemable
d. Noncumulative
Pember Corporation started business in 2005 by issuing 200,000 shares of $20 par common stock for
$36 each. In 2010, 20,000 of these shares were purchased for $52 per share by Pember
Corporation and held as treasury stock. On June 15, 2011, these 20,000 shares were
exchanged for a piece of property that had an assessed value of $810,000. Perber’s stock is
actively traded and had a market price of $60 on June 15, 2011. The cost method is used to
account for treasury stock. The amount of paid-in capital from treasury stock transactions
resulting from the above events would be
a. $800,000.
 b. $480,000.
c. $390,000.
d. $160,000.
Mann Co. has outstanding 80,000 shares of 8% preferred stock with a $10 par value and 150,000
shares of $3 par value common stock. Dividends have been paid every year except last year and the
current year. If the preferred stock is cumulative and nonparticipating and $400,000 is distributed,
the common stockholders will receive
a. $0.
b. $272,000. 400,000 - ($800,000 × 8% × 2) = $272,000.
c. $336,000.
d. $400,000.
Assume common stock is the only class of stock outstanding in the Manley Corporation. Total
stockholders' equity divided by the number of common stock shares outstanding is called
a. book value per share.
b. par value per share.
c. stated value per share.
d. market value per share.
The stockholders' equity section of Gunkel Corporation as of December 31, 2010, was as follows:
Common stock, par value $2; authorized 20,000 shares;
issued and outstanding 10,000 shares $ 20,000
Paid-in capital in excess of par 30,000
Retained earnings 75,000
$125,000
On March 1, 2011, the board of directors declared a 15% stock dividend, and accordingly
1,500 additional shares were issued. On March 1, 2011, the fair market value of the stock was
$6 per share. For the two months ended February 28, 2011, Gunkel sustained a net loss of
$10,000.
What amount should Gunkel report as retained earnings as of March 1, 2011?
a. $56,000.
b. $62,000.
c. $66,000.
d. $72,000.
At December 31, 2014 Rice Company had 300,000 shares of common stock and 10,000 shares of
8%, $100 par value cumulative preferred stock outstanding. No dividends were declared on
either the preferred or common stock in 2014 or 2015. On January 30, 2016, prior to the
issuance of its financial statements for the year ended December 31, 2015, Rice declared a
100% stock dividend on its common stock. Net income for 2015 was $1,520,000. In its 2015
financial statements, Rice's 2015 earnings per common share should be
a. $2.40.
b. $2.53.
c. $4.80.
d. $5.07.
In computing earnings per share, the equivalent number of shares of convertible preferred stock are
added as an adjustment to the denominator (number of shares outstanding). If the preferred
stock is cumulative, which amount should then be added as an adjustment to the numerator
(net earnings)?
a. Annual preferred dividend
b. Annual preferred dividend times (one minus the income tax rate)
c. Annual preferred dividend times the income tax rate
 d. Annual preferred dividend divided by the income tax rate
Grimm Company has 1,800,000 shares of common stock outstanding on December 31, 2010. An
additional 150,000 shares of common stock were issued on July 1, 2011, and 300,000 more
on October 1, 2011. On April 1, 2011, Grimm issued 6,000, $1,000 face value, 8%
convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were
converted into common stock in 2011. What is the number of shares to be used in computing
basic earnings per share and diluted earnings per share, respectively, for the year ended
December 31, 2011?
a. 1,950,000 and 2,130,000
b. 1,950,000 and 1,950,000
c. 1,950,000 and 2,190,000
d. 2,250,000 and 2,430,000
Stock warrants outstanding should be classified as
a. liabilities.
b. reductions of capital contributed in excess of par value.
c. assets.
d. none of these.
In the diluted earnings per share computation, the treasury stock method is used for options and
warrants to reflect assumed reacquisition of common stock at the average market price during
the period. If the exercise price of the options or warrants exceeds the average market price,
the computation would
a. fairly present diluted earnings per share on a prospective basis.
b. fairly present the maximum potential dilution of diluted earnings per share on a
prospective basis.
c. reflect the excess of the number of shares assumed issued over the number of shares
assumed reacquired as the potential dilution of earnings per share.
d. be antidilutive.
119. Yoder, Incorporated, has 3,200,000 shares of common stock outstanding on
December 31, 2010. An additional 800,000 shares of common stock were issued on
April 1, 2011, and 400,000 more on July 1, 2011. On October 1, 2011, Yoder issued 20,000,
$1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common
stock. No bonds were converted into common stock in 2011. What is the number of shares to
be used in computing basic earnings per share and diluted earnings per share, respectively?
a. 4,000,000 and 4,000,000
b. 4,000,000 and 4,100,000
c. 4,000,000 and 4,400,000
d. 4,400,000 and 5,200,000
120. Nolte Co. has 4,000,000 shares of common stock outstanding on December 31, 2010. An
additional 200,000 shares are issued on April 1, 2011, and 480,000 more on September 1. On
October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is
convertible into 40 shares of common stock. No bonds have been converted. The number of
shares to be used in computing basic earnings per share and diluted earnings per share on
December 31, 2011 is
a. 4,310,000 and 4,310,000.
b. 4,310,000 and 4,370,000.
c. 4,310,000 and 4,550,000.
d. 5,080,000 and 5,320,000.
123. Grimm Company has shares of common stock outstanding on December 31, 2010. An
additional shares of common stock were issued on July 1, 2011, and more on October 1,
2011. On April 1, 2011, Grimm issued face value, 8% convertible bonds. Each bond is
 convertible into 40 shares of common stock. No bonds were converted into common stock in
2011. What is the number of shares to be used in computing basic earnings per share and
diluted earnings per share, respectively, for the year ended December 31, 2011?
a. 1,950,000 and 2,130,000
b. 1,950,000 and 1,950,000
c. 1,950,000 and 2,190,000
d. 2,250,000 and 2,430,000
Dilutive convertible securities must be used in the computation of diluted earnings per share only.
Proceeds from an issue of debt securities having stock warrants should not be allocated between debt
and equity features when the warrants issued with the debt securities are nondetachable.