Question 1

If a company resells treasury stock for less than it was acquired,how is the difference between the original purchase price and the resell price recorded? First,you would:

Accepted Answer

When treasury stock is resold for less than its original purchase price, the difference between the original purchase price and the resell price is recorded as a debit to Paid-in capital-Treasury Stock account. This account is credited with the original cost of treasury shares purchase by the company. If the account has enough balance, it can be debited to cover the loss incurred on the resale of the shares. This approach results in a reduction of the amount of paid-in capital and does not affect retained earnings. Hence, option B is the correct choice.

Question 2

HiTech Industries reacquired 10,000 shares of its $25-par common stock for $61/share.The debit to Treasury Stock will be:

Accepted Answer

The debit to Treasury Stock is calculated by multiplying the number of shares reacquired by the price per share: 10,000 shares * $61/share = $610,000.

Question 3

In addition to the regular financial statements,a company may issue a separate Statement of Stockholders' Equity.

Accepted Answer

This statement shows the changes in a company's stockholders' equity over a period of time, including contributions from shareholders, net income, and any changes in the value of existing equity. It is often included as a separate statement along with the balance sheet, income statement, and cash flow statement in a company's annual report.

Question 4

HiTech Industries has 10,000 shares of treasury cost which it purchased for $61/share.It later resold 3,000 of those shares for $87/share.The amount to be credited to Paid-in Capital-Treasury Stock is:

Accepted Answer

The company resold 3,000 shares at a $26 profit per share ($87 - $61). The total profit is 3,000 shares * $26 = $78,000, which is credited to Paid-in Capital-Treasury Stock.

Question 5

Charmed,Inc.reacquired 5,000 shares of its $15-par common stock for $13/share.The debit to Treasury Stock will be:

Accepted Answer

The debit to Treasury Stock is calculated by multiplying the number of shares reacquired (5,000) by the price per share ($13), resulting in $65,000.

Question 6

Treasury stock is recorded at par value.

Accepted Answer

Treasury stock is recorded at cost, not par value.

Question 7

Common Stock is most often listed after Additional Paid-in Capital in the Stockholders' Equity section of the Balance Sheet.

Accepted Answer

The answer of Common Stock is most often listed after...

Question 8

Treasury stock transactions are uncommon among larger corporations.

Accepted Answer

Treasury stock transactions are common among larger corporations as they often buy back their own shares for various strategic reasons, such as to increase the value of remaining shares or to prevent takeover attempts.

Question 9

When a company purchases treasury stock,outstanding stock is computed as:

Accepted Answer

When a company purchases treasury stock, it reduces the outstanding shares available to the public. Therefore, the outstanding stock is computed as the issued stock minus the treasury stock. Option B represents this calculation. Option A adds the treasury stock to the issued stock, which is not correct. Option C subtracts the treasury stock from the authorized stock, which is not relevant to calculating outstanding stock. Option D adds the treasury stock to the authorized stock, which also does not reflect the calculation of outstanding stock.

Question 10

A company's stock that it reacquires is termed treasury stock.

Accepted Answer

This statement is true. Treasury stock is the term used to refer to a company's own stock that it purchases from the market or from its shareholders, and holds in its treasury rather than retiring it.

Question 11

Before a 5-for-3 stock split,the shares outstanding were 45,000 shares at $15 par.After the split,what was the par value and number of shares?

Accepted Answer

A 5-for-3 stock split means that for every 3 shares owned by an investor, they will receive 5 new shares. Therefore, the total number of outstanding shares after the split is 45,000 x (5/3) = 75,000 shares. 
The par value changes in proportion to the stock split ratio, so the new par value is $15 x (3/5) = $9/share. 
Therefore, the correct answer is B, 75,000 shares and $9/share.

Question 12

Charmed,Inc.has a $2,400 credit balance in Paid-In Capital-Treasury Stock.It sells 500 shares of treasury stock,which the company reacquired at $21/share,for $18/share.After the transaction,what will the balance be in the Paid-In Capital in Excess of Par-Treasury account?

Accepted Answer

The company sold 500 shares of treasury stock for $18/share, which is $3 less than the price they reacquired it for. This means they incurred a loss of $3/share, or a total loss of $1,500.

Since the credit balance in Paid-In Capital-Treasury Stock was $2,400 before the transaction, we can subtract the loss of $1,500 to get the new balance in the Paid-In Capital in Excess of Par-Treasury account, which is $900 (credit). Therefore, the correct answer is C.

Question 13

HiTech Industries has a $11,800 credit balance in Paid-In Capital-Treasury Stock.It sells 1,000 shares of treasury stock,which the company reacquired at $58/share,for $52/share.After the transaction,what will the balance be in the Paid-In Capital in Excess of Par-Treasury account?

Accepted Answer

The company sells the treasury stock at a loss of $6 per share ($58 - $52). For 1,000 shares, this results in a $6,000 loss. The loss is deducted from the Paid-In Capital-Treasury Stock account, reducing the $11,800 credit balance to a $5,800 credit balance.

Question 14

Anderson Industries purchased 1,000 shares of the company's issued common stock,paying $10 per share.To record the purchase,the journal entry will be:

Accepted Answer

When a company purchases its own shares, it records the transaction by debiting Treasury Stock and crediting Cash for the amount paid.

Question 15

Which of the following is TRUE regarding treasury stock?

Accepted Answer

Treasury Stock has a debit balance because it represents a reduction in shareholders' equity. It is recorded at cost, which is the amount paid to repurchase the shares. Therefore, both A and C are true statements about Treasury Stock. Choice B is incorrect because Treasury Stock is not an asset, but rather a reduction in shareholders' equity.

Question 16

Treasury stock receives neither voting rights nor dividends.

Accepted Answer

Treasury stock represents shares that a company has bought back from its shareholders. Since these shares are not outstanding, they do not have voting rights, and the company does not pay dividends on them.

Question 17

Treasury stock is a contra-equity account and carries a debit balance.

Accepted Answer

Treasury stock is treated as a reduction of equity and therefore has a debit balance, making it a contra-equity account.

Question 18

Which of the following is NOT a reason for a company to purchase treasury stock?

Accepted Answer

Purchasing treasury stock at a high price to increase total Stockholders' Equity does not make sense because it reduces the company's cash position and increases the amount of treasury stock held by the company, which does not necessarily lead to an increase in equity. A company may purchase treasury stock to reward valued employees, avoid a takeover by an outside company, or support the company's stock price by reducing the number of outstanding shares.

Question 19

Treasury stock decreases the number of outstanding shares of stock.

Accepted Answer

Treasury stock refers to the shares of a company's own stock that have been repurchased by the company and are being held in its treasury. As these shares are no longer held by outside shareholders, they are no longer considered outstanding and therefore decrease the number of outstanding shares of stock.

Question 20

Charmed,Inc.has 5,000 shares of treasury stock which it purchased for $13/share.It later resold 2,000 of those shares for $17/share.The amount to be credited to Paid-in Capital-Treasury Stock is:

Accepted Answer

The company resold 2,000 shares at a $4 profit per share ($17 - $13). Therefore, the amount credited to Paid-in Capital-Treasury Stock is 2,000 shares * $4 = $8,000.

Quiz 10: Corporations: Paid-In Capital and Retained Earnings