Question

9. Andrews, Inc. paid $45,000 to buy back 9,000 shares of its $1 par value common stock. This stock was sold later at a selling price of $6 per share. The entry to record the sale includes a

a. credit to Paid-in Capital from Treasury Stock for $9,000.

b. credit to Common Stock for $9,000.

c. debit to Paid-in Capital from Treasury Stock for $45,000.

d. debit to Retained Earnings for $45,000.

10. Restrictions of retained earnings

a. are reported on the balance sheet as liabilities.

b. do not change total stockholders' equity.

c. provide insurance coverage for contingencies.

d. are reported as expenses on the income statement.

11. Ownership of common stock ordinarily carries the right to

a. declare dividends.

b. establish a drawing account.

c. enter into contracts for the corporation.

d. vote on corporate actions that require stockholder approval.

12. Which of the following may either increase or decrease retained earnings?

a. Stock dividends

b. Disposals of treasury stock

c. Net income

d. Prior period adjustments

13. Common Stock Dividends Distributable is reported in the balance sheet

a. as an addition to retained earnings.

b. as an asset.

c. in paid-in capital as an addition to common stock issued.

d. as a liability.

14. Under the equity method of accounting, the investment in common stock is initially recorded at cost and the investment account is subsequently

a. credited for cash dividends received.

b. debited for the investor's share of investee net income.

c. debited for cash dividends received and credited for the investor's share of investee net income. d. both a and b.

15. The preparation of consolidated financial statements is useful to

a. only the subsidiary company.

b. creditors of the subsidiary company.

c. only the parent company.

d. both the parent and the subsidiary company.

16.. The account Unrealized Loss—Income is reported

a. as a contra account in the stockholders' equity section of the balance sheet.

b. in the other expenses and losses section of the income statement.

c. in the operating section of the income statement.

d. as a contra account in the current asset section of the balance sheet.

Answer 1

9. The total par value will be 9000 X 1 = $9,000. Whenever the stock is issued, par value will be credited to the common stock account only. The treasury stock account will contain the total value arrived at the price of $6.

Answer: b

10. Stockholders equity comprises retained earnings. So any change in the retained earnings will also impact the stockholders’ equity. Retained earning is not an expense but an accumulated income. Restricted retained earnings cannot be utilised to declare dividend. Although it is an income but it becomes a liability on the balance sheet and cannot be distributed as dividend.

Answer: a

11. Holders of common shares are entitled to voting rights on all the resolutions that require stockholders approval. Like appointment of managing director, termination of any director, change in the place of registered office, etc.

Answer: d

12. Stock dividend is issued from retained earning so it only decreases the retained earnings value. Net income is added to the retained earnings at the end of the accounting period. Net income can be a positive or a negative figure as there may be a profit or loss. So it can either increase or decrease retained earnings.

Answer: c

As per policy, I can solve first four sub parts of a question.