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Below are my answers.
1. Presented below is information related to ABC Corporation:
2. How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?
Credit: Treasury stock
Credit: Paid-in capital - Treasury stock
b. As paid-in capital from treasury stock transactions.
3. ABC Corporation owned 900,000 shares of XYZ Corporation stock. On December 31, 2007, when ABC's account "Investment in Common Stock of XYZ Corporation" had a carrying value of $5 per share, ABC distributed these shares to its stockholders as a dividend. ABC originally paid $8 for each share. XYZ has 3,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a XYZ share was $7 on the declaration date and $9 on the distribution date.
What would be the reduction in ABC's stockholders' equity as a result of the above transactions?
At declaration date, the following is recorded
Debit: Retained earnings ($5x900000)
Credit: Dividends payable
The amount to be distributed is the carrying value of the investment since the company did not realize any gain or loss from the transaction
4. ABC Company has 350,000 shares of $10 par value common stock outstanding. During the year, ABC declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later ABC declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by:
Stock dividend 350000*10% = 35000 => small stock dividend hence, retained earnings is debited for the market value of the stock = 35000x30=1050000
Cash dividends = (350,000+35000)*0.50=192,500
Total debit to RE=192,500+1050000=1242500
5. The rate of return on common stock equity is calculated by dividing:
(Net income - dividends to preferred)/CSHE
a. net income less preferred dividends by average common stockholders' equity.
6. ABC Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 200, $1,000 bonds with the warrants attached was $205,000. The market price of the ABC bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000. What amount should be allocated to the warrants?
7. Compensation expense resulting from a compensatory stock option plan is generally:
c. allocated to the periods benefited by the employee's required service.
Depreciation expenses are evaluated.