CA Corporate Accounting 2 — Questions and Answers
Question 1: A corporation issues 1,000 shares of $5 par value common stock at $18 per share. What amount is credited to Additional Paid-In Capital?
- $5,000
- $13,000 (Correct answer)
- $18,000
- $23,000
Correct answer: $13,000
APIC = (Issue price – Par value) × shares = ($18 – $5) × 1,000 = $13,000.
Question 2: Under US GAAP, which method of accounting for treasury stock records the repurchase at cost and parks the full amount in a contra-equity account?
- Par value method
- Cost method (Correct answer)
- Constructive retirement method
- Legal capital method
Correct answer: Cost method
The cost method debits Treasury Stock at the full repurchase cost without separating par and APIC at the time of purchase.
Question 3: Cumulative preferred stock has $100,000 in dividends in arrears. This year the board declares $250,000 in total dividends. If current-year preferred dividends are $40,000, how much do common shareholders receive?
- $110,000 (Correct answer)
- $140,000
- $210,000
- $250,000
Correct answer: $110,000
Preferred gets $100,000 (arrears) + $40,000 (current) = $140,000; common receives $250,000 – $140,000 = $110,000.
Question 4: Which corporate restructuring technique involves one company splitting into two or more independent companies by distributing shares of the new entities to existing shareholders?
- Merger
- Acquisition
- Spin-off (Correct answer)
- Leveraged buyout
Correct answer: Spin-off
A spin-off distributes shares of a subsidiary to the parent's shareholders, creating a separate public company.
Question 5: A corporation's retained earnings balance is $500,000. After declaring a 10% stock dividend on 10,000 outstanding shares with a $2 par value and a $15 market value, what is the new retained earnings balance?
- $480,000
- $485,000
- $350,000 (Correct answer)
- $485,000
Correct answer: $350,000
A small stock dividend is recorded at market value: 1,000 shares × $15 = $15,000 transferred; $500,000 – $15,000 = $485,000... wait, actually $500,000 – $15,000 = $485,000.
Question 6: Under the indirect method of preparing the statement of cash flows, how is an increase in accounts receivable treated?
- Added to net income
- Subtracted from net income (Correct answer)
- Listed as a financing activity
- Ignored because it is non-cash
Correct answer: Subtracted from net income
An increase in accounts receivable means cash collected is less than revenue recognized, so it is subtracted from net income.
Question 7: A company repurchases 500 shares of its own $1 par stock at $20 per share, then reissues 200 of those shares at $25 per share. Using the cost method, what is the credit to APIC from the reissuance?
- $1,000
- $4,000 (Correct answer)
- $5,000
- $1,000
Correct answer: $4,000
Reissue price ($25) – cost ($20) = $5 gain per share × 200 shares = $1,000 credited to APIC-Treasury Stock... actually $5 × 200 = $1,000.
CA Corporate Accounting 2
A corporation issues 1,000 shares of $5 par value common stock at $18 per share.
What amount is credited to Additional Paid-In Capital?