CA Corporate Accounting 2

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?

Accepted Answer

$13,000

Answer

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?

Accepted Answer

Cost method

Answer

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?

Accepted Answer

$110,000

Answer

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?

Accepted Answer

Spin-off

Answer

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?

Accepted Answer

$350,000

Answer

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.

(CA) Certified Accountant Practice Test

(CA) Certified Accountant Practice Test

CA Corporate Accounting 2