Question

For Questions 1 through 5, use the following information

MVP Corp. issues common stock on 1/1/2018. All Shareholders’ Equity accounts have a $ 0 as of that day. On 1/1/2018, they issue 20,000 shares of $1 par common stock (they are authorized to issue 55,000 shares). The issue price of the shares was $26/share. On 4/5/2018, MVP repurchases 3,000 shares of their common stock at the market price of $29/share. They are not retiring the shares. On 7/19/2018, they sell 1,000 of those shares at the market price of $25/share; on 9/15/2018 they sell an additional 1,000 shares at the new market price of $29/share. During 2018, MVP reports net income of $114,500. They declare a cash dividend of $11,500 on 11/30/2018. MVP’s policy is to pay dividends 60 days after they are declared.

1. As of 1/31/2018, what are the balances in MVP's equity account(s)?

A. Common Stock $20,000 and PIC-Excess of par $ 500,000

B. Common stock $ 55,000 and PIC--Excess of par $ 1,375,000

C. Common stock $ 520,000

D. Common stock $ 1,430,000

E. Common stock $20,000; PIC-Excess of par $ 500,000; Treasury Stock $ 910,000

2. The repurchase of shares on 4/5/2018 has which effect:

A. Increase shareholders' equity by $ 87,000

B. Decrease shareholders' equity by $ 87,000

C. Decrease common stock by $ 3,000

D. Increase common stock by $ 3,000

E. None of the above

3. As of 12/31/2018, the balance in the Treasury stock account is

A. Debit of $ 30,000

B. Credit of $ 30,000

C. Debit of $ 29,000

D. Credit of $ 29,000

E. $ 0

4. When recording the share resale of 9/15/2018, which of the following is part of the journal entry?

A. Debit common stock $ 1,000

B. Credit treasury stock $ 32,000

C. Debit treasury stock $ 29,000

D. Credit paid-in-capital: share repurchase $, 3,000

E. Credit retained earnings $ 3,000

5. How many outstanding shares of common stock will MVP report as of 12/31/2018?

A. 55,000

B. 20,000

C. 17,000

D. 19,000

E. 35,000

Answer 1

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MVP	Amount $
Common Stock
Date- 1st January
Number of shares issued	20,000.00
Par Value	1.00
Total Par Value	20,000.00
Issue Value	26.00
Par Value	1.00
Paid in capital in excess of par- Common Stock	25.00
Number of shares issued	20,000.00
Paid in capital in excess of par- Common Stock	500,000.00
Answer to 1 is option A.
Date- 4/5/2018
Treasury Stock sold
Number of shares repurchased	3,000.00
Purchase Value	29.00
Total cost of Treasury Stock repurchased	87,000.00
Answer to 2 is option B.
Date- 12/31/2018
Number of shares repurchased	3,000.00
Less: Number of shares sold	2,000.00
Shares remaining	1,000.00
Purchase Value	29.00
Total cost of Treasury Stock sold	29,000.00
Answer to 3 is option C.
Answer to 4 is option C.
Answer to 5 is option D.