Question

4. Toussaint Company issued 10,000 shares of its common stock in exchange for merchandise that it will resell. The merchandise had originally cost the other party $250,000 and had a fair value of $300,000 on the date of the exchange. The retail value of the inventory is $520,000. Toussaint Company is not publicly traded and cannot precisely determine the fair value of its stock. It has used some industry averages, however, and applied Black-Scholes-Merton and estimates the fair value of its stock to be about $28 per share. At what amount should the inventory be recorded?

Multiple Choice

$280,000

$250,000

$300,000

$520,000

5. Werth Company has 100,000 shares of $10 par value common stock and 5,000 shares of $100 par value 5% cumulative preferred stock outstanding. No dividends had been paid in either 2016 or 2017. Werth Company is planning to pay a cash dividend in 2018.

If the cash dividend is for $200,000 in total, how much will be received by common stockholders?

Multiple Choice

$125,000

$175,000

$140,000

$200,000

6. Maholm Company declared a cash dividend payable to common stockholders of record as of December 24, 2017. The dividend was declared on December 10, 2017 and will be paid on January 7, 2018. On what date or dates will stockholders’ equity decrease as a result of the dividend?

Multiple Choice

December 24, 2017 only

December 10, 2017 and January 7, 2018

December 10, 2017 only

January 7, 2018 only

7. Caradonna Company has 100,000 shares of $5 par common stock issued and outstanding as of January 1, 2018. The shares were originally issued for $22 per share. On February 3, 2018, Caradonna repurchased 5,000 shares at $19 per share for the purposes of retiring them. On April 10, 2018, Caradonna repurchased an additional 2,000 shares at $25 per share. No other transactions involving common stock occurred during the year. What will be the balance in additional paid in capital from retired stock as a result of those transactions?

Multiple choice

$21,000

$15,000

$9,000

$0

Answer 1

Toussaint Company -

Shares to third are issued always at fair value for which the goods or services are exchanged or other consideration received or fair value of securities whichever is easily determinable.Fair value of merchandise is $ 300000 so the transaction will be recorded at fair value $ 300000

Werth Company - $ 125000

Preference shares = 5000 x $ 100 = $ 500000 ; Dividend = $ 500000 x 5% = $ 25000 ;

Dividend for 3 years = $ 75000

Common Stock = $ 200000 - $ 75000 = $ 125000

Maholm Company -

December 10, 2017 only

Caradonna Company - $ 9000

The retirement on February 3 would require a cash payment of $95,000. The retired common stock will be cancelled at par, 5,000 × $5 or $25,000, and the original paid in capital from common stock will be eliminated, 5,000 × $17 or $85,000.

The entry will be balanced with a credit to additional paid-in capital from retired stock in the amount of $15,000.

The retirement on April 10 involves a payment of cash of $50,000, cancellation of common stock of 2,000 × $5 or $10,000, and a reduction to additional paid in capital from common stock of 2,000 × $17 or $34,000.

The entry will be balanced with a debit of $6,000. Since there is a $15,000 balance in additional paid in capital from retired stock, it will be reduced to $9,000. If the debit exceeded the balance in additional paid-in capital from retired stock, the excess would be a debit balance in retained earnings