Chapter 18 Quiz - SOLUTION

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University of Pittsburgh *

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1205

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Finance

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Apr 3, 2024

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Question 1: Stockholders' Equity Section of Balance Sheet, as of 12/31/23 amounts (in $ millions) Common stock, 100 million shares authorized, 90 million shares issued and outstanding, $1 par $ 90 APIC - common stock 540 Treasury stock (120) Retained earnings 900 Total Stockholders' equity $ 1,410 The Stockholders' Equity section as of 12/31/23 is presented above. In 2024, the company repurchases 20 million shares for $8/share and retires the shares. Write the appropriate journal entry for the stock retirement. If no journal entry is required, write “No JE” in the table provided. The balance in Treasury stock relates to 30 millions shares that were purchased for $4/share in 2021. Consider this JE independently from any other journal entry you have recorded on this quiz. Only consider the information in this question. The questions in this quiz are presented in random order. Enter all amounts in $ millions. Round to the nearest $0.1 million. Not all lines are not necessarily used. Account Name Debit Credit Common stock 20 APIC – common 120 Cash 160 Retained Earnings 20 Effect on Total SE: Decrease Effect on Statement of Cash Flows: Outflow

Question 2: All of the following will occur when a company executes a 2-1 stock split EXCEPT: The par value of the stock will double Question 3: Stockholders' Equity Section of Balance Sheet, as of 12/31/23 amounts (in $ millions) Common stock, 100 million shares authorized, 90 million shares issued and outstanding, $1 par $ 90 APIC - common stock 540 Treasury stock (120) Retained earnings 900 Total Stockholders' equity $ 1,410 Required: The Stockholders' Equity section as of 12/31/23 is presented above. The balance in Treasury Stock relates to 30 millions shares that were purchased for $4/share in 2021. In 2024, the company resold 10 million of these treasury shares treasury shares for $2/share. Write the appropriate journal entry for reselling the treasury stock. Account Name Debit Credit Cash 20 Treasury Stock 40 Retained earnings 20 Effect on Total SE: Increase Effect on Statement of Cash Flows: Inflow

Question 4: Indicate whether the following transactions will cause an increase, decrease, or no change to Total Stockholders' Equity: The company declares and distributes a 10% stock dividend with fractional share rights of 5 million shares. Decrease Resell treasury stock for more than it was originally acquired for. Increase Acquire treasury stock Decrease Execute a 3-1 stock split. No change Question 5: A company issued 1 million shares of $1 par common stock in exchange for equipment. At the time of purchase, the company's common stock was current trading for $5/share. Write the journal entry for the issuance of the common shares. Account Name Debit Credit Equipment 5 Common stock 1 APIC – common 4 Effect on Total SE: Increase Effect on Statement of Cash Flows: non-cash Question 6: Select the answer where both transactions decrease Total Stockholders' Equity: (i) Retiring common stock; (ii) Acquiring treasury stock

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