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From pages 10-2 and 10-3 of the VLN, when a corporation goes to the stock market and buys the corporation's stock, the stock becomes treasury stock. Which of the following statement is false regarding treasury stock? Group of answer choices A. Treasury stock is still part of the issued shares but they are no longer outstanding. B. Treasury stock has no effect on the common stock account. C. Treasury stock will receive dividends when the corporation declares them. D. Treasury stock is recorded at cost.

From pages 10-2 and 10-3 of the VLN, when a corporation goes to the stock market and buys the corporation's stock, the stock becomes treasury stock. Which of the following statement is false regarding treasury stock? Group of answer choices A. Treasury stock is still part of the issued shares but they are no longer outstanding. B. Treasury stock has no effect on the common stock account. C. Treasury stock will receive dividends when the corporation declares them. D. Treasury stock is recorded at cost.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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From pages 10-2 and 10-3 of the VLN, when a corporation goes to the stock market and buys the corporation's stock, the stock becomes treasury stock. Which of the following statement is false regarding treasury stock? Group of answer choices A. Treasury stock is still part of the issued shares but they are no longer outstanding. B. Treasury stock has no effect on the common stock account. C. Treasury stock will receive dividends when the corporation declares them. D. Treasury stock is recorded at cost.
TREASURY STOCK -Contra Equity (reduces SEà does NOT reduce common stock) -Issued but NOT outstanding -Recorded at COST -No voting rights -No dividend or distribution rights Economic Gain on sale of Treasury Stock (Resold for more than cost) -not shown as a GAIN -increase Additional paid in capital Economic Loss on sale of Treasury Stock (Resold for less than cost) -not shown as a LOSS -decrease Additional paid in capital if available, or, if not available -decrease Retained Earnings Practice (a) A firm purchases 1,000 shares of their $0.10 par common stock for $12 per share, record the purchase. Balance Sheet Income Statement Liabilities Stockholders' Equity Revenues Expenses Net Income Assets Cash -12,000 Treasury stock + 12,000à SE -12,000 Cash Treasury Stock APIC-TS (b) A firm resells 100 shares of the treasury stock purchased above for $14 per share, record the sale. (c) A firm resells 100 shares of the treasury stock purchased above for $11 per share, record the sale.
Transcribed Image Text:TREASURY STOCK -Contra Equity (reduces SEà does NOT reduce common stock) -Issued but NOT outstanding -Recorded at COST -No voting rights -No dividend or distribution rights Economic Gain on sale of Treasury Stock (Resold for more than cost) -not shown as a GAIN -increase Additional paid in capital Economic Loss on sale of Treasury Stock (Resold for less than cost) -not shown as a LOSS -decrease Additional paid in capital if available, or, if not available -decrease Retained Earnings Practice (a) A firm purchases 1,000 shares of their $0.10 par common stock for $12 per share, record the purchase. Balance Sheet Income Statement Liabilities Stockholders' Equity Revenues Expenses Net Income Assets Cash -12,000 Treasury stock + 12,000à SE -12,000 Cash Treasury Stock APIC-TS (b) A firm resells 100 shares of the treasury stock purchased above for $14 per share, record the sale. (c) A firm resells 100 shares of the treasury stock purchased above for $11 per share, record the sale.
Treasury Stock: PREFERRED STOCK -Not normally voting -Preference in dividends -Fixed dividend rate (% of par or specified amount) -Cumulative (dividends in arrears) -Convertible -Redeemable -Mandatory Redeemable preferred stock is treated as debt on the balance sheet Par value or Stated value -legal capital -not market value Paid-In Capital -Preferred stock (PAR Value x number of shares ISSUED) -Common Stock (PAR VALUE x number of shares ISSUED) - Additional Paid-in Capital “APIC" or Capital in excess of Par No-par Stock Paid in capital all goes into common stock Practice A firm issues 50,000 shares of $0.10 par common stock for $10 per share, record the issuance. A firm issues 50,000 shares of $100 par preferred stock for $110 per share, record the issuance. A firm issues 50,000 shares of no par common stock for $10 per share, record the issuance. TREASURY STOCK -Contra Equity (reduces SEà does NOT reduce common stock) -Issued but NOT outstanding -Recorded at COST -No voting rights -No dividend or distribution rights Economic Gain on sale of Treasury Stock (Resold for more than cost) -not shown as a GAIN -increase Additional paid in capital Economic Loss on sale of Treasury Stock (Resold for less than cost) -not shown as a LOSS -decrease Additional paid in capital if available, or, if not available -decrease Retained Earnings
Transcribed Image Text:Treasury Stock: PREFERRED STOCK -Not normally voting -Preference in dividends -Fixed dividend rate (% of par or specified amount) -Cumulative (dividends in arrears) -Convertible -Redeemable -Mandatory Redeemable preferred stock is treated as debt on the balance sheet Par value or Stated value -legal capital -not market value Paid-In Capital -Preferred stock (PAR Value x number of shares ISSUED) -Common Stock (PAR VALUE x number of shares ISSUED) - Additional Paid-in Capital “APIC" or Capital in excess of Par No-par Stock Paid in capital all goes into common stock Practice A firm issues 50,000 shares of $0.10 par common stock for $10 per share, record the issuance. A firm issues 50,000 shares of $100 par preferred stock for $110 per share, record the issuance. A firm issues 50,000 shares of no par common stock for $10 per share, record the issuance. TREASURY STOCK -Contra Equity (reduces SEà does NOT reduce common stock) -Issued but NOT outstanding -Recorded at COST -No voting rights -No dividend or distribution rights Economic Gain on sale of Treasury Stock (Resold for more than cost) -not shown as a GAIN -increase Additional paid in capital Economic Loss on sale of Treasury Stock (Resold for less than cost) -not shown as a LOSS -decrease Additional paid in capital if available, or, if not available -decrease Retained Earnings
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