Grid Corp. acquired some of its own common shares at price greater than both the

ID: 2476191 • Letter: G

Question

Grid Corp. acquired some of its own common shares at price greater than both their par value and original issue price but less than their book value. Grid uses the cost method of accounting for treasury stock. What is the impact of this acquisition on total equity and the book value per common share? Total Equity Increase Increase Book Value per Share Increase Decrease Total Equity Decrease Increase Book Value per Share Increase Decrease Selectedinformation from the accounts of Row Co. at December 31,Year4,follows: Total income since incorporation $420,000 Total cash dividends paid $130,000 Total value of property dividends distributed $30,000 Excess of proceeds over cost of treasury stock sold, accounted for using the cost method $110,000 In its December 31, Year 4, financial statements, what amount should Row report as retained earnings? $260,000 $290,000 $370,000 $400,000 On December 1, Year 4, Line Corp. received a contribution of 2,000 shares of its $5 par value common stock from a shareholder. On that date, the stock's fair value was $35 per share. The stock was originally issued for $25 per share By what amount will this contribution cause total equity to decrease if Line accounts for treasury stock using the cost method? $70,000 $50,000 $20,000 $0 Ten thousand shares of $10 par value common stock were issued initially at $15 per share. Subsequently. 1.000 of these shares Were purchased as treasury stock at $13 per share. The cost method of accounting for treasury stock is used What is the effect of the purchase of the treasury stock on the amount reported in the balance sheet on each of the following? Additional Paid-In Capital Total Equity Additional Paid-In Capital No effect No effect Total Equity No effect Decrease Additional Paid-In Capital Decrease Decrease Total Equity No effect Decrease

Explanation / Answer

Ans c Total Equity will decrease and Book value per share decrease.

As treasury stock is buy back of its own shares so it decreases total equity.

As book value per share is determined by no. of common shares outstanding, so common shares are reduced by treasury stock so it decreases the denominator and numerator also decreases by the cost of purchase of shares but the overall impact is increase in book value of shares.

Ans 20 A $260000

Retained earnings= Opening Balance-Cash dividend-Property dividend=$420000-$130000-30000=$260000

Note excess of proceeds overcost of tresury stock account for using cost method will not be included becuse tresuary stock effcet retained earnings onlu in the case if stock is sold below cost and also the difference exceeds the paid in capital in tresury stock.

Ans 21 d $0

There is no increse or decrease in stockholder equity because it a donation of its own stock from a shareholder so there is no cost to corporation, The entry is Dr Donated Tresuary stock and cr Additional paid in capital at fair market value, so no effect on stockholder equity.

Ans 22 d Additional paid in capital decreses and total equity decreases

The entry is Treasury Stock Dr $13000

CAsh $13000

Common stock (1000*$10 par value) Dr 10000

Additional paid in capital (1000*$3) 3000

Treasury stock $13000

Navigate

Grid Corp acquired some of its own common shares at a price greater than both th

Grid Corp. acquired some of its own common shares at price greater than both the

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.

Grid Corp. acquired some of its own common shares at price greater than both the

Question

Explanation / Answer

Related Questions

Navigate