Question

On March 20, 2017 Cleaver Company issued 500,000 shares of $5 par value stock for $33...

On March 20, 2017 Cleaver Company issued 500,000 shares of $5 par value stock for $33 per share. On January 14, 2018, Cleaver Company repurchased 200,000 of those shares for $25 per share. How would Cleaver report the repurchase of their stock on their Balance Sheet?

A. Increase Common Stock by $5,000,000 and decrease Cash by $5,000,000
B. Increase Common Stock for $1,000,000, increase Additional Paid in Capital for $4,000,000 and decrease Cash by $5,000,000.
C. Increase Treasury Stock by $1,000,000, increase Additional Paid in Capital for $4,000,000 and decrease Cash by $5,000,000.

D. Increase Treasury Stock by $5,000,000 and decrease Cash by $5,000,000.

On March 20, 2017 Cleaver Company issued 500,000 shares of $5 par value stock for $33 per share. On January 14, 2018, Cleaver Company repurchased 200,000 of those shares for $25 per share. On February 18, 2018 Cleaver sold all of the repurchased shares for $28 per share. How would Cleaver report the sale of this on their Balance Sheet?

A. Increase Cash for $5,000,000 and decrease Treasury Stock for $5,000,000.
B. Increase Cash for $5,600,000 and decrease Treasury Stock for $5,600,000.
C. Increase Cash by $5,600,000, decrease Treasury Stock for $5,000,000 and increase Additional Paid-in Capital- Treasury Stock for $600,000.
D. Increase Cash by $5,600,000, decrease Treasury Stock for $5,000,000 and increase Common Stock for $600,000.

E. None of these answers are correct.

Turner Company has outstanding 50,000 shares of 8%, $20 par value preferred stock and 300,000 shares of $1 par value common stock. Turner declares a $450,000 cash dividend in the current year. Turner is two years in arrears on its dividends. Assuming that the preferred stock is cumulative, what amount will be distributed to the preferred stockholders and what amount will be distributed to the common stockholders?

Preferred                   Common

a. $8,000                   $300,000

b. $12,000                   $438,000

c. $80,000                   $370,000

d. $160,000                   $290,000

e. $240,000                   $210,000

Answer "a"
Answer "b"
Answer "c"
Answer "d"
Answer "e"
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Homework Answers

Answer #1

Solution 1:

Purchase cost of treasury stock = 200000*$25 = $5,000,000

To reflect purchase of treasury stock in balance sheet, "Increase Treasury Stock by $5,000,000 and decrease Cash by $5,000,000."

Hence option D is correct.

Solution 2:

To reflect sale of treasury stock in balance sheet, "Increase Cash by $5,600,000, decrease Treasury Stock for $5,000,000 and increase Additional Paid-in Capital- Treasury Stock for $600,000."

Hence option C is correct.

Solution 3:

Dividend to preferred shareholders = Current year dividend + Dividend in arrears

= (50000*$20*8%) + (50000*$20*8%*2) = $240,000

Dividend to common shareholders = $450,000 - $240,000 = $210,000

Hence option e is correct.

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