Question

Testbank Multiple Choice Question 104

Oriole Company has $2580000 of short-term debt it expects to retire with proceeds from the sale of 51000 shares of common stock. There is no contractual agreement to retire the debt with the stock sale proceeds. If the stock is sold for $25 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?

$2580000.

$1275000.

$1305000.

$0, No contractual agreement to retire the debt with stock proceeds.

Testbank Multiple Choice Question 40

Marigold Corp. purchased its own par value stock on January 1, 2020 for $18200 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $10800. The $7400 difference between the cost and sales price should be recorded as a deduction from

net income.

retained earnings.

additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.

Answer 1

1.

Answer :

"$0 No contractual agreement to retire the debt with stock proceeds".

Explanation:

Computation of Amount of Short-term Debt excluded from Current Liabilities:

Amount of Short-term Debt excluded from Current Liabilities = $0

As it is given that there is no contractual agreement to retire the debt with stock proceeds nothing will be excluded from current liabilities.

Another option is :-

b. 1,275,000.

25*51000=1,275,000

As the payment of debt is an adjusting event as per IAS 10. Therefore current liabilities shall be adjusted for the sale made of shares for payment of debt.

2.

Additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.