Reading 33: Understanding the Balance Sheet - LOS h ～ Q1-4

答案和详解如下：

1.Earlier this year, Slayton Corporation repurchased 5% of its total shares outstanding. At the time, the book value of Slayton shares exceeded their market value. The shares are expected to be reissued in the future when the market price of Slayton’s stock increases. Do Slayton’s repurchased shares continue to have voting rights and to pay cash dividends?

A)  No                                       Yes

B)  Yes                                     No

C)   No                                     No

D)  Yes                                     Yes

The correct answer was C)

Repurchased stock that is not cancelled is called treasury stock. Treasury stock does not have voting rights and does not receive cash dividends.

2.Ascot Corporation has 4 million shares of common stock authorized, 2.4 million shares of common stock issued, and 1.8 million shares of common stock outstanding. How many shares of treasury stock does Ascot own and is the treasury stock reported as an asset in Ascot’s balance sheet?

A)  600,000                               Yes

B)  1.6 million                            No

C)  1.6 million                            Yes

D)  600,000                               No

The correct answer was D)

Shares that were issued previously but are not outstanding are treasury shares (owned by the firm). Thus, there are 600,000 treasury shares (2.4 million issued – 1.8 million outstanding). Treasury shares are reported as a reduction in shareholders’ equity on the balance sheet. Treasury stock is not an asset.

3.Carpenter Corporation reported the following statement of shareholders’ equity as of December 31, 2006:

During 2007, Carpenter:

§       earned net income of $1,700,000.

§       declared dividends of $300,000. $75,000 of the dividends remain unpaid.

§       purchased held-to-maturity securities for $100,000. The securities have a fair value of $110,000 at year-end.

§       purchased available-for-sale securities for $250,000. The securities have a fair value of $225,000 at year-end.

§       translated the financial statements of a foreign subsidiary and calculated a $90,000 unrealized gain.

§       purchased treasury stock for $75,000. The stock was valued at $60,000 when issued.

Calculate Carpenter’s retained earnings and accumulated other comprehensive income as of December 31, 2007.

A)  $11,900,000                         $65,000

B)  $12,125,000                         $515,000

C)  $12,125,000                         $65,000

D)  $11,900,000                         $515,000

The correct answer was D)

As of December 31, 2007, Carpenter’s retained earnings is $11,900,000 [$10,500,000 beginning balance + $1,700,000 net income – $300,000 dividends declared]. Accumulated other comprehensive income is $515,000 [$450,000 beginning balance – $25,000 unrealized loss from available for sale securities ($225,000 fair value – $250,000 cost) + $90,000 unrealized translation gain]. There is no impact on retained earnings or accumulated other comprehensive income from unrealized gains and losses on held-to-maturity securities since the securities are not reported at fair value on the balance sheet. The purchase of treasury stock does not affect comprehensive income because it is a transaction with shareholders.

4.Are the following statements about the par value of a firm’s common stock true or false?
Statement #1 – Par value is a nominal dollar value assigned to shares of stock in a corporation’s charter.
Statement #2 – The par value of common stock represents the amount the corporation received when the stock was issued.

A)  True                                    True

B)  False                                   False

C)  False                                   True

D)  True                                    False

The correct answer was D)

The par value of common stock is the stated or nominal value assigned to the stock. Par value has no relationship to market value. The amount the corporation receives from the issuance of common stock is equal to the par value plus the additional paid-in-capital (proceeds in excess of par).