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Palak12
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| Posted: 21 Sep 2009 at 01:25 | IP Logged
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During the current year, Onal Co. purchased 10,000 shares of its own stock at $7 per share. The stock
was originally issued at $6. The firm sold 5,000 of the treasury shares for $10 per share. The firm uses
the cost method to account for treasury stock. What amount should Onal report in its income statement
for these transactions?
a. $0
b. $5,000 gain.
c. $10,000 loss.
d. $15,000 gain.
Choice "a" is correct.
doubt: is it coz its onli an increse in APIC of rs 15000 and not a gain
the entries r
T/S dr. 70000
to cash cr.70000
cash Dr 50000
to T/S cr.35000
to APIC-T/S cr. 15000
I just wanna make sure my understandin is rite
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Palak12
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| Posted: 21 Sep 2009 at 02:08 | IP Logged
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also one more doubt
During
2004, a former employee of Dane Co. began a suit against Dane for wrongful termination in
November 2003. After considering all of the facts, Dane's legal counsel believes that the former
employee will prevail and will probably receive damages of between $1,000,000 and $1,500,000, with
$1,300,000 being the most likely amount. Dane's financial statements for the year ended December 31,
2003, will not be issued until February 2004. In its December 31, 2003, balance sheet, what amount
should Dane report as a liability with respect to the suit?
a. $0
b. $1,000,000
c. $1,300,000
d. $1,500,000
Explanation
Choice "c" is correct.
doubt....y isnt it 1,000,000???we have to take the lesse of the range amts rit
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Palak12
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one more qn...cud someone give me J/E's for this qn....
On
January 1, Stunt Corp. had outstanding convertible bonds with a face value of $1,000,000 and an
unamortized discount of $100,000. On that date, the bonds were converted into 100,000 shares of $1 par
stock. The market value on the date of conversion was $12 per share. The transaction will be accounted
for with the book value method. By what amount will Stunt's stockholders' equity increase as a result of
the bond conversion?
a. $100,000
b. $900,000
c. $1,000,000
d. $1,200,000
Explanation
Choice "b" is correct.
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Palak12
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37. CPA Gridiron
University is a private university. A successful alumnus has recently donated $1,000,000 to
Gridiron for the purpose of funding a "center for the study of sports ethics." This donation is conditional
upon the university raising matching funds within the next 12 months. The university administrators
estimate that they have a 50% chance of raising the additional money. How should this donation be
accounted for?
a. As a temporarily restricted support.
b. As unrestricted support.
c. As a refundable advance.
d. As a memorandum entry reported in the footnotes.
Explanation
Choice "c" is correct.
???????
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bryris
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| Posted: 21 Sep 2009 at 09:17 | IP Logged
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1. Using the cost method, you debit TS for the amount of the purchase. In this case, 70,000. You then sold half of the stock for 3 dollars more than you bought it for which would be a credit to APIC - TS for 15,000.
However, no gain or loss is recognized on treasury stock transactions. Just adjust equity is all.
2. Since we are speaking of a contingent liability, it is only booked when it is "more likely than not" that the loss will occur. Otherwise, it is merely disclosed. In this case, the lawsuit was a culmination of events existing as of the balance sheet date (lawsuit initiated in November 2003) and the problem says its "probable", so the most likely loss is to be booked. Think - conservatism.
3. Book value method goes like this:
The debt is 1,000,000. Accordingly, when converted, 100,000 par is credited and the difference in plugged to APIC - 900,000 (no gain or less). Honestly, if 800,000 had been answer, I'd have likely picked it. But, I guess the discount/premium doesn't apply. I need to look that up to make sure.
4. When money is received subject to a matching clause, it is not yours (revenue, either restricted or not) until you've raised the matching funds. As such, you owe the money back until you meet the conditions. If you never raise the money, you will likely owe the money back to the donor unless they change their mind.
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Topic: doubt-AICPA released qn’s
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