Question :
131. Treasury stock or treasury shares shares a firm has previously : 1230394
131. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of the following is/are not true?
A. Some firms believe that their own shares provide a good investment.
B. Evidence supports the notion that share prices often increase after a firm announces a share repurchase program.
C. Share repurchases reduce common shareholders’ equity and increase the proportion of debt in the capital structure, making the firm more risky and therefore less attractive to an unfriendly bidder.
D. Some firms even borrow cash to repurchase shares, which affects the debt ratios even more than using already available cash to reacquire shares.
E. Share repurchases use up available cash and thereby increase the attractiveness of the company to outsiders who believe that the stock buy back makes the company an attractive target.
132. Treasury stock or treasury shares are shares a firm has previously issued and later reacquired. Which of the following is/are not true?
A. Some firms believe that their own shares provide a good investment.
B. Evidence supports the notion that share prices often increase after a firm announces a share repurchase program.
C. Rather than pay dividends to all shareholders, many of whom will owe personal income taxes on the entire dividend amount, the firm can buy back shares from those who wish to receive cash.
D. Some shareholders will have lower tax rates on receipts from sales of shares than on dividend receipts.
E. Share repurchases use up available cash and thereby increase the attractiveness of the company to outsiders who believe that the stock buy back makes the company an attractive target.
133. U.S. GAAP and IFRS on accounting for repurchases and reissuances of treasury shares follow the principle that
A. a corporation does not report a gain or loss on transactions involving its own shares.
B. the economic gain, or economic loss, are a component of accounting income.
C. that views treasury stock purchases and sales as operating transactions and therefore debits Cash (for economic gains) or credits Cash (for economic losses).
D. the effects are recognized in net income, other comprehensive income and Accumulated Other Comprehensive Income, and often Retained Earnings (depending on the specific accounting method used).
E. none of the above
134. Firms use this method when management and the governing board do not intend to reissue shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares.
A. cost method, only.
B. par value method, only.
C. constructive retirement method, only.
D. cost, par value, and constructive retirement methods.
E. none of the above
135. When a firm reacquires common shares under the Cost Method,
A. the Treasury Stock—Common account has a debit balance and therefore reduces total shareholders’ equity.
B. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
C. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
D. the Treasury Stock—Common account has a credit balance and therefore reduces total shareholders’ equity.
E. the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
136. When a firm reacquires common shares under the Par Value Method for Repurchased Shares,
A. the Treasury Stock—Common account has a credit balance that reduces the amount of Marketable Securities reported on the balance sheet.
B. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
C. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
D. the Treasury Stock—Common account has a credit balance and therefore reduces total shareholders’ equity.
E. the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
137. When a firm reacquires common shares under the Constructive Retirement Method for Repurchased Shares,
A. the Treasury Stock—Common account has a debit balance and therefore reduces total shareholders’ equity.
B. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
C. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
D. the Treasury Stock—Common account has a credit balance and therefore reduces total shareholders’ equity.
E. the accountant credits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price
138. When a firm uses the par value method to account for treasury shares, ________________.
The par value method requires specific identification of the date and initial proceeds of the shares repurchased, which is why firms seldom use this method.
A. the accountant debits the Treasury Stock—Common account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price and the original issue price.
B. the accountant debits the Common Stock account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price and the original issue price.
C. the accountant debits the Common Stock account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Retained Earnings for any difference between the repurchase price and the original issue price.
D. the accountant debits the Retained Earnings account for the par value of the repurchased shares, credits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Common Stock account for any difference between the repurchase price and the original issue price.
E. the accountant debits the Retained Earnings account for the par value of the repurchased shares, debits Additional Paid-In Capital for the difference between the original issue price of the shares and par value, and plugs Common Stock account for any difference between the repurchase price and the original issue price.
139. In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price. If the firm uses the cost method, it debits the balance to
A. Additional Paid-In Capital account so long as that account has a sufficiently large credit balance. To the extent the required debit exceeds the credit balance in the Additional Paid-In Capital account, the firm reduces that account to zero and debits the excess to Retained Earnings.
B. Additional Paid-In Capital.
C. Retained Earnings.
D. Net Income.
E. Accumulated Other Comprehensive Income.
140. In some cases, particularly when the reissue of treasury stock results from the exercise of employee stock options, the amount paid by the firm to reacquire the treasury shares exceeds the subsequent reissue price. If the firm applied the constructive retirement method, it is unlikely that the reissue price would be so low as to require a debit to _____.
A. Additional Paid-In Capital account so long as that account has a sufficiently large credit balance. To the extent the required debit exceeds the credit balance in the Additional Paid-In Capital account, the firm reduces that account to zero and debits the excess to Retained Earnings.
B. Additional Paid-In Capital.
C. Retained Earnings.
D. Net Income.
E. Accumulated Other Comprehensive Income.
