Concept explainers
Concept introduction:
Treasury stock is the shares bought back by the company itself. A company may purchase its own shares and the shares bought back are called treasury stock. The
- For Purchase of treasury stock:
Treasury stock account is debited and cash account is credited with the cost of treasury stock purchased.
- For Sale / Reissuance of treasury stock:
Cash account is debited for the amount received on sale of treasury stock and the Treasury stock account is credited with the cost of treasury stock. For the difference in cost and sale value, Additional Paid in Capital and
Retained earnings accounts are adjusted.
To choose:
The correct statement about retirement of own Common stock.
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Chapter 10 Solutions
Cornerstones of Financial Accounting
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- Stock dividends and stock splits are similar in that both do not change total stockholders’ equity. (True/False) A company must accrue a liability for sick pay that accumulates but does not vest. (True/False) A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to complete a refinancing. (True/False) Federal income taxes should be included in an employer’s payroll tax expense. (True/False) Whether an employee earns $80,000 a year or $800,000 a year, all of the earnings will be subject to Medicare deductions. (True/False) To record compensated absences as a liability GAAP establishes four criteria. The employer needs to meet any two of these four criteria in order to recognize a liability for compensated absences. (True/False) Stock dividends and stock splits both cause the number of shares outstanding to increase and retained earnings to decrease. (True/False)arrow_forwardThe par value of common stock represents a. the estimated fair value of the stock when it was issued. b. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings. c. the total value of the stock that must be entered in the issuing corporation’s records. d. the amount that must be recorded on the issuing corporation’s record as paid-in capital.arrow_forwardWhich of the following statements related to dividends is incorrect? O Dividends must be paid in the period declared. O Before declaring a dividend, management must consider availability of funds to pay the dividend. O Distributions to owners must be in compliance with the state laws. O Dividends must be declared by the Board of Directors.arrow_forward
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