Chapter 7

Question 1

Treasury stock was sold at price that exceeds its cost. How should be recorded this excess ?

Answer 1

There is no gain or loss on the purchase and sale of treasury stock. Any difference goes to “paid-in capital”. If there is not enough paid-in capital to absorb a loss, it would debited (subtracted) from Retained Earnings.

Question 2

What retained earnings appropriation can be used to:

Answer 2

RE appropriation can be used to restrict earnings available for dividends. RE appropriation debits (reduces) “unappropriated RE” and sets up (credits) “appropriated RE”. It does not affect IS.

Question 3

Book value per common share formula

Answer 3

Common stockholders equity/ commons shares outstanding