Case 2. The board of directors for Atlantic Corporation met in January to address growing concerns about the declining stock price of the firm. Because the price per share was so low, the board decided that the company would buy back 10 million shares of outstanding stock. During the year, Atlantic Corporation repurchased the shares at a total cost of $62 million. With fewer shares in the hands of shareholders, the board of directors declared and paid a dividend on only those remaining shares outstanding. As a result of these activities, the price per share rose dramatically in only 10 months. The board of directors then felt it best to reissue the
Why does the board of directors want to recognize the $80 million excess from the treasury stock transactions as a gain? Why does the accountant want to recognize the $80 million as an increase in total equity? Who is right? Are any ethical issues involved? Does the board of directors have a strong argument that it does not matter whether the stock was Atlantic Corporation stock or any other company because all stock is the same? Do you have any additional thoughts?
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Financial Accounting
- Jackson & Company has no-par value common stock outstanding that is selling at $20 per share. The company's CEO believes that the stock price is undervalued and decides to buy back 10,000 shares. What is the financial statement effect of the purchase of the treasury stock? Balance Sheet Income Statement Assets Liabilities Equity Revenues Expenses = Net Income +arrow_forwardThe company also needed to acquire a series of parts to hold as stock on hand. At the end of the year the company had closing stock of $146,000. Of this figure the directors believed that $85,000 represented obsolete stock and wished to write off this amount. The financial accountant had not done this in deriving the profit of $750,000 as he was unsure of how to account for it in the financial accounts. The obsolete stock had been scrapped at the end of the year and taken to a metal recycler. The company directors come to you as the taxation adviser of the company and wish to know how each of the items mentioned above are to be treated for taxation purposesarrow_forwardPapasa Ka Sa Quali Corporation earned P540,000 during the year. The shareholder’s equity is composed of 30,000, P10 par value ordinary shares and 20,000,P30 par value 10% cumulative preference shares throughout the year. The board of directors decided not to declare dividends to help the company recover from the effects of pandemic. How much is the earnings per share presented in the financial statement?arrow_forward
- The Tornado Truck Body Company decides to repurchase 10,000 shares of its common stock on January 20. The stock has $1 par value, and the market value per share of common stock on January 20 is $8.75. The company decides to sell 5,000 of the treasury stock shares on April 30 for $9.00 per share. What is the amount of the gain recognized as a result of the transaction? Group of answer choices A)$40,000 b)$0 c)$45,000 d)$1,250 e)None of the abovearrow_forwardThe capital of Fever Grass Ltd. consists of fully paid up ordinary and preference shares. The governing regulations of Fever Grass Ltd. provide as follows: "17(a) Preference shareholders shall receive a cumulative preference dividend of 5% half yearly; and (b) Two votes shall be attached to each preference share issued." Due to an outbreak of the Pink Mealy bug disease, the production of bush tea has dramatically declined. The board of directors of Fever Grass Ltd. propose to alter clause 17(a) of the governing regulations to reduce the preference dividend from 5% to 2 % and to move a resolution to increase the voting rights of ordinary shareholders. Advise the preference shareholdersarrow_forwardRose Company had no short-term investments prior to this year. It had the following transactions this year involving short-term stock investments with insignificant influence. April 16 Purchased 3,500 shares of Gem Company stock at $24 per share. July 7 Purchased 2,000 shares of PepsiCo stock at $49 per share. July 20 Purchased 1,000 shares of Xerox stock at $16 per share. August 15 Received a $1.00 per share cash dividend on the Gem Company stock. August 28 Sold 2,000 shares of Gem Company stock at $30 per share. October 1 Received a $2.50 per share cash dividend on the PepsiCo shares. December 15 Received a $1.00 per share cash dividend on the remaining Gem Company shares. December 31 Received a $1.50 per share cash dividend on the PepsiCo shares. The year-end fair values per share are Gem Company, $26; PepsiCo, $46; and Xerox, $13. 4. Prepare the current asset section of the balance sheet for the fair value adjustment for Rose’s short-term investments.arrow_forward
- Papasa Ka Sa Quali Corporation earned P540,000 during the year. The shareholder's equity is composed of 30,000, P10 par value ordinary shares and 20,000,P30 par value 10% cumulative preference shares throughout the year. The board of directors decided not to declare dividends to help the company recover from the effects of pandemic. How much is the earnings per share presented in the financial statement? (2 Points)arrow_forwardThe market value of Yeates Corporation’s common stock had become excessively high. The stock was currently selling for $390 per share. To reduce the market price of the common stock, Yeates declared a 5-for-1 stock split for the 350,000 outstanding shares of its $12 par value common stock. Required: Determine the number of common shares outstanding and the par value after the split.arrow_forwardRose Company had no short-term investments prior to this year. It had the following transactions this year involving short- term stock investments with insignificant influence. April 16 Purchased 3,500 shares of Gem Company stock at $24 per share. Purchased 2,000 shares of PepsiCo stock at $49 per share. July 7 July 20 Purchased 1,000 shares of Xerox stock at $16 per share. August 15 Received a $1.00 per share cash dividend on the Gem Company stock. August 28 Sold 2,000 shares of Gem Company stock at $30 per share. October 1 Received a $2.50 per December 15 Received a $1.00 per share cash dividend on the PepsiCo shares. share cash dividend on the remaining Gem Company shares. December 31 Received a $1.50 per share cash dividend on the PepsiCo shares. The year-end fair values per share are Gem Company, $26; PepsiCo, $46; and Xerox, $13. 5. Identify the dollar increase or decrease from Rose's short-term stock investments on (a) its income statement for this year and (b) the equity…arrow_forward
- Rose Company had no short-term investments prior to this year. It had the following transactions this year involving short- term stock investments with insignificant influence. April 16 Purchased 3,500 shares of Gem Company stock at $24 per share. July 7 Purchased 2,000 shares of PepsiCo stock at $49 per share. Purchased 1,000 shares of Xerox stock at $16 per share. July 20 August 15 Received a $1.00 per share cash dividend on the Gem Company stock. August 28 Sold 2,000 shares of Gem Company stock at $30 per share. share cash dividend on the PepsiCo shares. October 1 Received a $2.50 per December 15 Received a $1.00 per share cash dividend on the remaining Gem Company shares. December 31 Received a $1.50 per share cash dividend on the PepsiCo shares. The year-end fair values per share are Gem Company, $26; PepsiCo, $46; and Xerox, $13. 2. Prepare a table to compare the year-end cost and fair values of Rose's short-term stock investments. Comparison of Cost and Fair Values for Stock…arrow_forward[The following information applies to the questions displayed below.] Rose Company had no short-term investments prior to this year. It had the following transactions this year involving short- term stock investments with insignificant influence. April 16 Purchased 8,000 shares of Gem Company stock at $21.25 per share. July 7 Purchased 4,000 shares of PepsiCo stock at $50.00 per share. July 20 Purchased 2,000 shares of Xerox stock at $15.00 per share. August 15 Received a $0.85 per share cash dividend on the Gem Company stock. August 28 Sold 4,000 shares of Gem Company stock at $28.00 per share. October 1 Received a $2.00 per share cash dividend on the PepsiCo shares. December 15 Received a $1.00 per share cash dividend on the remaining Gem Company shares. December 31 Received a $1.25 per share cash dividend on the PepsiCo shares. The year-end fair values per share are Gem Company, $23.50; PepsiCo, $47.25; and Xerox, $12.00. Problem 15-4A (Algo) Part 2 2. Prepare a table to compare the…arrow_forwardRose Apothecary has just purchased 22% (22,000 shares) of Warner Farms, Inc. They paid $15.30/share of stock. 6 months later, Warner Farms issues a cash dividend of $0.18 per share. 4 months later, due to a series of questionable cheeses, Warner Farms is in financial trouble. Warner Farms records a $250,000 loss. Shortly after the loss posted, Rose Apothecary decides to sell their shares. They sell all 22,000 shares for $3 per share. Required: Record the journal entries for all of the above transactions from the perspective of Rose Apothecaryarrow_forward
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