Oslo Corporation had 200,000 shares of its S5 par value common stock outstanding
ID: 2339281 • Letter: O
Question
Oslo Corporation had 200,000 shares of its S5 par value common stock outstanding on July 1, 20X0. On this date, the company repurchased 5,000 of its shares in the open market at $15 per share. The company uses the cost method to account for treasury stock transactions. As a result of this purchase of treasury stock: (a) Total assets and total stockholders' equity decreased. (b) Total assets increased and total stockholders' equity decreased. (c) Total assets and total stockholders' equity increased. (d) Total assets and total stockholders' equity did not change. 13. A company acquired some of its own common shares at a price greater than both their par value and original issue price but less than their book value. The company uses the cost method to account for treasury stock. What is the effect of this transaction on total stockholders' equity and the book value per common share? 14. Book Value Per Share Increase Increase Increase Decrease 15. Helsinki Corporation incurred $8,000 of bond issuance costs when it issued, on August 1, 20X0, ten year debenture bonds dated July 1, 20xo. What amount of bond issue expense should Helsinki report in its income statement for the year ended December 31, 20xo? (a) 400. (b) 800. (c) $8,000. (d) 333. 16. Which of the following would not normally be accrued as a current liability at year end? (a) Interest on a note payable due but not yet paid. (b) Vacation pay earned but not used. (c) A loss that is possible and measurable. (d) State and federal unemployment taxes on wages earned but not yet paid.Explanation / Answer
13.
Correct answer is (a) Total assets and total stockholders’ equity decreased
On purchase of treasury stock, the company shall pay cash and shall account the repurchased shares as treasury stock. The treasury stock shall be disclosed as deduction from stockholders’ equity which will lead to decrease in stockholders’ equity and outflow of cash shall lead to decrease in cash.
14.
Correct answer is (b)
Purchase of treasury stock shall lead to decrease in total stockholders’ equity as it will be disclosed as deduction in stockholders’ equity. Since the shares were repurchased at a price less than the book value, the decrease in book value of equity shall be less than the decrease in number of shares and hence the book value per share shall increase.
15.
Correct answer is (a) $400
Total bond issuance costs = $8,000
Life of bonds = 10 years
Annual amortisation of bond issuance cost = $8,000 / 10 years = $800
Expense to be reported from July 1 to December 31 = $800 * 6 months / 12 months = $400
16.
Correct answer is (c) A loss that is possible and measurable
A loss is not accounted as liability but charged to profit and loss account only if it certain to be incurred.
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