Dragon Company retires shares that it buys back. It has no existing “Paid in Capital, retired stock” account. In its first share repurchasetransaction, Dragon purchased stock for more than the price at which the stock was originally issued. What is the effect of the purchase of the stock on retained earnings?

		Unable to determine.
		No effect.
		Increase.
		Decrease.

Southern Tea Inc. purchased equipment for $30,000,000 at the beginning of 2020. Southern Tea uses straight-line depreciation for financial reporting and accelerated depreciation for tax purposes. The carrying value of the equipment according to book basis and tax basis are below.

	12/31/2020	12/31/2021
Book basis	$27,000,000	$24,000,000
Tax basis	$24,000,000	$17,000,000

There were no other temporary differences and no permanent differences. Pretax accounting income for the year 2021 was $25,000,000. A tax rate of 25% applies to all years.

The journal entry for 2021 income taxes would include a credit to Deferred Tax Liability for:

		$3,000,000.
		$1,000,000.
		$6,000,000.
		$1,750,000.

Lamb Co. had 30 million shares of $1 par common stock outstanding at January 1, 2021. In October 2021, Lamb Co.’s Board of Directors declared and distributed a 1% common stock dividend when the market value of its common stock was $60 per share. In recording this transaction, Lamb Co. would:

		Debit retained earnings for $18 million.
		Credit paid-in capital—excess of par for $18 million.
		Credit common stock for $18 million.
		Debit retained earnings for $300,000.

The calculation of diluted earnings per share assumes that stock options were exercised and that the proceeds were used to:

		Increase net income.
		Buy treasury stock.
		Retire preferred stock.
		Buy common stock of other corporations as an investment.

Issued stock refers to the number of shares:

		That may be issued under state law.
		Shares issued for cash.
		Owned by shareholders.
		Outstanding plus treasury shares.

Answer rating: 100% (QA)

1 The effect of the purchase of the stock on retained earnings is unable to determine The reason for this is that the purchase price of the stock is n... View the full answer