LOMA 361 - MODULE 2 - CH 9: ACCOUNTING FOR CAPITAL AND SURPLUS

LOMA 361 - MODULE 2 - CH 9: ACCOUNTING FOR
CAPITAL AND SURPLUS

Stock insurers typically use __________ accounts to record the issue or purchase of
their own stock. - Answers -capital

1) The stock issuer's issue (sale) of it's own common stock is recorded in the owner's
___________ account called Common Stock.

2) Stock issuers issue common stock to raise ___________. - Answers -1) equity
2) capital

Choose "debit" or "credit":

A typical accounting entry to record the issue and sale of an insurer's common stock at
par value is a _______ to Cash and a ________ to Common Stock.

** Recall that par value of a stock is the designated legal value assigned to each
outstanding share of stock - Answers -debit and credit

1) Proceeds from the sale of an insurer's common stock _________ its cash and its
owner's equity.

2) However, issuing (selling) common stock requires a stock insurer to pay transaction
costs that reduce its net ________ from the sale of the stock. - Answers -1) increase
2) proceeds

When issuing and selling the company's own common stock:

1) Assets _________
2) Liabilities no change
3) Capital and Surplus _______ - Answers -increase
increase

1) Preferred Stock is the owner's ________ account to which an insurer records the
sales and repurchases of its own preferred stock.

2) A typical accounting entry to record the issue and sale of the insurer's preferred stock
at par value is a _____ to Cash and a ______ to Preferred Stock. - Answers -1) equity
2) debit, credit

1) Proceeds from the sale of an insurer's preferred stock ________ its owners' equity
just as do proceeds from the sale of common stock.

, 2) In addition, a stock insurer that issues (sells) preferred stock must pay transaction
costs that __________ its net proceeds from the sale of the stock. - Answers -1)
increase
2) reduce

In contrast to common stock dividends, preferred stock dividends are payable according
to a ____________. - Answers -schedule

**Note: The insurer's board of directors may choose not to declare the payment of a
scheduled dividend on preferred stock if the insurer's circumstances warrants such a
choice.

If the selling price of the stock issue is greater than the stock's par value, insurers in the
US also _________ Additional Paid-In Capital (US GAAP) or Gross Paid-In and
Contributed Surplus (SAP) for the excess of the selling price over the par value. -
Answers -credit

Gross paid-in and contributed surplus is the __________ amount paid above the par
value for shares of an insurer's own stock under US statutory accounting. - Answers -
aggregate

What would the accounting entry look like for the sale of insurer common stock at
greater than par value under US GAAP? - Answers -Cash.............xxx
Common Stock................................xxx
Additional Paid-In Capital...........xxx

What would the accounting entry look like for the sale of insurer preferred stock at
greater than par value under US GAAP? - Answers -Cash..................xxx
Preferred Stock.........................xxx
Additional Paid-In Capital.....xxx

_____________ earnings represents the net income that an insurance company holds
to reinvest in the company instead of paying the money out in dividends to its
stockholders. - Answers -Retained

Under US GAAP, only specified transactions can directly increase or decrease the
Retained Earnings account, which include:

1) the amount of gains or losses from the company's operations
2) ___________ paid to stockholders
3) extraordinary items
4) monetary adjustments that result from changes in _________ procedures - Answers
-dividends
accounting