This is “End-of-Chapter Exercises”, section 16.6 from the book Business Accounting (v. 2.0).
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Bob Wills, Susan Oglethorpe, and Billie Elkins form a business and decide to have it formally recognized as a corporation. Which of the following is the most likely reason for that decision?
Which of the following rights is most typical for the owners of a corporation’s common stock?
Landon Corporation sold 16,000 shares of $0.50 par value common stock for $17 per share. Which of the following is the journal entry Landon should make?
Jackson Company is authorized to issue 20,000 shares of $1 par value stock. On February 1, Year One, it issues 4,000 shares for $9 per share. On July 1, Year One, the company pays a $1 per share cash dividend. On December 1, Year One, the company buys back 1,000 shares of its own stock at $11 per share. Treasury stock is reported at its cost. On a December 31, Year One, balance sheet, what is reported as Capital in Excess of Par Value?
Paul Mitchell purchased a licensing agreement for $40,000 from a well-known restaurant chain. Subsequently, Traylor Corporation agreed to issue 2,000 shares of its common stock to Mitchell in exchange for this licensing agreement, which now has a value of $30,000. At the time of the exchange, Traylor’s $2 par value stock was selling for $14 per share. For what amount should Traylor report the licensing agreement?
Kramer Company is authorized by the state to issue 10,000 shares of 8 percent, $100 par value preferred stock. On January 1, Year One, Kramer issues 5,000 shares for $125 per share. On December 13, Year One, Kramer’s board of directors declares the annual dividend to owners on record as of January 3, Year Two. The dividend will be distributed January 18, Year Two. What liability should Kramer Company report on its December 31, Year One, balance sheet as a result of this dividend?
Barbara Waterman bought 10,000 shares of $2 par value common stock directly from the Towsend Corporation for $13 per share. Later she sold these shares to Benjamin Duke for $17 per share. Subsequently, he sold 2,000 of these shares back to Towsend for cash of $19 per share. The cost method is in use for the treasury stock. Just based on these transactions, what is the total amount reported by the company as its stockholders’ equity.
The Kansas-Kentucky Corporation is started on January 1, Year One. The company issues 100,000 shares of its $1 par value common stock for $8 per share. Subsequently, the company reports net income of $40,000 each year and pays an annual cash dividend of $10,000. In Year Three, the company reacquires 10,000 of these shares for $15 each. The cost method is to be applied to the treasury stock. Several weeks later, the company reissues 1,000 shares of this stock for $17 per share. A few days later, another 2,000 shares are reissued for $12 per share. At the end of Year Three, what should the company report as its retained earnings?
The Gewrty Corporation issues a 50 percent stock dividend. Which of the following is true about this event?
The Anglewood Corporation has 200,000 shares of its $1 par value common stock outstanding. These shares currently have a market price of $15 each. The company decides to issue a 10 percent (20,000 shares) stock dividend. At the last moment, the board of directors decides to increase this stock dividend to 30 percent (60,000 shares). Which of the following is true about the impact of the change in this decision?
The Kearsey Corporation issues 10,000 shares of its own common stock (with a $10 per share par value) for cash of $12 per share. Several months later, the company reacquires 1,000 shares of its own stock for $15 per share. This treasury stock is to be reported using the cost method. Which of the following statements is true?
Portor Corporation is authorized to issue 150,000 shares of its $0.25 par value common stock. It currently has 90,000 shares issued and outstanding. Portor plans to declare a stock dividend and is curious about the effect this will have on retained earnings. Portor’s stock has a current market value per share of $26. Portor is trying to decide between a 5 percent stock dividend and a 40 percent stock dividend. Which of the following shows the reduction caused by each on retained earnings?
|5% Stock Dividend||40% Stock Dividend|
Falls Church Corporation ended Year Four with revenues of $98,000 and expenses of $86,000. The company distributed a cash dividend of $8,000 during the year. No stock transactions occurred. On the year-end balance sheet, the stockholders’ equity accounts total $492,000. Which of the following is Falls Church’s return on equity (ROE) for the year?
Fleming Corporation began and ended the current year with 50,000 outstanding shares of common stock. These shares were paid a $0.20 per share cash dividend. Net income for the year totaled $480,000. The company also had 10,000 shares of preferred stock outstanding throughout the year that paid dividends of $30,000. Which of the following figures is reported as Fleming’s basic earnings per share?
The Houston Corporation started the year with 190,000 shares of common stock but issued 40,000 more shares on April 1 of the current year. The company also has 30,000 shares of preferred stock outstanding for the entire year. During the year, net income of $710,000 was reported. Cash dividends were paid during the year; $50,000 was distributed to the owners of the preferred stock and $30,000 to the owners of the common stock. What should be reported as basic earnings per share for this year (rounded)?
The Zerton Corporation ends Year One with net income of $400,000 and 100,000 shares of common stock issued and outstanding. The company also has 30,000 shares of $50 par value preferred stock issued and outstanding. During the year, the company distributed a $1 per share cash dividend on its common stock and a $2 per share cash dividend on its preferred stock. Each share of preferred stock is convertible into two shares of common stock. What should the company report as its basic earnings per share (rounded)?
Friar Inc. reported net income for Year Five of $1,870,000. It had 600,000 shares of common stock outstanding on January 1, Year Five, and repurchased 150,000 of those shares on September 1, Year Five, as treasury stock. The company has no preferred stock. At the end of Year Five, Friar’s stock was selling for $26 per share. Which of the following is Friar’s price-earnings ratio on that date?
Professor Joe Hoyle discusses the answers to these two problems at the links that are indicated. After formulating your answers, watch each video to see how Professor Hoyle answers these questions.
Your roommate is an English major. The roommate’s parents own a chain of ice cream shops located throughout Florida. One day, while waiting for an appointment with an academic advisor, your roommate asks you the following question: “My parents started their business originally as a partnership. However, after a year or two, they switched over and had the business incorporated. Since then, they complain every year about double taxation. What does that mean? And, if double taxation is so bad, why didn’t they just continue to function as a partnership? They seemed happier before they made this switch.” How would you respond?
Your uncle and two friends started a small office supply store several years ago. The company has grown and now has several large locations. Your uncle knows that you are taking a financial accounting class and asks you the following question: “We are planning to build a new store in a town that is 50 miles from our headquarters. For us, this is a major expansion. We are going to need several million dollars in cash. We have looked at several options for raising this money. Our financial advisor has recommended that we issue preferred stock. I’m not totally sure what this means. And, I’m not sure why we wouldn’t just be better off to issue additional shares of the corporation’s common stock. Why is our financial advisor giving us this advice?” How would you respond?
McNair Corporation is authorized to issue 150,000 shares of 5 percent, $200 par value preferred stock. On January 22, McNair issues 32,000 shares of this preferred stock for $225 per share. The board of directors for McNair declares the annual preferred dividend on September 1, payable to owners on record as of September 17, with the money to be distributed on October 1.
Several years ago, Douglas Company issued 33,000 shares of its $1 par value common stock for $18 per share. In the current year, Douglas’s board of directors approves a plan to buy back a portion of these common stock shares. Prepare journal entries for each of the following transactions and events.
The following are a number of transactions and events for the Nielsen Corporation. For each, prepare the necessary journal entry. If no entry is required, please indicate that.
At the beginning of Year One, a company issues 40,000 shares of $2 par value common stock for $23 per share in cash. The company also issues 10,000 shares of $40 par value preferred stock that pays an annual dividend of 10 percent. No dividend is paid in Year One but a total dividend of $100,000 is distributed in Year Two.
The Rostinaja Company is incorporated at the beginning of Year One. For convenience, assume that the company earns a reported net income of $130,000 each year and pays an annual cash dividend of $50,000. The company is authorized to issue 200,000 shares of $3 par value common stock. At the start of Year One, the company issues 40,000 shares of this common stock for $8 per share. At the end of Year Two, the company buys back 5,000 shares of its own stock for $12 per share. The cost method is used to record these shares. At the start of Year Three, the company reissues 1,000 of these shares for $14 per share. At the start of Year Four, the company reissues the remainder of the treasury stock for $9 per share.
Grayson Corporation is authorized by the state to sell 2 million shares of its $1 par value common stock to the public. Before Year Seven, the company had issued 60,000 shares for cash of $12 per share. During Year Seven, Grayson issued another 14,000 shares at the market value of $24 per share.
On January 1, Year Seven, Grayson reported retained earnings of $1,950,000. During that year, Grayson earned net income of $80,000 and paid cash dividends to common stockholders of $19,000. Also, during December of Year Seven, Grayson repurchased 11,000 shares of its own stock when the market price was $22 per share.
On December 28, Year One, the Pickins Corporation was formed. The articles of incorporation authorize 5 million shares of common stock carrying a $1 par value, and 1 million shares of $5 par value preferred stock. On January 1, Year Two, 2 million shares of common stock are issued for $15 per share. Also on January 1, 500,000 shares of preferred stock are issued at $30 per share.
On March 1, St. George Company declares a stock dividend on its $1 par value stock. The company had 1,000 shares outstanding on that date with a market value of $13 per share.
Rawlings Company has the following equity accounts at the beginning and end of Year Three:
|January 1, Year Three||December 31, Year Three|
|Preferred Stock, 6%, $100 par value||$2,000,000||$2,000,000|
|Common Stock, $1 Par Value||$160,000||$200,000|
|Capital in Excess of Par, Common||$12,000,000||$16,000,000|
The common stock account increased because 40,000 shares of common stock were issued to the public on September 1, Year Three. Preferred stock was paid its dividend during the year. A cash dividend was also distributed on the common stock. Net income for the year was $1,200,000.
Information on Massaff Corporation’s stock accounts follows:
|December 31, Year 7||December 31, Year 8|
|Outstanding shares of|
|Nonconvertible preferred stock||10,000||10,000|
The following additional information is available about this company:
Compute Massaff’s basic earnings per common share for the year ended December 31, Year 8.
Yesterday, the Neumann Corporation had 100,000 shares of common stock authorized, 60,000 shares issued, and 40,000 shares outstanding. The stock has a par value of $10 per share but was issued originally for $24 per share. The stock is currently selling on a stock exchange for $30 per share. Treasury stock was acquired for $25 per share. None of that stock has been reissued. It is recorded using the cost method.
Today, a stock dividend was issued. After that dividend was distributed, the Neumann Corporation reported a total for its Capital in Excess of Par Value account of $960,000. How many shares were issued in the stock dividend?
A company has 20,000 shares of common stock issued and outstanding. These shares have a par value of $10 per share but were issued for $17 per share. When the fair value of the shares hits $21 per share, the company declares and issues a 50 percent stock dividend. The company accidentally recorded these new shares as a small stock dividend (20 percent or less) when the issuance should have been reported as a large stock dividend. At the end of the year, the company reported total assets of $300,000, total retained earnings of $80,000, and total stockholders’ equity of $220,000.
In several past chapters, we have met Heather Miller, who started her own business, Sew Cool. The following are the financial statements for December.
Figure 16.20 Sew Cool Financial Statements
Based on the financial statements determine Sew Cool’s return on equity (ROE).
This problem will carry through several chapters, building in difficulty. It allows students to continually practice skills and knowledge learned in previous chapters.
In Chapter 15 "In a Set of Financial Statements, What Information Is Conveyed about Other Noncurrent Liabilities?", financial statements for March were prepared for Webworks. They are included here as a starting point for the required recording for April.
Here are Webworks financial statements as of March 31.
Figure 16.23 Webworks Financial Statements
The following events occur during April:
Webworks pays taxes of $372 in cash.
Record cost of goods sold.
Assume that you take a job as a summer employee for an investment advisory service. One of the partners for that firm is currently looking at the possibility of investing in Advanced Micro Devices Inc. The partner is aware that technology companies like AMD often issue a lot of stock options and other items that can be converted into shares of common stock. The partner is curious as to the potential impact such conversions might have on the company and the price of its stock. The partner asks you to look at the 2010 financial statements for AMD by following this path: