Week 1
Problem 1:
During 2012, Margan Corporation had the following transactions and events.
Indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders equity. Present your answer in tabular form with the following columns. Use (I) for increase, (D) for decrease, and (NE) for no effect. Item no. 1 is given as an example in the worksheet.
1.
Declared a cash dividend.
2.
Issued par value commons stock for cash at par value.
3.
Completed a 2-for-1 stock split in which $10 par value stock was changed to $5 par value stock.
4.
Declared a small stock dividend when the market value was higher than par value.
5.
Made a prior period adjustment for overstatement of net income.
6.
Issued the shares of common stock required by the stock dividend declaration in item no. 4 above.
7.
Issued par value common stock for cash above par value.
Problem 2:
Beck Company reported the following balances at December 31, 2012: common stock $400,000; paid-in capital in excel of par value common stock $100,000; and retained earnings $250,000. During 2012, the following transactions affected stockholder s equity.
Prepare the stockholders equity section of Beck Company s December 31, 2012, balance sheet.
1.
Issued preferred stock with a par value of $125,000 for $200,000.
2.
Purchased treasury stock (common) for $40,000.
3.
Earned net income of $140,000.
4.
Declared and paid cash dividends of $56,000.
Week 2
Problem 1:
Bohlander Airlines is considering two alternatives for the financing of a purchase of a fleet of airplanes. These two alternatives are:
1.
Issue 60,000 shares of common stock at $45 per share. (Cash dividends have not been paid nor is the payment of any contemplated).
2.
Issue 10%, 10-year bonds at face value for $2,700,000.
It is estimated that the company will earn $800,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new financing.
Determine the effect on net income and earnings per share for these two methods of financing.
Problem 2:
On January 1, Camel Cove Company issued $5,000,000, 10%, 10-year bonds at face value. Interest is payable semiannually on July 1 and January 1.
Present journal entries to record the following.
1.
The issuance of the bonds
2.
The payment of interest on July 1, assuming that interest was not accrued on June 30.
3.
The accrual of interest on December 31.
Problem 3:
Diann Company had the following transactions pertaining to stock investments.
1.
Feb. 1 – Purchased 600 shares of Ronn common stock (2%) for $6,000 cash, plus brokerage fees of $200.
2.
July 1 – Received cash dividends of $1 per share on Ronn common stock.
3.
Sept. 1 – Sold 300 shares of Ronn common stock for $4,400, less brokerage fees of $100.
4.
Dec. 1 – Received cash dividends of $1 per share on Ronn common stock.
Journalize the transactions
Explain how dividend revenue and the gain (loss) on sale should be reported in the income statement.
Problem 4:
Spring Inc. had the following transactions pertaining to investments in common stock.
1.
Jan. 1 Purchased 2,500 shares of Angeltide Corporation common stock (5%) for $140,000 cash plus $2,100 broker s commission.
2.
July 1 Received a cash dividend of $3 per share.
3.
De. 1 Sold 500 shares of Angeltide Corporation common stock for $32,000 cash, less $800 broker s commission.
4.
Dec. 31 Received a cash dividend of $3 per share.