ACC291 Week 4 Do it 11-1 E11-15 E11-16 P11-6A P11-8A

ACC291 Week 4 Do it 11-1 E11-15 E11-16 P11-6A P11-8A 

• Exercise Do It! 11-1
• Exercise E11-15
• Exercise E11-16
• Problem P11-6A
• Problem P11-8A

Do It!11-1 Indicate whether each of the following statements is true or false.
_____ 1. The corporation is an entity separate and distinct from its owners.
_____ 2. The liability of stockholders is normally limited to their investment in the corporation.
_____ 3. The relative lack of government regulation is an advantage of the corporate form of
business.
_____ 4. There is no journal entry to record the authorization of capital stock.
_____ 5. No-par value stock is quite rare today

E11-15 On October 31, the stockholders’ equity section of Omar Company consists of common stock $600,000 and retained earnings $900,000. Omar is considering the following two courses of action: (1) declaring a 5% stock dividend on the 60,000, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share.

Instructions

Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity and outstanding shares. Use the following column headings: Before Action, After Stock Dividend, and After Stock Split.

E11-6 AI Corporation issued 100,000 shares of $20 par value, cumulative, 8% preferred stock on January 1, 2009, for $2,100,000. In December 2011, AI declared its first dividend of $500,000.

Instructions

(a) Prepare AI’s journal entry to record the issuance of the preferred stock.

(b) If the preferred stock is not cumulative, how much of the $500,000 would be paid to common stockholders?

(c) If the preferred stock is cumulative, how much of the $500,000 would be paid to common stockholders?

P11-6A Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%,
Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative preferred stock and 2,000,000 shares of no-par common stock. The corporation assigned a $5 stated value to the common stock. At December 31, 2011, the ledger contained the following balances pertaining to stockholders' equity.

Preferred Stock $240,000

 Paid-in Capital in Excess of Par Value-Preferred 56,000

Common Stock 2,000,000 Paid-in Capital in Excess of Stated Value-Common 5,700,000 Treasury Stock-Common (1,000 shares) 22,000 Paid-in Capital from Treasury Stock 3,000 Retained Earnings 560,000 The preferred stock was issued for land having a fair market value of $296,000. All common stock issued was for cash. In November, 1,500 shares of common stock were purchased for the treasury at a per share cost of $22. In December, 500 shares of treasury stock were sold for $28 per share. No dividends were declared in 2011.

*P11-8A The following stockholders’ equity accounts arranged alphabetically are in the ledger of McGrath Corporation at December 31, 2011.

Common Stock ($10 stated value) $1,500,000

Paid-in Capital from Treasury Stock 6,000

Paid-in Capital in Excess of Stated Value—Common Stock 690,000

Paid-in Capital in Excess of Par Value—Preferred Stock 288,400

Preferred Stock (8%, $100 par, noncumulative) 400,000

Retained Earnings 776,000

Treasury Stock—Common (8,000 shares) 88,000 

Instructions

(a) Prepare a stockholders’ equity section at December 31, 2011.

(b) Compute the book value per share of the common stock, assuming the preferred stock has a call price of $110 per share.