Accounting 2

BCO123 Accounting II Task brief & rubrics

Task: Assignment 2 (33% of course grade)

You are asked to answer all the questions in the proposed three exercises.

This task assesses the following learning outcomes:

• Understand the authorization and issuance of capital stock

• Apply acquired knowledge and skills to prepare the equity section of a corporate balance sheet

• Examine the different characteristics of the unique features of preferred stocks and common stocks

LAUNCH: WEEK 3 Friday November 20th, 2020 / DELIVERY: WEEK 3 Sunday November 22nd, 2020, 23:59hrs ON MOODLE

Submission file format: Word document with all the answers, clearly identifying each exercise separately.

Exercise 1:

Shown below is information relating to the stockholders' equity of Silver Corporation at December 31, 2019:

8% preferred stock, €150 par, 10,000 shares authorized and 6,000 issued € 900,000

Common stock, €6.50 par, 500,000 shares authorized 400,000 shares issued and outstanding €2,600,000

Additional paid-in capital: preferred stock €132,000

Additional paid in capital: common stock €2,970,000

Retained earnings €1,551,000

(Assume there are no dividends in arrears)

Instructions:

Answer the following questions:

(a) What is the total legal capital? (5 points)

(b) What is the total amount of paid-in capital? (5 points) (c) What is the average issue price per share of preferred stock? (10 points)

(d) What is the book value per share of common stock? (10 points) (e) The balance in Retained Earnings at the beginning of the year was €1,237,500, and net income for 2019 was €1,600,500. What was the amount of dividend declared on each share of common stock during 2019? (15 points)

Exercise 2:

When Mega Corporation was incorporated in 2016, authorization was obtained to issue 200,000 shares of €5 par value common stock and 6,000 shares of 8%

cumulative preferred stock with a par value of €100.

All the preferred stock was issued at €107 per share, and 110,000 shares of the common stock were sold for €9 per share.

The operations of the company resulted in a net loss of €19,000 in 2016 and net income of €125,000 in 2017. In 2018, net income was €352,000, and the cash

position was sufficient to allow the board of directors to declare a cash dividend of €1 per share to the common shareholders, as well as satisfy all preferred stock

dividend requirements.

Instructions:

Complete in proper format the stockholders' equity section of Mega Corporation's balance sheet at December 31, 2018. (30 points)

Exercise 3:

Jackson Corporation engaged in the following treasury stock transactions during the current year:

June 11 Purchased 2,000 shares of treasury stock at €62 per share.

Aug. 10 Reissued 800 shares of the treasury stock acquired on June 11 at a price of €67 per share.

Dec. 11 Reissued 600 shares of treasury stock at a price of €60 per share.

Instructions:

Complete the following three general journal entries to record these treasury stock transactions. (25 points)

Date Account Titles and Explanation Debit Credit

Rubrics

Descriptor

9-10 The student demonstrates an excellent understanding of the concepts.

8-8.9 The student demonstrates a good understanding of the concepts.

7-7.9 The student demonstrates a fair understanding of the concepts.

6-6.9 The student demonstrates some, but insufficient understanding of the concepts.

3-5.9 The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.

1-2.9 The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.

0 The student leaves the question blank or cheats.

Points are stated at the end of each question.