Question 1.) Complete each of the following statements with one of the terms listed here.
a. The right to maintain one's proportionate ownership in the corporation is the right of Preemption
b. The right to receive a proportionate share of any assets remaining after the corporation goes out
of business, sells its assets, and pays off its liabilities is the right of liquidation
c. The stockholders' ownership interest in the assets of the corporation is called stockholders' equity
d. Limited liability is the legal concept that means stockholders can lose no more than the cost of their
investment in the company
e. The authorization from the state to issue a certain number of shares of stock is granted through
the corporation's charter
f. The arbitrary amount assigned to each share of stock when it is originally authorized is its Par Value.
g. Preferred stock is a hybrid form of capital stock resembling both equity and debt that pays a fixed
dividend.
h. Common stock is the basic form of Capital Stock.
i. The Board of Directors is elected by stock holders
j. The business entity formed under state law that has a separate legal identity from its owners is a
Corporation
k. The total of the par value of all of the shares issued is the corporation's legal capital.
l. Retained earnings represents the amount of stockholders' equity that the corporation has earned through
profitable operations less any dividends declared.
Question 2.) Barrett Software had the following selected account balances at December 31, 2021 (all numbers and
amounts are in thousands, except par value per share):
Data Table
Paid-in capital in
excess of par
$ 901,000 Total revenues $1,620,000
Inventory 652,000 Notes payable 1,300,000
Common stock,
$2.50 par 800
shares authorized,
340 issued
850 Retained earnings 2,250,000
Property, plant
,and equipment
net
903,000 Accounts receivable,
net
1,000,000
Treasury Stock,
120 shares at cost
1,800,000 Accumulated other
comprehensive income
(loss)
(720,000)
Balance Sheet (Partial)
Stockholders’ Equity
Common stock, $ 2.50 Par, 800 shares authorized
340 shares issue
d
an
d
190 shares outstanding 850
Paid in capital in excess of par 901
Total paid-in
capital
1751
Retained earnings 2250
Treasury Stock (1800)
Accumulated Other comprehensive income (loss) (720)
Total stockholders’ equity 1481
Requirement 2. How can Barrett have a larger balance of treasury stock than the sum of
Common Stock and Paid-in Capital in Excess of Par?
The balance of the treasury account will always exceed the sum of the common stock
and paid-in capital in excess of par accounts. Otherwise, companies would never purchase
treasury shares.
a
Barret paid a higher price to acquire treasury stock than the price Barrett received when it
issued its stock
b
The market price per share of Barrett's stock has gone down since the stock was initially
sold.
c
Barrett paid a lower price to acquire treasury stock than the price Barrett
received when it issued its stock.
d
Requirement 1. Journalize
Atlantic's
transactions in b, c, d, and e. Explanations are not required. (Enter amounts in millions as provided to you
in the problem statement. Record debits first, then credits. Exclude explanations from any journal entries.)
b. Issuance of
4
million shares of common stock for
$14.00
per share.
Journal Entry
Date Accounts Debit Credit
b. Cash 56
Common Stock 12
Paid-in Capital in Excess of Par—Common 44
Part 2
c. Purchase of
5
million shares of treasury stock for
$60
million.
Journal Entry
Date Accounts Debit Credit
c. Treasury Stock 60
Cash 60
Part 3
d. Sold
2
million of the treasury shares purchased in part c for
$28
million
Journal Entry
Date Accounts Debit Credit
d. Cash 28
Paid-in Capital from Treasury Stock 4
Treasury Stock 24
Part 4
e 1. Declaration and payment of cash dividends of
$32
million.
Journalize the declaration of the dividend only. You will prepare the journal entry for the payment of the
dividend next.
Journal Entry
Date Accounts Debit Credit
e 1. Retained Earnings 32
Dividends Payable 32
Part 5
e 2. Declaration and payment of cash dividends of
$32
million.
Now journalize the payment of the cash dividends.
Journal Entry
Date Accounts Debit Credit
e 2. Dividends Payable 32
Cash 32
Part 6
Requirement 2. What was the overall effect of these transactions (parts a through e) on
Atlantic's
stockholders' equity? (Enter a net decrease with a minus sign or parentheses.)
The overall net increase (decrease) on stockholders' equity, in
millions, is $432
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