Week 4 Assignments : NEEL this is for you if you are available

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E ES b. Preferred Stock.2012: $!iO.ooO c. Common Shares OutstandlO!l.

2013: 19.soo

Required a. How will CD<: Corporation's books be affected by the stock split? b. Determine the number of common shares outstanding and the par value after the split. c. Explain bow the marker value of the stock will be affected by the stock split.

Exercise 8-16 C",poTtlte /UIIIoulfcemetrls Super Drugs (one of the three largest drug makers) just reported that its 2012 third-quarter prof- its had increased substantially over its 2011 third-quarter profits. In addition to this announce- ment, the same day. Super Drugs also announced that the Food and Drug Administration had just denied approval of a new drug used to treat high blood pressure that Super Drugs developed. The FDA was concerned about potential side effects of the drug.

R'quired Using the above information. answer the following questions.

a. What do you think will happen to the stock price of Super Drugs on the day these two announcements are made? Explain your answer.

b. How will the balance sheet be affected on that day by the above announcemeats? c. How will the income statement be affected on that day by the above announcements? d. How will the statement of cash flows be affected on that day by the above announcements?

PROBLEMS

All applicable Problems are available with McGraw-HiII's Connect Accounting.

Problem 1-17 Effect of bll$UreJ$ structsre on finQncUz[ statemetrls Calloway Company was started on January 1,2012. when the owners invested S40,OOOeash in the business. During 2012, the company earned cash revenues of S18,OOOand incurred eash ex- penses of 512,500. The company also paid cash distributions of S3,OOO.

Reqlired Prepare the 2012 income statement, capital statement (statement of changes in equity), balance sheet, and statement of cash flows using eaeh of tbe following assumptions. (Consider each as- sumption separately)

a. Calloway is a sole proprietorship owned by ~acy Calloway. b. Calloway is a partnership with two partners, Macy Calloway and Artie Calloway. Mac)'

CaIJo\\"Qyinvested S25,OOOand Artie Callo .••.ay invested SI5,OOOof the S40,OOOcash that was used to start the business. A. Calloway was expected to assume the vast majority of the responsibility for operating the business. The partnership agreement called for A.. Calloway to receive 60 percent of the profits and M. Calloway to get the remaining 40 percent. With regard to the 53,000 distribution, A. Calloway withdrew SI,200 from the business and M. Calloway withdrew 51,800.

c, Ca1JO\\"Qyis a corporation. It issued 5,000 shares of 55 par common stock for $40,000 cash to start the business.

Problem 1-18 Recording lUId reporting stock transactions tUJd ClISh di"';dends across moo IU:cormtUtg cydes

Davis Corporation was authorized to issue 100,000 shares of $10 par common stock and 50,000 shares of SSOpar, 6 percent, cumulative preferred stock. Davis Corporation completed the fol- lowing transactions during its first twO years of operation.

21112 Jan. 2 Issued 5,000 shares of Sto par common stock for 528 per share.

15 Issued 1,000 shares of S50 par preferred stock for S70 per share.

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Survey of Accounting. Third Edition 31

Feb. 14 Dec. 31

Pl"oprietorsh"s, Par.ner.;hi05, "00 Corooratio 5 313

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Issued 15,000 shares of SID par common stock for S30 pet share. During the year, earned SliO,Ooo of cash service revenue and paid S 110,000 of cash operating expenses. Declared the cash dividend 00 outstanding shares of preferred stock for 2012. The dividend will be paid 011 January 31 to stockholders of record on January 15,2013.

2013 Jan. 31 Mar. I June I Dec. 31

Paid the cash dividend declared on December 31, 2012. Issued 2,000 shares of S50 par preferred stock for S58 per share. Purchased SOO shares of common stock as treasury stock at 543 per share. During the year, earned S210,000 of cash service revenue and paid S175,000 of cash operating expenses. Declared the dividend 00 the preferred stock and a $0.60 per share dividend 00 the common stock.

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Requi~d a. Organize the transaction data in accounts under an accounting equation. b. Prepare the stockholders' equity section of the balance sheet at December 31, 2012. c. Prepare the balance sheet at December 31, 2013.

Probl m 8-19 RecorcJiJfg IUUIreporting tretUlITY stock trruulldwm Midwest Corp. completed the following transactions in 2012, the first year of operation.

1. Issued 20,000 shares of S10 par common stock at par. 2. Issued 2,000 shares of S30 Stated value preferred stock at S32 per share. 3. Purchased 500 shares of common stock as treasury stock for SI5 per share. 4. Declared a 5 percent dividend on preferred stock. S. Sold 300 shares of treasury stock for SI8 per share. 6. Paid the cash dividend 00 preferred stock that was declared in Event 4. 7, Earned cash service revenue of S7S,000 and incurred cash operating expenses of S42,000. 8. Appropriated. S6,000 of retained. earnings.

Requi~d a. Organize tile transaction in accounts under an accounting equation. b.Prepare the stockholders' equity section of the balance sheet as of December 31, 2012.

Problem 8-20 Recording and reporting treasury stock transactions Boley Corporation reports the following information in its January I, 2012, balance sheet:

Stockholders' equity Common stock. $tO par value,

50.000 shares authorized, 30,000 shares Issued and outstamling Pald-in capital In excess of par value

Retainad earnlnlls Total stockholders' equity

5300,000 150,000

jOO,OOO 8550,000

During 2012. Boley was affected by the following accounting events.

1. Purchased 1,000 shares of treasury stock at SI8 per share. 2. Reissued 600 shares of treasury stock at 520 per share. 3, Earned S64 000 of cash service revenues, 4. Paid S38,OOO of cash operating expenses.

Requi~d

Prepare the stockholders' equity section of the year-end balance sheet.

LO5, 6, B

JC CHE b. Total Paid-In Capital: S264,Dl

L05

CHECKAG~RES Total Paid·ln Capital: 5451.200 Total Stock·hofders'equity: SSlO,OOO

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Survey of Accounting. Third Edition 31

Problem 8-23 Diffenm fomu of ~~ O'KtUrizIztitm Shawn Bates was worki.ng to establish a business enterprise ••••ith four of his wealthy friends, Each of the five individuals would reoei",: a W peta:Dt ownership interest in the company. A primary goal of establishing the enterprise ",-as to miniI::!.i.zethe amount of income taxes paid. Assume that thefive investors an: taaed at the rate of Isy. on cfuidend income and 30% on all other in- come and that the corporate taX me is 30 percent. Also assume that the new company is ex- pected to earn S40Q,OOOof cash incooe before taxes during its ru-st year of operation. All earnings are expected to be ;mmerliarely Cisuibu~ to the owners.

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available to each investor if the business is estab- 'rite iI t=o~.lai.ning the advantages and disad-

orsalli.wion. ExpWn why a limited liability company pat'llllenbiip or a oorporation..

Probl 8-24 Effutt ef .itylNllSIIA=DDIU 011jiatuJt:Ud ~tJIUnrDJIl The foUowing ~ ;-eree••peneo:lld b) !:bot J.nc.:

1. Issued aun:ulali-~ prefernrl lOr 2. Issued rommoo StOCk 3. Di.mibuted a AIX'- 4. Issued ooocu;ou1am~ P<'~I 5. Appropriated rtWned 6. Sold treasury stod: for 7. DistnDuted a ock di\' . 8. Paid cash to purctwe treuury 9. DecIa.red a cash div end-

10. Paid the cash cfu'idend declared in E,= 9.

core than the cost of the treasury stock.

Requirwd Show the effect of each evem on the ekmenu of the fmancial statmICnU using a horizontal state- ments modd fu the follo...ing ooe, Use T Of in=ase. - for decrease, and , 'A lOC DOl: affected. In the Cash Flow column, indicate whether the itecl is an operating iJCti.,~ (OA), in\-esting acti~i:ty CIA),or rmancingactivity{FA). The first transaction is entered as an ~

Event No. Asse1S U8b. + Equity Rev.

NA NA + FA

ANALVZE, THINK, COMMUNICATE

Use the 1 's annual report in Appendix B 10 answer tbe following questions, --Required ., What is the par value per share of Target's srock? II. How many shares of Target's common stock were outstanding as of January 31, 2010? c. Target's annual report provides some details about the company's executive officers. How

many are identified? What is their minimum, maximum, and average age? How many are females?

d. Target's balance sheet does not show a balance for treasury stock. Does this mean the com- pany has not repurchased any of its o.•••.n stock? Explain.