Accounting 220 Help Week 6- Chapter 12 & 14

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B-14.01

Following is a list describing various features of the corporate form of organization. Match each feature with an appropriate descriptive term, and note whether this feature is an advantage or disadvantage of the corporate entity.
	TERM	ADVANTAGE OR DISADVANTAGE
The ability of a company to raise capital by issuing shares to the public	Publicly Traded	Advantage
The ability of an existing shareholder to sell shares without corporate approval
The ability of the government to tax corporate earnings and dividends
Periodic regulatory filings
The ability of different individuals to pool resources
The inability of creditors to pursue individual shareholders
The life of the entity can exceed the life of the shareholders

TERMS:
Limited Liability
Double Taxation
Perpetual Existence
Transferability of Ownership
Mutual Ownership
Cost of Regulation
Publicly Traded

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B-14.01

Worksheet B-14.01


	TERM	ADVANTAGE OR DISADVANTAGE
The ability of a company to raise capital by issuing shares to the public	Publicly Traded	Advantage
The ability of an existing shareholder to sell shares without corporate approval
The ability of the government to tax corporate earnings and dividends
Periodic regulatory filings
The ability of many individuals to pool resources
The inability of creditors to pursue individual shareholders
The life of the entity can exceed the life of the shareholders

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B-14.01

B-14.02

Evaluate the following list, and decide if each described attribute more likely relates to a common stock or preferred stock issue.
	Common	Preferred

The stock is described as 6%, cumulative		✓
The stock includes voting rights
The stock is last in line in the event of liquidation
The stock is convertible
The stock ordinarily pays a fixed dividend
The stock may be subject to significant appreciation
The stock has a "call price"
The stock has a mandatory redemption date

B-14.02

Worksheet B-14.02


	Common	Preferred

The stock is described as 6%, cumulative		✓
The stock includes voting rights
The stock is last in line in the event of liquidation
The stock is convertible
The stock ordinarily pays a fixed dividend
The stock may be subject to significant appreciation
The stock has a "call price"
The stock has a mandatory redemption date

B-14.02

B-14.03

Prepare journal entries to record each of the following independent stock issue situations.

(a)		Sherri Hui Corporation issued 100,000 shares of $1 par value common stock. The issue price was $30 per share.

(b)		Ariana Corporation issued 50,000 shares of no par common stock for $10 per share.

(c)		Laser Golf issued 40,000 shares of $100 par value preferred stock. The issue price was $102 per share.

(d)		Charleston Industries issued 5,000 shares of $5 par value common stock for land with a fair value of $75,000.

B-14.03

Worksheet B-14.03


GENERAL JOURNAL
Date	Accounts	Debit	Credit
(a)


	To record issue of 100,000 shares of $1 par value common stock at $30 per share

(b)

	To record issue of 50,000 shares of no par value common stock at $10 per share

(c)


	To record issue of 40,000 shares of $100 par value preferred stock at $102 per share

(d)


	To record issue of 5,000 shares of $5 par value common stock for land with a fair value of $75,000

B-14.03

B-14.04

Krull Corporation presented the following selected information. The company has a calendar year end.
Before considering the effects of dividends, if any, Krull's net income for 20X7 was $2,500,000.
Before considering the effects of dividends, if any, Krull's net income for 20X8 was $3,000,000.
Krull declared $750,000 of dividends on November 15, 20X7. The date of record was January 15, 20X8. The dividends were paid on February 1, 20X8.
Stockholders' equity, at January 1, 20X7, was $5,000,000. No transactions impacted stockholders' equity throughout 20X7 and 20X8, other than the impact of earnings and dividends on retained earnings.

(a)		Prepare journal entries, if needed, to reflect the dividend declaration, the date of record, and the date of payment.

(b)		How much was net income for 20X7 and 20X8?

(c)		How much was total equity at the end of 20X7 and 20X8?

(d)		Is total "working capital" reduced on the date of declaration, date of record, and/or date of payment?

B-14.04

Worksheet B-14.04

(a)
	GENERAL JOURNAL
	Date	Accounts	Debit	Credit
	Declare
	Date


	Record
	Date


	Pay
	Date




(b)

(c)

B-14.04

B-14.05

Wiggins Corporation has 10,000,000 shares of $1 par value common stock outstanding. This stock was originally issued at $7 per share. The company also has 1,000,000 shares of $50, 4%, cumulative preferred stock outstanding. The preferred stock was originally issued at par. During 20X5, the company experienced a significant business interruption and was unable to pay any dividends. Prior to 20X5, the preferred shareholders had always received the expected dividend. During 20X6, the company returned to profitability, and paid $7,000,000 in dividends.

(a)		How much is the company's legal capital, additional paid-in capital, and total paid-in capital?

(b)		What accounting/disclosure is needed relating to the dividends in arrears on the preferred stock as of the end of 20X5 (i.e., should a liability be established)?

(c)		How would the 20X6 dividends be divided between common and preferred stock?

B-14.05

Worksheet B-14.05

(a)

(b)

(c)

B-14.05

B-14.06

Kenya Corporation had an equity structure that consisted of $1 par value common stock, $3,500,000; paid-in capital in excess of par, $17,500,000; and retained earnings, $22,700,000.
Transaction A Believing that its share price was depressed due to general market conditions, Kenya's board of directors authorized the reacquisition of 250,000 shares of common stock. These treasury shares were purchased at $10 per share.
Transaction B Subsequent to Transaction A, the stock price increased to $17 per share, and half of the treasury shares were sold in the open market.
Transaction C Subsequent to Transaction B, Kenya experienced business difficulties that necessitated it selling the remaining treasury shares to raise additional cash. The shares were sold for $6 per share.

(a)		Assuming that all 3,500,000 shares of Kenya were issued at the same time and at the same price per share, what was the original issue price? How does this compare to the price paid in Transaction A, and is it rational for a company to pay more to buy back shares than it originally received upon the initial issuance?

(b)		Prepare an appropriate journal entry to record Transaction A. Kenya records treasury shares at cost.

(c)		Prepare an appropriate journal entry for Transaction B.

(d)		Prepare an appropriate journal entry for Transaction C.

(e)		Is there any income statement impact from these transactions? What is the impact on total stockholders' equity from each of the three transactions?

B-14.06

Worksheet B-14.06

(a)

(b)(c)(d)
	GENERAL JOURNAL
	Date	Accounts	Debit	Credit
	A

		To record acquisition of 250,000 treasury shares at $10 per share

	B


		To record reissue of 125,000 treasury shares at $17 per share

	C


		To record reissue of 125,000 treasury shares at $6 per share



(e)

B-14.06

B-14.07

Magic Blade's stock has risen rapidly to $50 per share. The increase is due to excitement about its new knife that uses a light beam to slice fruits and vegetables. This process enhances the final appearance and quality of salads and fruit trays. The board of directors is considering strategies to divide the corporate ownership into more shares of stock, and bring about some reduction in the price per share. They are considering a stock split, small stock dividend, or large stock dividend. The board is unsure of the accounting effects of such transactions, and has requested information about how stockholders' equity would be impacted.
Prior to the contemplated stock transaction, equity consisted of:
	Common stock, $2 par, 2,000,000 shares authorized, 500,000 shares issued and outstanding	$ 1,000,000
	Paid-in capital in excess of par	2,000,000
	Retained earnings	6,000,000
	Total stockholders' equity	$ 9,000,000


(a)	Assuming the board were to declare a 2 for 1 split, how would the revised stockholders' equity appear?
(b)	Assuming the board were to declare a 15% stock dividend, how would the revised stockholders' equity appear?
(c)	Assuming the board were to declare a 50% stock dividend, how would the revised stockholders' equity appear?
(d)	Prepare journal entries that would be needed (if necessary) to record the proposed transactions from part (a), (b), and (c).

B-14.07

Worksheet B-14.07

(a)			(d)
	Common stock,	$ -		GENERAL JOURNAL
	Paid-in capital in excess of par	-		Date	Accounts	Debit	Credit
	Retained earnings	-		split
	Total stockholders' equity	$ -


(b)				small
	Common stock,	$ -
	Paid-in capital in excess of par	-
	Retained earnings	-
	Total stockholders' equity	$ -
				large

(c)
	Common stock,	$ -
	Paid-in capital in excess of par	-
	Retained earnings	-
	Total stockholders' equity	$ -

B-14.07

Sometimes, you will want to hold a cell reference constant in a formula that is to be copied over and over. When that is the case, use the "$" sign to hold the cell reference constant. For instance, if you want to subtract the value in C20 from various other values elsewhere in the spreadsheet (such as C5, C11, or C17), be sure to describe the cell reference as $C$20 (otherwise, when you copy the formula to a new cell, its cell reference will automatically change relative to its prior location).

B-14.07

B-14.08

Pasquali Corporation was incorporated on January 1, 20X4. The following equity-related transactions occurred during 20X4. Evaluate these activities and prepare a statement of stockholders' equity for the year ending December 31, 20X4.
	Issued 4,000,000 shares of $1 par value common stock at $3 per share.
	Declared and issued a 5% stock dividend (200,000 shares) at a time when the market value of the stock was $6 per share.
	Reacquired 15,000 treasury shares at $5 per share.
	Declared and paid cash dividends of $100,000.
	Reported net income for the full year of $1,500,000.

B-14.08

Worksheet B-14.08




	Common Stock, $1 Par	Paid-in Capital in Excess of Par	Retained Earnings	Treasury Stock	Total Stockholders' Equity
Balance on January 1	$ -	$ -	$ -	$ -	$ -
	-	-	-	-	-
	-	-	-	-	-
	-	-	-	-	-
	-	-	-	-	-
	-	-	-	-	-
Balance on December 31	$ -	$ -	$ -	$ -	$ -

B-14.08

I-14.03

Evaluate the following types of transactions, and identify the impact (increase (▲), decrease (▼), or no change (N/C)) on total equity, common or preferred stock, additional paid-in capital, treasury stock, and retained earnings. The first transaction type is done as an example.
	Total Equity	Common Stock/ Preferred Stock	Additional Paid-in Capital	Treasury Stock	Retained Earnings

Issue common stock at par	▲	▲	N/C	N/C	N/C
Issue common stock at > par
Issue preferred stock at par
Issue preferred stock at > par
Buy treasury stock (cost method)
Resell treasury stock > cost (cost method)
Resell treasury stock < cost (cost method)
Declare cash dividend
Pay previously declared cash dividend
Declare and issue large stock dividend
Declare and issue small stock dividend (fair value > par)
Declare and issue stock split

I-14.03

Worksheet I-14.03


	Total Equity	Common Stock/ Preferred Stock	Additional Paid-in Capital	Treasury Stock	Retained Earnings

Issue Common stock at par	▲	▲	N/C	N/C	N/C
Issue common stock at > par
Issue preferred stock at par
Issue preferred stock at > par
Buy treasury stock (cost method)
Resell treasury stock > cost (cost method)
Resell treasury stock < cost (cost method)
Declare cash dividend
Pay previously declared cash dividend
Declare and issue large stock dividend
Declare and issue small stock dividend (fair value > par)
Declare and issue stock split

I-14.03

I-14.04

Dry Dock Container Corporation began operations in early 20X5, when it issued 200,000 shares of $3 par value common stock for $10 per share. The following additional equity-related transactions occurred during 20X5.
Transaction A: Issued 50,000 shares of $100 par value, 6%, cumulative preferred at $102 per share.
Transaction B: Reacquired 10,000 common shares for treasury at $12 per share.
Transaction C: Declared the full cash dividend on the preferred and $0.10 per share on the outstanding common shares.
Transaction D: Paid the previously declared dividends.
Transaction E: Sold 10,000 treasury shares at $15 per share.
Transaction F: Declared and issued a 2% common stock dividend. The dividend occurred subsequent to the above described treasury stock transactions. The market value of the stock was $13 per share.
Transaction G: Reacquired 20,000 common shares for treasury at $11 per share.
Transaction H: Closed the annual net income of $800,000 from Income Summary to Retained Earnings.

(a)		Prepare journal entries for the above described transactions.

(b)		Prepare the 20X5 statement of stockholders' equity reflecting the above described transactions.

(c)		Prepare the stockholders' equity section of Dry Dock's balance sheet at December 31, 20X5.

I-14.04

Worksheet I-14.04

(a)
	GENERAL JOURNAL				Dry Dock Container Corporation Statement of Stockholders' Equity For the Year Ending December 31, 20X5
	Date	Accounts	Debit	Credit
		Cash	2,000,000			Preferred Stock, $100 Par	Common Stock, $3 Par	Paid-in Capital in Excess of Par - PS	Paid-in Capital in Excess of Par - CS	Retained Earnings	Treasury Stock	Total Stock- holders' Equity
		Common Stock		600,000	Balance - January 1	$ -	$ -	$ -	$ -	$ -	$ -	$ -
		Pd-in Cap in Excess of Par - CS		1,400,000	Issue common shares	-	-	-	-	-	-	-
		To record issuance of 200,000 shares of $3 par value common stock at $10 per share			Issue preferred shares	-	-	-	-	-	-	-
					Purchase treasury stock	-	-	-	-	-	-	-
	A				Cash dividends	-	-	-	-	-	-	-
					Reissue treasury stock	-	-	-	-	-	-	-
					Net income	-	-	-	-	-	-	-
					Stock dividend	-	-	-	-	-	-	-
					Balance on December 31	$ -	$ -	$ -	$ -	$ -	$ -	$ -
	B



	C



	D





	GENERAL JOURNAL
	Date	Accounts	Debit	Credit
	E




	F




	G



	H

I-14.04(a)

I-14.04