accounting

Week 2 Homework

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Following is the stockholders' equity section of the balance sheet of Get Corporation:

Paid-in capital:

Preferred stock, $100 par value, 80,000 authorized,

40,000 issued $ 4,000,000

Paid-in capital in excess of par value-preferred 200,000

Common stock, $5 par value, 3,000,000 authorized,

1,500,000 shares issued 7,500,000

Paid-in capital in excess of par value-common 500,000

Total paid-in capital $12,200,000

Retained earnings 4,800,000

Total stockholders' equity $17,000,000

1) The entry to record Harry's Company purchase of 15,000 shares of its common stock at $12.50 per share includes a:

A) credit to Common Stock for $75,000

B) debit to Treasury Stock for $187,500

C) credit to Paid-in Capital in Excess of Par Value-Common for $112,500

D) debit to Retained Earnings for $75,000

2) The entry to record the sale of 8,000 shares of treasury stock that cost $12.50 per share for $13 per share includes a:

A) credit to Common Stock for $40,000

B) debit to Retained Earnings for $104,000

C) debit to Treasury Stock for $96,000

D) credit to Paid-in Capital from Treasury Stock Transactions for $4,000

3) The Lotto Corporation has 10,000 shares of 10%, $100 par value, cumulative preferred stock outstanding and 50,000 shares of $5 par value common stock outstanding. As of the beginning of this fiscal year, there were 2 years' dividends in arrears on the preferred stock. The board of directors wants to give the common stockholders a $1.50 dividend per share at the end of this fiscal year. The total dividends to be paid to preferred shareholders was:

A) $100,000 B) $375,000 C) $200,000 D) $300,000

4) Blue Corporation reported net income for the current year of $460,000. Blue Corporation had 10,000 shares of $100 par value, 10% preferred stock outstanding and 50,000 shares of $10 par value common stock outstanding for the entire year. Earnings per share was:

A) $6.67 B) $6.00 C) $8.00 D) $7.20

5) Red Corporation issued 20,000 shares of its $1 par value common stock as a stock dividend when the shares were selling for $20 per share. At the time of the dividend, Red had 400,000 shares of common stock outstanding. These shares were originally issued for $10 per share. The entry to record the stock dividend includes a debit to Retained Earnings for:

A) $200,000 B) $400,000 C) $20,000 D) $0

ESSAY. Write your answer in the space provided.

6) On January 1, 2007, Orange Company had 375,000 shares of $1 par value common stock outstanding and 30,000 shares of 4%, $100 par value preferred stock outstanding. On June 1, 2007, Orange Company sold 60,000 shares of common stock for $34 per share. On September 30, 2007, Orange Company reacquired 15,000 shares of treasury common stock for $33 per share.

For EPS purposes, calculate the average number of shares outstanding for 2007.

7) Duah Inc. reported $9,500,000 in net income for the current year. The company had $5,000,000 of 7% cumulative, preferred stock outstanding all year, along with, $10,000,000 of 6% bonds. Each bond had 4 detachable stock warrants and each warrant allowed the warrant holders to buy a share of stock for $60. The average share price for the year was $80. Common shares outstanding at the beginning of the year was 4,000,000, but on June 15, the company declared a 10% stock dividend. Compute both basic and diluted EPS when the tax rate is 40%.

Instructions: Write the EPS formula. Show all computations used in your solution.