Complete
Exercises E11-15, E12-1, & E12-2. Complete Problem 11-6A.
Resources: Ch. 11 & 12 of
Financial Accounting
Complete Exercises E11-15,
E12-1, & E12-2. Complete Problem 11-6A.
Submit as a Microsoft® Excel®
or Word document.
E11-15 On October 31, the
stockholders’ equity section of Omar Company consists of common stock $600,000
and retained earnings $900,000. Omar is considering the following two courses
of action: (1) declaring a 5% stock dividend on the 60,000, $10 par value
shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par
value to $5 per share. The current market price is $14 per share.
Instructions
Prepare a tabular summary of
the effects of the alternative actions on the components of stockholders’ equity
and outstanding shares. Use the following column headings: Before Action, After
Stock Dividend, and After Stock Split.
E12-1 Max Weinberg is studying for an accounting test and has developed the following questions about investments.
1. What are three reasons why companies purchase investments in debt or stock securities?
2. Why would a corporation
have excess cash that it does not need for operations?
3. What is the typical
investment when investing cash for short periods of time?
4. What are the typical
investments when investing cash to generate earnings?
5. Why would a company invest
in securities that provide no current cash flows?
6. What is the typical stock
investment when investing cash for strategic reasons?
Instructions
Provide answers for Max.
E12-2 Foren Corporation had the following transactions pertaining to debt investments.
Jan. 1 Purchased 50 8%, $1,000
Choate Co. bonds for $50,000 cash plus brokerage fees of $900. Interest is
payable semiannually on July 1 and January 1.
July 1 Received semiannual
interest on Choate Co. bonds.
July 1 Sold 30 Choate Co.
bonds for $34,000 less $500 brokerage fees.
Instructions
(a) Journalize the
transactions.
(b) Prepare the adjusting
entry for the accrual of interest at December 31.
P11-6A Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative preferred stock and 2,000,000 shares of no-par common stock. The corporation assigned a $5 stated value to the common stock. At December 31, 2011, the ledger contained the following balances pertaining to stockholders’ equity.
Preferred Stock $ 240,000
Paid-in Capital in Excess of Par Value—Preferred 56,000
Common Stock 2,000,000
Paid-in Capital in Excess of Stated Value—Common 5,700,000
Treasury Stock—Common (1,000 shares) 22,000
Paid-in Capital from Treasury Stock 3,000
Retained Earnings 560,000
The preferred stock was issued for land having a fair market value of $296,000.All common stock issued was for cash. In November, 1,500 shares of common stock were purchased for the treasury at a per share cost of $22. In December, 500 shares of treasury stock were sold for $28 per share.
No dividends were declared in 2011.
Instructions
(a) Prepare the journal entries for the:
(1) Issuance of preferred stock for land.
(2) Issuance of common stock for cash.
(3) Purchase of common treasury stock for cash.
(4) Sale of treasury stock for cash.
(b) Prepare the stockholders’ equity section at December 31, 2011.
TUTORIAL PREVIEW
P11-6A Arnold Corporation has been authorized to issue 40,000 shares of $100 par value, 8%, noncumulative
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(a) Journal entries:
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1
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Land
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296,000
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Preferred Stock (2,400 x $100)
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240,000
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Paid in Capital in excess of par
value - Preferred stock
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56,000
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2
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Cash (2,000,000 + 5,700,000)
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7700000
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Common Stock (400,000 x $5)
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2000000
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