B EXERCISES. Instructions Prepare the journal entries to record the above transactions.

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1 B EXERCISES (L0 3) (L0 3) E15-1B (Recording the Issuances of Common Stock) During its first year of operations, Endevor Corporation had the following transactions pertaining to its common stock. Apr. 26 Issued 15,000 shares for cash at $4.50 per share. May 11 Issued 10,000 shares to attorneys in payment of a bill for $48,000 for services rendered in helping the company to incorporate. Aug. 1 Issued 20,000 shares for cash at $5 per share. Nov. 1 Issued 10,000 shares for cash at $7 per share. (a) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $1 per share. (b) Prepare the journal entries for these transactions, assuming that the common stock is no par with a stated value of $3 per share. E15-2B (Recording the Issuance of Common and Preferred Stock) National Gas Corporation was organized on June 1, It is authorized to issue 100,000 shares of 5%, $100 par value preferred stock, and 1,750,000 shares of no par common stock with a stated value of $1 per share. The following stock transactions were completed during the first year. June 15 Issued 165,000 shares of common stock for cash at $5 per share. June 30 Issued 25,000 shares of preferred stock for cash at $102 per share. Aug. 15 Issued 20,000 shares of common stock for a factory building. The asking price of the factory building was $150,000; the appraised value of the factory building was $140,000. Sept. 1 Issued 200,000 shares of common stock for cash at $7 per share. Oct. 1 Issued 5,000 shares of common stock to attorneys in payment of their bill of $40,000 for services rendered in helping the company organize. Oct. 15 Issued 25,000 shares of common stock for cash at $8.50 per share. Nov. 1 Issued 6,000 shares of preferred stock for cash at $104 per share. Prepare the journal entries to record the above transactions. (L0 3) (L0 3) (L0 4) E15-3B (Stock Issued for Land) Twenty thousand shares reacquired by Sierra Land Inc. for $153 per share were exchanged for land that has an appraised value of $3,600,000. At the time of the exchange the common stock was trading at $176 per share on an organized exchange. (a) Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock was originally recorded using the cost method. (b) Briefly identify the possible alternatives (including those that are totally unacceptable) for quantifying the cost of the land, and briefly support your choice. E15-4B (Lump-Sum Sale of Stock with Bonds) Zurg, Inc. is an SEC registrant, and its securities are thinly traded on NASDAQ (National Association of Securities Dealers Quotes). Zurg, Inc. issued 10,000 units. Each unit consists of a $1,000 par, 16% subordinated debenture and 5 shares of $5 par common stock. The investment banker has retained 500 units as the underwriting fee. The other 9,500 units were sold to outside investors for cash at $1,150 per unit. Prior to this sale the 2-week ask price of common stock was $25 per share. Sixteen percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value. (a) Prepare the journal entry to record the previous transaction, under the following conditions. (1) Employing the incremental method. (2) Employing the proportional method, assuming the recent price quotes on the common stock reflect fair value. (b) Briefly explain which method is, in your opinion, the better method. E15-5B (Lump-Sum Sales of Stock with Preferred Stock) Black Diamond Inc. issues 2,500 shares of $1 par value common stock and 1,000 shares of $50 par value preferred stock for a lump sum of $275,000. 1

2 2 Chapter 15 Stockholders Equity (L0 3, 4) (L0 4) (a) Prepare the journal entry for the issuance when the market value of the common shares is $95 each and market value of the preferred is $60 each. (b) Prepare the journal entry for the issuance when only the market value of the common stock is known and it is $90 per share. E15-6B (Stock Issuances and Repurchase) Overland Corporation is authorized to issue 250,000 shares of $1 par value common stock. During 2007, Overland Corporation took part in the following selected transactions. 1. Issued 55,000 shares of stock at $76 per share, less costs related to the issuance of the stock totaling $27, Issued 10,000 shares of stock for land appraised at $815,000. The stock was actively traded on a national stock exchange at approximately $78 per share on the date of issuance. 3. Purchased 6,000 shares of treasury stock at $74 per share. The treasury shares purchased were issued in 2003 at $46 per share. (a) Prepare the journal entry to record item 1. (b) Prepare the journal entry to record item 2. (c) Prepare the journal entry to record item 3 using the cost method. E15-7B (Effect of Treasury Stock Transactions on Financials) Regis One Company has outstanding 10,000 shares of $10 par common stock which had been issued at $42 per share. Regis One then entered into the following transactions. 1. Purchased 1,000 treasury shares at $45 per share. 2. Resold 100 of the treasury shares at $42 per share. 3. Resold 200 of the treasury shares at $47 per share. Use the following code to indicate the effect each of the three transactions has on the financial statement categories listed in the table below, assuming Regis One Company uses the cost method: I Increase; D Decrease; NE No effect. Stockholders Paid-in Retained Net # Assets Liabilities Equity Capital Earnings Income (L0 3, 10) (L0 3, 4) E15-8B (Preferred Stock Entries and Dividends) Jedren Corporation has 30,000 shares of $75 par value, 10%, preferred stock and 150,000 shares of $1 par value common stock outstanding at December 31, Answer the questions in each of the following independent situations. (a) If the preferred stock was issued at $83 per share, how should the preferred stock be reported in the stockholders equity section? (b) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2003, what are the dividends in arrears that should be reported on the December 31, 2007, balance sheet? How should these dividends be reported? (c) If the preferred stock is convertible into seven shares of $1 par value common stock and 2,000 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? E15-9B (Correcting Entries for Equity Transactions) Global Air Inc. recently hired a new accountant with limited real-world experience in corporate accounting. Prior to starting the new job, the accountant was very busy and was unable to review any texts on corporation accounting. During the first month, he made the following entries for the corporation s capital stock. Oct. 5 Cash 39,000 Capital Stock 1,000 Gain on Sale of Stock 38,000 (Issued 1,000 shares of $1 par value common stock at $39 per share)

3 B Exercises 3 12 Cash 330,000 Capital Stock 330,000 (Issued 3,000 shares of $100 par value preferred stock at $110 per share) 13 Capital Stock 20,000 Cash 20,000 (Purchased 500 shares of common stock for the treasury at $40 per share) 26 Cash 22,500 Capital Stock 500 Gain on Sale of Stock 22,000 (Sold 500 shares of treasury stock at $45 per share) On the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions. (L0 3, 4) E15-10B (Analysis of Equity Data and Equity Section Preparation) For a recent 2-year period, the balance sheet of Metal Pro Company showed the following stockholders equity data at December 31, in millions Additional paid-in capital $ 2,861 $ 2,685 Common stock par 1,538 1,512 Retained earnings 18,196 15,015 Treasury stock Total stockholders equity $22,195 $18,617 Common stock shares issued Common stock shares authorized 1,500 1,500 Treasury stock shares (a) Answer the following questions. (1) What is the par value of the common stock? (2) What is the cost per share of treasury stock at December 31, 2007, and at December 31, 2006? (b) Prepare the stockholders equity section at December 31, (L0 7, 8) E15-11B (Equity Items on the Balance Sheet) The following are selected transactions that may affect stockholders equity. 1. Paid the cash dividend declared in a prior year. 2. Recorded a retained earnings appropriation. 3. Recorded accrued interest earned on a note receivable from a major shareholder. 4. Purchased treasury stock. (The company uses the cost method.) 5. Recorded salary expense accrual for the owner. 6. Declared a cash dividend on preferred stock. 7. Declared and distributed a 5% stock dividend. 8. Issued common stock in exchange for land. In the table below, indicate the effect each of the eight transactions has on the financial statement elements listed. Use the following code: I Increase D Decrease NE No effect Stockholders Paid-in Retained Net Item Assets Liabilities Equity Capital Earnings Income

4 4 Chapter 15 Stockholders Equity (L0 7, 8) (L0 8) (L0 8) (L0 7, 8) (L0 6, 7, 8) E15-12B (Cash Dividend and Liquidating Dividend) Alpha Corporation has 25 million shares of common stock issued and outstanding. On August 31 the board of directors voted a $1.20 per share cash dividend to stockholders of record as of September 5, payable September 30. (a) Prepare the journal entry for each of the dates above assuming the dividend represents a distribution of earnings. (b) How would the entry differ if the dividend were a liquidating dividend? E15-13B (Stock Split and Stock Dividend) The common stock of Liberty Homes Inc. is currently selling at $88 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $4; book value is $36 per share. Fifteen million shares are issued and outstanding. Prepare the necessary journal entries assuming the following. (a) The board votes a 4-for-1 stock split. (b) The board votes a 300% stock dividend. (c) Briefly discuss the accounting and securities market differences between these two methods of increasing the number of shares outstanding. E15-14B (Stock Dividends and Stock Splits) The stockholders equity accounts of Palmetto Company have the following balances on December 31, Common stock, $1 par, 1,500,000 shares issued and outstanding $ 1,500,000 Paid-in capital in excess of par 6,900,000 Retained earnings 25,750,000 Shares of Palmetto Company stock are currently selling on the Philadelphia Stock Exchange at $17. Prepare the appropriate journal entries for each of the following cases. (a) A stock dividend of 200% is declared and issued. (b) A stock dividend of 10% is declared and issued. (c) A 3-for-1 stock split is declared and issued. E15-15B (Dividend Entries) The following data were taken from the balance sheet accounts of Symbol Two Corporation on June 30, Current assets $125,000 Investments 365,000 Common stock (par value $1) 70,000 Paid-in capital in excess of par 680,000 Retained earnings 963,000 Prepare the required journal entries for the following unrelated items. (a) The par value of the capital stock is reduced to $0.50 with a 2-for-1 stock split. (b) A 10% stock dividend is declared and distributed at a time when the market value of the shares is $25 per share. (c) A property dividend is declared September 12, 2007, and paid October 1, 2007, in common shares in another company held as an equity investment. The equity investment has a book value of $50,000 and a fair market value of $205,000. E15-16B (Computation of Retained Earnings) The following information has been taken from the accounting records Vista Free Corporation. Total net income since incorporation $466,000 Total cash dividends paid 260,000 Proceeds from sale of treasury stock 40,000 Total value of stock dividends distributed 2,000 Total purchases of treasury stock 35,000 Unamortized premium on bonds payable 32,000 Determine the current balance of retained earnings. (L0 9) E15-17B (Stockholders Equity Section) Capital Northeast Corporation s post-closing trial balance at December 31, 2007, was as follows.

5 B Exercises 5 CAPITAL NORTHEAST CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2007 Accounts payable $ 668,000 Accounts receivable $ 605,000 Accumulated depreciation equipment 450,000 Additional paid-in capital common In excess of par value 1,900,000 From sale of treasury stock 35,000 Allowance for doubtful accounts 20,000 Equipment 6,800,000 Cash 260,000 Common stock ($1 par value) 500,000 Dividends payable on common stock cash 50,000 Inventories 750,000 Investments 2,500,000 Preferred stock ($100 par value) 6,500,000 Prepaid insurance 65,000 Retained earnings 982,000 Treasury stock common at cost 125,000 Totals $11,105,000 $11,105,000 Dr. Cr. At December 31, 2007, Capital Northeast had the following number of common and preferred shares. Common Preferred Authorized 2,500,000 1,000,000 Issued 500,000 65,000 Outstanding 490,000 65,000 The dividends on preferred stock are 6% cumulative. In addition, the preferred stock has a preference in liquidation of $102 per share. Prepare the stockholders equity section of Capital Northeast s balance sheet at December 31, (AICPA adapted) (L0 4, 7, 8) E15-18B (Dividends and Stockholders Equity Section) Focus Foot Company reported the following amounts in the stockholders equity section of its December 31, 2006, balance sheet. Preferred stock, 12%, $100 par (100,000 shares authorized, 25,000 shares issued) $2,500,000 Common stock, $1 par (1,000,000 shares authorized, 300,000 shares issued) 300,000 Additional paid-in capital 950,000 Retained earnings 1,365,000 Total $5,115,000 During 2007, Focus Foot took part in the following transactions concerning stockholders equity. 1. Paid the annual 2006 dividend on preferred stock and a $0.50 per share dividend on common stock. These dividends had been declared on December 31, Purchased 1,000 shares of its own outstanding common stock for $8 per share. Focus Foot uses the cost method. 3. Reissued 1,000 treasury shares for land with an appraised value of $9,500. Focus Foot s common shares were trading for $8.50 per share. 4. Issued 50,000 shares of common stock at $9 per share. 5. Declared and recorded a 2:1 stock split on the outstanding common stock when the stock is selling for $10 per share. 6. Declared the annual 2007 dividend on preferred stock and the $0.50 per share dividend on common stock. These dividends are payable in (a) Prepare journal entries to record the transactions described above. (b) Prepare the December 31, 2007, stockholders equity section. Assume 2007 net income was $665,000.

6 6 Chapter 15 Stockholders Equity (L0 9) E15-19B (Comparison of Alternative Forms of Financing) Shown below is the liabilities and stockholders equity section of the balance sheet for Istar Company and Honey Dew Inc. Each has assets totaling $1,000,000. Istar Co. Honey Dew, Inc. Current liabilities $ 100,000 Current liabilities $ 100,000 Long-term debt, 10% 400,000 Common stock ($10 par) 200,000 Common stock ($10 par) 600,000 Retained earnings (Cash Retained earnings (Cash dividends, $48,000) 300,000 dividends, $60,000) 300,000 $1,000,000 $1,000,000 For the year, each company has earned the same income before interest and taxes. Istar Co. Honey Dew, Inc. Income before interest and taxes $200,000 $200,000 Interest expense 40, , ,000 Income taxes (40%) 64,000 80,000 Net income $ 96,000 $120,000 At year end, the market price of Istar s stock was $15 per share, and Honey Dew s was $11 per share. (L0 9) (a) Which company is more profitable in terms of return on total assets? (b) Which company is more profitable in terms of return on stockholders equity? (c) Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year. (d) From the point of view of net income, is it advantageous to the stockholders of Istar Co. to have the long-term debt outstanding? Why? (e) What is the book value per share for each company? E15-20B (Trading on the Equity Analysis) Presented below is information from the annual report of Todd Warner, Inc. Operating income $850,000 Bond interest expense 305, ,000 Income taxes 218,000 Net income $327,000 Bonds payable $3,000,000 Common stock $1,655,000 Retained earnings $856,000 Is Todd Warner, Inc. trading on the equity successfully? Explain. (L0 10) (L0 10) *E15-21B (Preferred Dividends) The outstanding capital stock of York Brands Corporation consists of 10,000 shares of $75 par value, 10% preferred, and 25,000 shares of $1 par value common. Assuming that the company has net income of $250,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the current year or the past year, state how much each class of stock should receive under each of the following conditions. (a) The preferred stock is noncumulative and fully participating. (b) The preferred stock is cumulative and nonparticipating. (c) The preferred stock is cumulative and fully participating. *E15-22B (Preferred Dividends) DHR Holding s accounting records show the following balances on December 31, % Preferred stock $100 par value, outstanding 20,000 shares $2,000,000 Common stock $1 par value, outstanding 50,000 shares 50,000 Retained earnings 1,650,000

7 B Exercises 7 (L0 10) Assuming that the directors decide to declare total dividends in the amount of $500,000, determine how much each class of stock should receive under each of the conditions stated below. One year s dividends are in arrears on the preferred stock. (a) The preferred stock is cumulative and fully participating. (b) (c) The preferrred stock is noncumulative and nonparticipating. The preferred stock is noncumulative and is participating in distributions in excess of a 12% dividend rate on the common stock. *E15-23B (Preferred Dividends) United Mobile Company has outstanding 20,000 shares of $100 par, 8% preferred stock and 250,000 shares of $1 par value common. The following schedule shows the amount of dividends paid out over the last 4 years. (a) Preferred, noncumulative, and nonparticipating Assumptions (b) Preferred, cumulative, and fully participating Year Paid-out Preferred Common Preferred Common 2004 $100, , , ,000 Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per share amounts using the format shown. (L0 10) *E15-24B (Computation of Book Value per Share) Kirk and Kirk, Ltd. began operations in July 2006 and reported the following results for each of its first 3 years of operations $20,000 net income 2007 $640,000 net loss 2008 $950,000 net income At December 31, 2008, Kirk and Kirk, Ltd. s capital accounts were as follows. 16% cumulative preferred stock, par value $100; authorized, issued, and outstanding 1,000 shares $100,000 Common stock, par value $1; authorized 10,000,000 shares; issued and outstanding 50,000 shares 50,000 Kirk and Kirk, Ltd. has never paid a cash or stock dividend. There has been no change in the capital accounts since Kirk and Kirk, Ltd. began operations. The state law permits dividends only from retained earnings. (a) Compute the book value of the common stock at December 31, (b) Compute the book value of the common stock at December 31, 2008, assuming that the preferred stock has a liquidating value of $103 per share.

B Exercises Instructions Prepare the journal entries to record the above transactions. (LO 3)

B Exercises Instructions Prepare the journal entries to record the above transactions. (LO 3) B Exercises E13-1B (Recording the Issuances of Common Stock) During its first year of operations, Endevor Corporation had the following transactions pertaining to its common stock. Apr. 26 Issued 15,000