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Equity and Investments

Resources: Ch. 11 & 12 of Financial Accounting

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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.


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.

BE12-1 Coffey Corporation purchased debt investments for $52,000 on January 1, 2011. On July 1, 2011, Coffey received cash interest of $2,340. Journalize the purchase and the receipt of interest. Assume that no interest has been accrued.

BE12-2  On August 1,Wade Company buys 1,000 shares of Morgan common stock for $35,000 cash, plus brokerage fees of $700. On December 1,Wade sells the stock investments for $40,000 in cash. Journalize the purchase and sale of the common stock.

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.


(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.

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